Public goods, in the language of economics, are goods and services which are non-rivalrous in consumption (the supply is not depleted by consumption) and non-excludable (all people can take advantage). Commonly, this means that they are not provided efficiently by private markets.
Examples are national defense and street lighting. Public goods include not only tangible things like public roads but also services like town planning which reserves space for future roads. Markets undersupply public goods because non-payers cannot be excluded from enjoying the benefits (called the 'free-rider' problem). Private markets rely upon a direct connection between what people pay and the goods and services they receive.
Goods and services which display some of the above characteristics may be classified as 'impure' public goods. Goods may be impure because of partial rivalry and congestion (supply is limited, such as a busy urban street), or partial excludability (users may form a 'club', such as for an electric grid or toll road). In practice, most goods lie between the fully 'pure' category and the fully 'impure' or private category.
The free gifts of nature such as fresh air and fisheries are sometimes referred to as public goods (though they are depletable, they are non-excludable) but are really 'common pool resources'. Other relevant terms include 'merit goods' such as creative arts which are not provided in sufficient quantity or equitably by markets without government subsidy; 'network goods' such as vaccination the value of which actually increases as more people use them; 'non-rejectable' which applies to public goods such as defense that individuals cannot avoid consuming; 'marginal cost of supply' which for non-rivalrous goods is zero; and the 'public benefit' which may or may not be served by supplying some specific 'public good', commercial broadcast signals being an example.
Many books use the term 'public goods' loosely. It is best regarded as a concept. There are many difficult-to-classify variants. For example, personal health services may be supplied privately and exclusively, but if the health of individuals improves the whole community benefits.
Confusion also arises because individuals can be excluded from many goods from which they should not be excluded. Scientific knowledge and the Internet are examples. In principle they should be freely available for the benefit of world citizens, and they grow only as they are shared. In practice it is possible to partly commodify or privatize them by making them accessible only to those prepared to pay, such as through licence fees or sponsorship or by purchasing journals or equipment. In this way there is a distinction between the economic and ethical meanings of the term public good.
In the Western democracies after the early 1970s, neo-liberal economics became the dominant economic ideology. Its simple coherence and appeal to the politically powerful led to widespread downsizing of government agencies, intensifying the undersupply of public goods. This particularly disadvantages the poor, who lack enough purchasing power to obtain substitutes from private markets. But not only the poor depend upon public goods: as the definition makes clear, all citizens can benefit. Anyway, private markets cannot function effectively unless certain public goods such as prudential regulation, contract law and physical infrastructure are adequately supplied.
The tendency of low-taxing, small-government societies to produce conditions of "private affluence and public squalor", that is, an undersupply of public goods, was publicized by J.K. Galbraith in The Affluent Society in 1957. A chronic undersupply deepens inequality and poverty.
However, not all products supplied by governments are public goods; and public goods are supplied not only by governments but also by individuals, not-for-profit organisations and commercial firms. Mostly, firms exist to produce finite stocks of goods and services which are exchanged for profit only with those who pay, so they are not public goods. However, firms can produce public goods by philanthropy, through pre-payment by advertisers, as a by-product of their commercial operations, or under contract or instruction from governments. A firm which cleans up pollution or places useful information in the Internet's public domain is generating a public good.
Public goods can be intra- or inter-generational depending on who benefits. If their supply is beyond the power of individual nation-states or their effects transcend national borders, such as a reduction in greenhouse gases, they are termed 'global public goods'.
A study of public goods is worthwhile because it highlights how many goods and services, often taken for granted, depend upon governmental, collective or unpaid activity and how crucially important they are for the effective operation of a modern society. It also highlights the threat that privatization or granting private rights such as patents over common property can pose to public goods and hence public well-being.
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