Public Bad – in Economics

Public Bad – in Economics

A public bad has negative impacts (externalities) on people and communities, resulting in severe social welfare loss. In economics, a public bad is the symmetrical opposite of a public positive. Air pollution is the most obvious example because it is non-excludable and non-rivalrous, yet it has a negative impact on wellbeing. A good is non-excludable if people cannot be barred from reaping its advantages when the good is delivered. A good is nondepletable if one person’s enjoyment of it does not reduce the amount of the item available to others. For example, clean air is a public good because its consumption by one person does not reduce the supply available to other people, and there is no mechanism to prevent someone from enjoying it if it exists.

A public bad is defined similarly as a “bad” that is non-excludable and non-depletable. Polluted air, for example, is a public bad for the same reasons that clean air is a public good. Whereas decentralized decision making (the market) tends to under-provide public goods, decentralized decision making (the market) tends to over-provide public bad, because the parties creating the public bad do not account for the negative impacts (or externality) imposed on others. The intervention of a third party, generally the state, is one option for mitigating the occurrence of public bad.

It is good in “green economics” that produces socially unfavorable outcomes (or an externality in standard economics). Most “green economists” recommend tracing such impacts back to the seventh generation. Thus, in the golf course example, both the recreational benefits and the negative impacts from deforestation, associated habitat and biodiversity loss, and pesticide toxicity would be estimated across those generations, and some amortization would be applied to determine whether the golf course was a public benefit or a public bad from the perspective of that seventh generation.

In contrast to private goods, which are both excludable and depletable, public goods are both excludable and depletable. Food is a simple example of a private good: one person’s use of a piece of food deprives others of it, and it is easy to restrict some others from enjoying it. Some products fall cleanly into neither category because they are excludable but nondepletable (such as a music event) or non-excludable but depletable (such as a car).

Green economists contend that the costs of public goods are hidden as externalities from the enterprises that cause them, implying that the market is dysfunctional. The legal difficulty is to devise a mechanism that accounts for these expenditures. The United States Environmental Protection Agency is one example of an endeavor to ensure that the costs of public goods are considered, however, some parties on the right and left have questioned the efficacy of its efforts.

Public goods (and bads) are standard instances of goods that are often undersupplied by the market. Profit-maximizing firms and self-interested individuals, for example, can be expected to choose levels of production and consumption such that the aggregate level of pollution caused by their activities leaves everyone worse off than if each were prevented from producing or consuming as much as is individually optimal. Taxes and subsidies, as well as government action, are frequently proposed responses to such “market failures.”