Glossary

Club good: an intermediate case between a pure public good and a pure private good. With a club good, exclusion is feasible but the optimal size of the club is generally larger than one individual. An example would be a film screening. Here it is possible for the good to be priced (exclusion can be practised) and for a number of people to share the same good without diminishing each other’s consumption of it. The size of the optimal sharing group is that which maximizes their joint utility.

Complimentary Goods: See intermediate public goods. Complimentary goods can also be private goods e.g. vaccines.

Externality: a phenomenon that arises when an individual or firm takes an action but does not bear all the costs (negative externalities) or receive all the benefits (positive externalities).

Final public goods: Just like private goods, public goods can be differentiated according to their stage in the production process of these goods. The group of final public goods includes those, which are desired for consumption. Examples are: clean air; healthy living conditions; efficient markets; or peace and security. Yet in order to produce these goods a number of inputs are often required, which may include both private and public goods. Public goods that enter the production path of a final public goods are called intermediate public goods. To illustrate, in order to achieve clean air or a stable climate, it is necessary to achieve various international agreements, such as the Kyoto protocol, or at the national level, to establish regimes for sustainable energy or forest management. Sometimes, a public good can, from one perspective, be final and from another intermediate. A case in point is knowledge. We desire some elements of knowledge for their own sake; other elements of knowledge we may want to use, e.g. medical knowledge as an input among several others, into the production of vaccines (which constitute a private good) in order ultimately to produce the final public good, let's say, 'malaria controlled', or in more general terms, 'enhanced healthy living conditions'.

Financing of public goods: In today's world, public goods are typically a multi-actor responsibility and product. These goods are much less solely state-produced than we had seen in earlier decades.  This change has affected the financing of public goods. While states or intergovernmental bodies still play a critical role, the provision of public goods now is a multi-actor activity, depending on private as well as public financing. The key challenge in terms of financing public goods is to ensure an adequate allocation of resources to a particular good. The public finance measures required can be of two main types, viz.: a) revenue expenditures to meet the direct costs of a publicly provided intermediate or final public goods; and b) fiscal incentives (e.g. taxes or subsidies) to enable and motivate private actors to contribute to social goals and objectives. In addition, the definition of new property rights, such as the issuance of tradable/leasable emission permits, can be an important state function to change the incentive structures of private actors and to allow markets to make an enhanced contribution to the provision of public goods.

Free rider: someone who enjoys the benefits of a (public) good without paying for it. Because it is difficult to preclude anyone from using a pure public good, those who benefit from the good have an incentive to avoid paying for it—that is, to be free riders. 

Global public good: a public good with benefits that are strongly universal in terms of countries (covering more than one group of countries), people (accruing to several, preferably all, population groups) and generations (extending to both current and future generations, or at least meeting the needs of current generations without foreclosing development options for future generations).
 
Intermediate public goods -- See final public goods.

Market failure: the situation in which a market fails to attain economic efficiency.

Mixed good: a mixed good lies between the polar extremes of a private good and a public good, containing elements of both. For example, inoculation against disease is a mixed good since it benefits the community at large (by reducing risks of illness) as well as the individual. In such a case, private consumption confers a beneficial externality on the rest of the community.

Moral hazard: the tendency for those who purchase insurance to be less cautious, as they have a reduced incentive to avoid what they are insured against.

Nonexcludability: Benefits that are available to all once a good is provided are termed nonexcludable. Goods whose benefits can be withheld costlessly by the owner or provider generate excludable benefits. Firework displays, pollution control devices and street lighting yield nonexcludable benefits because once they are provided, it is difficult if not impossible to exclude individuals from their benefits. 

Nonrivalry: a good is nonrival or indivisible when a unit of the good can be consumed by one individual without detracting, in the slightest, from the consumption opportunities still available to others from that same unit. Sunsets are nonrival or indivisible when views are unobstructed. 

Pareto efficient: a resource allocation is said to be Pareto efficient if there is no rearrangement that can make anyone better off without making someone else worse off.

Prisoner’s dilemma: a situation in which the independent pursuit of self-interest by two parties makes them both worse off.

Provision of public goods: the provision of public goods typically consists of two separate, yet closely intertwined processes, namely: a) the political process in which decisions are taken about which public goods to produce, how much of them, how to shape them, and at what net-cost/benefit to whom; and b) the production process in which the contributions from across all concerned actor groups, sectors and/or countries have to be brought together. Issues of the financing of public goods need to be considered in both parts of the provision process, since they may critically influence the actors' incentives to cooperate.

Public good: public goods have the properties of nonrivalry in consumption and nonexcludability. For example, peace costs little or nothing for an extra individual to enjoy. In addition, the costs of preventing any individual from the enjoyment of this good are high.

Transactions costs: the extra costs (beyond the price of the purchase) of conducting a transaction, whether those costs are in money, time or convenience. 

Note: Definitions are drawn from Joseph E. Stiglitz’s second edition of Economics (New York: W.W. Norton, 1997), from the fourth edition of The MIT Dictionary of Modern Economics (Cambridge, MA: MIT Press, 1992) or from Richard Cornes and Todd Sandler’s second edition of The Theory of Externalities, Public Goods and Club Goods (New York: Cambridge University Press, 1996). This glossary is taken from the glossary of the volume by Inge Kaul, Isabelle Grunberg and Marc A. Stem, eds. 1999. Global Public Goods: International Cooperation in the 21st Century. New York: Oxford University Press. Pp. 509-511.