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Types of goods

In this article we will present a typology of goods based on the concepts introduced in the previous steps.
Wifi symbols

In this article we will present a typology of goods based on the concepts of non-excludable and excludable goods, and rivalrous and non-rivalrous goods introduced in the previous steps. We will illustrate those types with some examples and examine how the types are related to the free rider problem.

In the previous steps two basic concepts related to different goods were introduced. First, it was stated that the problem of free riding is typical for non-excludable goods, such as parks or fish stock or roads in contrast to those goods that we can easily deny someone using. We also discussed how consequences of free riding are different depending on how one person’s consumption of a certain good affects the quantity or quality of a good (rivalrous vs non-rivalrous).

The table below shows a full typology of goods that sums up those two dimensions.

  1. excludable (or not)
  2. rivalrous (or not)

Each combination of those two features gives us a good of a certain type: private goods, club goods, common-pool resources and public goods. In the cells of the table we have “pure” types of goods. The word “pure” means that there are always some doubts and grey areas when it comes to defining real-life examples.

Source: What-when-how

So, in the first top left cell we have private goods: excludable and rivalrous. The examples might be clothes or a car that we own. It is easy to deny someone accessing those goods and if someone uses them, another person cannot use them at the same time or it would be really difficult.

In the lower left cell we have excludable but non-rivalrous: club goods. When we use wi-fi together only the ones who know the password can use it. And as long as people don’t overuse it, it doesn’t affect our connection if someone else is also on-line. The same goes for a garden that belongs to a certain neighbourhood and is surrounded with a high fence. Only the inhabitants of this neighbourhood can use this garden.

Those two types of goods are not so prone to free riding because if someone doesn’t pay or contribute or doesn’t comply with some rules, he or she can be denied access to the good.

As we already know the situation is different with non-excludable goods. Let’s start with common-pool resources in the top right cell. These are difficult to deny someone access and the quantity or quality of such goods diminish when someone uses them. The most typical example is a fish stock. The more people fish, the less fish there are in the sea and it’s very difficult to prevent overusing this resource.

With public goods, featured in the lower right cell, that are non-excludable and non-rivalrous, it’s not so painful when people use it without paying because the amount or quality of a good is not affected. However, the resentment might still be there.

In fact, between pure public goods and common resources there is a whole array of situations where we have something in-between. E.g. consumption of a good can be in a sense “non-rivalrous” for a certain number of users, but the more people use a good the more rivalrous it becomes. Let us think about a road leading to some housing development that is sufficient for its users. If a new housing development is built next to it, the road might become jammed. Then the road starts to become a rivalrous good and free riding (in this case – using the road without paying taxes that help maintain it in a good state) becomes a bigger problem than it was before. If everyone paid taxes it could be easier to make the road wider.

Whenever we want to analyse a certain situation related to free riding, we should consider what type of good is used as it might affect the scale and consequences of free riding.

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Understanding Human Behaviour: Introduction to Game Theory and Shared Resources

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