In economics, a public good is some economic good which possesses two properties:
It is non-rivalrous, meaning that it does not exhibit scarcity, and that once it has been produced, everyone can benefit from it.
it is non-excludable, meaning that once it has been created, it is impossible to prevent people from gaining access to the good.
Public goods are said to be 'pure' when they possess these properties absolutely. In practice, many or most public goods are impure or are confined to particular localities.
Public goods provide a very important example of market failure, in which market-like behavior of individual gain-seeking does not produce efficient results. Because no private organisation can reap all the benefits of a public good which they have produced, economic theory concludes that there will be insufficient incentive to produce it voluntarily. Consumers will take advantage of public goods, without contributing sufficiently to their creation. This is called the free rider problem, or occasionally, the "easy rider problem" (because consumer's contributions will be small but non-zero).
For example, consider national defense, a standard example of a pure public good. A free-rider is an individual who is extremely individualistic, considering benefits and costs that affect only him or her. Suppose this individual thinks about exerting some extra effort to defend the nation. The benefits to the individual of this effort would be very low, since the benefits would be distributed among all of the millions of other people in the country. Further, the free rider knows that he or she cannot be excluded from the benefits of national defense. There is also no way that these benefits can be split up and distributed as individual parcels to people. But just because one person refuses to defend the country does not mean that the nation is not going to be defended. So this person would not voluntarily exert any extra effort, unless there is some inherent pleasure in doing so.
Similarly, in the case of a lighthouse (a local public good), it is well-nigh impossible to exclude ships from using its services while no ship's use of it detracts from that of others. So the shipowners will not likely pay to support the lighthouse voluntarily.
Finally, in the case of information goods, an inventor of a new product may benefit all of society. But hardly anyone is willing to pay for the invention if they can benefit from it for free.
For less-than-pure public goods, the study of collective action shows that public goods are still produced when one individual benefits more from the public good than it costs him to produce it. A group that contains such individuals is called a privileged group.
An example of this is Wikipedia, where users derive more benefit from contributing than it costs them to do it. For more discussion on this topic see also Coase's Penguin.
Another solution, which has evolved for information goods, is to create intellectual property laws, such as copyright or patents, covering the public goods. These laws attempt to remove the natural non-excludability by prohibiting reproduction of the good. Although they can solve the free rider problem, the downside of these laws is that they are not Pareto optimal. For example, in the United States, the patent rights given to pharmaceutical companies encourage them to charge high prices (above marginal cost), to advertise to convice patients to nag their doctors to prescribe the drugs, to sue even mild imitators in court, and to lobby for the extension of patent rights. (See rent seeking.)
This near-ubiquitous problem arises because the underlying marginal cost of giving the good to more people is low or zero, but, because of the limits of price discrimination (including both arbitrage and a lack of incentives to provide cheap, high quality copies to those with little ability to pay), those who are unwilling or unable to pay a profit-maximising price, do not get access to the good.
Joseph Schumpeter claimed that the "excess profits" generated by the copyright or patent monopoly will attract competitors that will make technological innovations and thereby end the monopoly. This is a continual process referred to as "Schumpeterian creative destruction".
Microsoft, for example, is part of this since it has been increasing its prices (or lowering its products' quality), making increased market shares for Linux and Macintosh largely inevitable.
This kind of public spirit (nationalism, patriotism, or national chauvinism or sometimes religious or ethnic unity) has been part of most successful war efforts, complementing the roles of taxation and conscription. To some extent, public spiritedness of a more limited type is the basis for voluntary contributions that support public radio and TV.
However, especially in individualistic countries, it is often very difficult to instill people with public spirit in most cases.
