Non-Excludable Goods
All goods that cannot exclude any individual from using it. It can be a public good, like a community resource, the use of which cannot be restricted to the owners.
What are Non-Excludable Goods?
Non-excludable Goods refers to all goods that cannot exclude any individual from using it. It is a public good, like a community resource, the use of which cannot be restricted to the owners. Examples include roads and public infrastructure.
Restricting the consumption of these resources as such is not possible or costly for the owner. If a good is excludable, you can prevent people who have not paid for it from using it.
The extent to which you can prevent someone from using a good is known as the degree of excludability.
Excludability can be defined as the extent to which its consumption can only be limited to paying customers. The case of public infrastructure can also be defined as the extent to which the supplier (the government) can prevent the free use of these goods.
The concept was given by Paul Samuelson and further expanded by Elinor Ostrom. Ostrom’s theory explained excludability as a continuous factor. This implies the degree of excludability varies from fully excludable to fully non-excludable.
Fully excludable means the consumption can be fully restricted to paying customers. Buying goods at a price like a movie makes it fully excludable.
Fully non-excludable means the consumption is free for all. These include public goods like parks and forests.
There are goods with a high or low degree of excludability. These semi-excludable goods commonly include trade secrets (highly excludable) or private goods like music from a disc (low excludability).
Key Takeaways
- Non-excludable goods are a category of goods that cannot exclude any individual from using them. These goods are public goods and community resources, and their use cannot be restricted to the owners.
- The degree of excludability varies from fully excludable to fully non-excludable. Fully excludable goods can have consumption fully restricted to paying customers, while fully non-excludable goods are freely available to all.
- Rivalrous goods are consumable items where one person's consumption reduces the availability for others.
- The concept of non-excludable goods was introduced by Paul Samuelson and later expanded by Elinor Ostrom.
Excludability and rivalry
The two defining characteristics of a good are excludability and rivalry.
Excludable goods are economic goods that can be purchased and traded in the market.
This means such goods always carry a price. Consumption is restricted to people who are willing and able to pay this price in exchange for the goods.
All private goods and restricted goods are excludable.
Excludability can be exercised through the use of a market mechanism (charging a price) or through the use of property rights (copyrights or patents).
Highly excludable goods, like the trade secret of Coca-Cola, are restricted from use through intellectual property rights. A rival or a subtractable good refers to a commodity the consumption of which reduces the amount available for others.
Examples include private consumption goods like cars or furniture. One person buying a commodity reduces the amount available in the market. It is based on the concept that you cannot use a good already purchased and consumed by someone else.
A non-rival good, on the other hand, refers to a good the consumption of which does not deplete the amount available for others.
These include online resources and software, as one person’s use of information does not reduce the amount available for others.
Classification Of Excludable And Non-Excludable Goods
Based on the interaction between excludability and rivalry of goods, they can be classified into four groups as follows:
Excludable And Rivalrous
Excludable goods are those that are available based on exclusivity. These goods are available to users only after they have been paid for.
| Aspect | Excludable Goods | Rivalrous Goods |
|---|---|---|
| Definition | Goods where the non-paying consumers can be excluded from using or consuming the good. | A good whose consumption by one individual/entity prevents and limits the consumption of others. |
| Examples | Subscription-based streaming platforms, books, or a concert ticket. | Air tickets, restaurant seating, and the like of such goods whose consumption will make the same good scarce for the next consumer. |
| Enforcement | Possible through legal or technical means. Examples include passwords, tickets, and copyrights. | Enforcement is particularly challenging if the goods are non-excludable, contributing to the tragedy of commons. |
| Markets | Often the goods are related to private markets and market transactions. | These goods can be associated with both public and private goods managed through regulations and public policies. |
| Challenges | Software piracy, unauthorized use of the softwares, and illegal streaming. | Overuse of common and public resources may lead to the depletion of resources (land, air, water, and more). |
These goods are restricted since a consumer may pay to acquire them. Additionally, the consumption of these goods adversely affects others. All private goods sold in the market at a price are excludable to only paying customers.
