92. Information Sharing

Note: This post is the ninety-second in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

A number of posts ago, I discussed an essay by Joseph Heath in which he posited that there are 5 distinct types of cooperation: Economies of scale, trade, risk-sharing, information transmission, and self-binding.

This week I wanted to go into a bit more detail on the differences between information transmission and what we normally think of as trade, using the essay, "The Next Economy" by Brad Delong and Michael Froomkin as a starting point.

Delong and Froomkin set out 3 primary differences between information and more typical physical goods:

1) Information is non-excludable - Once a piece of information exists it is hard to control who has access to it (recall the friends episode where Chandler and Joey try to figure out the path that the information that Ross slept with someone else will take to get to Rachel). The primary implication of non-excludability is that goods might be under-produced (as compared to the socially optimal level of production) because people won't be forced to pay a price for the information that is commensurate with the value that information has to them (i.e. somebody might be willing to pay a high price for the latest Sufjan Stevens album, but instead just download a free copy off the internet).

Society has generally responded to this lack of excludability by trying to restore it via copyright and patent laws that go after free riders.

As Delong and Froomkin note, this is a balance between the costs of enforcement and the reduction in information sharing on the one hand, vs. the added incentives to generate valuable information on the other.


2) Information is non-rival - You can't really transfer possession of information from one person to another, you can only share it. Unlike, say, a chair which only one person can sit on at a time, an effectively infinite number of people can have access to the same piece of information.

As the authors say, "the existence of large numbers of important and valuable goods that are non-rival casts the value of competition itself into doubt."

In a goods market, when sellers compete on price they allow more people to benefit from the product being sold by reducing the price to their marginal cost. But with non-rival goods like information, the marginal cost is zero and if competition was to drive the price down to 0, the producers would go out of business. In this environment, competition might end up taking less beneficial forms than lower prices (e.g. methods to lock customers into your product and prevent them from having access to other providers).


3) Transparency: When you're buying a chair, you can usually get a pretty good idea of the quality and comfort of the chair before you buy it. But with information, this is much more difficult. If you don't have the information, how can you judge its value. If you do have the information, why would you pay someone else for it. Information is the side product that allows you to value other products before you buy them, but it is hard to make it work on itself.

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We can see that the unique nature of information undermines some of the traditional commercial virtues that make up the commercial syndrome.

The benefit of competition is reduced with information. Both from economies of scale (people are better off browsing a single large library than they are searching through a million little ones.) and from the hazards of price competition in an environment where marginal costs are zero.

The (financial) incentive to innovation and industriousness is lowered by the lack of rewards that may come for your efforts.

The benefit of being honest is less when it is difficult for people to tell ahead of time if you are lying or providing a poor quality product.

Respect for contracts is undermined by a legal system that places artificial restrictions on sharing of information that reduce overall social welfare and technology that makes evading those restrictions easy for anyone to do with little consequence.

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On the other hand, some commercial syndrome elements seem even stronger when it comes to information - shunning force makes even more sense when there is so little to be gained through the use of it (see the widespread disdain for industry groups that sue their customers).

Collaboration with strangers has flourished in an era of information transmission.

The quick transmission of information has led to a high regard (some might say too high) for inventiveness and novelty.

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With respect to the guardian syndrome, information does have some of the characteristics of public goods, meaning that there are social benefits to government ensuring there is adequate production of them. And indeed government funds most basic research and takes a major role in transmitting information (via education) to each generation of citizens.

But information sharing is no place for the use of force, or respect for tradition, and individuals and companies that spend their time in the world of information generation and transmission often seem just the opposite of stuffy government rules and procedures - so clearly information sharing is not a typical guardian activity.

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To be honest, I'm not sure quite what to make of information as an area of cooperation that seems to be distinct from both the traditional commercial syndrome ethics and from traditional guardian ethics. Maybe the unique nature of information demands its own set of ethics but the relatively new importance of information in the economy means that this has yet to be fully developed.

