Rival and excludable goods

In this video, we're going to do a bit of a deep dive in classifying different types of goods. Before we even get into the thick of things, I'm going to make some definitions.

So the first definition is that of a rival good. Now, a rival good—one way to think about it is if one person uses it, it impairs the possibility of another person using it, or it impairs the ability of another person using it. So one person or party using it impairs or oftentimes prevents another party or another person from using it or getting the benefit from using it.

We're going to talk a lot about some goods that are rival goods versus non-rival goods. Now, another related idea is that of excludability. As we'll see, sometimes these things go together, but sometimes they aren't so excludable. Excludable means that you could stop someone from using it; you can exclude someone from using it.

What I'm going to do is set up a bit of a matrix where, on one axis, I'm going to think about whether something is a rival good or not, and then on another axis, I'm going to think about whether it's excludable or not. So let me just do a big two-by-two matrix here.

That looks big enough for me, and then, I said I would do two-by-two. That looks like about halfway; I always underestimate. Okay, that looks about halfway. Then I'll do it here as well.

On this axis, I'm going to think about whether something is a rival good or not. So, rival good? Question mark. This row is it a rival good; this row is it not a rival good. For the columns, I'm going to think about whether something is an excludable good. So, excludable? Excludable question mark: yes and no.

Let's start in this first top left cell. So, what are examples of things that are both excludable and rival goods? Pause this video and see if you can think of any.

Well, actually, many of the things that we imagine buying or using fall into this top left category. Things like bananas. Let's say, bananas are for sure excludable; I could prevent someone from taking my banana. You have to pay in order to have access to a banana, and it for sure is a rival good. If I have a banana, especially if I eat that banana, well, that's definitely going to impair your ability to eat that banana.

Another example is clothing. It's definitely a rival good; if I'm wearing this shirt, it's going to be very difficult for you to wear that shirt as well. Like bananas, you can force someone to pay money for that clothing; they're not just going to get as much clothing as they want for free. You could think of housing; you can exclude someone from your house or from an arbitrary house. They have to pay for it or pay for the rent.

It's a rival good; if one person or one family is using a house, it definitely impairs the ability for another family to use the house. We could keep thinking of more and more ideas in this top left. In general, goods in this top left are called private goods.

Now, let's imagine going to things that are excludable but maybe not as rivalrous. There's really a large spectrum of things, and as we'll see in the future, you can imagine some things are kind of blurring the line or it depends on what context you're using it.

But one example of something that is excludable but is not necessarily a rival good—that one person using it doesn't prevent the other person from using it—in theory, is something like satellite television. Satellite TV—why is that excludable? Well, you can force someone to pay to access satellite television. Only if you have access to some type of a device or some code, you might be able to watch the signal.

But the reason why it's not a rival good is you have these satellites in space. Here's my little satellite, and it's beaming the signal down to Earth. In theory, if I'm receiving the signal here and I'm watching satellite television, it doesn't impair someone else's ability to watch that satellite signal.

But we have artificially made it scarce by perhaps making people pay for that, even though everyone else could use it without impairing anyone else’s ability. That's why this category of goods is often called artificially scarce goods. Scarcity is artificially happening because you're making it excludable, but it doesn't necessarily have to.

Another example could be something like a private park. If I go buy a bunch of land and I landscape it nicely, I might say that you have to spend a thousand dollars to get entry to that park. Well, that is very exclusive, and I'm clearly excluding people from that park. But in theory, if I go and enjoy that park, and if it's large enough, well, it doesn't necessarily impair the ability for someone else to enjoy the park as well.

Now, if all of a sudden thousands or millions of people tried to enjoy the park, then it might become a little bit more rivalrous. Now, let's go on the other side—things that are not so excludable.

Well, if we think about things that are rival goods but not excludable, the classic example here is fish stocks. We're talking about fish stocks. Let's imagine some body of water here and there are fish in this body of water. Let’s say that everyone could—you can't exclude people from it—so anyone can go and stick their fishing rod into this pond or into this lake and get fish.

But the problem is if I get a fish, that's going to make it hard for someone else to get fish. You can imagine an extreme; if enough people are grabbing the fish, it is impairing the ability for other folks to get fish. This type of resource, or I should say this type of good, is known as a common resource—common resource.

It's prone to what is known as tragedy of the commons. We have a whole video on tragedy of the commons. The tragedy of the commons, which happens for common resources, is when every individual person acts in their own best interest. They might say, "Hey, I'm just going to get as much fish as I need to support my family. I can even make a business out of it."

At the end of the day, you might do something that's not in the common interest, and it's actually not even in your own personal interest long term, because if enough people fish in the short term and get that benefit, you might deplete all the fish and they're not able to reproduce. At some point, there are no fish left.

So, in the medium to long run, you have hurt everyone, including yourself. That would be the tragedy of the commons, which is typical for a lot of things that are common resources. Another thing that you could view as a common resource is timber or wood that's on land that anyone could access. A lot of cases—clean, clean water, I should say, not salt water—fresh water.

Now, on some level, if there's a lot of folks doing it, it's definitely going to be rivalrous. But if there's only one or two people and your source of fresh water is huge, well, then it might feel a little less rivalrous. So once again, we can debate it; it might be under different circumstances.

Now, last but not least, let's think about what are examples of things that are neither rivalrous nor excludable. That whole category is referred to as public goods. Pause this video and see if you can think of any.

Well, one thing that is often considered a public good is air. Now, you could debate at some extreme level if the air is really used up or something; you might start to feel like it's rivalrous. But for most cases, when one person is breathing air, it's not impairing the ability for someone else to use the air.

It's very hard to exclude someone from breathing; people just need to take a breath. So it sits out here in public goods. You can imagine something like national defense. National defense, if you are benefiting from national defense because of aircraft carriers and missile systems and planes and the military that the nation has, does that exclude me, your neighbor, from also benefiting from it? No, and in fact, it would be very difficult to exclude; you'd have to kick me out of the country for me to not benefit from the national defense.

So, in general, we would consider it to be non-excludable. And then, is it a rival good? Well, if you are feeling safe because of national defense, that doesn't impair my ability to feel safe from national defense. So it's also a non-rival good, at least in most general circumstances. So I would consider that a public good as well.

Now, when we talk about public goods, there's the notion of the free rider problem. Free rider—and that's because you can't exclude folks from using it. It's usually not in the incentive of any entrepreneur to try to make these public goods happen. So this is typically the domain of government.

In general, when thinking about this whole column of things that are non-excludable, this is a domain where the government tries to get involved. So, we don't have the tragedy of the commons with fish stocks or timber or fresh water. They might put some regulation in or some permitting process.