Candidate Public Good

by on August 23, 2004 at 2:27 pm in Uncategorized | Permalink

A colleague of mine at CMC is valiantly continuing his crusade against the notion of public goods (A public good is not rival in consumption; my using it does not diminish your use of the good and not excludable). My colleague has two issues. First, he has never come across a good that fits the description well enough to deserve the label and second, almost any discussion of public goods inevitably leads to a discussion of the need for government provision. I find his argument persuasive. It doesn’t take long in government to hear about countless public goods crying out for government provision.

Thus it is with some trepidation that I mention a candidate for the textbook public good. The Global Positioning System, GPS, which provides location information for both military and civilian uses, is currently provided by the US government at no direct cost to users. GPS was constructed to be non-rival and non-excludable. The way the GPS system works is that a series of signals allow a receiver to triangulate the user’s location without the user needing to communicate back to the satellite. The military nature of the system means that users do not actually want to be found; hence GPS is designed for passive use only. It also makes it very difficult to charge end users for using the signals.

The US government has picked up the cost of providing the system and, according to the Economist

“…after spending $20 billion, the Pentagon has built a global system that is a key ingredient of NATO defense. But it is also an essential prop to countless civil applications: for every military user, there are now 100 civilian users. GPS provides not only satellite-navigation systems in cars and boats; it is used by internet service providers, by banks and by surveyors. One day it might be used by air traffic control systems to permit “free flight”, in which pilots of commercial aircraft find their own route and stay clear of other aircraft, without the cumbersome business of radio telephone contact with controllers on the ground.”

So is this a lighthouse or not? The debate is currently more than academic. The Economist details the European Union’s solution to the provision of position navigation and timing services. The EU’s proposed system,

“…will be in part a commercial system. A concessionaire will get the right to operate the system for a fixed period in return for plunking down two-thirds of the deployment costs–around $2.8 billion.”

I look forward to the day when a Principles of Economics textbook uses GPS as an example of public good. Whether Pigou or Coase wins this one I cannot predict.

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