Question

Discuss the properties of Public Goods and the Free-Rider Problem that can arise in the provision of those public goods and service.

Answer 1

Public goods have two main characteristics, which are non-rivalry and non-excludability. Non-rivalry property means that the consumption of a public good by one consumer does not reduce its availability to other consumers. For example, when one takes the benefits of the national defense system, other consumers are not any way deprived of its benefits. Non-excludability property means that in case of public goods, it is not possible to exclude people who do not want to pay for the services. For example, in the case of a lighthouse, it is not possible to separate the ships that use it from the ships that do not as the lighthouse available for all. So, it is not possible to exclude the non-paying ships from using it.  

The free-rider problem arises from the non-excludability characteristics of a public good. Free-rider problem is the problem that in case of a public good it is not possible to exclude people who do not want to pay for it. Therefore, many people would like to avail the goods without paying for it i.e. many people would 'free ride' without paying.