Glamor Economics

Chapter 84

Chapter 12 Section 2 Why Lighthouses Can Only Be Built by the Government——Public Goods

In early Britain, the construction and management of lighthouse facilities were provided by private individuals.Due to frequent accidents at sea, in order to meet the needs of navigators for lighthouse services, some people near the sea have built lighthouses with their own money, and then charged the ships according to the size and frequency of passing ships as daily expenses for maintaining lighthouses and getting a certain amount. profits.

After operating for a period of time, the builders of the lighthouse gradually discovered that passing ships always try to avoid paying the toll.They either drove around the lighthouse, or refused to pay the toll in the name of being familiar with the sea.The builders can only hire more people to strengthen management, but they have no law enforcement power, and they have nothing to do when they encounter people who do not pay the fee.Hiring additional manpower also increased the cost of the builders, and slowly, they were unable to make ends meet, so the privately built lighthouses gradually closed.

However, maritime navigation still needs the guidance of lighthouses, so lighthouses can only be built by the government.Passing ships do not have to pay the government, they will use the lighthouse resources for free.

Economists believe that public goods are non-excludable and non-rivalrous.The so-called non-excludability means that when a person consumes a public good, he cannot exclude other people from consuming it (whether they pay for it or not), or the cost of exclusion is very high.The so-called non-rivalry means that someone's consumption of public goods will not affect others' simultaneous consumption of the product and the utility obtained from it. marginal cost is zero.

For example, a street lamp on a city road illuminates A's way home, but it does not prevent B from illuminating his way home; A gets the benefit of the street lamp illuminating the road, and it does not reduce B's chance of getting the same benefit.Street lights are public goods provided by the government.Just imagine, if a street lamp breaks down one day, the government will not repair it.Will you fix it?For most people the answer is no.If there is no government maintenance, most of our street lights will remain dark.

In life, we can often enjoy free products and services.Generally speaking, public goods can basically be divided into three categories: the first category is pure public goods, that is, non-exclusive and non-rivalrous at the same time; the second category of public goods is characterized by non-rivalry in consumption, but can be compared Easily achieve exclusivity, some scholars refer to this kind of goods as club goods; the third type of public goods is just the opposite of club goods, that is, they are competitive in consumption, but cannot be effectively exclusive, some scholars call this kind of goods Known as common resource resource items.

Club goods and common resource goods are collectively referred to as "quasi-public goods", that is, goods that are not simultaneously non-exclusive and non-rivalrous.Quasi-public goods generally have the characteristics of "crowding", that is, when the number of consumers increases to a certain value, there will be a situation where the marginal cost is positive, instead of increasing a person's consumption like pure public goods, the marginal cost to zero.After the quasi-public goods reach the "crowding point", every additional person will reduce the utility of the original consumers.

Generally speaking, pure public goods need to be provided by the government. One of the most typical examples is national defense.For a country, nothing is more important than national security.But national defense, as an economic good, is completely different from private goods such as bread. 10 pieces of bread can be divided into many portions according to the person's head, and it is impossible for another person to eat the bread once eaten by one person.And defense, when provided for, affects all equally.Whether pacifist or militant, old or young, illiterate or educated, the same quality of defense service is served.

[links to related words]

Public goods Public goods refer to goods shared by the whole society, that is, all members of society, such as national defense and police service.These public goods can only be provided by the government in some form, which is determined by the non-excludability and non-rivalry of their consumption.Non-excludability means that while a product is consumed by someone, it cannot exclude others from consuming it.

A free good is an item that is not an economic good.Like air or sea water, they exist in abundance all over the world and need not be rationed among those who want them.Therefore, the market price of these items is zero.

Common resources Common resources are resources that are not owned by individuals.For example, air and water, oil deposits, and animal species such as fish, whales, and other wildlife are shared resources.Common resources are competitive but not excludable.For example, fish in the ocean are a rival good: when one person catches fish, there are fewer fish left for others to catch.But these fish are not exclusive items, since it is impossible to charge fishermen for what they catch.

Private goods correspond to public goods. Private goods refer to those items that can be divided, can be consumed by different people, and have no external benefits or costs to others.

(End of this chapter)