Private goods, public goods and club goods compared

The two tests. Goods are told apart by asking two questions about them:

• Is it rival? A good is rival when one person's use leaves less of it for others; it is non-rival when one more user takes nothing away from the rest.
• Is it excludable? A good is excludable when a person who has not paid can be kept from using it; it is non-excludable when keeping people out is extremely hard, or possible only at a cost so high that it is not worth attempting.

Private goods are both rival and excludable. Example (our own): a reserved berth on an overnight train from Delhi to Lucknow. Once one passenger holds it, no one else can sleep on it (rival), and only a passenger with a ticket for that berth is allowed to use it (excludable). Because sellers can charge every user, markets can supply such goods. Buying a private good gives the buyer the right to use it and the right to keep others from using it.

Public goods are both non-rival and non-excludable. Example (our own): the cyclone warnings broadcast along the Odisha coast. One fishing family's hearing the warning leaves it just as available to every other family (non-rival), and there is no practical way to warn some households while keeping the warning from others who have not paid (non-excludable). National defence is the standard case of the same kind.

• Because no one can be stopped from enjoying the good, each person is tempted to let others pay: a free rider is someone who enjoys the benefit of a good while avoiding payment for it.
• Left to the market, a public good is therefore supplied in an inefficient quantity, which is why its provision is generally left to the government, guided by a comparison of costs and benefits.

Club goods are non-rival but excludable. Example (our own): a paid sports channel on a DTH service showing a cricket series. One more household tuning in does not reduce the picture for anyone else (non-rival), but the operator can switch off the channel for any household that has not paid (excludable). A firm can therefore sell a club good and charge each user, even though one more viewer takes nothing away from the others.

The three compared.

The lines between the classes are not rigid. Our example: free Wi-Fi at a railway station is close to a public good when few people are connected; at rush hour each extra user slows the others down, so use becomes rival, and a paid login would make it excludable. Likewise, a way of excluding non-payers can turn a public good into one the market can supply. (Goods that are rival but non-excludable form a fourth class, common resources.)

Conclusion. Private goods are rival and excludable, public goods are neither, and club goods are excludable but non-rival. Excludability decides whether a seller can charge for a good, so private and club goods can be sold in markets, while the non-excludable public good invites free riding and is mainly provided by the state.