Question

Explain how the elements of nonappropriability relate to public goods and private goods.

Answer 1

Non-appropriability signifies the means of not being able to protect a new innovation from imitation. It essentially means an innovation could be easily replicable and a firm can't reap excessive amount of profits from such goods.

In terms of public goods, such as public parks, street lighting, drainage systems, and law and order, the governments in general give out these goods for free. So the negative effects of not being able to reap profits do not necessarily apply to public goods as they are free and instead there is a free rider problem which arises because of this, as people who pay taxes and who don't pay taxes have equal access to such public goods. Thus there is no incentive to pay taxes for the common man as he doesn't gain any exclusive benefit. In the case of public goods even if there is no incentive to provide such goods, governments have to ensure the availability of such goods otherwise they won't be elected the next time around.

In terms of relation to private goods, these goods often have patents, but when there is nonappropriability, the private firms have to sell at the same price as those of the competitors as they don't have patents, and don't reap profits, this leads to less innovation in this sphere and the same firms owning the market share, with there being high monopoly, as new and old firms alike don't get the benefit of reaping huge amounts of profits, this leads to firms not doing Research and development, and thereby not having that entrepreneurial spirit as their innovation could be easily replicable.