A private good has two key properties: It is rival and excludable. Rivalry in consumption is best seen as something physical. If I eat my ice-cream, you cannot have it because it is no longer there. Excludability is a legal or moral concept. It is my ice-cream; you may not have it because that would be stealing.
A public good is non-rival and non-excludable.
A commons good is non-excludable but rival. The classic example is the commons, the land where all villagers could graze their sheep. It is rival because the grass that my sheep ate cannot be eaten by your sheep. It is non-excludable because every villager has the right to put her sheep on the commons. The key problem with commons good is overconsumption. It is in my interest to have many sheep. If they graze too much and damage the soil, the costs will be spread over everyone in the village. The other people in the village are similarly incentivized to have as many sheep as they can afford. The result is overgrazing. A public road is another example of a commons good. No car can be denied access, but too many cars on the road cause congestion.
A club good is non-rival but excludable. Only members and ticket-holders are allowed into the club, but those inside can enjoy the music and amenities, without affecting the enjoyment of other insiders. The main problem with club goods is that the club owner wants to admit as many people as possible. The result is, again, congestion as consumption becomes rival.
Commons goods and club goods are sometimes called impure public goods. Examples of pure public goods are lighthouses and military defense. Anyone can see the light of a lighthouse and use it to their advantage, and this use does not prevent others from using it. No one is excluded from the national defense services provided by the military, and my use of this service does not affect your use.
- Rivalry in consumption sets public goods apart from externalities. Externalities and public goods are often confused. Both are market imperfections. Both describe situations in which private and social interests diverge. The easiest way to tell them apart is that externalities are between active agents and passive ones. A negative externality is imposed on an innocent bystander. A third party benefits from a positive externality. In contrast, all agents are active in public goods: They all want to consume the same good or service.
- You would need to pump my stomach, separate the ice-cream from its other contents, and refreeze it. It would be cheaper just to buy another one, and probably more appetizing.
- Commons goods are sometimes called congestible goods, a practice that should be avoided for confusion with commons goods which can be congested too.