69. Selfishness, Altruism and Rationality, Part 2

Note: This post is the sixty-ninth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week's topic is a continuation of last week's post on the book, Selfishness, Altruism and Rationality, by Howard Margolis

In the last post, we talked about how Margolis explained the failings of the traditional rational choice theory to explain human behaviour in situations where self-interest conflicted with group interest. This is a pretty common observation, generally taken for granted outside of economic circles, but Margolis goes a step further and proposes an alternative model of human motivation.

Margolis calls his model the Fair Share model and it is based on the notion that people feel a desire to 'contribute their fair share' to the public welfare. He describes the underlying motivation of people in this model as follows:

"The larger the share of my resources that I have spent unselfishly, the more weight I give to my selfish interests in allocating marginal resources. On the other hand, the larger the benefit I can confer on the group compared with the benefit from spending marginal resources on myself, the more I will tend to act unselfishly."

Margolis imagines that a person (who he calls 'Smith') contains two separate components, 'G-Smith' who values (Smith's perception of) the general welfare, and 'S-Smith' who values only Smith's personal welfare. Smith stays in equilibrium by adjusting the level of his spending on the public interest so that the marginal value of more public spending by Smith (to G-smith) equals the marginal value of more selfish spending (to S-Smith).

Margolis argues that, from an evolutionary point of view, it would be easier for this sort of limited, 'fair share' altruism to be maintained over time, because it would be less vulnerable to being exploited by selfish people than an unlimited altruism that didn't keep track of how much a person had already sacrificed their personal interests for the public good.

Margolis further notes that,

"The notion that human beings might have the kind of dual preference structure posited by this study is very old, going back at least to Plato's distinction between man as a private individual and man as citizen."

In chapter 6, Margolis goes into more detail on how his model differs from the classical rational choice model, and helpfully unpacks some of the assumptions which are embedded within the rational choice model (but often go unstated or unnoticed):

1. Smith can be treated as narrowly self-interested
2. Smith's utility function is a goods function (i.e. he only cares about what goods people possess, not how they got them or what role he played in determining the allocation)
3. Smith chooses in conformity with the principle of consumer sovereignty (i.e. Smith thinks what's best for society is that everybody get what they wants, as opposed to Smith having a vision of what's best for society which might conflict with what other people want).
4. Smith has only one utility function (as opposed to having one for his own interests and one for the social interest).

As Margolis explains, economists, if confronted with these assumptions might deny that they are a necessary part of the model, but after their denial, they will then go right back to building models and making predictions that only make sense if those assumptions are there.

He also explains how, in the marketplace, where the public interest and private interest are in alignment (subject to all the caveats he have discussed in this series), the difference between the predictions of his 'fair share' model and a traditional rational choice model that posits self-interested behaviour by all participants is not that big. It is primarily in political situations where the differences will be clearer, because here the contrast between private and social objectives is sharper.

If you've had the same struggles as I have over the years trying to pin down how economists come to the (often wrong-headed) conclusions they do, this chapter is a must read. Margolis is that rare bird who knows enough economics to be able to explain things clearly using the language of economics but has still retained enough common sense to be interested in models of people as they actually are as opposed to making unrealistic assumptions so as to have a model that is easier to work with mathematically.

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Later on, Margolis talks about how his fair share model explains why people might act differently in different circumstances, pursuing their own interest in one and the public interest in another,

"If I am a producer facing reasonably competitive markets (even the experience of Ford in trying to promote safety features in automobiles in the mid 1950-s is instructive here), then I will scarcely be in a position to do anything very different than produce what the market seems to want. Even if my choices affect only me and my customers, I will not have any customers to benefit unless I offer them things they want at a price they are willing to pay. If there are external effects (environmental side-effects), the dilemma is even worse.

