Environment as a Public Good

Pure public goods have two defining features. One is ‘non‐rivalry,’ meaning that one person’s enjoyment of a good does not diminish the ability of other people to enjoy the same good. The other is ‘non‐excludability,’ meaning that people cannot be prevented from enjoying the good. Air quality is an important environmental example of a public good. Under most circumstances, one person’s breathing of fresh air does not reduce air quality for others to enjoy, and people cannot be prevented from breathing the air. Public goods are defined in contrast to private goods, which are, by definition, both rival and excludable. A sandwich is a private good because one person’s consumption clearly diminishes its value for someone else, and sandwiches are typically excludable to all individuals not willing to pay.

Many environmental resources are characterized as public goods, including water quality, open space, biodiversity, and a stable climate. These examples stand alongside the classic public goods of lighthouses, national defence, and knowledge. In some cases, however, it is reasonable to question whether environmental resources are public goods in a fully pure sense. With open space, for example, congestion among those enjoying it may cause some degree of rivalry, and all open spaces are not accessible to everyone. Nevertheless, many environmental resources come close to satisfying the definition of pure public goods, and even when not exact, the basic concept is useful for understanding the causes of many environmental problems and potential solutions.

From an economics perspective, public goods are of interest because—unlike private goods—they are a source of market failure. The problem is ‘free riding’: individuals have little incentive to voluntarily provide public goods when they can simply enjoy the benefits of non‐rival and non‐excludable pubic goods provided by others. To see free riding at work, consider the challenge of constructing a bridge where the societal benefits of doing so would exceed the costs. How successfully do you think a campaign would be to finance the bridge with voluntary donations? It is not hard to imagine how such a campaign would fail, because many (if not most) individuals would choose to make no donation, hoping others would contribute enough to finance the bridge for everyone to enjoy. In this scenario, the market failure would be that no bridge is constructed despite the fact that a bridge would make everyone better off.

Seeking to prevent such under‐provision of public goods is one of the primary economic rationales for the government. While markets allocate private goods efficiently, governmental intervention is usually required for the efficient allocation of public goods. Indeed, this explains why goods such as bridges, parks, police protection, and fire departments are usually financed with tax revenues that governments collect. Governments can thus serve as a coordinating mechanism that provides public goods for the benefit of society. The same public‐goods rationale applies to environmental protection. Because individuals and firms face free‐riding incentives when it comes to protecting the environment, policies are often put in place to limit pollution, restrict resource exploitation, or create the right incentives to promote or protect environmental quality. Environmental policies that promote economic efficiency are those for which the societal benefits exceed the costs. Social cost‐benefit analysis is the tool that economists use to make such determinations.

The notion of public goods is also becoming increasingly important at the international and global levels. Many environmental problems transcend national boundaries, with climate change being the most prominent example, and maintaining a stable climate is essentially a global public good. Yet the efficient provision of global public goods faces an even greater set of challenges. One challenge is that free‐riding incentives are even stronger when the number of people involved is larger. While individuals are typically reluctant to incur private costs for public benefits, they are likely to be more reluctant when their contributions feel like a tiny drop in an even larger bucket. A second, and important, the challenge for providing global public goods is that coordination is difficult among sovereign nations. While policies for environmental protection can be passed at a national level, international coordination requires agreements and enforcement among nations, many of which have different interests and rules of law.