How do you compare public and club goods?

1 Public goods

Public goods are goods that are non-excludable and non-rivalrous. This means that no one can be excluded from consuming them, and that one person's consumption does not affect the amount or quality of the good available for others. For example, national defense, public parks, and street lights are public goods. Public goods tend to be under-provided by the market, because there is no incentive for private producers to supply them. Therefore, public goods are usually provided by the government or other public institutions, funded by taxes or donations.

2 Club goods

Club goods are goods that are excludable but non-rivalrous. This means that only those who pay a fee or meet a certain criteria can consume them, but that one person's consumption does not reduce the amount or quality of the good for others. For example, cable TV, private gyms, and toll roads are club goods. Club goods tend to be provided by private or non-profit organizations, who charge a membership fee or a usage fee to cover their costs and earn a profit. However, club goods may also face the problem of congestion, which occurs when too many users reduce the quality or availability of the good.

3 Comparing public and club goods

To compare public and club goods, you can use a matrix that shows the four possible combinations of excludability and rivalry. Public goods are in the top left quadrant, where both excludability and rivalry are low. Club goods are in the bottom left quadrant, where excludability is high but rivalry is low. The other two quadrants are private goods and common resources. Private goods are excludable and rivalrous, such as food, clothing, and cars. Common resources are non-excludable and rivalrous, such as fish, water, and air.

4 Benefits and challenges of public and club goods

Public and club goods have different benefits and challenges for society and the economy. Public goods provide positive externalities, which are benefits that spill over to others who do not pay for the good. For example, national defense protects everyone in a country, not just those who pay taxes. However, public goods also face the problem of free riding, which occurs when some people enjoy the benefits of the good without paying for it. For example, some people may evade taxes or use public parks without contributing to their maintenance.

Club goods provide a way to overcome the free riding problem by excluding non-payers from consuming the good. For example, cable TV providers can use encryption or passwords to prevent unauthorized access. However, club goods also face the problem of under-consumption, which occurs when some people who value the good do not consume it because of the fee or the criteria. For example, some people may not join a private gym because of the high membership fee or the lack of availability.

5 How to improve the provision of public and club goods

There are various ways to improve the provision of public and club goods, depending on the nature and scope of the good. For public goods, the government can use taxes, subsidies, regulations, or public-private partnerships to encourage or enforce the production and consumption of the good. For example, the government can subsidize research and development of public goods, such as vaccines or clean energy. Alternatively, the government can also use voluntary schemes, such as crowdfunding, donations, or social norms, to motivate people to contribute to the public good. For example, the government can appeal to people's altruism, patriotism, or environmental awareness to support public goods, such as charities, museums, or parks.

For club goods, the providers can use pricing, quality, or differentiation strategies to attract and retain customers. For example, the providers can offer discounts, bundles, or loyalty programs to increase the demand for the good. Alternatively, the providers can also use co-production, participation, or feedback mechanisms to involve the customers in the delivery or improvement of the good. For example, the providers can invite the customers to share their opinions, preferences, or suggestions to enhance the quality or variety of the good.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?