Public Goods and Externalities

Public Goods and Externalities - Public Goods and...

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Public Goods and Externalities  by Tyler Cowen
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Most economic arguments for government intervention are based on the idea that  the marketplace cannot provide public goods or handle externalities. Public health  and welfare programs, education, roads, research and development, national and  domestic security, and a clean environment all have been labeled public goods.  Public goods have two distinct aspects—"nonexcludability" and "nonrivalrous  consumption." Nonexcludability means that nonpayers cannot be excluded from the  benefits of the good or service. If an entrepreneur stages a fireworks show, for  example, people can watch the show from their windows or backyards. Because  the entrepreneur cannot charge a fee for consumption, the fireworks show may go  unproduced, even if demand for the show is strong.  The fireworks example illustrates the "free-rider" problem. Even if the fireworks 
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