Thayer Watkins

The Nature of Public Goods

Private goods are such that if one person get more of them then necessarily there will be less for the other people. In contrast, public goods are those things that all people can simultaneously benefit from. Consider the case of small pox. Small pox is a serious disease caused by a virus. In human history there were frequent epidemics of small pox and small pox probably killed more humans than any other disease, far more than the Bubonic Plague. Small pox virus needs to spread from one human to another during the infectous phase of the disease. In the 1970s the World Health Organization (WHO) began making a determined effort to isolate any new outbreak of small pox in hopes of eradicating the virus. Whenever a case of small pox was reported a team would go to the site and create through isolation and vaccination a ring around the site in which there would be no transmission of the virus to other humans.

The last natural case of small pox occured in 1977 in Somalia. WHO vaccinated fifty seven thousand people in the vicinity of that case. The small pox virus had been made extinct in the wild. All humans benefited from that extinction. WHO efforts created a public good.

There were cultures of the small pox virus in about 70 laboratories around the world in 1977. In 1978 a photographer in Birmingham, England came down with small pox and this was transmitted to her parents. Medical authorities contained the case and determined that the virus had escaped from a research laboratory directly below the photographer's dark room. The researcher responsible for the small pox virus committed suicide out of guilt.

After the escape of the virus from the research laboratory in England the WHO's program for the destruction of the laboratory cultures of small pox continued until officially there were only two places where small pox cultures were held, one in the U.S. and one in the U.S.S.R. It is widely believed that rogue states such as North Korea and Iraq obtained small pox cultures so the world cannot stop worrying about small pox epidemics.

Immunity to the small pox virus can be achieved by vaccination with a weaker pox, cow pox. This immunity last only for about five years. At one time all children received vaccination against small pox. There was a small chance that some would die as a result of the vaccination so when the risk of small pox dropped to zero it was no longer rational to incur the small risk involved in vaccination to protect against an even smaller risk of contracting small pox.

The eradication of small pox provides a good example of a public good. the importance of the concept of a public good is that generally a public good cannot be provided by the market because everyone gets it whether or not they pay for it.

Rival and Non-Rival Goods

The concept of a public good can be refined. What was presented above was the non-rivalness of a public good. A private good is one that is rival.

Excludability and Non-Excludibility

A good is excludable if it is possible to prevent some people from enjoying it. If the good is excludable it is possible to limit the benefit to those who pay for it. If an author writes a story then the enjoyment of that story by one person does not detract from the enjoyment of that story by others. The story is thus a non-rival good, but it is an excludable good in that the story can be withheld, as least temporarily, from those who are not willing to pay to hear it or read it. The benefit of the eradication of a disease is non-excludable. Of course, immunity from a disease that is provided by vaccination is excludable.

The strict definition of a public good is one that is non-rival and non-excludable. On the other hand, a private good is one that is rival and excludable. The name for a good that is rival but non-excludable, such as the fish in the ocean, is common resource. Common resources tend to be used up quickly and wastefully without some governmental regulation. The goods that are nonrival but excludable involve a natural monopoly.

The total demand for private goods is the sum of all the individual demands. The total demand curve is the horizontal sum of the individual demand curves. The total demand curve for a public good is the vertical sum of the individual demand curves.

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