AQA Specification focus:
‘Pure public goods are non-rival and non-excludable and recognition of the significance of these characteristics.’
Introduction
In economics, pure public goods play a central role in understanding how markets allocate resources. Their unique characteristics often result in challenges for efficient provision.
Characteristics of Pure Public Goods
Non-Rivalry
A good is non-rivalrous when one person’s consumption does not diminish the availability of the good for others. For example, one individual benefiting from national defence does not reduce protection for others.
Non-Rivalry: A situation where consumption by one individual does not prevent simultaneous consumption by others.
This characteristic contrasts sharply with private goods, where individual consumption directly reduces the amount available to others.
Non-Excludability
A good is non-excludable when it is impossible or highly costly to prevent individuals from accessing it once it has been provided. For example, once street lighting is installed, all passers-by benefit without being excluded.
Non-Excludability: A condition where it is not feasible to prevent non-payers from consuming a good.
Because of this, consumers can enjoy the benefits of the good without directly contributing to its cost, leading to the free-rider problem.
Pure public goods are non-rival and non-excludable.
Why Public Goods Create Market Failure
The Free-Rider Problem
Since individuals can benefit without paying, there is little private incentive to fund public goods. This discourages private provision and results in market failure, where socially desirable goods are under-provided or not provided at all.
No firm has the incentive to supply pure public goods.
Relying on voluntary contributions leads to underfunding.
Without government intervention, society risks missing essential goods like defence, flood barriers, or law enforcement.
Missing Market
Pure public goods often result in a missing market. Unlike partial failures where markets exist but misallocate resources, here the market does not exist at all because no rational supplier will provide the good.
Distinction Between Public and Private Goods
Private Goods
Private goods are both rival and excludable. For example, a sandwich is rivalrous (only one person can eat it) and excludable (can be sold or withheld).
Public Goods
In contrast, public goods like national security are non-rival and non-excludable, meaning they cannot be effectively priced through markets.
Quasi-Public Goods
Although not part of this specification point in depth, it is worth recognising that some goods may exhibit mixed characteristics. For instance, roads may be non-rival at low traffic but become rival when congestion occurs.
The Significance of Non-Rivalry and Non-Excludability
Resource Allocation
These characteristics explain why the price mechanism struggles to allocate resources for public goods. With no direct price signal, firms lack incentives to supply them efficiently.
Government Intervention
Because markets fail to deliver, governments often step in to provide public goods funded through taxation. This ensures collective consumption where private markets fail.
Defence, policing, and fire services are typically state-provided.
Large-scale infrastructure (like flood defences) is funded publicly.
Public goods are allocated through political and budgetary processes rather than through demand and supply.
Evaluation of Public Good Provision
Advantages of State Provision
Ensures universal access to essential goods.
Reduces inequality in consumption opportunities.
Avoids inefficiency from free-riding.
Potential Issues
Government failure may occur if resources are misallocated.
Determining the correct level of provision can be difficult due to lack of market signals.
Taxation may distort incentives elsewhere in the economy.
Real-World Examples of Pure Public Goods
National Defence
Non-rival: Protects all citizens equally.
Non-excludable: Impossible to exclude individuals from national defence.
Street Lighting
Non-rival: One person using light does not reduce availability for others.
Non-excludable: All passers-by benefit once installed.
Flood Defences
Non-rival: Protects all residents within the defended area.
Non-excludable: Cannot target only paying households.
Classic examples include national defence, street lighting and flood defences.
Diagrammatic Context
Although the specification does not require a specific diagram here, it is useful to link public goods to market failure analysis. The absence of a demand curve reflecting willingness to pay due to free-riding means equilibrium cannot be reached in normal market conditions.
Policy Implications
The recognition of non-rivalry and non-excludability is crucial in policy design:
Governments must identify goods that markets will not provide.
Funding mechanisms like general taxation or hypothecated taxes ensure provision.
Economic efficiency requires balancing public provision with other fiscal priorities.
Key Takeaways for Students
Pure public goods are defined by their non-rivalrous and non-excludable nature.
These characteristics create the free-rider problem and often result in a missing market.
State provision becomes necessary to ensure efficiency and equity in society.
FAQ
Pricing fails because non-excludability means non-payers can still consume the good. Non-rivalry means no reduction in availability when more people use it. Together, these prevent effective use of prices to ration demand or signal value, making private provision unattractive.
While both are non-rival, club goods are excludable. For example, subscription-based streaming services can prevent non-subscribers from accessing content, even though one extra viewer doesn’t reduce supply. Pure public goods cannot apply such restrictions.
Since markets fail to allocate them efficiently, their provision is usually determined politically. Governments decide:
What goods should be provided
How much should be funded
Who pays through taxation
This collective process replaces individual market choices.
Yes. Technology can make once non-excludable goods excludable. For instance, encryption transformed broadcasting from a public good into a service requiring payment, shifting it towards a private or club good.
National defence embodies both non-rivalry and non-excludability. Protecting one citizen doesn’t diminish protection for others, and excluding individuals is impossible. Hence, defence is a classic illustration of why governments must provide such goods.
Practice Questions
Define what is meant by a pure public good. (2 marks)
1 mark for identifying non-rivalry (consumption by one does not reduce availability to others).
1 mark for identifying non-excludability (individuals cannot be prevented from consuming the good).
(Max 2 marks)
Explain why the characteristics of pure public goods lead to market failure. (6 marks)
1–2 marks: Identifies the two key characteristics (non-rivalry and non-excludability).
1–2 marks: Explains the free-rider problem (consumers can benefit without paying).
1 mark: States that private firms lack incentive to supply these goods (no profit motive).
1 mark: Explains the outcome of missing markets or under-provision of socially desirable goods.
(Max 6 marks)
