Public goods

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 .";

- in the 19th century, John Stuart Mill elaborated the idea, arguing as an example that it would be impossible to charge seamen according to their use of lighthouses;
- 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"

Possible qualifications to the above are discussed below

Defining characteristics

Pure public goods must be

• non-rivalous,
• non-excludable,
• non-rejectable