However, if I am in a senior position in my government, my decisions on public matters often affect society in a large way. This being so, there will be no necessary inconsistency between my behaving as a narrow profit maximizer (to a good approximation) as a private businessman; as a rather casual decision maker, as a voter, and as a very serious decision maker, working very hard and feeling great personal responsibility for the social effects of my decisions as a high public official.

...I wish to say enough here to indicate why [James] Buchanan's and [Gord] Tullock's 'paradox of bifurcated man' seems, from the [Fair Share model] view, to reflect a mistaken assumption that an internally consistent model could not account for a disposition for the same individual to behave in a very public spirited way in some circumstances and as a profit-maximizing economic man in other contexts."

Now this just seems like common sense to me, but then consider the surprise in the reactions of experimenters when they found, exactly as Margolis and his model would have predicted, that when they ran the exact same Prisoner's Dilemma experiment on the same people and only changed the name (in one case 'Wall Street Game' in the other 'Community Game') that people behaved very differently. As the abstract states,

"The results of these studies showed that the relevant labeling manipulations exerted far greater impact on the players’ choice to cooperate versus defect—both in the first round and overall—than anticipated by the individuals who had predicted their behavior." (emphasis added).

My one disagreement with Margolis in the passage above is that after stressing the role played by competition in preventing public interested behaviour in the marketplace, he then fails to note how the lack of competition in the public sector is an essential component of allowing the pursuit of the public interest there (although to be fair, it is somewhat implied in the text).

Finally, Margolis offers some interesting speculation on how caste might be partially explained by the fair share model. In the early stages of society, people who are more disposed towards public action would be more willing to undertake key tasks such as organizing irrigation schemes or a defensive army. In successful societies, these actions lead to large gains for the whole society, and those who were among the early organizers of the action would claim some of that gain for themselves, leading to greater wealth and influence. But under the fair share model, the more wealth you have, the more resources you will donate to the public interest. Richer people have more resources to donate in the first place, plus they donate a higher proportion of their resources, so there is a positive feedback whereby people with more power put more effort into the public realm which gets them more power in return and so on.

As Margolis says,

"As generations pass, the resulting division between those who manage and defend the state (often enough at real personal cost and risk) and those who labor comes to seem to accord with the natural order. What gives that presumption special potency is that there is some substance - something more than a self-serving myth - in the presumption that the noble and commoner are motivated in different ways. In terms of [the Fair Share model], that presumption is false at its root [because all people have an interest in their own welfare and the public welfare] but nevertheless consistent with observed behaviour. Our modern colloquial usage of words like 'noble' and 'peasant' is an anachronism but not necessarily a libel."

If you like economics but generally find economists irritating, and you are interested in the public welfare and the interaction between the two topics, this is a great book.

68. Selfishness, Altruism and Rationality, Part 1

Note: This post is the sixty-eighth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week's topic is the book, Selfishness, Altruism and Rationality, by Howard Margolis

Margolis' goal in this book is to extend the Economic Theory of Rational Choice so that it covers political situations as well as Economic ones.

He opens the book with a quote from James Coleman which eloquently outlines the problem, while also covering our now familiar choice between two versions of self-interest,

"Classical economic theory always assumes that the individual will 'act in his interest'; but it never examined carefully the entity to which 'his' refers. Often, as when households are taken as the unit for income and consumption, it is implicitly assumed that 'the family' or 'the household' is the entity whose interest is being maximized. Yet this is without theoretical foundation, merely a convenient but slipshod device. In this case, as in many others (e.g. when a man is willing to contribute much, even his life, to national defense, rather than use a strategy that will push the cost onto others), men act as if the 'his' referred to some entity larger than themselves. That is, they appear to act in terms, not of their own interest, but of the interest of a collectivity or even of another person. Indeed, if they did not do so, the basis for society could hardly exist.

Yet how can this be reconciled with the narrow premise of individual interest ... we could simply solve the problem by fiat, letting 'his' refer to whatever entity the individual appeared to act in the interest of. This would obviously make the theory trivially true, and never disconfirmable. A more adequate solution is one which states the conditions under which the entity in whose interests he acts will be something other than himself."

