Economics
literature catalogues goods around two parameters, exclusion and rivalry.
Rivalry implies whether the good could be shared by more than one agent without
having to produce it more. Inferred is the cost of production of the good to
the marginal agent is zero. Excludability is all about the ability or lack of
it in preventing another agent from consuming the good. Certain goods like air are
inherent in being unexcludable. In fact,
air given its abundance, is non rivalrous, in contrast to let us say, a fruit
which if had to be shared, has to be produced more. In other words, in case of
rivalrous goods marginal production is positive, for non rivalrous goods,
marginal production is practically zero.
The above bounds
lead to construction of four types of goods. Those goods inherently excludable
and non rivalrous like air etc. are called public goods. Public roads too have similar characteristics
and so do national security, defence etc.
However the inherent of non rivalry does not translate into non excludable.
Exclusion is more often an acquired distinction than innate. Swimming in a
pool might be non rivalrous but the club can erect barriers to access making it
excludable. Ditto with cable television,
again is non rivalrous yet restricted to subscribers. These goods are accessed
by only ‘members’ of the ‘club’ and thus designated club goods. Toll roads, intrinsically
public goods, by creating a price barrier are converted to club goods.
The very nature
of certain rivalrous goods make it difficult to be excludable. The ocean doesn’t
have any owner and therefore any one can fish in the ocean. Similarly, given
the non-ownership of pastures or forests, anyone can graze cattle or collect
firewood etc from these resources. Their nature of subtractibility ensures
positive marginal production cost and thus rivalrous. Therefore given their
common ownership, they are labelled common property resources. For a large number of goods, however, both properties
of excludability and rivalrous are applicable and thus they are called private
goods. Most goods fall in this category. For an agent premised on an objective
of profit maximization, it would be delight to convert public goods to private
goods. Therefore, there exists a pursuit of converting public to private,
common to club, thus crafting a curiosity in the machineries of conversion.
Borrowing from
Larry Lessig in an associated but dissimilar context, the instrument of translation
rests on four models of law, market, norms and architecture. There can be
market models of capturing and controlling resources with respect to
production, distribution, trade, access and consumption. Market models are
price driven, capture the most attention and finding utility in access and use
of private goods. Given lack of ownership of common property resources, there
is possibility of over use and thus depletion and destruction of the said
resources. To overcome the potential
tragedy of the commons, the government intervention happens by enacting laws to
regulate the access and use of such resources. In the traditional model
however, commons were subject to community norms, thus norms as mechanism for
production, distribution and access. Technology enables the architecture of the
good to be designed such as to prevent more than necessary access to goods. An
example would be Sony Root-kit CD which could be used to copy data only on
select number of machines. Yochai Benkler describes in a schematic diagram the
transformability of the good.
Source
:Yochai Benkler, Wealth of Networks, 2006
Both exclusion and rivalry are not discrete and neither have they materialised in black and
white. They are in fact a continuum or sliding scale with numerous shades of
grey. The sliding scale determines the degree of exclusion and rivalry. Some
goods exhibit non rivalry on small scale but yet turn rival at large scale.
Small amount of fishing in ocean is practically non rival, as is an occasional
grazing by a cattle or two in vast pasture, yet the increase in the scale would
make them rival causing conditions for tragedy of commons. Certain goods demonstrate feature of
semi-commons. In Ladakh, given the severity of winters, people abandon their
pastures and habitation and move to lower lying areas or towns. These seasonally
abandoned land are practically public goods for winter, yet in summer, as
people reclaim their land for grazing or camping etc. they transform into
private or club goods. Knowledge essentially is a public good but the tangible
output manufactured out of the same knowledge is a private good. Public library by law would be deemed a public
good, yet the increase use might create a degree of rivalry
A perfect
exclusion results in pure private good, an example being one’s desire not to
part or share with their personal belongings. Partial exclusion is itself a
function of selective or non-selective . First come first served or drawing by
random lots are good examples of resource allocations through non selective exclusion
mechanisms. Those desirous of opting for selective exclusion model owing to
higher transaction cost of non-selective mode or impracticality of the same
might adopt social or market based models. A good example for social non
selective exclusion would be carpooling wherin the car owner has the discretion
of choosing his or her ride partners. In fact social clubs, officer’s club in
armed forces etc. are also good examples for the same. Markets makes the most
noise and price is the determining factor for access to good or lack of it. Yet
as we observe life around us, market models perhaps occupy relatively a smaller
percentage of all transactions.
Incidentally,
goods like knowledge can be described as anti-rivalrous. The more they are shared,
the more cherished they grow into. Even goods like social media platforms,
telephone network offer anti rival characteristics given their value
experiences an exponential surge every time a new user enters into the
stream. Economics, at the heart, is the investigation
of behaviour of agents under environments of scarcity and profusion. For that
reason, a reading of nature of goods becomes vital in ensuring the objectives
of productive, allocative and distributive efficiencies.
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