Contrary to common misconceptions, public goods are not "goods provided by the public" (read: by the government). Public goods are sometimes supplied by the private sector - and private goods by the public sector. However, technology is blurring the distinction between these two types of goods and rendering it obsolete.
Pure public goods are characterised by:
I. Nonrivalry - the cost of extending the service or providing the good to another person is (close to) zero.
Most products are rivalrous (scarce). Having been consumed, they are gone and are not available to others. Public goods, in contrast, are accessible to growing numbers of people without any additional marginal cost. This wide dispersion of benefits renders them unsuitable for private entrepreneurship. It is impossible to recapture the full returns they engender. As Samuelson observed, they are extreme forms of positive externalities (spillover effects).
II. Nonexcludability - it is impossible to exclude anyone from enjoying the benefits of a public good, or from defraying its costs (positive and negative externalities). Neither can anyone willingly exclude himself from their remit.
III. Externalities - public goods impose costs or benefits on others - individuals or firms - outside the marketplace and their effects are only partially reflected in prices and the market transactions. As Musgrave pointed out in 1969, externalities are the other face of nonrivalry.
The usual examples for public goods are lighthouses - famously questioned by one Nobel Prize winner, Ronald Coase, and defended by another, Paul Samuelson - national defence, the GPS navigation system, vaccination programs, dams, and public art (such as park concerts).
It is evident that public goods are not necessarily provided or financed by public institutions. But governments frequently intervene to reverse market failures (ie, when the markets fail to provide goods and services) or to reduce transaction costs so as to enhance consumption or supply and, thus, positive externalities. Governments, for instance, provide preventive care - a non-profitable healthcare niche - and subsidise education because they have an overall positive social effect.
Moreover, pure public goods do not exist, with the possible exception of national defence. Samuelson himself suggested: "many - though not all - of the realistic cases of government activity can be fruitfully analyzed as some kind of a blend of these two extreme polar cases" - mixtures of private and public goods. Education, the courts, public defense, highway programs, police and fire protection have an "element of variability in the benefit that can go to one citizen at the expense of some other citizen".
From Michael Pickhardt's paper titled "Fifty Years after Samuelson's 'The Pure Theory of Public Expenditure': What Are We Left With?":
... It seems that rivalry and nonrivalry are supposed to reflect this "element of variability" and hint at a continuum of goods that ranges from wholly rival to wholly nonrival ones. In particular, Musgrave writes:
"The condition of non-rivalness in consumption (or, which is the same, the existence of beneficial consumption externalities) means that the same physical output (the fruits of the same factor input) is enjoyed by both A and B. This does not mean that the same subjective benefit must be derived, or even that precisely the same product quality is available to both. ... Due to non-rivalness of consumption, individual demand curves are added vertically, rather than horizontally as in the case of private goods.
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