These types of goods are rivalrous as the total amount available for sale is limited, and each person’s consumption reduces the overall supply.
Excludable And Non-Rivalrous
Non-rivalrous goods are those goods that allow multiple consumers to consume the goods without diminishing the availability to other consumers.
| Aspect | Excludable Goods | Non-Rivalrous Goods |
|---|---|---|
| Definition | Goods whose availability depends upon the payment for consumption. | Goods whose consumption will not affect the usage/availability of other individuals/entities. |
| Examples | Private goods like a book, a concert ticket, or subscription-based streaming platforms. | Public commodities like public transport, streetlights, public information, and knowledge. |
| Enforcement | Enforcement can be enabled through rules and regulations. | Non-enforceable since the non-rivalrous nature of goods, and exclusion on not possible. |
| Markets | Often associated with private markets and market transactions. | Commonly relates to the public goods and services provided by government and non-profit organizations. |
| Challenges | Software piracy, unauthorized use of the softwares, and illegal streaming. | Funding and provision challenges and difficulties for public goods, as individuals benefit from such goods without contributing. |
Excludale category includes goods that can be prevented from being used by non-paying customers. However, one person’s consumption cannot reduce the supply available. These goods are also known as Club Goods or artificially scarce goods.
Examples include broadcasting channels, nightclubs, and computer software. Their consumption can be restricted to paying consumers, but the supply of the goods in the market does not deplete with each additional consumer.
Non-Excludable And Rivalrous
Non-excludable goods are those which are available to the general public. Rivalrous goods are those goods that can't be used by consequent users without the event of scarcity.
| Aspect | Non-Excludable Goods | Rivalrous Goods |
|---|---|---|
| Definition | Goods that are freely accessible to everyone and that are difficult or expensive to keep people from utilizing. | Goods whose consumption will affect the consumption and availability of the consequent consumer. |
| Examples | Public goods like air, water, national defense, and knowledge. | Private goods such as privately owned estate, cars, a smartphone, and the like. |
| Enforcement | Because the nature of these goods is very public, enforcement is not practical. | Enforceable through legal and technical means like ownership, documentation, etc. |
| Free Rider Problem | This problem can become significant since the goods are public, and many non-contributors can access them without paying. | Since the goods are privately owned, the free rider problem is not common. |
| Scarcity | Excessive use of resources can lead to depletion of public resources. | Consumption does affect the availability of the goods. Scarcity can directly be observed. |
These goods cannot be restricted to a group of individuals, but their supply is reduced with use. It includes all common-pool resources like fisheries, groundwater, oil fields, etc.
No one can be prevented from using such resources. However, one person’s use depletes the total reserve available.
Public car parking is non-excludable. However, one person using a car space reduces the amount available for others. This can also create a situation of the tragedy of the commons.
Non-Excludable And Non-Rivalrous
Non-excludable and Non-rivalrous are mostly public goods. The consumption of public goods like roads, public parks, and national defense cannot be restricted to paying customers, and one person’s use does not diminish the amount available for others.
| Aspects | Non-Excludable Goods | Non-Rivalrous Goods |
|---|---|---|
| Definition | Goods that are freely accessible to everyone and that are difficult or expensive to keep people from utilizing. | Goods whose consumption will not affect the usage/availability of other individuals/entities. |
| Examples | Clean air, national defense, and street lighting. | Radio signals, scenic views, and public parks. |
| Access Control | Limited ability to control or restrict access to the goods. | Access controls aren't required here as consumption by one person doesn't affect another's access. |
| Government Role | Government intervention is often required for provision due to the difficulty of charging users. | Governments play an active role in the provision of such goods to ensure their availability for all. |
| Congestion | Acquisition of such goods doesn't lead to congestion or reduced availability for others. | This means that congestion is not an issue. And consumption by one does not affect others. |
A lighthouse to guide ships in the dark is a public good. All ships traveling through can use it; one ship using it does not prevent another.
Similarly, all public parks can be used without depleting the total space available. These goods may lead to a free-rider problem.
