The Proper Role Of Government
and excludability define
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.
multiple consumers cannot
consume the same good
multiple consumers can consume
the same good
consumption can be
detected and prevented
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.
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
Government should provide or regulate natural monopolies.
be detected or prevented
Tragedy of the commons,
negative externalities => overconsumption
- atmosphere, bodies and streams of water, pollution sinks
- sunlight, wind, fish, game
- unowned land and space;
- electromagnetic spectrum; some namespaces
Government should police overconsumption via taxes, auctions, etc.
Free riders, positive
- 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