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The Proper Role Of Government

Rivalry and excludability define what goods the government should provide or manage. The government should provide pure public goods, and regulate natural resources and natural monopolies.

Excludability is the ability of producers to detect and prevent uncompensating consumption of their products. Rivalry is the inability of multiple consumers to consume the same good.

A public good is a non-rival non-excludable good that benefits almost everyone in a polity. Because public goods are not excludable, they get under-produced. The pricing system cannot force consumers to reveal their demand for purely non-excludable goods, and so cannot force producers to meet that demand. Thus government should produce non-excludable goods that aren't supplied by nature -- namely, pure public goods. (Impure public goods are those that are partly excludable -- those for which producers can capture some but not all of the benefits that the goods provide. Examples are education, technology development, landscaping, broadcasting, and the arts. Impure public goods need not be produced by government.)

A natural resource is any rival non-excludable resource. Because natural resources are not excludable but still rival, they get over-consumed. Thus government should police the use of natural resources, preferably by taxing resource use by the amount that the use costs the rest of the polity.

A natural monopoly is any non-rival excludable good that benefits almost everyone in a polity. Because natural monopoly goods have high fixed costs and vanishing marginal costs, they cannot be produced efficiently through market competition. Thus government should regulate the provision of natural monopoly goods.

A private good is any rival excludable good. Markets are able to manage their production and allocate their consumption more efficiently than government can.

	Rival multiple consumers cannot consume the same good	Non-Rival multiple consumers can consume the same good
Excludable consumption can be detected and prevented by producer	Private Goods Efficiently produced and allocated by markets agriculture, minerals, artifacts labor, services land parcels rain and sunlight incident on land parcels Government should not provide or finance private goods.	Natural Monopoly High fixed costs, low marginal costs => inefficient competition roads; water and sewage lines wired telecom networks (not content) power distribution (not generation) aggression deterrance (police/courts); fire protection service Government should provide or regulate natural monopolies.
Non-Excludable consumption cannot be detected or prevented	Natural Resources Tragedy of the commons, negative externalities => overconsumption atmosphere, bodies and streams of water, pollution sinks sunlight, wind, fish, game unowned land and space; orbits electromagnetic spectrum; some namespaces Government should police overconsumption via taxes, auctions, etc.	Public Goods Free riders, positive externalities => underproduction national defense scientific knowledge prevention of contagion, conflagration, flood anti-poverty safety net (assuming most people favor charity) Government should finance pure public goods: those for which producers capture so little of the benefits the goods provide that the good is radically under-produced.