We saw in the last post that James Buchanan was willing to settle for a theory that based human motivation solely on the desire for material gain, arguing that the desire for material gain is always present to some degree in people.

But Margolis isn't willing to settle so easily,

"A satisfactory theory of social choice requires a model of individual choice that is consistent with the way human beings are observed to behave. Yet, even after a generation of work on the problem of applying the economic 'rational choice' perspective to social choice, often leading to striking results, this fundamental problem remains unresolved. We still lack a model that accommodates (without fudging) such obvious observations as that citizens bother to vote and do not always cheat when no one is looking. A resolution of this difficulty can be expected to require some departure from conventional assumptions."

Margolis goes on to indicate that, in his opinion, the main difference between situations which can modelled fruitfully using the traditional model and situations requiring a new model is that situations where the old model works are economic in nature whereas situations where a new model is required are political in nature (echoes of Mancur Olson specifically indicating that this theories on collective action only applied to economic groups, not groups formed for no-economic reasons.

Says Margolis,

"This classical model is profoundly shaped by its root concern with the problems of the marketplace. But in politics we are dealing with goods allocated largely through some coercive process, not through voluntary market transactions; and political 'goods' (such as justice) are often inherently unmarketable. Nonmarket effects (externalities) which are aberrations - market failures, which one seeks to correct - for most economists are the central feature of political life for political scientists.

We can expect that Samuelson's notion of public goods (which can best be understood as a generalization of the notion of externalities) would play a central role in any viable formal theory of politics, and indeed that is the case. It is not too strong a statement to say that societies, and hence politics exist because public goods exist."

Margolis spends a chapter illustrating his argument that the classical rational choice models fails to handle political situations via a series of 3 examples:

* Voting
* Repeated Prisoner's Dilemmas
* Public Goods

In the case of voting, the rational choice model fails to explain why people might go the trouble of voting even when they know their vote won't affect the outcome.

In the case of the repeated Prisoner's Dilemma, the model fails to explain why people will generally cooperate even though on any given iteration they could gain by defecting against the other player in the dilemma.

In the case of public goods, the model fails to explain why people will make contributions to things that are publicly available to everyone. Margolis asks us to imagine a hypothetical man named Smith who is planning a $10 donation to his favourite charity. The classical economic model says that Smith would do this because he wants the charity to have $10 more available to it than it does currently.

But now imagine Smith finds out that someone else has just donated $10 to the charity. Under the classical model, Smith, realizing that his favourite charity is now $10 richer just as he wanted it to be, no longer feels a need to make a donation.

Of course in reality there may be some relationship between how much money a charity has raised and how much people contribute, but it is nowhere near this strong a relationship. Clearly there must be something more to Smith's motivation than simply wanting the charity to be $10 richer, but the classical model has no answer to what that might be.

Margolis argues that there are two altruistic motivations that need to be taken into consideration. We have an altruistic motivation based on wanting other people to have more, and an altruistic motivation based on wanting to contribute our fair share (what Margolis calls 'participation').

Margolis also notes that all of his examples are prisoner's dilemma type situations, which is not surprising since the Prisoner's Dilemma is the formalization of situations where what is in the self-interest of participants is opposed to the group interest.

In the next post we will look at the solution that Margolis proposes in order to create a model of rational choice that can model human behaviour accurately in the case of prisoner's dilemma / public goods type situations.

15. The Logic of Collective Action

The Logic of Collective Action, by Mancur Olson, is a pretty straightforward book, at heart. There is one primary argument which is at once profound and straightforward:

Almost all group activity has a prisoner's dilemma type structure.

The argument is as follows:
1) People form groups to further their interests
2) The interests that the group is intended to further are non-excludable* in the sense that the benefits will accrue to all group members, regardless of their contribution towards achieving them.
3) People have an incentive to 'free ride' by getting the benefits of group membership while not contributing personally towards the achievement of group goals.

