Near-Public Goods

The exhibit to the right illustrates the four alternative types of goods -- private, public, common-property, and near-public -- based on the mix of consumption rivalry and nonpayer excludability. Near-public goods are in the bottom right cell of the matrix, with nonrival consumption and the ability to exclude nonpayers.

While nonpayers can be excluded from the consumption of near-public goods, nonrival consumption means there is no efficiency reason to do so. These goods are often exchanged through markets but also provided by governments. Markets exchange near-public goods because they can, but government provision is needed for efficiency. Examples of near-public goods exemplify the provision by both the public and the private sector, including education, transportation, and communication. In some cases governments and markets compete in the provision of near-public goods (education) and other cases they work as partners (air transportation).

Near-public goods with the ability to exclude nonpayers can be and are commonly exchanged through markets. Unfortunately, like public goods nonrival consumption means the marginal cost is zero and efficiency is achieved if the price is also zero. This mixed up nature of near-public goods, sort of a public good, but also sort of a private good, generally leads to controversy. Some contend that if private businesses can sell near-public goods through markets, then governments need not be involved. Others see the government revenue generated from selling near-public goods as a means of lessening the tax burden on the public. Moreover, fairness seems served in that those consuming are also the ones paying for near-public goods.

Examples Hither and Yon

Nonrival Consumption

Suppose, for example, that Edgar Millbottom wants to watch a little television, which happens to be playing his favorite show, Brace Brickhead, Medical Detective. The benefit that Edgar derives from watching this television show does not prevent others from also receiving benefits. Everyone, including Alicia Hyfield, another Brace Brickhead fan, watching this show on their own television sets can also enjoy the action, adventure, and mystery that is Brace Brickhead. More to the point, enjoyment received by Edgar does prevent Alicia Hyfield from here own enjoyment, Edgar's consumption of Brace Brickhead entertainment DOES NOT impose an opportunity cost on anyone else.

Whether the good is public or near-public, nonrival consumption means that efficiency is best achieved when everyone in society is allowed to consume the good, without restriction. Price is again one restriction that might prevent consumption. According to the basic law of demand, the higher the price, the fewer the consumers. Because the opportunity cost of consumption is zero, efficiency dictates that the price is also zero.

However, the opportunity cost of production is most certainly NOT zero. Resources, that could be used to produce other goods, are used for the production of near-public goods. The best (that is, efficient) way to finance the production and provision of near-public goods is through funds that are generated independent of consumption, such as taxes (or possibly through a source like commercial advertising).

Nonpayer Excludability

Again, let's turn to Edgar Millbottom's consumption of Brace Brickhead entertainment. The television station, network, cable company, or satellite provider can control access to this television show. They can scramble the signal, which can then only be viewed only if the consumer pays to have the signal descrambled.

With nonpayer excludability, near-public goods can be exchanged through markets. Ownership and control can be transferred only to those who pay.

A Word About Capacity

True that before the capacity limits are reached, one person does not impose an opportunity cost on others. However, once the limit is reached, then the use by one does prevent the use by others. When all seats in a classroom are filled, then other potential users are prevented from consuming the good. When the highway is congested, then use by on driver imposes an opportunity cost on other drivers.

Markets and Governments

The characteristics of near-public goods mean that they are provided both through markets and by governments. Private universities operate along side public universities. Freeways exist along side turnpikes. Free broadcast television competes with pay-per-view or subscription television.

The gray area that is near-public goods creates a great deal of debate in the study of public finance. To pay or not to pay, that is the question.

Three Other Goods

• Private: Private goods are characterized by rival consumption and the ability to exclude nonpayers. Private goods can be easily, effectively, and efficiently exchanged through markets.


• Public: Public goods are characterized by nonrival consumption and the inability to exclude nonpayers. Public goods cannot be exchanged through markets. The only efficient way to provide public goods is through governments.


• Common-Property: Common-property goods are characterized by rival consumption and the inability to exclude nonpayers. These goods can not be efficiently exchanged through markets and governments are often called upon to control or regulate their use.