Public goods (Cont.)

The classic "solution" to the problem of under-provision of public goods has been government funding through compulsory taxation (often, but not necessarily, accompanied by actual government agency production of the good or service in question). Although this may substantially alleviate the problem of numerous "free riders" that refuse to pay for the benefits they nevertheless love to receive, it should be noted that the political process does not provide any very plausible method for determining what the "optimal" level of provision of a public good actually is. When we cannot observe what individuals are willing to give up in order to get the public good, how can we (or the politicians) assess how urgently they really want more or less of it, given the other possible uses of their money? So any given public good will still most likely be either under-provided or over-provided under government stewardship. Note also that the "public goods" problem is an extreme special case of the more general problem of externalities. [See also: incentives]