Public Goods

Abstract

In the previous chapters, especially Chapter 2, we have been mainly concerned with an economy of private goods. But public goods are an (increasingly) important part of the economy. We discussed problems of externality in the last chapter and a public good is, in a certain sense, a special kind of externality in consumption. However, our discussion of externalities is mainly concerned with the ‘small number’ case where one party affects another. Most important external effects such as pollution affect large numbers of individuals. These external effects (public bads) may be regarded as involving an external diseconomy aspect and a publicness aspect. Hence, this chapter is not only relevant for the more traditional issue of the provision of public goods but also for the solution of the problem of public bads as well as other social issues involving a large number of individuals simultaneously.