2.5: Goods

The purpose of government is to make decisions for a group when it would be impractical to let each group member decide for himself or herself. Tribal migration and traffic laws are two examples of situations where group decision-making is desirable, but we can also generalize from them to define the role of government more broadly.

One way to understand the types of decisions we ask government to make is to consider the types of decisions we don’t ask government to make. Suppose you buy a sandwich for lunch from a convenience store. You agree to purchase the sandwich for a certain amount of money because the sandwich is worth more to you than the money. The store agrees to sell you the sandwich because your money is worth more to it than the sandwich. It’s a win-win: both you and the store are better off due to the exchange. Everyone involved in the transaction participated willingly, without the need of government to compel them.

The sandwich you bought from the store is an example of a private good. Private goods are characterized by two traits. First, they are excludable, meaning that only those who contribute to providing the good can consume it. You could share your sandwich with someone else if you wanted, but you don’t have to. You paid for it, so it’s your sandwich, and anyone who consumes it without your permission is a thief. Second, they are rivalrous, meaning that one person’s consumption of them diminishes others’ consumption. Each bite you take of your sandwich is a bite someone else can’t take, and there are only so many bites anyone can take before the sandwich is gone.

Some goods are excludable but nonrivalrous: only those who contribute get to consume them, but one person’s consumption does not diminish others’ consumption. This type of benefit is known as a club good. Movie theaters are an example of a club good. You have to buy a ticket to see a movie in a theater, but the presence of other moviegoers doesn’t lessen your experience. If you and a friend go to a movie and decide to split a large bucket of popcorn, each of you only gets to eat some of the popcorn, but both of you get to watch the whole movie.

Some goods can be rivalrous or nonrivalous depending on the circumstances. Movie theaters, for example, become rivalrous if there are so many moviegoers that they block one another’s view or make so much noise that it becomes hard to hear the movie. Likewise, roads and highways are nonrivalrous when there’s little traffic but become rivalrous when they are congested.

Most of the time, government leaves the provision of private and club goods to the private sector. Excludability makes it possible for convenience stores, movie theaters, and other businesses to profit from selling these goods, so they don’t need government to command them to do so. When goods are nonexcludable—that is, when those who did not contribute to the good can consume it—the situation changes. Consider a common good that is nonexcludable and rivalrous, like the books in a public library, or a public good that is nonexcludable and nonrivalrous, like a highway. If library cards are free and highways are free to use, no one can expect to make a profit by providing these goods. As a result, common goods and public goods are unlikely to be provided through voluntary exchanges the way private goods and club goods are. (See Figure 2.2 below for a summary of the four types of good.)

Figure 2.2: Examples of private, club, common, and public goods

In fact, many private goods and club goods are only reliably provided because of the presence of certain common goods or public goods which we often take for granted. The store where you purchased your sandwich probably would not have opened for business if not for a reliable electrical grid and the promise of police protection against shoplifters and vandalism. The movie you saw at the theater probably wouldn’t have been made unless the studio was confident that it wouldn’t be immediately pirated and watched for free. And neither business would have accepted your money if it wasn’t sure that it could then spend that money elsewhere. Electricity, crime prevention, and a stable currency aren’t strictly impossible for businesses to provide for themselves, but most could not afford to do these things. For private goods and club goods to be voluntarily exchanged, someone or something first has to mitigate a host of risks that could impede those exchanges.