Public goods, externalities and free-riders: the reconsidered argument

Abstract

On other occasions I have referred to this topic1, but because the bibliography that shows a perspective away from the mainstream is so little known—even among professional economists—a new presentation is warranted, although it is not telegraphic because of the time I have to address this qualified audience of the seminar that now takes place at the National Academy of Sciences.

The idea of public goods is implicit in economic literature from Knut Wicksell onwards, but at the same time it was Paul Samuelson who systematized the idea of collective consumer goods or public goods2 and the consequent externalities (this concept originally exhibited by Alfred Marshall and Arthur Cecil Pigou). It is said that a public good is one that has effects on those who have not participated in the transaction. That is, those that produce effects for third parties or externalities that are not capable of internalizing3. In other words, goods that are produced for all or are not produced, since others cannot be excluded. For example, a public good would be a pleasant perfume that one person uses and that others enjoy, while a private good would be the use of the phone that only benefits the user. Likewise, public goods have the characteristic of non-rivalry4, which means that the good does not diminish by the fact that it is consumed by a greater number of people. In our example, perfume is not consumed because a greater number of people take advantage of the aroma.