24.1 Categories of Goods

Most goods described in the standard consumer choice model share two key attributes:

• rival: one person consuming the good impinges on others’ ability to consume the same good
• excludable: one can legally (and technically) be prevented from consuming the good

However, not all goods share these attributes. Based on a good’s attributes, we can categorize it in one of four ways:

Private goods

Private goods are both rival and excludable: for example, let’s consider an apple.

• An apple is rival because one person eating it prevents another person from eating it. It’s just physics.
• An apple is excludable because property rights are well established over apples. If I buy an apple, it’s my apple; you’re not allowed to take my apple, that would be stealing.

Club goods

Club goods are excludable but not rival: for example, think about the case of satellite radio.

• Satellite radio is nonrival because one person listening to it doesn’t prevent another person from listening to it as well: the satellite signal is broacast all over the planet, regardless of how many people are receiving it.
• However, satellite radio is excludable because you need an active code to receive the signal. A satellite company can encrypt the signal, and only give the ability to decrypt it to people who pay for their service.

Common resources

Common resources are rival but not excludable: for example, think about a small fishing pond on public land.

• Let’s assume the pond is rival because the more people fish on the pond, the less fish are able to reproduce – so one person fishing reduces the fish caught by everyone else.
• However, the pond is nonexcludable because it’s on public land. Everyone is allowed to go fish in the pond.

The fact that the pond is a common resource can lead to the “tragedy of the commons,” in which individuals making their own private decisions about how much to use the pond without taking into account the effect they have on others leads to an overuse of the resource, and a Pareto inefficient outcome.

Public goods

Public goods are neither rival nor excludable. Standard examples of public goods include national defense or, more locally, a fireworks show in a public park.

• A fireworks show is nonrival because one person watching the show doesn’t prevent someone else from watching it as well.
• It’s also nonexcludable if it’s held in a public park where everyone is allowed to go.

Caveats

None of the above categories has a hard boundary, and indeed the same good may be rival in some circumstances and nonrival in others: for example, a freeway in Los Angeles is generally nonrival at 4am, when there’s no traffice but very much rival at 4pm, when there’s gridlock. Likewise, even some public parks have gates and controlled entry, making them excludable at certain times of the day. But thinking about rivalry and excludability is a useful starting point for analyzing how the nature of a good can result in predictably inefficient outcomes.