At this point in the course, I need to present a few of economic goods attributes that we haven’t discussed yet. These two characteristics are known as “rivalry” and “excludability.”
The term “availability” relates to how many people can benefit from a product. A good is called a “rival” good if it can only be used by one person or group of people at a time, and that person’s use prevents another person from using it. So, a Big Mac is plainly a rival good – you won’t be able to eat it if I do. Cable television, on the other hand, is a non-rival good. One person’s use of cable television does not preclude another from doing so. A cinema ticket could be a competing or non-competing good. If 100 tickets have been sold to view a film in a 500-seat theater, the 101st ticket is not a competing good because its consumption does not prevent anybody else from seeing the film. If the theater owner has sold 499 tickets, however, the 500th and last ticket will be a rival good.
The capacity to prevent someone from eating an item if they have not paid for it is referred to as “excludability.” Even if we assume that theft does not occur, it is clear that preventing people from eating Big Macs if they have not paid for them is simple. Other things, on the other hand, can be challenging. Every year on July 4th, I used to sit in the local Wal-Mart parking lot and watch the beautiful fireworks display put on by Longwood Gardens in Kennett Square, Pennsylvania. I would have to pay $30 or more to go inside Longwood Gardens to view the fireworks, but I can see them for free just sitting outside the grounds.
So there are two things to consider: rivalry and excludability. We can make a little 2 by 2 table to observe what happens when these properties collide:
Because we have two variables and each of these two variables has two states, we have a total of 2 x 2 = 4 possible outcomes, as shown in Table 8.1.
“Private goods” is a quadrant that refers to rival and excludable goods. This quadrant contains the great bulk of economic items and does not pose any significant challenges. We can presume that property rights are well-defined and operative because they are excludable.
The club good, the second form of excludable benefit, refers to a situation in which property rights allow non-payers to be excluded. Movie theaters, golf and country clubs, cable television, and other similar establishments fall within this category. These, once again, do not pose any substantial economic concerns.
We run into some intriguing complications when we get to the second row of the table. A good is considered a public good if it is both non-rival and non-excludable. This is a good from which it is impossible to remove those who do not pay but do not prevent others from using it. City streets are often public goods: while I lived in State College, I could drive directly from my apartment to college without paying to use the roads. Of course, there’s the matter of parking, but let’s not get into that right now…:-)
Market failure can be conceived of as a form of public goods. Individual economic actors have incentives to underpay, a problem known as the “free-rider” dilemma. People are not required to pay the market-clearing price, which would be determined by “marginal cost = marginal benefit,” hence the price paid is frequently lower than the costs of supply.
As a result, there is a supply shortfall. Users gain a lot of value from using the public good, but no one can profit from supplying it, therefore there is no market-based, self-interested incentive for the person or group of people who provide it.
As an example, assume Americans are required to pay for national defense by voluntary contributions to the Department of Defense. Because I am not exempt from the benefits of national defense, I have an incentive to not participate “While still being protected, you can “give” any amount of money. No one will pay freely because you (and everyone else) face the same incentives. So, if things continue as they are, the Pentagon will have to protect us with fictitious weapons (and fictitious soldiers)!
Because of the free rider dilemma, people will pay less than what the commodity is genuinely worth to them, there will be less supply than the socially optimal quantity for all public goods. The good is provided by a central entity that has the power to compel payment (i.e., the government). This is widely regarded as a desirable conclusion since it ensures that the appropriate amount of a public good is provided – assuming the government can determine the optimal quantity of a public good. When we introduce the concept of government failure in the following lesson, we’ll go over this in further detail.
Of course, with an election on the horizon, a heated argument has erupted over “how much” of a plethora of public goods should be provided, but that is a political matter that is outside the scope of this course.
In the issue at hand, the government has seized ownership of the public goods.
Now we’ll look at the common pool, also known as “common property resources,” which is the last of the four quadrants in the table above.
1) Property Rights That Aren’t Exclusive
2) No Charge
3) First-come, first-served rationing of the common pool good, as opposed to the conventional form of rationing in a market: price rationing.
Exploitation – or overuse – is frequently the outcome of these features. A difficulty with a common pool is that no one who uses it has an incentive to consume less today and save some for tomorrow. If you choose to put off eating a good until tomorrow, someone else will come in and eat it now. As a result, it’s in your best advantage to eat more today. When a large number of people operate in this manner, the common pool will quickly become depleted. Here are a few examples:
Let’s look at a specific subject that has recently sparked a lot of debate: the concept of overfishing. The fundamental issue is that wild fish are not owned (have non-exclusive property rights) until they are captured, at which point they are dead and so unable to reproduce. The fact that many fish live and are captured in “international seas,” which are normally any oceans more than 12 miles from any nation’s coast, complicates a lot of fishing.
