16.16 : Club Goods and Public Goods

Goods and services can be categorized based on their relative accessibility and the impact of individual consumption on other potential users. Two important classifications are club goods and public goods. These categories help explain how access to resources is managed and how their use impacts society.

Club Goods

Club goods are products or services that are excludable but non-rivalrous. This means that access to the good can easily be restricted, typically through a form of payment or membership. However, one individual's consumption of the good does not diminish the availability of others to enjoy the same good. For example, offering access to a live, online podcast can be thought of as providing a club good. It is easy to require a fee to gain an access code for viewing the event, but an ever larger number of total viewers does not impact the ability of any one viewer to enjoy the full benefits of the podcast.

Key characteristics of club goods:

1. Excludable: Access is limited to those who meet certain specific criteria (e.g., payment or membership requirements).
2. Non-rivalrous: Multiple people can use the good without affecting each other's experience.

Examples of club goods:

1. Subscription-based software services
2. Private parks with entry fees
3. Pay-per-view sporting events

Public Goods

Public goods are both non-excludable and non-rivalrous, meaning they are impossible (or extremely expensive) to prevent non-payers from consuming the good, and any one person's use of the good does not reduce the quality or availability of the goods for other consumers to enjoy. A good example of a public good is the personal security that everyone in a city enjoys from an effective and fair enforcement of laws by the city police. Everyone in the community feels safer when lawbreakers are caught and penalized, as this discourages others from breaking the law. However, this service would be difficult to provide privately because a) everyone in the city can enjoy the same level of security without detracting from anyone else's ability to feel secure (non-rivalry), and b) non-paying citizens could not be prevented from enjoying the same level of personal security relative to paying citizens (non-excludability). This is why public goods are provided through government agencies, which have the power to tax everyone in the community to pay for the provision of non-rivalrous goods.

Key characteristics of public goods:

1. Non-excludable: It is difficult or impossible to prevent people from accessing the good.
2. Non-rivalrous: The use of the good by one individual does not reduce its availability to others.

Examples of public goods:

1. National Defense
2. Clean air
3. Public broadcasting

Public goods often generate positive externalities—benefits to society that go beyond the individual user. For instance, clean air benefits everyone in a community, regardless of their direct contribution to maintaining air quality.