2. Public goods: These goods (or services) are neither excludable nor rival. They
are at the opposite end to private goods in Table 17.1. Examples include streetlights or a tornado siren or cyclone warning alarm and national defense. Streetlights are not excludable because nobody can be prevented from benefitting from
the lighting at night. Furthermore, the streetlights are not rival in consumption
because the benefits of lighting are not reduced for others when one person gets
the benefit of the lighting.
3. Natural monopoly: When goods (or services) such as fire protection and cable
TV are excludable but not rival, a natural monopoly exists. As another example,
a potable water provider can supply water to a house. If the owner has not paid for
the service, the service provider can exclude him (by closing his supply valve).
However, this water supply is not a rival good because, once the water network
has been installed (and paid for), the extra cost for providing one additional house
is minimal.
4. Common resources: In this case, goods are rival but not excludable. When a
person catches fish in a river or ocean, fewer fish remain for somebody else to
catch (rivalry). However, given the vastness of the ocean, it is very difficult to
prevent anybody (no excludability) from catching other fish.
The Tragedy of the Commons: sometimes, common resources are overexploited
or overused – from a social perspective. Open land available for grazing, will be
exploited by one and all, because it is free. The farmers will bring in as many of their
animals as possible, without any thought about a possible overexploitation (over
grazing). Very soon, the town common land does become barren as it gets
overgrazed. Individual farmers (with private incentives) would, most likely, never
have permitted this to happen. Yet collectively, it occurred. This is the tragedy.
Possible solutions include:
(1) regulating the number of animals grazing,
(2) putting a tax on the number of grazing animals,
(3) auctioning off permits for grazing animals, or
(4) dividing the land into lots and selling those lots to individual farmers, thus
converting the grazing land into a private good.
Examples of common resources where such tragedies may occur are clean air and
rivers, congested non toll roads, fish in lakes or oceans, whales, and other wildlife. The
problem lies in the common resource being used too much by private decision makers,
when governments should regulate behaviour or impose fees to reduce any overuse.
Although Table 17.1 seems to show a clear-cut demarcation of goods into the four
categories, this category separation is very often fuzzy. Excludability or rivalness is
often is a matter of degree. Earlier, it was mentioned that fish in the ocean was
difficult to be considered as excludable, but only if the country’s coast guard is wellequipped technically and is adequately manned, the fish could become partly
excludable. In contrast, although fish was considered rival in consumption above,
a different situation arises when the amount of fish available is large compared to a
small number of fishermen. However, it is best to keep to these four categories in this
discussion, for clarity.
17.1 The Different Kinds of Goods
471
are at the opposite end to private goods in Table 17.1. Examples include streetlights or a tornado siren or cyclone warning alarm and national defense. Streetlights are not excludable because nobody can be prevented from benefitting from
the lighting at night. Furthermore, the streetlights are not rival in consumption
because the benefits of lighting are not reduced for others when one person gets
the benefit of the lighting.
3. Natural monopoly: When goods (or services) such as fire protection and cable
TV are excludable but not rival, a natural monopoly exists. As another example,
a potable water provider can supply water to a house. If the owner has not paid for
the service, the service provider can exclude him (by closing his supply valve).
However, this water supply is not a rival good because, once the water network
has been installed (and paid for), the extra cost for providing one additional house
is minimal.
4. Common resources: In this case, goods are rival but not excludable. When a
person catches fish in a river or ocean, fewer fish remain for somebody else to
catch (rivalry). However, given the vastness of the ocean, it is very difficult to
prevent anybody (no excludability) from catching other fish.
The Tragedy of the Commons: sometimes, common resources are overexploited
or overused – from a social perspective. Open land available for grazing, will be
exploited by one and all, because it is free. The farmers will bring in as many of their
animals as possible, without any thought about a possible overexploitation (over
grazing). Very soon, the town common land does become barren as it gets
overgrazed. Individual farmers (with private incentives) would, most likely, never
have permitted this to happen. Yet collectively, it occurred. This is the tragedy.
Possible solutions include:
(1) regulating the number of animals grazing,
(2) putting a tax on the number of grazing animals,
(3) auctioning off permits for grazing animals, or
(4) dividing the land into lots and selling those lots to individual farmers, thus
converting the grazing land into a private good.
Examples of common resources where such tragedies may occur are clean air and
rivers, congested non toll roads, fish in lakes or oceans, whales, and other wildlife. The
problem lies in the common resource being used too much by private decision makers,
when governments should regulate behaviour or impose fees to reduce any overuse.
Although Table 17.1 seems to show a clear-cut demarcation of goods into the four
categories, this category separation is very often fuzzy. Excludability or rivalness is
often is a matter of degree. Earlier, it was mentioned that fish in the ocean was
difficult to be considered as excludable, but only if the country’s coast guard is wellequipped technically and is adequately manned, the fish could become partly
excludable. In contrast, although fish was considered rival in consumption above,
a different situation arises when the amount of fish available is large compared to a
small number of fishermen. However, it is best to keep to these four categories in this
discussion, for clarity.
17.1 The Different Kinds of Goods
471