Definitions
Goods that are non-rivalrous and non-excludable.
What are public goods?
This problem occurs when people can enjoy a good without paying for it.
What is the free rider problem?
These goods are both excludable and rivalrous.
What are private goods?
When the government itself produces and supplies a good to correct market failure.
What is direct provision?
An agreement where the government pays a private firm to carry out an activity.
What is contracting out?
A characteristic where consumption by one person reduces availability for someone else.
What is rivalrous?
The free rider problem is directly caused by this specific characteristic of public goods.
What is non-excludability?
These resources are non-excludable but rivalrous.
What are common pool resources?
Direct provision is typically financed by this method so it is free to the public.
What are taxes?
A major advantage of contracting out where private firms compete for the project, leading to lower costs.
What is competitive tendering?
A characteristic meaning it is possible to stop people from using a good.
What is excludable?
Because of the free rider problem, these entities will not produce public goods because they cannot generate a profit.
What are private firms?
These goods are excludable but non-rivalrous.
What are quasi-public goods?
To decide what public goods to provide, governments often use cost-benefit analysis to equate Marginal Cost with this metric.
What is Marginal Benefit?
A disadvantage of contracting out where the government becomes less responsible for the service provided.
What is becoming less accountable?
A characteristic where one person's consumption does not reduce the amount available for others.
What is non-rivalrous?
Two examples of public goods provided in the text.
What are a lighthouse, police force, national defence, flood control, non-toll roads, fire protection, basic research, or anti-poverty programmes?
Quasi-public goods are often considered this type of good because they share one characteristic with pure public goods.
What is an impure public good?
One difficulty in direct provision is that people often do this regarding the value they place on a good.
What is exaggerate?
Private firms might reduce this important factor in order to cut costs when contracted out.
What is quality?
A characteristic where it is not possible to stop someone from using the good.
What is non-excludable?
Market failure occurs because private firms fail to provide these types of goods.
What are public goods?
Goods like uncrowded toll roads or museums fall into this specific category in the matrix.
What are quasi-public goods?
A secondary difficulty of direct provision is the influence of this type of pressure from groups like trade unions.
What is political pressure?
To ensure the private firm follows the agreement, the government must engage in this activity, which adds costs.
What is monitoring?