Public goods: Difference between revisions
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'''Public goods''' are products | '''Public goods''' are products and services, such as lighthouses and national defence, that can only be financed by governments, because it is not possible to devise a pricing system to enable them to be marketed. | ||
==The origins of the concept== | ==The origins of the concept== | ||
In the 18th century, Adam Smith wrote: | |||
:"The third and last duty of the | :"The third and last duty of the sovereign or commonwealth is that of erecting or maintaining those public institutions and those public works, which, although they may be in the highest degree advantageous to a great society, are, however, of such a nature, that the profit could not repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain ."<ref>[http://www.adamsmith.org/smith/won-b5-c1-pt-3.htm Adam Smith: ''An Inquiry into the Nature And Causes of the Wealth of Nations'', Book 5, Chapter 1, Part 3, (first published 1776)]</ref>;<br> | ||
- in the 19th century, John Stuart Mill elaborated the idea, using lighthouses as an example, arguing it would be impossible to try to charge seamen according to their use or benefit from the lighthouse<ref>[http://www.econlib.org/library/Mill/mlP.html John Stuart Mill: ''Principles of Political Economy'', Book 5, Chapter 10, Longmans, Green, 1848]</ref>;<br> | |||
- and in the 20th century, Paul Samuelson (who referred to public goods as "collective consumption goods") derived a formal proof of the proposition that "no decentralized pricing system can serve to determine optimally the levels of collective consumption" <ref> Paul Samuelson: ''The Pure Theory of Public Expenditure'', Review of Economics and Statistics, vol 36 1954</ref><br> | |||
''Possible qualifications to the above are discussed below'' | |||
==The formal definition== | ==The formal definition== | ||
Revision as of 09:02, 26 October 2009
Public goods are products and services, such as lighthouses and national defence, that can only be financed by governments, because it is not possible to devise a pricing system to enable them to be marketed.
The origins of the concept
In the 18th century, Adam Smith wrote:
- "The third and last duty of the sovereign or commonwealth is that of erecting or maintaining those public institutions and those public works, which, although they may be in the highest degree advantageous to a great society, are, however, of such a nature, that the profit could not repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain ."[1];
- in the 19th century, John Stuart Mill elaborated the idea, using lighthouses as an example, arguing it would be impossible to try to charge seamen according to their use or benefit from the lighthouse[2];
- and in the 20th century, Paul Samuelson (who referred to public goods as "collective consumption goods") derived a formal proof of the proposition that "no decentralized pricing system can serve to determine optimally the levels of collective consumption" [3]
Possible qualifications to the above are discussed below
The formal definition
Partly public goods
References
- ↑ Adam Smith: An Inquiry into the Nature And Causes of the Wealth of Nations, Book 5, Chapter 1, Part 3, (first published 1776)
- ↑ John Stuart Mill: Principles of Political Economy, Book 5, Chapter 10, Longmans, Green, 1848
- ↑ Paul Samuelson: The Pure Theory of Public Expenditure, Review of Economics and Statistics, vol 36 1954