In a recent post, commenter Jeremy H. helped point out that the use of the term “public good” is grossly abused in the case of transportation. Even Nobel economists refer to roads as “important examples of production of public goods,” ( Samuelson and Nordhaus 1985: 48-49). I’d like to spend a little more time dispensing of this myth, or as I label it, an “Urban[ism] Legend.”
As Tyler Cowen wrote the entry on Public Goods at The Concise Library of Economics:
Public goods have two distinct aspects: nonexcludability and nonrivalrous consumption. “Nonexcludability” means that the cost of keeping nonpayers from enjoying the benefits of the good or service is prohibitive.
And nonrivalrous consumption means that one consumer’s use does not inhibit the consumption by others. A clear example being that when I look at a star, it doesn’t prevent others from seeing the same star.
Back when I took Microeconomics at a respectable university in preparation for grad school, I was taught that in some cases roads are public goods. We used Greg Mankiw’s book, “Principles of Economics” which states the following on page 234:
If a road is not congested, then one person’s use does not effect anyone else. In this case, use is not rival in consumption, and the road is a public good. Yet if a road is congested, then use of that road yields a negative externality. When one person drives on the road, it becomes more crowded, and other people must drive more slowly. In this case, the road is a common resource.
This explanation made sense, but I was skeptical – something didn’t sit right with me. Let’s take a closer look.
First, Mankiw uses his assertion as an example of rivalrous vs nonrivalrous consumption, while not addressing the question of excludability. Roads are easily excludable through gates or any other mechanism that could restrict access.
Furthermore, Mankiw’s assertion that an uncongested road is nonrivalrous is simply confusing rivalrousness with the fact that the road is under-utilized and/or over-supplied at certain times.
For a silly example: if the government literally manufactured mountains of marshmallows free for the taking, Mankiw would have to consider marshmallows equally as non-rivalrous and non-excludable as uncongested roads in the US. Would he then call marshmallows a public good?
Thus we can clearly see that all roads (when done right) are neither nonrival nor non-excludable. We can use the diagram below (from Living Economics) to see that a congested (or tolled to prevent congestion) road is a private good, and in the case that a roadway is oversupplied, it is simply a “low-congestion good”, often called a “club good.”
Roads are the more commonly misused example of a public good, but we can apply the same logic to transit. First, most transit operations in the US already use a method of exclusions: the turnstyle. Second, we can see that non-rivalrousness is simply a function of over-supply in the case of the subway car that isn’t full to capacity.
As economist, Don Boudreaux puts it :
So I’m more than sympathetic to the claim that government provision of roads, bridges, and highways distorted Americans’ decisions over the years to drive and live in suburbs. But my sympathy for this claim comes from my rejection of the classic, naive case for government provision of public goods — and once that case is rejected, it cannot then be used to argue for government provision of, say, light-rail transport.
Does this alone prove that roads should be privatized? No, but the fact roads are either private goods or grossly oversupplied help weaken anyone’s case that transportation is government’s business in the first place.
I should warn you, if your Microeconomics professor teaches you this misconception unchallenged (perhaps using the Mankiw book), and gives you a true/false exam question of whether an uncongested road is a Public Good, you may want to answer “true”, or else be prepared to dispute your grade. (And feel free to send your professor a link to this post.)
Next time you catch a commenter repeating this Urban[ism] Legend (like Jeremy H. did), refer them to this post. Here are a few other links to back you up:
Are Roads Public Goods, Club Goods, Private Goods, or Common Pools? by Bruce Benson, Floria State University
Privatizing Roads by Tim Haab, “Environmental Economics” (blog)
Public Goods and Externalities: The Case of Roads by Walter Block, Loyola University
Highways Are Not (Economic) Public Goods by Rob Pitingolo, “Extraordinary Observations” (blog)