What goods and services do governments provide and why? How and why are the goods and services provided by governments changing over time? Why do governments provide goods and services that are classified as individual goods? Goods and services can be sorted and classified according to two characteristics: Exclusion and consumption. The resulting classification determines the roles of government and of the nongovernmental institutions of society in supplying the goods and services.
This chapter, in ‘Privatisation and Public Private Partnerships’, outlines the different types of goods and services across two axes: The ability to exclude individuals, and the mode of consumption. The common terms ‘private goods’ and ‘public goods’ are avoided as their meaning is weighted, instead referring to individual (consumption individual/exclusion feasible), toll (joint consumption/ exclusion feasible) common-pool (individual consumption/exclusion infeasible), and collective goods (joint consumption/exclusion infeasible) as the pure types. The chapter provides clear tables and guidelines as to how goods and services should be classified.
The exercise in classifying goods and services makes it evident that the nature of the good determines the willingness of consumers to pay for it and, inevitably, the willingness of producers to supply it. Hence the nature of the good determines whether or not collective intervention is needed to procure the good in satisfactory quantity and quality.
The issues associated with each type of good are discussed, concentrating on the nature of collective goods as they pose the most serious issues in the organisation of society. It is stated that collective goods have troublesome properties and that they are generally hard to measure and offer little choice to the consumer. Other findings include:
- Collective goods raise a basic question about the nature of the entity that makes decisions about the procurement of such goods for society
- The nature of a collective good means that an individual has little choice with respect to consuming the good, and must generally accept it in the quantity and quality available
- Because it is impossible to charge directly for the use of collective goods, payment for them is unrelated to demand or consumption. Therefore, instead of relying on a market mechanism, a political process must be used to determine production and payment.
The problem of providing collective goods is compounded because the number of such goods has increased in recent decades, because either the basic nature of the good has changed (for example, driven by technology), new collective goods have been created to conserve common-pool goods (such as the natural environment), or because people transform individual goods into collective goods to shift the payment burden (for example, individuals who do not dispose of litter properly create the need for street cleaners). Policy implications that can be drawn from this chapter include:
- Collective action can be taken by groups other than government, and private property rights can be as effective as coercive collective action in protecting common-pool resources
- Individual goods that are partially or wholly provided by the state, thus removing the exclusion property, become collective-pool goods, and as such are therefore liable to associated problems such as exhaustion. For example, health care can be exhausted when all hospital beds, doctors, etc., are utilised to capacity, therefore limits on free provision must be enforced.
