Tue, 09 Sep 2003

The Non-problem of Public Goods

Many economics textbooks will talk about the problem of provisioning public goods. A public good is one which cannot be provided to one without being provided to all. Clean air is considered by many to be a public good. Public parks are also a public good. The thought is that the market cannot supply public goods, because there is no way to charge a price for the provisioning of the good.

Balderdash.

The classic example, used by many to justify government intervention in the economy, are lighthouses. If the light is to be provided to one ship, it must be provided to all. And yet ... in England many lighthouses were constructed and operated using private funds. The owners of harbor properties formed a voluntary association with the purpose of improving the harbor. This group could build jetties, breakwaters, and yes, lighthouses. As a group, they benefit from ship's ability to find and successfully navigate its way into the harbor.

Another example is that of freely copyable software, what we now call Open Source. The thought is that no one would supply open source software because there is no way to monopolize it -- to gain a monopoly price by restricting redistribution. Amazingly, there exist people who still think this is the case, and not just textbook authors who haven't revised their work recently.

So where is the problem? The problem is not strictly in public goods, but instead in a different but overlapping group of goods. I don't know if this group has been named or not. This group has the characteristic that the private gain from its provision is less than the private cost, and yet the public gain is greater than the public cost. Both of these terms have to apply. If the private gain is greater than the private cost, the public need not get involved. If the public cost is greater than the public gain, then public should not get involved.

Open source software, which is technically a public good, does not fall into this category. Private parties produce open source software because they receive or perceive a gain in excess of their costs. The Angry Economist is one of these parties, as a simple web search will show you.

If anybody knows of a name for this category of goods (and services; I get tired of saying "goods and services" all the time), I'd like to hear it.

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