Public Goods: Why You Can’t Charge Someone to Watch Fireworks

Public Goods: Why You Can’t Charge Someone to Watch Fireworks

Let’s start with a simple scenario: You’ve just spent £30,000 of council money to organise a spectacular New Year’s Eve fireworks display. It's big, loud, and visible from anywhere in town.

Now ask yourself: How many people bought a ticket?

Answer: probably no one. Because even if they didn’t pay, they could just watch it from their window, their car, or the street outside Nando’s. Welcome to the world of public goods - where everyone benefits, and no one wants to foot the bill.

• Non-rivalrous means one person’s use doesn’t reduce what’s available to others. Me seeing the fireworks doesn’t stop you from seeing them too.

• Non-excludable means you can’t stop people from using it, even if they don’t pay. You can’t exactly build a giant wall to block off the view.

Classic examples?

• Lighthouses (saving ships whether you paid or not)

• Street lighting (unless you walk around with a blackout curtain)

• National defence (because missiles don’t ask who’s paid taxes lately)

• Open-source software (shout-out to the entire internet running on Linux)

Free Riders: The Freeloaders of Economics

Here’s the problem: if everyone waits for someone else to pay for a public good, no one will pay. That’s the free rider problem. It’s the guy who crashes the party but brings no snacks, the beachgoer who leaves their litter behind, or the driver who loves clear roads but never pays tax.

Governments have to step in because markets, left alone, don’t produce public goods. Why would a business sell something people can get for free?

So without intervention, public goods are often under-produced or not produced at all.

Government to the Rescue (Sort Of)

Governments intervene in two main ways:

1. Direct Provision

This means the government itself provides the good or service - think police, fire services, national defence, and emergency healthcare. The idea is: no citizen left behind.

But it’s not cheap.

Every ambulance, every streetlamp, every fire engine comes from taxes - and yes, that’s your and your parents’ payslip we're talking about.

Also, let’s be real: governments don’t always run things efficiently. Ever been on hold with a public service hotline? Yeah, without competition there is no improvement.

But Is Direct Provision Always a Good Idea?

Not necessarily. Critics argue that direct provision comes with its own set of problems:

• It’s expensive - those shiny fire trucks don’t pay for themselves. The bill lands on taxpayers.

• There's an opportunity cost - money spent on free public Wi-Fi could’ve gone to healthcare or education.

• And yes, governments can mismanage things. Bureaucracy, inefficiency, and political agendas often get in the way of smart resource allocation.

So while the state stepping in solves the free rider problem, it doesn’t always guarantee value for money.

2. Contracting Out

Here, the government hires private companies to do the job. Bin collection, public buses, fireworks for national holidays - often done by the private sector, paid for by the state.

It can save money and improve quality. But it also comes with risks - like contractors cutting corners or chasing profit over public good.

Are Public Goods Always So Pure?

Not always. Some are quasi-public goods - meaning they sort of fit the criteria.

Example:

• A public road is non-excludable… until there's a toll booth.

• It's non-rival… until rush hour hits and as there are too many drivers, every driver makes it impossible for other drivers to be there.

Quasi-public goods have one of the public good characteristics, but not both. And that’s where policy decisions get tricky.

Public Goods vs. Merit Goods: Don’t Confuse the Two

A common IB slip-up: confusing public goods with merit goods. Both have positive externalities, but here’s the difference:

• Public goods: can’t exclude people, everyone gets access.

• Merit goods: you can exclude people (e.g. private education), but they still benefit society.

Governments can subsidise both (Not always) - but only public goods have that free-rider headache.

When Public Goods Go Wrong: Tragedy of the Commons

Think public beaches. Lovely to look at, great for sunbathing… until 10,000 people leave plastic bottles and crisp packets everywhere. That’s a negative externality from overuse - a “tragedy of the commons.”

It’s why national parks set visitor limits, or why cities have public clean-up campaigns. Without them, the resource gets ruined for everyone.

Quick IB Economics Recap

• Public goods = non-rivalrous + non-excludable

• Free rider problem = people benefit without paying

• Private sector won’t provide them → government steps in

• Can be direct (public services) or outsourced (private contractors)

• Watch for overuse and underproduction

• Optimal provision = where MSB = MSC

Final Thought: The World Needs Its Lighthouses

Public goods keep society running. No one's getting rich off street lamps or fire engines - but without them, we’re in the dark (literally and figuratively).

Next time you walk down a well-lit street at night or enjoy a perfectly timed firework show, remember: someone paid for it. It just wasn’t you.

You're welcome, freeloaders.

Take care