Government Provision of Public Goods
Market Failure: Public Goods
AO3
Syllabus requirement
Governments may directly provide public goods or contract private firms to do so, addressing market failure.
Assessment objectives
AO3 Synthesis and Evaluation
Summary
This topic explains why public goods cause market failure and how governments can respond by providing or funding them. Public goods are non-excludable and non-rivalrous, which creates a free-rider problem and leads to under-provision by private markets. Governments can use direct provision or contracting out, and should compare marginal social benefit (MSB) and marginal social cost (MSC) to choose an efficient quantity.