2.9.2—Government responses to public goods

Government intervention addresses free riding by using compulsory revenue such as taxation to finance provision. It may directly provide the public good through public agencies or contract production to a private firm.

Direct provision combines public funding and public production. Contracting out keeps collective funding and service requirements public but uses a private supplier selected and monitored under a contract.

Compare cost, expertise, service quality, coverage, accountability and monitoring. The government must specify outputs and enforce the contract because users cannot rely on ordinary individual purchasing to reveal demand.

A municipality can operate street lighting itself or pay a private company to install and maintain it, while residents receive the shared service without individual usage charges.

Public funding does not require public production, and private production does not turn a non-rival, non-excludable service into a private good. Neither delivery method is automatically efficient or equitable.