Common Property and Public Goods

In Chapter 13, we learned how incomplete property rights can lead to inefficiency. In this chapter, we examine some important special cases. One is the theory of common property, which is property that has no owner. An example is a lake where anybody can fish and for which nobody has the authority to charge an admission fee. Another topic is the theory of public goods, which are goods that, once produced, are costlessly available for use by others. An example is a streetlight you install in front of your house, which illuminates your neighbor’s properties for free.Each of these theories is a topic in the theory of externalities. The user of a common property resource imposes a negative externality on other users, so that such property tends to be overused. The producer of a public good creates a positive externality, so that such goods tend to be underproduced. We explore the nature of these problems and examine some potential solutions as well.