Rivalry (economics)

In economics, a good is said to be rivalrous or rival if its consumption by one consumer prevents simultaneous consumption by other consumers,[1] or if consumption by one party reduces the ability of another party to consume it. A good is considered non-rivalrous or non-rival if, for any level of production, the cost of providing it to a marginal (additional) individual is zero.[2] A good can be placed along a continuum ranging from rivalrous to non-rivalrous. The same characteristic is sometimes referred to as jointness of supply or subtractable or non-subtractable.[3]

Most tangible goods, both durable and nondurable, are rival goods. A hammer is a durable rival good. One person's use of the hammer presents a significant barrier to others who desire to use that hammer at the same time. However, the first user does not "use up" the hammer, meaning that some rival goods can still be shared through time. An apple is a nondurable rival good: once an apple is eaten, it is "used up" and can no longer be eaten by others. Non-tangible goods can also be rivalrous. Examples include the ownership of radio spectra and domain names. In more general terms, almost all private goods are rivalrous.

In contrast, non-rival goods may be consumed by one consumer without preventing simultaneous consumption by others. Most examples of non-rival goods are intangible. Broadcast television is an example of a non-rival good; when a consumer turns on a TV set, this does not prevent the TV in another consumer's house from working. The television itself is a rival good, but television broadcasts are non-rival goods. Other examples of non-rival goods include a beautiful scenic view, national defense, clean air, street lights, and public safety. More generally, most intellectual property is non-rival. In fact, certain types of intellectual property become more valuable as more people consume them (anti-rival). For example, the more people use a particular language, the more valuable that language becomes.

Non-rivalry does not imply that the total production costs are low, but that the marginal production costs are zero. In reality, few goods are completely non-rival as rivalry can emerge at certain levels. For instance, use of public roads, the Internet, or police/law courts is non-rival up to a certain capacity, after which congestion means that each additional user decreases speed for others. For that, recent economic theory views rivalry as a continuum, not as a binary category,[4] where many goods are somewhere between the two extremes of completely rival and completely non-rival. A perfectly non-rival good can be consumed simultaneously by an unlimited number of consumers.

Goods that are both non-rival and non-excludable are called public goods. It is generally accepted by mainstream economists that the market mechanism will under-provide public goods, so these goods have to be produced by other means, including government provision.

References

  1. ^ David L. Weimer; Aidan R. Vining. Policy Analysis: Concepts and Practice. Pearson: Prentice Hall. p. 72. ISBN 0-13-183001-5. Fourth Edition.
  2. ^ Cornes, R., T. Sandler. 1986. The theory of externalities, public goods, and club goods. Cambridge University Press.
  3. ^ Hess, C., E. Ostrom. 2006. Introduction. C. Hess, E. Ostrom, eds. Understanding Knowledge as a Commons: From Theory to Practice. The MIT Press, Cambridge, Massachusetts
  4. ^ Leach, J. 2004. A course in public economics. Cambridge University Press: 155–56

See also

Anti-rival good

“Anti-rival good” is a neologism suggested by Steven Weber. According to his definition, it is the opposite of a rival good. When more people share an anti-rival good, the more utility each person receives. Examples include software and other information goods created through the process of commons-based peer production.

An anti-rival good meets the test of a public good because it is non-excludable (freely available to all) and non-rival (consumption by one person does not reduce the amount available for others). However, it has the additional quality of being created by private individuals for common benefit without being motivated by pure altruism, because the individual contributor also receives benefits from the contributions of others.

An example is provided by Lawrence Lessig: "It's not just that code is non-rival; it's that code in particular, and (at least some) knowledge in general, is, as Weber calls it, 'anti-rival'. I am not only not harmed when you share an anti-rival good: I benefit."The production of anti-rival goods typically benefits from network effects. Leung (2006) quotes from Weber (2004), "Under conditions of anti-rivalness, as the size of the Internet-connected group increases, and there is a heterogeneous distribution of motivations with people who have a high level of interest and some resources to invest, then the large group is more likely, all things being equal, to provide the good than is a small group."Although this term is a neologism, this category of goods may be neither new nor specific to the Internet era. According to Lessig, English also meets the criteria, as any natural language is an anti-rival good. The term also invokes reciprocity and the concept of a gift economy.

Economic problem

The economic problem – sometimes called basic or central economic problem – asserts that an economy's finite resources are insufficient to satisfy all human wants and needs. It assumes that human wants are unlimited, but the means to satisfy human wants are limited. The economic problem is the problem of rational management of resources or the problem of optimum utilization of resources. It arises because resources are scarce and resources have alternative uses

Three questions arise from this:

• What to produce?

