What Are Public Goods? Definition, How They Work, and Example

Jason Fernando is a professional investor and writer who enjoys tackling and communicating complex business and financial problems.

Natalya Yashina is a CPA, DASM with over 12 years of experience in accounting including public accounting, financial reporting, and accounting policies.

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

What Is a Public Good?

A public good is a commodity or service that every member of a society can use without reducing its availability to all others. Typically, a public good is provided by a government and funded through taxes.

Examples of a public good include a town road, park, or school. National defense is a public good. A public good may also be a basic need such as access to clean air and drinking water.

Key Takeaways

• A public good is the opposite of a private good, which is consumed only by the person or people who can afford to pay for it.
• A public good can be consumed by many people without restricting its availability to others.
• There is always disagreement over what is or should be a public good or a private good.
• These disagreements are decided by government spending priorities.

How Public Goods Work

The main criteria that distinguish a public good are that it must be non-rivalrous and non-excludable. Non-rivalrous means that the goods do not dwindle in supply as more people consume them. Non-excludability means that the good is available to all citizens.

The point of contention is called the free rider problem. A public good is available to all people regardless of whether they have paid for it. Some members of society use the good but are unable or unwilling to help pay for it. People who do not pay taxes are essentially taking a “free ride” provided by those who do pay taxes.

Note

National defense, law enforcement, and clean air and water are all examples of public goods.

Private Goods vs. Public Goods

The opposite of a public good is a private good, which is both excludable and rivalrous.

Private goods can only be used by one person at a time—a piece of jewelry, for example. In some cases, they are destroyed in the act of using them, such as when a slice of pizza is eaten.

Private goods generally cost money. Most of the goods and services that we consume or use in our everyday lives are private goods. Although they are not subject to the free rider problem, they are also not available to everyone, since not everyone can afford to purchase them.

In some cases, public goods are not fully non-rivalrous and non-excludable. For example, a town swimming pool is a public good, since it can be used by any resident, but using it might involve a nominal fee.

Similarly, some goods are described as “quasi-public” goods because, although they are made available to all, their value can diminish as more people use them. For example, a country’s road system may be available to all its citizens, but the value of those roads declines when they become congested during rush hour.

Public Goods Around the World

Every nation makes its own decisions on which goods and services should be considered public goods, and this is reflected in their national budgets.

For example, many argue that national defense is an important public good because the security of the nation benefits all of its citizens.

To that end, many countries invest heavily in their militaries, financing army upkeep, weapons purchases, and research and development (R&D) through public taxation. In the United States, for example, the Department of Defense (DoD) has a budget of $1.52 trillion, equal to 12.8% of the total federal budget for the 2023 fiscal year.

Many countries treat essential services such as healthcare and education as a type of public good. Taxpayer-funded healthcare is provided by nations including Canada, the United Kingdom, France, Germany, Italy, and Israel.

Government investments in public education have grown tremendously since the 1950s. According to Our World in Data, the percentage of the world’s population that has received at least some basic education has grown from about 49% in 1950 to more than 86% in 2020 (the most recently available data).

Advocates for this kind of government spending argue that its economic and social benefits significantly outweigh its costs, pointing to outcomes such as improved workforce participation, higher-skilled domestic industries, and reduced rates of poverty over the medium to long term. Critics argue that it poses a burden on taxpayers and that goods can be more efficiently provided by the private sector.

What Counts as a Public Good?

A public good is any product or service that is available to all residents of a society, such as national defense, police and fire services, clean air, and drinking water.

What Are the Main Differences Between Private and Public Goods?

A private good is consumed exclusively by one person. Most often, there is a cost associated with it that prohibits its use by some others. A private good is available to all. One person’s use of it does not prevent others from using it.

What Is a Quasi-Public Good?

Quasi-public goods have elements of both public and private goods. A public bridge is available to all but loses some of its value when it becomes congested during rush hour. A public museum is open to all, and may even receive some public funds, but it may still charge an entrance fee to adequately finance its operation.

The Bottom Line

A public good is a commodity or service that every member of a society can use without exhausting the supply of it that is available to others. National defense, effective policing, clean air, and public education are all examples of public goods.

Private goods, unlike public goods, are inherently scarce and become more scarce as people consume them.