Market inefficiencies and Non-excludable goods
The provision for non-excludable goods causes market inefficiencies where the market cannot adjust for the cost and benefit of these goods for each consumer.
These inefficiencies arise in 2 forms.
The Tragedy Of Commons
This situation may arise for all goods that are not excludable but rivalrous. Examples include overfishing, overgrazing, and overhunting.
No one is restricted from using the resource as it is a common pool resource of a community or an area. However, the total supply is limited as a pool resource like a groundwater basin.
Suppose each individual acts in their own self-interest and continues the indiscriminate use of the resource. In that case, the individual consumer will not realize the adverse effect of their consumption on the depletion of the total resource.
When several consumers act in the same manner, they overlook the social cost of their consumption and seek to maximize their personal benefit.
This leads to the economic problem of overconsumption and ultimately exhausts the availability of the resource altogether. The depletion of the resource causes a situation where all consumers are now adversely affected.
This concept is referred to as the tragedy of commons and was first given by the British economist William Forster Llyod in 1833.
The issue of the tragedy of commons can be resolved through top-down government regulations or community agreements approach.
Government regulations involve limiting the use of the resource to individuals using laws and sanctions. This also involves close monitoring of the resource to prevent depletion.
The government may also opt for resource privatization. This involves assigning property rights to private individuals.
The resource is now considered a private good as the owners charge a price from the users.
As the cost of using the resource has now increased, people can no longer exploit the resource indiscriminately.
In the case of community-owned resources, voluntary collective action is taken by all members to form an agreement that clearly states the rules and guidelines for the use of the resource. This is referred to as community management.
The agreement also mentions the penalty imposed on any member found violating the terms of the agreement.
Free Rider Problem
This market inefficiency includes but is not limited to public goods.
A common example is the use of public parks. Even though the park is available for common use by all community members, some people may not contribute to its maintenance. They prefer to depend on the cost incurred by other members of society.
As public goods are both non-excludable and non-rivalrous, an individual consumer does not see an incentive to contribute to them. These individuals prefer to ‘free-ride’ while continuing to use the commodity without paying for it.
Free riders enjoy the benefit of the public good but do not wish to contribute their share to its cost. As people do not pay for their own consumption, it creates the problem of underinvestment.
This makes public goods economically infeasible to produce, leading to degradation in quality or a decrease in the supply of public goods.
The free-rider problem is solved through institutional measures by the government. This involves imposing a minimum cost or a tax that is effectively used for maintaining the goods.
For example, toll booths on roads ensure people pay the price for their use.
Non-Excludable Goods FAQs
They are goods that are shared by a group of people and act as public goods when demand is low. But, with an increase in demand, they act as a common pool resource with a certain degree of rivalry.
Common examples include public education and hospitals. When demand is low, they are public goods available for all. On the other hand, with an increase in demand, they become congested and prone to overexploitation, thereby acting as a common pool resource.
These goods are public goods that are either excludable (like club goods) or rivalrous (like common-pool resources).
Pure public goods are both non-excludable and non-rivalrous.
These goods have the characteristics of both public and private goods as they are partially excludable and partially rivalrous.
Examples of this include bridges and tunnels during rush hour traffic.
Toll booths on public roads are another example of how some public goods can be turned into quasi-public goods.
Even though the community or group of individuals might benefit from the increase in production of the good, no individual consumer has any incentive to pay for it.
Each individual prefers to ‘free-ride’ on others. As no individual pays more for it, it is left underproduced.
Since public goods are provided for the welfare of the people and might be underproduced if left to the private sector, the government is responsible for the provision of such goods.
It is part of government expenditure usually paid for by the taxpayer’s money.
Yes, it is an excludable good, as only paying customers with subscriptions can use it.
It is non-rivalrous as one person’s consumption does not reduce the amount available for others.
It refers to a service commodity, the use of which cannot be restricted to paying consumers.
They include information kiosks or public broadcasting services.
Researched and authored by Manya Bhardwaj | LinkedIn
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