Public Goods
Those goods that people cannot prevent others from using are known as Public Goods. These goods are neither excludable nor rival. In other words, one person’s use of a public good does not reduce another person’s ability to use it. Let's take the example of a country’s national defence system, and then the creation of knowledge..
National Defence
National defence is an existed right for the people within the state, which is used to defend potential aggression from outside. No matter who takes the benefit of national defence, others’ right of enjoying this protection won’t be reduced, which just follow the conditions of public goods, neither excludable nor rival. According to the existing data, national defence was stated as the most expensive public good; however it is an integrant requirement for every government.
Creation of Knowledge
The creation of knowledge is seen as an important public good that is free for everyone to take advantage of, which also won’t bring any negative implication on others. The distinction between specific knowledge and general knowledge and technological knowledge could be important. As general knowledge cannot be patented, it is not excludable. Therefore, governments always want to provide good general knowledge for public, which could benefit everyone. Furthermore, the impact of these benefit depend on variety of factors within the social scope.
Free Rider Problem
Public goods are often associated with what is called the "Free Rider" problem. An interesting story happens in Hereza, a small Spanish town. There are around 500 residents there and people want to see fireworks when celebrating the Epiphany, on the 6th of January. The cost of the fireworks display is €1,000, and each resident puts €10 towards the experience. In this way, it is perfectly efficient as the €5,000 of benefits exceed the cost. However, the private market would not be able to produce the efficient outcome. Because any private entrepreneur who wishes to seek for payment from the people to put on fireworks display wouldn’t succeed, as customers would figure out that they could see the fireworks even without a ticket. This is why fireworks are not excludable and people have an incentive to be free riders. A free rider is a person who receives the benefit of a good without paying for it.
In this way, the Free Rider Problem prevents the private market from supplying public goods; however, this is when the government sets in and eliminates this problem. The government would raise revenue by levying taxes on property for example, and uses this revenue to hire a public employee rather than a private entrepreneur to produce the product. Suppose an average of €2 of tax is raised from each resident, the people are better off by €8, the government provides the public good and pay for it with tax revenue, leading to a better off position for every party.
National Museum
Another obvious example in Ireland would be the National Museum. The Irish government uses tax revenue to employ designers, builders and managers to build the National Museum and everyone enjoys the benefit of it for free. Instead of people building it themselves, they pay tax and the government takes the responsibility of employing private parties as public workers to build the National Museum. This is a good example of public goods.
National Defence
National defence is an existed right for the people within the state, which is used to defend potential aggression from outside. No matter who takes the benefit of national defence, others’ right of enjoying this protection won’t be reduced, which just follow the conditions of public goods, neither excludable nor rival. According to the existing data, national defence was stated as the most expensive public good; however it is an integrant requirement for every government.
Creation of Knowledge
The creation of knowledge is seen as an important public good that is free for everyone to take advantage of, which also won’t bring any negative implication on others. The distinction between specific knowledge and general knowledge and technological knowledge could be important. As general knowledge cannot be patented, it is not excludable. Therefore, governments always want to provide good general knowledge for public, which could benefit everyone. Furthermore, the impact of these benefit depend on variety of factors within the social scope.
Free Rider Problem
Public goods are often associated with what is called the "Free Rider" problem. An interesting story happens in Hereza, a small Spanish town. There are around 500 residents there and people want to see fireworks when celebrating the Epiphany, on the 6th of January. The cost of the fireworks display is €1,000, and each resident puts €10 towards the experience. In this way, it is perfectly efficient as the €5,000 of benefits exceed the cost. However, the private market would not be able to produce the efficient outcome. Because any private entrepreneur who wishes to seek for payment from the people to put on fireworks display wouldn’t succeed, as customers would figure out that they could see the fireworks even without a ticket. This is why fireworks are not excludable and people have an incentive to be free riders. A free rider is a person who receives the benefit of a good without paying for it.
In this way, the Free Rider Problem prevents the private market from supplying public goods; however, this is when the government sets in and eliminates this problem. The government would raise revenue by levying taxes on property for example, and uses this revenue to hire a public employee rather than a private entrepreneur to produce the product. Suppose an average of €2 of tax is raised from each resident, the people are better off by €8, the government provides the public good and pay for it with tax revenue, leading to a better off position for every party.
National Museum
Another obvious example in Ireland would be the National Museum. The Irish government uses tax revenue to employ designers, builders and managers to build the National Museum and everyone enjoys the benefit of it for free. Instead of people building it themselves, they pay tax and the government takes the responsibility of employing private parties as public workers to build the National Museum. This is a good example of public goods.
Public Sector Expenditure 2010
Ireland is almost always an outlier when looking at public spending by sector: it is one of the top two spenders in five of Eurostat's ten areas but in the bottom three in four other areas.