But guess what?
If I lived in your country too,
I would be protected by that defense umbrella as well.
More importantly,
my protection by that defense umbrella does not interfere with your protection.
In other words, the defense umbrella is nonrivaling consumption.
[MUSIC]
Finally, a private good is subject to the exclusion principle.
That is, those unable or
unwilling to pay can be excluded from the product's benefits.
In contrast, exclusion from the consumption of a public good is
economically and technically infeasible.
[NOISE] To see what I mean by economic and
technical infeasibility, take the case of city streets.
In theory,
we could restrict the use of such streets to only those who pay to use them.
And we could do this by putting up a gate on every corner.
But of course, it would be exceedingly expensive and impractical to do.
So city streets have the characteristics of a public good.
[MUSIC]
So here's the problem we face when we try to rely
on the free market to provide public goods like national defense.
Nobody wants to pay for them.
And the reason has to do with the third characteristic of a public good,
non-excludability.
Here's the deal.