The Private Production of Public Goods

THIs paper analyzes the production of public goods through private means under conditions that allow nonpurchasers to be excluded from the use of the good. Two conclusions are reached. First, given the ability to exclude nonpurchasers, private producers can produce public goods efficiently. Secondly, the payment of different prices for the same good is consistent with competitive equilibrium if the good is a public good. The allocation of resources to the production of public goods can be understood with the aid of the model formulated long ago by Alfred Marshall for the analysis of joint supply.' Just as the slaughtering of a steer provides goods to both leather users and meat consumers, so the production of a public good, by definition, yields benefits that can be enjoyed by more than one individual, for one person's use of public good services does not prevent simultaneous use by others. Under competitive conditions the rate at which steers are slaughtered is determined where the sum of the market prices for the hide and the meat is equal to the cost of slaughtering a steer. The geometry of equilibrium for jointly supplied products is shown in Figure I. Curve d is the market demand for hides and D is the vertical summation of d and the market demand for meat, hence D-d measures the demand for meat. The vertical summation of the demand prices equals the marginal cost of slaughtering cattle, shown by curve S, at the slaughter rate Q. No special problem arises in the allocation of resources to joint products in this, the standard case, nor does any