A-Level Economics Notes on Public Goods and Free Riders

Definitions

1. Public Goods: Products or services that are non-excludable and non-rivalrous, meaning they are available to all and one person’s use doesn’t reduce its availability for others.
2. Non-Excludable: A characteristic of a good where it’s difficult or costly to prevent people from using it.
3. Non-Rivalrous: A characteristic of a good where one person’s consumption doesn’t affect another’s ability to consume it.
4. Free Riders: Individuals or entities that benefit from a resource, like a public good, without contributing to its cost.
5. Market Failure: A situation where the allocation of goods and services is not efficient, often occurring with public goods due to the free-rider problem.
6. Shared Resource: A resource that is available to all but can be depleted or overused, often leading to the free-rider problem.
7. Private Goods: Goods that are both excludable and rivalrous, opposite to public goods.
8. Voluntary Provision: The act of providing a public good through voluntary contributions, often less effective due to free riders.
9. Government Subsidy: Financial aid provided by the government to promote the production or consumption of a good, often used for public goods.
10. Excludability Mechanism: Methods like tolls or membership fees used to make a public good partially excludable, aiming to solve the free-rider problem.
11. Collective Action Problem: The difficulty in motivating individuals to contribute to a collective effort, often seen in the provision of public goods.
12. Spillovers: Unintended consequences or side-effects that affect third parties, often associated with public goods.

Public Goods

Non-Excludability: Once provided, it’s difficult to prevent people from using the good. For example, clean air is available to everyone, and it’s impractical to exclude anyone from breathing it.

Non-Rivalry: One person’s consumption doesn’t reduce the availability for others. In the case of national defense, one citizen’s safety doesn’t compromise another’s.

Funding: Typically funded by taxation, as private provision often leads to underproduction due to the free-rider problem.

Market Inefficiency: Public goods can create inefficiencies as they are prone to overuse or underfunding.

Real-World Examples

1. Clean Air:
   • Non-Excludable: You can’t prevent someone from breathing air.
   • Non-Rivalrous: One person breathing doesn’t affect another’s ability to do so.
   • Challenges: Pollution can degrade air quality, making it a focus for environmental policy.
2. National Defense:
   • Non-Excludable: The military protects all citizens, whether or not they pay taxes.
   • Non-Rivalrous: One person’s safety doesn’t reduce safety for others.
   • Challenges: High cost and political complexities can impact effectiveness.
3. Public Parks:
   • Non-Excludable: Generally open to everyone.
   • Non-Rivalrous: One person’s enjoyment doesn’t usually reduce another’s.
   • Challenges: Maintenance and overcrowding can be issues.

Free Riders

Free riders are individuals or entities that benefit from a resource without contributing to its cost. The free-rider problem can lead to underfunding, depletion, or inefficiency in the provision of public goods.

Real-World Examples

1. Public Broadcasting:
   • Free Riding: People enjoy programs without donating.
   • Solution: Membership drives and exclusive content for donors.
2. Public Transportation:
   • Free Riding: Some might sneak onto buses or trains without paying.
   • Solution: Ticket barriers and random inspections.
3. Healthcare:
   • Free Riding: People may rely on herd immunity without getting vaccinated.
   • Solution: Mandating vaccinations for public services like schooling.
4. Environmental Protection:
   • Free Riding: Companies may pollute while benefiting from a clean environment.
   • Solution: Environmental regulations and fines.

Common Solutions

1. Government Funding: Taxes can be used to fund public goods.
2. Excludability: Make the public good excludable to some extent, like toll roads.
3. Community Engagement: Encourage voluntary contributions or community monitoring.
4. Legal Measures: Implement laws and fines to discourage free-riding