Glossary: Public Goods

additional external cost
additional costs incurred by third parties outside the production process when a unit of output is produced
biodiversity
the full spectrum of animal and plant genetic material
command-and-control regulation
laws that specify allowable quantities of pollution and that also may detail which pollution-control technologies must be used
externality
a market exchange that affects a third party who is outside or “external” to the exchange; sometimes called a “spillover”
free rider
those who want others to pay for the public good and then plan to use the good themselves; if many people act as free riders, the public good may never be provided
intellectual property
the body of law including patents, trademarks, copyrights, and trade secret law that protect the right of inventors to produce and sell their inventions
international externalities
externalities that cross national borders and that cannot be resolved by a single nation acting alone
market failure
When the market on its own does not allocate resources efficiently in a way that balances social costs and benefits; externalities are one example of a market failure
marketable permit program
a permit that allows a firm to emit a certain amount of pollution; firms with more permits than pollution can sell the remaining permits to other firms
negative externality
a situation where a third party, outside the transaction, suffers from a market transaction by others
nonexcludable
when it is costly or impossible to exclude someone from using the good, and thus hard to charge for it
nonrivalrous
even when one person uses the good, others can also use it
pollution charge
a tax imposed on the quantity of pollution that a firm emits; also called a pollution tax
positive externalities
beneficial spillovers to a third party or parties
private benefits
the dollar value of all benefits of a new product or process invented by a company that can be captured by the investing company
private rates of return
when the estimated rates of return go primarily to an individual; for example, earning interest on a savings account
property rights
the legal rights of ownership on which others are not allowed to infringe without paying compensation
public good
good that is nonexcludable and nonrivalrous, and thus is difficult for market producers to sell to individual consumers
social benefits
the dollar value of all benefits of a new product or process invented by a company that can be captured by other firms and by society as a whole
social costs
costs that include both the private costs incurred by firms and also additional costs incurred by third parties outside the production process, like costs of pollution
social rate of return
when the estimated rates of return go primarily to society; for example, providing free education
spillover
see externality