Why is determining social benefit challenging for public goods?

Determining social benefit for public goods is challenging due to non-excludability and non-rivalry characteristics.

Public goods are non-excludable and non-rivalrous. Non-excludability means that once a good is provided, no one can be excluded from using it. Non-rivalry means that one person's use of the good does not reduce its availability to others. These characteristics make it difficult to measure the social benefit of public goods.

Firstly, the non-excludability of public goods makes it hard to determine who benefits from them and to what extent. For example, a public park is available for everyone to use, regardless of whether they pay taxes or not. Therefore, it is challenging to quantify the benefit each individual receives from the park. Some people might use it daily, while others might never use it. Yet, all are considered to benefit from its existence.

Secondly, the non-rivalry characteristic of public goods adds to the complexity. Since one person's use does not diminish the availability or quality of the good for others, it is difficult to measure the total social benefit. For instance, a person listening to a public radio broadcast does not prevent others from doing the same. Therefore, the total benefit is not simply the sum of individual benefits.

Moreover, public goods often have externalities, which are indirect benefits or costs to society that are not reflected in the market price. For example, a public library not only provides books but also promotes literacy and lifelong learning, which have broader social benefits. However, these externalities are often difficult to quantify and thus are not included in the calculation of social benefit.

Lastly, people's preferences and valuations of public goods vary widely, making it difficult to aggregate into a single measure of social benefit. Some people might highly value a clean environment, while others might place more importance on public safety. Therefore, determining the social benefit of public goods involves making subjective judgments about the relative importance of different benefits, which can be controversial.

In conclusion, the unique characteristics of public goods, such as non-excludability and non-rivalry, along with the presence of externalities and the variation in people's preferences, make it challenging to determine their social benefit.