Private Goods

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Mark Cooper:

"A private good is rivalrous since “consumption by one person reduces the quantity that can be consumed by another person” and exclusive since “consumers may be denied access.” The central claim for the superiority of private goods is that where resources are rivalrous or subtractable, efficiency requires they be devoted to their highest valued use. Exclusion gives the owner of the resource the incentive to husband the resource, especially where investment is necessary to replenish it. Market allocation solves the subtractability problem by directing resources to their highest value uses. The classic “Tragedy of the Commons” is the case where the failure to grant rights of exclusion leads to either under investment in the resource or overuse.

When rivalry and excludability conditions are absent, the provision of goods in markets becomes problematic, particularly for private firms. Nonrivalry occurs where increased consumption of a good by one person does not decrease the amount available for consumption by others. Here allocation does not promote efficiency, since consumers do not consume anything in the traditional sense and there is no scarcity to allocate. Nonexcludability means the consumers are not economically pre-vented from consumption either because the producer surplus is eaten up by the difficulty of exclusion or compensation cannot be extracted from “free riders.” Exclusion is valueless and there is little incentive to invest." (http://cyberlaw.stanford.edu/system/files/From+Wifi+to+Wikis+and+Open+Source.pdf)


More Information

  1. Common Property, Collaborative Goods
  2. Public Goods, Common Pool Resources
  3. Property