* Olson calls these public goods but acknowledges that the 'non-rival' component of the standard definition of public goods is not all that relevant to his argument

For example:

1) a labour union is formed to further its member's (the workers) interests.
2) the goals that the union pursues higher wages, better working conditions, etc. will go to all union members
3) Maintaining an effective union takes work (dues need to be paid to support it financially, people have to be willing to go on strike and forego their paycheck if necessary, etc.) and workers have an incentive to try and gain the benefits from the union without contributing towards achieving its objectives.

The notion is that if other people are going to cooperate (i.e. contribute towards group goals), then the best approach for a person is to defect or free-ride (i.e. not contribute towards group goals). And if other people aren't going to contribute towards group goals then you are still best off to also not contribute.

This is equivalent to the original Prisoner's Dilemma scenario where regardless of what your fellow prisoner does, the best option is to rat them out and confess.

Olson is primarily arguing against those who assume that group members always have individual interests that are aligned with the group interest.

Olson figures that in small enough groups, the members may each get enough benefit for it to be worth it to contribute (although contribution levels will still be less than the optimal or efficient level) but for larger groups there is unlikely to be any contributions (or any group) at all.

Taking the example of labour unions, Olson notes that historically unions started from small groups and only later merged into bigger organizations.

For large or 'latent' groups, as Olson calls them, to maintain themselves, they either need to make membership in the group mandatory to prevent free riding, or they need to provide a specific benefit to group members that justifies their membership beyond the public benefit. This is why unions want a closed shop and why professional associations (e.g. bar associations) want the same thing.

It is also why small groups of people with a common interest are often more powerful than large groups with a common interest. Olson notes that business lobbyists are effective within a particular industry, where there are typically only a handful of players, but lobby groups that represent business as a whole are weak because the individual members have little incentive to support the general business lobby group.

One way around this dilemma, Olson notes, is for large groups to use a federated structure, much in the way that most large unions are organized with locals and umbrella groups. Another similar option, that Olson doesn't mention, but I want to throw in so I don't forget about it later, is to use a hierarchical structure, where there are small groups that report to a single superior, and then a small group of superiors who report up to another higher superior, and so on.

Naturally, the larger the group, the less likely it is that you can count on everyone else to contribute, which in turn means the less likely you are to contribute so the harder it gets to achieve the group goals as the group gets larger.

On the topic of large groups, Olson notes that even the state, which can appeal to patriotism and which provides large economic benefits to the citizens by virtue of its existence, can not rely on voluntary contributions and instead must compel people to pay taxes.

Unfortunately, Olson does not pursue this further to inquire why, under a democracy where voters could presumably elect those politicians promising to eliminate taxes, taxes still remain, or to consider the possibility that a significant number of people are happy to pay taxes as long as they know that everybody else is paying a fair share as well - meaning that the compulsory nature of taxation might only be down to a small group of anti-social people who would try to free-ride. Or, in other words, the ironic prospect that it might only be due to the presence of libertarians that we need a coercive state.

We can see the limitations of Olson's concerns about the impossibility of collective action in large groups more clearly from a passage on page 64,

"Some critics may protest that even if social pressure does not exist in the large or latent group, it does not follow that the completely selfish or profit maximizing behaviour, which the concept of latent groups apparently assumes, is necessarily significant either; people might even in the absence of social pressure act in a selfless way. But this criticism of the concept of the latent group is not relevant, for that concept does not necessarily assume the selfish, profit-maximizing behaviour that economists usually find in the marketplace. The concept of the large or latent group offered here holds true whether behaviour is selfish or unselfish, so long as it is strictly speaking "rational".

...

"A man who tried to hold back a flood with a pail would probably be considered more of a crank than a saint, even by those he was trying to help. It is no doubt possible infinitesimally to lower the level of a river in a flood with a pail ... but the effect is imperceptible, and those who sacrifice themselves in the interest of imperceptible improvement may not even receive the praise normally due selfless behaviour."

