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Rivalry and excludability

October 21, 2011

Two important concepts when we are thinking about classifying goods as private or public goods are the concepts of rivalry and excludability.

A good is rivalrous if one person consuming it ‘uses it up’, meaning someone else cannot consume it. If you fill your car with petrol and then use it up, nobody else can use that petrol. If you eat a sandwich nobody else can eat it. Those are rivalrous goods. However if you create a beautiful painting that people enjoy looking at, the painting is not rivalrous as it doesn’t matter how many people look at it, you aren’t ‘using it up’.

A good is excludable if you can prevent somebody from using it. If you need a ticket to go into the cinema then it’s excludable. Street lighting is not excludable though because anybody walking down the street at night benefits from it, you can’t make the light shine on some users and not on others.

These concepts allow us to classify goods into certain categories:

Private goods are rivalrous and excludable, although sometimes the government provides publicly provided private goods (eg housing).

Open access common property is rivalrous and non-excludable, an example of this would be fish in the ocean, it’s difficult to stop people from coming in and fishing, but when they catch fish there will be less for everybody else

Public goods are non-rivalrous, clean air is a public good, so is national defence or street lighting. Usually you will see the definition that public goods are non-rivalrous and non-excludable, but there are some public goods like cable TV or club goods such as concerts and swimming pools that are non-rivalrous but it is feasible to exclude users.

Some public goods are impure public goods – they are not directly rivalrous, but when too many people use them, congestion becomes a problem (roads would be a good example here). The congestion means that people are effectively excluded from them when the roads are blocked.

A non-excludable public good is effectively a positive externality (or a public bad is a negative externality). If you clean up the environment then you can’t prevent other people from enjoying the cleaner environment – this is a non-excludable public good and a positive externality. Excluding anyone from consuming a public good would be inefficient.

Non-excludability causes another problem – the problem of free riding. If you can’t exclude somebody from using the good, then if one person privately provides the good, everybody else enjoys the same benefit but doesn’t have to share in the cost. So this incentivises people to not pay for provision of the public good in the hope that others will do so.

This is especially a problem in the context of revealed preferences. If you would be interested in having a public good provided, but think that somebody else is equally or maybe even more interested in it, you have an incentive to understate the extent to which you want it, so that they think you won’t pay for it and that if they want it they will have to pay for it themselves. That way you can free ride off the public good being paid for by someone else. But if everyone free rides, nobody provides the good.

Markets for public goods will only exist if non purchasers can be excluded, there are no markets for non-excludable public goods so usually if government does not provide it then nobody will. National defence is an example of a non-excludable public good. However health and education are not entirely public goods in the same way as there is an element of rivalry to them – if you are receiving some drugs in treatment for an illness then you are using them up, no other consumer can use them at the same time.

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