Labels: Public

Public Goods and Merit Goods

In a free market economy goods and services will only be provided if firms can ensure they will receive payment for them. They will then provide whatever quantity is the most profitable. In doing this, they take account only of the costs and benefits to them. If there are external costs or benefits, they will not take account of these. This may mean that they don't provide the socially optimal level of output. Public goods and merit goods are goods that would either not be provided at all or would not be provided in sufficient quantity, for these reasons.

Public goods

Public goods are goods that would not be provided in a free market system, because firms would not be able to adequately charge for them. This situation arises because public goods have two particular characteristics. They are:

1. Non-excludable - once the goods are provided, it is not possible to exclude people from using them even if they haven't paid. This allows 'free-riders' to consume the good without paying.
2. Non-rival - this means that consumption of the goods by one person does not diminish the amount available for the next person.

We can see this if we look at the case of street lights. If a street light is provided by a firm, then it cannot exclude people from benefiting from it. It is not possible to charge people who walk under it. When people walk under it, it is also true that they don't make it go dimmer - they don't diminish the amount available for the next person. Street lights are therefore non-excludable and non-rival - they are public goods.

Merit goods

Merit goods are goods that would be provided in a free market system, but would almost certainly be under-provided. Take the case of education. If there were no state education provided at all, there would still be private schools for those who could afford them, and indeed many new private schools might open. However, there would not be nearly enough education provided for everyone to benefit. This happens because the market only takes account of the private costs and benefits. It does not take account of the external benefits that may arise to society from everyone being educated. For this reason, merit goods will be under-provided by the market.

If the private sector won't provide these goods in sufficient quantity, then the only way more will be provided is either if the government encourages firms to produce more (perhaps by subsidising the good or service) or if provides them itself. A significant proportion of government expenditure arises from the government providing merit goods. The main examples are:

• Education
• Health
• Fire service

Sarthak Rastogi :)

Labels: Merit, Public

"But no country can achieve global public good on its own, and neither can
the global market place. Thus our efforts must now focus on the missing theme of
the equation: global public goods"

- Kofi Anran

Global public goods are those public goods that can't be provided by one country acting alone but only by the joint efforts of many nations. Like public goods, they also hve the properities of non-excludability and non-rivalry. Examples are health, peace, financial system, environmental sustainability. These cannot be confined to a single nation. These are the goods whose benefit reach beyond a nation, generation or population groups. Several global public goods have existed since ages such as oceans, seas, atomsphere, etc... Many others have developed as a result of globalisation and cross border influences.


Another new team which has recently emerged is the global public bads, which are also non-excludable, non-rivarous and their removal is desirable. Example, communicable diseases, drug smuggling.


We face problems in provision of global public goods because of the gap of externalities between different nations. Hence an efficient allocation of resources to global public goods on an international level is very diffcult to achieve. Many failures have also been due to the lack of political consensus to implement policies to ensure adequate provision of global public goods.


The need for collective action to devise mechanisms for providing global public goods has increased in the globalised world. With integration of market, financial crisis affects many countries simultaneously. Spread of HIV/AIDS or drug smuggling are issues which concern all nations.


Providing global public goods, according to a study "Providing Public Gooods - Managing Population" includes 2 processes: Policital Decision Making, whereby stakeholders decide what and how to produce and ths other is Production Involving Financing on allocation of resources efficiently to global public goods. To solve this market failure, international co-operation and incentive is required.


Sanchita Shandilya

Labels: Public

On quasi-public goods

As we all know (or should know) by now, public goods are goods that exhibit the qualities of non-rivalry and non-excludability while private goods are both rivalrous and excludable. When a good exhibits only one of these two traits, it is referred to as quasi-public good.

However, quasi-public goods can be further subdivided into two more categories, namely common goods and club goods.

When a good is excludable but non-rival, it is a club good. This means that while some people can be excluded from the consumption of the good, one person's consumption of it does not diminish another person's ability to do so (at least until the point of congestion is reached). Examples of this are computer software, cable television, movies in cinemas and access to patented or copyrighted ideas. Club goods are a form of natural monopoly (which, unfortunately, will not be discussed in this post).

When a good is rivalrous but non-excludable, it is a common good. While the consumption of such a good prevents another person from simultaneously doing so, there is largely no way of excluding people from consuming these goods. Such goods usually come in the form of renewable resources, e.g. fish, forests and water.

In the case of common goods, self-interested individuals often deplete resources to secure short-term gains without regard for the long-term consequences (e.g. over-fishing). This situation is known as the tragedy of the commons. When the consumption of these goods are regulated by a governmental entity for the sake of sustainability, the tragedy of the commons is circumvented. Common goods that are sustained in this manner are referred to as common-pool resources.



~Nicky(:

Labels: Public