It's hard to imagine a poorer choice of analogy. Anyone who's ever lived near a river, and even most who haven't, probably appreciates that you don't hold back a flood with a pail (what would you do with the water in your pail?), you hold back a flood with sandbags. I mention the word 'sandbag' and what mental image comes into your head? If you're like me it's the image of a large group of people working day and night often with the help of many selfless volunteers to build walls of sandbags to prevent a river from flooding a community - exactly what Olson is arguing will not happen.

Moving on, there's a very interesting passage on page 100 where Olson quotes at length from Hans Ritschl in 'Community Economy and Market Economy',

"The fatherland and mother tongue make us all brethren together. Anyone is welcome to the exchange society who obeys its regulations. But to the national community belong only the men and women of the same speech, of the same ilk, the same mind ... Through the veins of society streams the one, same money; through those of the community, the same blood...

Any individualist conception of "the State" is a gross aberration ... [and] nothing but a blind ideology of shopkeepers and hawkers.

The State economy serves the satisfaction of communal needs ... If the State satisfies needs which are purely individual, or groups of individual needs which can technically be met otherwise than jointly, it does so for the sake of revenue only.

In the free market economy the economic self-interest of the individual reigns supreme and the almost sole factor governing relations is the profit motive, in which the classical theory of the free market economy was appropriately and securely anchored. This is not changed by the fact that more economic units, such as those of associations, cooperatives or charities, may have inner structures where we find motivations other than self-interest. Internally, love or sacrifice, solidarity or generosity may be determining: but irrespective of their inner structures and the motives embodied therein, the market relations of economic units with each other are always governed by self-interest.

In the exchange society, then, self-interest alone regulates the relations of the members; by contrast, the state economy is characterized by communal spirit within the community. Egotism is replaced by the spirit of sacrifice, loyalty and communal spirit ... This understanding of the fundamental power of the communal spirit leads to a meaningful explanation of coercion in the state economy. Coercion is a means of assuring the full effectiveness of the communal spirit, which is not equally developed in all members of the community.

The objective collective needs tend to prevail. Even the party stalwart who moves into responsible government office undergoes factual compulsion and spiritual change which makes a statesman out of a party leader ... There is not a single German statesman of the last 12 years .. who escaped compliance with this law."

To which Olson comments,

"Ritschl's argument is exactly the opposite of the approach in this book. He assumes a curious dichotomy in the human psyche such that self-interest rules supreme in all transactions among individuals, whereas self-sacrifice knows no bounds in the individual's relationship to the state and to the many types of private organizations."

Personally, I was instantly struck by the echoes of Jane Jacobs 'Systems of Survival' in Ritschl's passage, with his references to an exclusive state sector with a spirit of loyalty, sacrifice, coercion and communal spirit in contrast with a cosmopolitan commercial sector open to all and characterized by pursuit of self-interest. Not to mention Olson's response describing Ritschl's 'curious dichotomy'!

Thinking of Jacobs helps us find the passage in Olson's work that reconciles his views with the 'exactly opposite' views of Ritschl - footnote 17 on page 61, which says,

"In addition to monetary and social incentives, there are also erotic incentives, psychological incentives, moral incentives and so on. To the extent that any of these types of incentives leads a latent [large] group to obtain a collective good, it could only be because they are or can be used as 'selective incentives," i.e., because they distinguish between those individuals who support action in the common interest and those who do not. Even in the case where moral attitudes determine whether or not people will act in a group-oriented way, the crucial factor is that the moral reaction serves as a "selective incentive." If the sense of guilt, or the destruction of self-esteem, that occurs when a person feels he has forsaken his moral code, affected those who had contributed toward the achievement of a group good, as well as those who had not, the moral code could not help to mobilize a latent group.