• How to produce? &

• For whom to produce?

What to produce?'What and how much will you produce?'

This question lies with selecting the type of supply and the quantity of the supply, focusing on efficiency.

e.g. "What should I produce more; laptops or tablets?"

How to produce? Capital goods or consumer goods'How do you produce this?'

This question deals with the assets and procedures used while making the product, also focusing on efficiency.

e.g. "Should I hire more workers, or do I invest in more machinery?"

For whom to produce?'To whom and how will you distribute the goods?' and 'For whom will you produce this for?' arises from this question. This question deals with distributing goods that have been produced, focusing on efficiency and equity.

e.g. "Do I give more dividends to stock holders, or do I increase worker wages?"

Economics revolve around these fundamental economic problems.

Marginal utility

In economics, utility is the satisfaction or benefit derived by consuming a product; thus the marginal utility of a good or service is the change in the utility from an increase in the consumption of that good or service.

In the context of cardinal utility, economists sometimes speak of a law of diminishing marginal utility, meaning that the first unit of consumption of a good or service yields more utility than the second and subsequent units, with a continuing reduction for greater amounts. Therefore, the fall in marginal utility as consumption increases is known as diminishing marginal utility. Mathematically:

MU1>MU2>MU3......>MUn

Public good

In economics, a public good is a good that is both non-excludable and non-rivalrous in that individuals cannot be excluded from use or could be enjoyed without paying for it, and where use by one individual does not reduce availability to others or the goods can be effectively consumed simultaneously by more than one person. This is in contrast to a common good which is non-excludable but is rivalrous to a certain degree.

Public goods include knowledge, official statistics, national security, common language(s), flood control systems, lighthouses, and street lighting. Public goods that are available everywhere are sometimes referred to as global public goods. There is an important conceptual difference between the sense of "a" public good, or public "goods" in economics, and the more generalized idea of "the public good" (or common good, or public interest), "a shorthand signal for shared benefit at a societal level". Examples of public good knowledge is mens, womens and youth health awareness, environmental issues, such as maintaining a nation's biodiversity, provision of welfare services and safety nets for future generations, sharing and interpreting contemporary history with a cultural lexicon, particularly about protected cultural heritage sites and monuments, popular and entertaining tourist attractions, libraries and universities.

Many public goods may at times be subject to excessive use resulting in negative externalities affecting all users; for example air pollution and traffic congestion. Public goods problems are often closely related to the "free-rider" problem, in which people not paying for the good may continue to access it. Thus, the good may be under-produced, overused or degraded. Public goods may also become subject to restrictions on access and may then be considered to be club goods or private goods; exclusion mechanisms include copyright, patents, congestion pricing, and pay television.

There is a good deal of debate and literature on how to measure the significance of public goods problems in an economy, and to identify the best remedies.

In a non-economic sense, the term is often used to describe something that is useful for the public generally, such as education and infrastructure, although these are not "public goods" in the economic sense.

The Lighthouse in Economics

"The Lighthouse in Economics" is a 1974 academic paper written by British economist Ronald H. Coase.

This paper challenges the traditional view that lighthouses are examples of public goods by showing that privately owned lighthouses existed in England. Coase aligned lighthouses more with club goods because they are excludable by way of charging port fees. Stopping short of a full analysis, the paper is generally viewed as an excellent insight into the dimensions of public goods and an invitation by Coase for a full economic analysis of the lighthouse.

Recently, the paper has been criticized by Van Zandt (1993) and Bertrand (2006) for not fully appreciating the characteristic of non-excludability of public goods. Historical records showed that those lighthouses which ran on voluntary payment did not survive long and eventually had to be granted the right to collect a light due by the government. Although other lighthouses were run privately, the right to collect a non-negotiable light due was supported by a patent from the crown. In other words, they were not privately provided via the free market as understood by the earlier writers.

Eventually, all these rights were withdrawn or bought up by the authorities because the total light dues that had to be paid by ships were too high as a result of rent-seeking activities of these so-called private providers of lighthouses. Barnett and Block (2007) qualify these critiques by showing that private lighthouses are possible, but do not show up in the historical record. Private lighthouses could obtain fees through negative publicity, voluntary clubs, and turning off the light to free riders.

Types of goods
By owner
By nature
Commons
Theory
Applications
Disposession/
redistribution
Scholars
(key work)

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