It is conceivable for people to consume a specific amount of fish in a given year if a certain population of fish exists, and the fish in the ocean will breed and reproduce, allowing the quantity of fish in the ocean to remain more or less constant. However, if we catch too many fish today, the remaining population in the sea will be unable to reproduce enough offspring to replace the stock, and the total number of fish in the sea would decrease over time. It will eventually become extinct. Clearly, humanity as a whole has an incentive to not overfish today in order to ensure that there will be enough fish in the sea for us to eat for the rest of our lives. Unfortunately, very few people confront the same incentive in their personal lives. Because I do not have any property rights to fish in the wild, catching more fish today equals more profit today, and if I catch less fish today, someone from another ship will most likely come along and catch any fish that I am trying to “conserve.”
What are our options for resolving this issue? The most popular solution is to give the pool property rights. When someone owns a pool, they have a financial incentive to save some of it for the future. This is why cows aren’t in danger of extinction: they’re all owned by someone. Elephants in Africa were on the verge of extinction because no one owned them and they were being hunted for ivory. Elephants have been converted to private property in southern Africa, and the population is growing. The Indian elephant has never been in danger of extinction since elephants in India are used as working animals and are owned by humans.
Returning to the fish example, the “Grand Banks,” a warm shallow location off the coast of Newfoundland, Canada, were a rich supply of fish in the North Atlantic. The history of the Grand Banks is detailed in greater detail at the following website, therefore I strongly advise you to read it. Despite the fact that it is “Although it is written from a particular point of view as an environmentalist’s magazine, it is generally a fair summary of the facts.
What does a non-rival good look like?
The internet and radio stations are two instances of nonrival goods. They may be accessed by a large number of individuals at the same time, and they can be used repeatedly without compromising their quality or risking depletion of supply.
Is cable TV a good non-rival?
A typical example is cable television. It has a monthly cost, but after that, it is non-rival. Public products are non-excludable and non-competitive. Individuals cannot be effectively barred from using them, and one person’s use has no bearing on the availability of the good to others.
What are the benefits of rival and Nonexcludable?
Goods that are competitive. While non-excludable products are available to anyone, making them public, rivalrous goods are private goods in which people compete for their use. A person who owns a car, for example, can only use it for himself and cannot allow others to use it.
Is the Internet a non-competitive medium?
The Internet is technically competitive in that the computer networks on which it is based (the “physical layer”) can only handle a certain amount of traffic. Users may suffer a degraded experience at peak usage times, especially in congested areas of the network; that is, bandwidth-intensive use by a large number of users may result in many receiving lower-quality service.
Is public access television a public good?
3.1 Public access television is a public good. Commercial broadcasters compete for both viewers and the advertising dollars attracted by those viewers. Free-to-air broadcasts are non-rival in that they allow multiple people to watch content without lowering its value for others.
What kinds of public goods are there?
Law enforcement, national defense, and the rule of law are examples of public goods. More basic amenities, such as access to clean air and drinking water, are frequently referred to as public goods.
Is the quality of cable TV transmissions variable?
A public good is defined by economists as being non-rivalrous and non-excludable. The term “non rival” refers to the fact that my use of an item has no bearing on yours; I do not “consume it up.” This definition’s non-excludable element says that I can’t stop you from consuming a good. Another way to think about this is to argue that adding a new individual to the public goods market has a marginal cost of $0. To put it another way, individuals who do not openly (really) pay for the good can nonetheless profit from it.
A competitor and excludable good is a private good. My professor’s automobile is an example of a private good. BMW only produces a limited amount of 5 series sedans, therefore not everyone will be able to purchase one. My professor’s BMW is likewise excludable, which means he doesn’t have to let anyone else drive or ride in it.
A local fishing hole is an excellent example of this type of good. The fishing hole includes both the non-excludable aspect of public goods (we can’t prevent certain individuals from fishing in a public location) and the rival feature of a private good (we can’t prevent certain people from fishing in a public place) (There is a limited amount of fish in the pond). A common pool resource is the name for this type of item. We witness individuals overfishing the pond because each individual only catches a small fraction of the overall quantity of fish. The pond’s fishing utility may be depleted as a result of this overfishing.
Club goods, on the other hand, are non-rival but excludable. Cable television is an example of a club good. Your use of cable TV does not exclude me from watching cable programming as well; you can obtain cable TV as long as you live in an area where the requisite cable is available. It is, however, non-excludable in the sense that you must pay a monthly cost. This is an example of a business with a reasonably flat marginal cost schedule; adding a new user has a low marginal cost.