To repeat: the point is that moral attitudes could mobilize a latent group only to the extent they provided selective incentives. The adherence to a moral code that demands the sacrifices needed to obtain a collective good therefore need not contradict any of the analysis in this study; indeed this analysis shows the need for such a moral code or for some other selective incentive." (my italics)

So on page 100, Olson is baffled by Ritschl's argument that people will abide by a collectivist moral code when working in collective activities and a self-interested moral code when working in market activities, suggesting that this was the opposite of his argument.

But back on page 61, Olson came out and said that one way to overcome the problems of collective action was to employ a special moral code for collective activities which puts the group interest ahead of the selfish interest - something that his theory demonstrates the need for!


I'll close this post with a passage from David Hume's 'A Treatise of Human Nature' that Olson, in footnote 53 (many of the most important parts of the book are in the footnotes), says was pointed out to him by John Rawls,

"There is no quality in human nature which causes more fatal errors in our conduct, than that which leads us to prefer whatever is present to the distant and remote, and makes us desire objects more according to their situation than their intrinsic value. Two neighbours may agree to drain a meadow, which they possess in common; because it is easy for them to know each others mind; and each must perceive, that the immediate consequence of his failing in his part, is, the abandoning the whole
project. But it is very difficult, and indeed impossible, that a thousand persons should agree in any such action; it being difficult for them to concert so complicated a design, and still more difficult for them to execute it; while each seeks a pretext to free himself of the trouble and expence, and would lay the whole burden on others. Political society easily remedies both these inconveniences. Magistrates find an immediate interest in the interest of any considerable part of their subjects. They need consult no body but themselves to form any scheme for the promoting of that interest. And as the failure of any one piece in the execution is
connected, though not immediately, with the failure of the whole, they prevent that failure, because they find no interest in it, either immediate or remote. Thus bridges are built; harbours opened; ramparts raised; canals formed; fleets equiped; and armies disciplined every where, by the care of government, which, though composed of men subject to all human infirmities, becomes, by one of the finest and most subtle inventions imaginable, a composition, which is, in some measure, exempted
from all these infirmities."

14. Public Goods

A concept that will be useful for the next book review is the economic notion of 'public goods'

I'll let wikipedia do the explaining:

'In economics, a public good is a good that is non-rivaled and non-excludable. This means, respectively, that consumption of the good by one individual does not reduce availability of the good for consumption by others; and that no one can be effectively excluded from using the good. ...

For example, if one individual drinks a milkshake, there is no milkshake left for anyone else, and it is possible to exclude others from consuming the milkshake; it is a rivaled and excludable private good. Conversely, breathing air neither significantly reduces the amount of air available to others, nor can people be effectively excluded from using the air. This makes it a public good'

So you have four possibilities:

1) A good can be 'rival' (meaning if I take some, there's less for you) and 'excludable' (the provider can control who the recipients are) - private goods

Example: The milkshake, most basic goods such as TV's, toasters, etc.

2) A good can be 'rival' (if I take some there's less for you) and 'non-excludable' (provider can't control who the recipients are)

Example: Natural resources that are held in common, such as fish in the ocean.

3) A good can be 'non-rival' (taking some doesn't diminish what is available) and 'excludable' (provider can control who the recipients are)

Example: Information that can be limited to certain recipients, e.g. Cable television

4) A good can be 'non-rival' (taking some doesn't diminish what is available) and 'non-excludable' (provider can't control who the recipients are) - these are public goods

Example: Broadcast television, information goods that can't be limited to certain recipients (e.g. songs in the internet era)

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Note that non-excludable goods, especially those with a high cost of provision, are less likely to be provided by a private party due to the inability of preventing people who won't contribute to the cost of provision from receiving the benefits. i.e. the presence of free-riders.

This is why non-excludable goods tend to be provided by government (and are known as public goods, where they are non-rival), because only government has the power to compel all people, including wouldbe free riders to support the provision of beneficial goods that would otherwise go unproduced.