Public goods and the free-rider problem

In short: Public goods are goods from whose use nobody can be excluded and whose use by one person does not reduce their availability to others. Because they can be used without paying, the market often does not provide them in sufficient quantity.

In more detail: Economics classifies goods by whether they are excludable and whether they are rival in consumption. This gives private goods, public goods, common goods and club goods.

In detail

• Non-excludability: It is technically impossible or very expensive to keep people from using the good, as with a dyke or street lighting.
• Non-rivalry: When one more person uses the good, just as much remains for everyone else, for example the protection provided by national defence.
• Free riders: Anyone who knows they will benefit even without contributing has an incentive not to pay; if many behave this way, the good is not provided at all or only insufficiently.
• Role of the state: For this reason, public goods are often financed through taxes and provided or commissioned by the state.
• Private goods: With a loaf of bread or a jacket, exclusion and rivalry both apply, so the market usually provides them well.
• Common goods: Shared resources such as fish stocks are hardly excludable but rival, which can lead to overuse.
• Club goods: Goods such as a pay-TV service are excludable but, up to a capacity limit, not rival.
• Blurred boundaries: Many goods sit between the categories; a road can become rival in a traffic jam and be made excludable through a toll.
• Different views: Economists debate how much the state should provide and when private or voluntary solutions are sufficient (externalitaeten-grundlagen, steuern-arten-und-prinzipien).