Sunday, July 29, 2012

How is a club good different from a common good?

When we discuss types of goods in economics, we have to look at two characteristics of those goods.  We have to ask if the goods are rival in consumption.  This means that, if one person consumes the good, there is less of it for someone else to consume.  We have to ask if people who do not pay can be excluded from consuming the goods.  Based on the answers to these two questions, we categorize the goods.  A club good is one that is excludable but not rival.  A common good is rival but not excludable.


A club good is a good that we can withhold from someone who does not pay for it.  An example of this would be a cell phone network.  Companies have technology that prevents consumers from making calls on their networks if those consumers have not paid for the right to do so.  However, a club good is not rival.  Looking at our cell phone example, if I pay a certain company to use their network, it does not prevent you from paying them for the same service.  I do not use up their network in any significant way, so consumption of this type of good is nonrivalrous.


A common good is just the opposite.  There is rival consumption, but we cannot practically exclude people from using the resource.  The classic example of this is fish in the ocean.  If I catch a certain bunch of fish in my net, you cannot catch those same fish.  If we catch too many, they will eventually run out.  In this way, the consumption of the good is rival.  However, if a company owns part of the ocean, it cannot practically prevent people from fishing there.  Only a government has the means to patrol large areas of ocean and prevent people from fishing there if they have not paid for the right to do so.  In other words, the fish in the ocean are nonexcludable.


The difference between these two, then, is that common goods are rival but not excludable while club goods are excludable but not rival.

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