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Public goods

  • Public goods are very special in the sense that they do not help to gain profits for a firm nor can these be used up.

  • As opposed to the common private goods which are excludable and rival in nature, and thus profitable for firms

  • As firms are profit oriented, they tend to not provide public goods; although some might to improve public image, corporate social responsibility..

  • Thus its the government who generally will provide these goods, as these goods will have a so called ‘ free rider ‘ problem a market failure causing problem where third parties free ride on the backs of the private party who incurs costs for the good and just take the benefit. This can cause the good to be overused and deteriorate or consumers to stop buying it, which would cause production to stop and under provision of public goods.

Solutions

  • Government can continue to do nothing.

  • Government can provide the public good themselves

  • Government can bid the contract to private companies often L1 bids, where the lowest bid is selected.

  • However such bids can cause a rise to many problems like quality control due to the low budget.

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