The Ultimate Guide to Public Goods

The Ultimate Guide to Public Goods Why Netflix Sharing is Economics in Action (And Why Your Mate Dave Never Pays for Anything)

Right, let's talk about something that's probably happening in your household right now: someone's using your Netflix password without chipping in for the subscription. Sounds familiar? Well, congratulations – you've just stumbled into one of the most important concepts in IB Economics: public goods and the infamous free rider problem.

What Actually Are Public Goods? (And Why Your Netflix Isn't One)

Before we dive deep, let's get our definitions sorted. A public good has two key characteristics that you need to learn:

1. Non-rivalrous - One person using it doesn't stop others from using it

2. Non-excludable - You can't stop people from using it, even if they haven't paid

Think of it like this: when you breathe clean air, you're not using up anyone else's clean air (non-rivalrous), and nobody can stop you from breathing it just because you didn't pay an "air tax" (non-excludable).

Now, about that Netflix password sharing – that's actually not a true public good because Netflix can exclude people (they've been cracking down on password sharing, haven't they?). But it's a brilliant way to understand the free rider mentality that comes with public goods.

The NHS: Britain's Biggest Public Good Success Story (Sort Of)

The NHS provides immunisation programmes and screening services that benefit everyone's health, making it a classic example of a public good. When you get vaccinated, you're not just protecting yourself – you're contributing to something called "herd immunity" that protects everyone in your community.

Here's the thing: your vaccination doesn't "use up" the protection for others (non-rivalrous), and the NHS can't really exclude people from benefiting from reduced disease transmission in society (non-excludable).

But here's where it gets interesting – NHS satisfaction has hit rock bottom in 2024, with only 21% of people satisfied with the service. This creates a proper dilemma: everyone benefits from having a health service, but not everyone feels they're getting value for their tax contributions.

Meet Dave: The Ultimate Free Rider

We all know a Dave (or John, or Andy). Dave's that mate who somehow always forgets his wallet when it's time to split the bill, who uses everyone else's Spotify premium, and who definitely benefits from living in a country with national defence, clean streets, and street lighting – but would probably dodge taxes if he could.

Dave represents the free rider problem perfectly. In economics terms, Dave receives the benefits of public goods without paying his fair share of the costs. If there were too many Daves in society, these public goods simply wouldn't get produced because not enough people would be willing to pay for them.

The free rider problem is everywhere:

• Street lighting - Dave walks safely at night whether he's paid council tax or not

• National defence - Dave's protected from foreign threats regardless of his tax contributions

• Clean air regulations - Dave breathes cleaner air thanks to environmental policies he didn't personally fund

• Basic scientific research - Dave benefits from medical advances and technology developments funded with public money

The Prisoner's Dilemma: Why Everyone Ends Up Worse Off

Now, let's talk about why rational people often make collectively stupid decisions. Enter the Prisoner's Dilemma – possibly the most famous game in economics that explains why your group project always turns into a disaster.

Two students (let's call them Alex and Blake) are caught cheating on their IB Economics exam. They're separated and can't communicate. The exam board offers each student a deal:

• If both stay silent: Both get a warning and can retake the exam

• If both confess: Both get suspended for a month

• If one confesses and one stays silent: The confessor gets off with a caution, the silent one gets expelled

The rational choice? Both students will confess (because confessing gives them the best individual outcome regardless of what the other does), but they'll both end up suspended when they could have just received warnings if they'd cooperated.

This is exactly what happens with public goods. Everyone has an incentive to free ride (not pay), but if everyone free rides, nobody gets the public good at all.

Real-World Prisoner's Dilemmas That You Should Add to Your Study Notes

1. Climate Change and Carbon Emissions

Every country benefits if everyone reduces carbon emissions, but each country has an economic incentive to keep polluting while hoping others will cut back. Result? We're all worse off with climate change.

2. Antibiotic Resistance

Everyone benefits when antibiotics work, but each individual has an incentive to demand antibiotics for minor illnesses. If everyone does this, we get antibiotic-resistant bacteria and antibiotics stop working for everyone.

3. Rush Hour Traffic

Everyone would benefit if people staggered their commute times, but each individual wants to travel at their convenient time. Result? Everyone sits in traffic jams being miserable.

4. Blood Donation in the UK

The NHS needs one million blood donors but currently relies on just 2% of the population. Everyone benefits from having blood available for emergencies, but each individual might think "someone else will donate." If everyone thinks this way, there's not enough blood for anyone.

How Do We Actually Solve These Problems?

Governments and societies have developed some clever ways to deal with public goods and free rider problems:

1. Taxation and Government Provision

The most obvious solution: make everyone pay through taxes and let the government provide the public good. That's how we fund the NHS, national defence, and street lighting in the UK.

2. Social Pressure and Shaming

Ever noticed how people feel guilty about not voting? Or how communities shame litterers? Social pressure can be surprisingly effective at encouraging cooperation.

3. Creating Excludability

Sometimes you can turn a public good into a private good by making it excludable. Think toll roads, subscription streaming services, or private parks with admission fees.

4. Repeated Games and Reputation

If you know you'll interact with the same people again, you're more likely to cooperate. This is why small communities often do better at maintaining common resources than large anonymous groups.

Why This Matters for Your IB Exam (And Real Life)

Understanding public goods and the prisoner's dilemma isn't just about passing your IB Economics exam – though it definitely helps! These concepts explain loads of real-world issues:

Market Failures: Markets often underprovide public goods because private companies can't make profit from them

Government Intervention: This gives governments a legitimate reason to step in and provide public goods through taxation

International Cooperation: Many global challenges (climate change, pandemics, international security) are essentially public goods problems requiring coordinated action

Policy Design: Understanding free rider problems helps design better policies, from tax systems to environmental regulations

The Bottom Line: We're All in This Together (Whether We Like It or Not)

Public goods create this weird situation where individual rationality leads to collective irrationality. Your best individual choice might be to free ride, but if everyone does that, we all end up worse off.

The next time you see Dave conveniently "forgetting" his wallet again, remember – he's not just being annoying, he's demonstrating one of the fundamental challenges of human cooperation that economists have been trying to solve for decades.

And hey, at least now you know why your group projects always turn into a prisoner's dilemma situation. Maybe understanding the economics will help you navigate them better... or at least give you something interesting to think about while you do all the work yourself!

Practice Questions to Test Yourself:

1. Identify whether each of the following is a public good and explain why:

   • Wikipedia

   • A lighthouse

   • Your school's library

   • BBC iPlayer (with a TV licence)

   • Clean air

2. Create your own prisoner's dilemma scenario involving two students deciding whether to study for a test when the teacher grades on a curve.

3. Explain why markets might fail to provide enough of the following:

   • Basic scientific research

   • Flood defences

   • Public parks

Remember: the key to acing public goods questions in your IB Economics exam is always to clearly identify the two characteristics (non-rivalrous and non-excludable) and explain how they lead to market failure and the need for government intervention.

Stay well