Public and private goods

An important building block for the theory of legislative demand is the distinction between ‘public goods’ and ‘private goods’. The term ‘public good’ will be used in this book for an economic good that can, and does, benefit everybody. This is the definition which is known as the ‘polar case of a pure Samuelsonian public good’. A pure public good in this sense has two outstanding characteristics. The first is the supply characteristic known as ‘non-rivalry’ among consumers. It implies that at given costs of supply, an additional consumer does not affect the benefits of existing consumers (the good ‘can benefit everybody’). The second is the demand characteristic of ‘universal demand’. A good can qualify as a public good, only if it actually figures in everybody's utility function (the good ‘does benefit everybody’). This definition stands in opposition to the one of a pure private good: an economic good that can, and does, benefit only a single person.

In view of the important consequences of the distinction between public and private goods, it seems useful to review the concept of a Samuelsonian public good. It is also useful to consider some intermediate cases.

First, it must be emphasized that the concept of ‘public good’ as defined here has nothing to do with government. Public goods are provided privately and publicly. Conversely, governments are providing public and private goods. Of course, there are certain reasons why public goods, according to certain normative criteria, may be provided more efficiently in the public than in the private sector, but there are also circumstances under which the opposite will be the case.