Exclusion Difficult or Costly

Private markets do not produce no excludable public goods because of the impossibility of preventing anyone from consuming them, even if they do not want to pay for them. Consider national defense. If an army succeeds in defending the national territory against an enemy, every citizen benefits, whether he or she paid to sustain the army or not. Similarly, spraying an area to rid it of malaria-carrying mosquitoes benefits every nearby inhabitant, but charging everyone for the service would be difficult. Those who refuse to pay get a free ride. If a sufficiently large number refuse, spraying may never take place. Because of these difficulties, the private sector will not usually produce no excludable public goods or will produce suboptimal quantities. Public production of no excludable public goods has been generally considered to enhance public welfare and therefore to be a proper function of government.

In some cases exclusion is possible, but costly. Roads are no excludable, but toll roads are excludable. The costs associated with building limited access roads, however, are considerably higher than those of normal roads; exclusion comes at a high cost. Whenever a project produces a good with a high exclusion cost, there is also a strong presumption for public provision.

No rival Goods—Exclusion Undesirable or Inefficient

Private goods also share another important characteristic, namely, that the marginal cost of consumption is no negligible. In the case of nontrivial public goods, however, the marginal cost of consumption is zero or very low. Once a bridge is built, for example, the marginal cost of letting another car use it is virtually zero, up to the point of congestion. Likewise, the cost of informing 1,000 consumers over the air waves is the same as the cost of informing 2,000. The information available to 1,000 additional consumers does not reduce the amount available to others—the marginal cost of consumption is zero. Although private production of no rival goods is possible, the private sector will produce suboptimal quantities. Socially optimal pricing requires that the price of goods or services be equal to the marginal cost of consumption. If the price equals marginal cost, private provision may be unprofitable. For an uncongested bridge, for example, optimal pricing would require a very low toll, too low to recover the initial investment and, hence, too low to interest the private sector. If the toll were set high enough to interest the private sector, too few cars would use the bridge. Low marginal cost of consumption is often used as an argument for public provision of research and extension, utility services, and public information services such as agricultural prices and weather patterns. The argument for public involvement in the provision of nonrival public goods is strong, but the nature of the involvement need not be provision of the good, as public funding of private provision may be optimal in many cases. For example, a government may achieve the optimal quantity of research and extension services with public funding of private provision