From the April 9 edition of The New York Times, comes a report of a public-private solution to the management of commerical fishing stocks off the coast of New England. As with most commercial fisheries, the fish population is declining, due to over-fishing. The Federal Government, through NOAA and regional councils, sets limits on fish catches – hoping to keep fish stocks sustainable. Within those limits, however, fishing boat owners compete to find the fish. Now NOAA is instituting a private ownership system.

In an ownership, or “catch share,” system, individuals, companies, cooperatives, communities or other entities receive the right to take a set percentage of the annual catch of particular fish in particular areas. The system gives fishermen a powerful motive to fish sustainably, because the value of their share rises as fish stocks increase.

The economic concept here is that private ownership will increase the sense of responsibility on the part of group owners, and that they will make decisions to increase the long term value of their ownership investment.

Public Goods…

… have three important characteristics:

• They are a good or service that has wide appeal in a community
• They are non-exclusive, which means that anyone can benefit from them – no selling of tickets
• They are non-rival, which means that if one person “consumes” or benefits from a public good, nothing is used up in that good and others are free to continue using it.

A lighthouse is the classic example, where anyone in sight of it can benefit, and one person’s use of it does not restrict or diminish someone else’s benefit. You can extend this example to a wide range of public services, including public roads, fire and police protection, a national military, bridges, and more.

In addition to the three characteristics listed above, public goods generally are too expensive for a private solution – though individuals may value the good, their individual value is insufficient to justify a private purchase. If I lived on a dirt road in town, I would love to have it paved, and might even value that improved condition at something like $1,000. That sum, however, is not enough to pay for paving. The only way to garner support for a public good is to add the individual values placed on the good. If all of my neighbors chipped in, along with those who might drive down the road, we might be able to pay for the paving. The sum of those values tells us whether there is a possible solution in the community.

Sometimes community members can band together informally, or at least outside the auspices of government, and collect the funds necessary to purchase the public good. They then run into the problem of one or more free riders. Public goods are usually available to everyone – it is impractical to sell tickets or restrict the benefits to only some people. So someone who did not participate in the original funding can still benefit. As more people realize this, the group action falls apart. There is no incentive to participate and pay money if you can benefit later, for no cost. The solution to the free rider problem is government action, which usually involves taxation and enforcement.

The financing and provision of a public good is one of those infrequent times when government intervention in a market can benefit society without harm to others.

An associated concept is

Common Good

A common good shares the attributes of general attractiveness and non-exclusivity. The important different between a public good and a common good is that the latter is rival. That means that one person’s consumption uses up or affects the possible use by someone else.

Clean air is a good example of a common good. Everyone can enjoy it, but if one or more players “use it” – by releasing pollutants, for example, their use diminishes the ability of someone else to benefit from that air.

The “tragedy of the commons” is a favorite allegory here. Imagine a small village, where families are largely self-sufficient, but where there is publicly-owned grazing land. Individual families bear no cost when they allow their livestock to graze in the public land. Each individual family sees substantial benefit from the grazing opportunity and feel a very small proportion of the cost. Each family, making a rational decision, will increase its use of the grazing land as long as the marginal benefit to the family exceeds the marginal cost to the family. Put together, however, the decisions of all the families causes the land to be over-grazed. This is the tragedy of the commons. Private decisions lead to a public problem.

When lumber operations were in full swing here in the Rogue Valley individual mill operators could release smoke and other particulants into the air for a very low cost. They might feel some concern over the increasing smog and thermal inversions, but the benefit to each of them outweighed their share of the total cost. The result was increasing pollution in the valley, with consequences to all of the citizens.

Government can often provide a socially efficient solution in the case of a common good that is being depleted. Pollution regulation can offer a way to avoid the tragedy of the commons.

In a later post we’ll discuss the different ways government can provide incentives for polluters to change their behavior.