Public goods
Public goods are reported to have two distinct aspects: "nonexcludability" means that it is hard to exclude people of consumption of a good (the "free rider problem"); everyone will try to "free ride" by allowing others to pay for it and as a result the good will be unproduced, even if there is a strong demand for it. The second characteristic (considered by some less important) is "nonrivalrous consumption", when the good can be consumed without diminishing anyone else's enjoyment of it or increasing its cost. Because these goods will not be produced in a sufficient amount, or at all, they should be produced by the government.
There are numerous examples of public goods of varying acceptance, possibly the most widespread is national defense. "To the extent one person in a geographic area is defended from foreign attack or invasion, other people in that same area are likely defended also. This makes it hard to charge people for defense, which means that defense faces the classic free-rider problem. Indeed, almost all economists are convinced that the only way to provide a sufficient level of defense is to have government do it and fund defense with taxes."[1]
Arguments against
There are several arguments against the public goods theory:
- there is no way of knowing what is the "optimal" amount of the good produced
- many other goods can be to some degree considered public with the imprecise definition
- the presence of the state changes the incentive structure. Companies may declare their product for a public good to receive taxpayer funding.[2]
- many of the 'public goods' are successfully produced in the private sector
- the theory does not at all prove that the government should produce these goods
- many of the goods government actually does produce do not correspond to the economist's definition of public goods, so the theory poorly explains the government's actual role in the economy[3]
References
- ↑ Tyler Cowen. "Public Goods", The Concise Encyclopedia of Economics, referenced 2009-05-22.
- ↑ Art Carden. "A Few Notes on Public Goods", Mises Institute Blog, posted 2004-04-13, referenced 2009-05-22.
- ↑ Randall G. Holcombe. "A Theory of the Theory of Public Goods", Review of Austrian Economics 10, No. 1 (1997), Mises Institute, referenced 2009-05-22.
External links
- A Theory of the Theory of Public Goods, Randall G. Holcombe.
- Fallacies of the Public Goods Theory and the Production of Security by Hans-Hermann Hoppe
- the Wikipedia page on public good theory
- the Econlib page on the same