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Principles Of Economics

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Public Goods and Asteroid Defense

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- The world nearly ended
on September 29th, 2004.

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That's when the asteroid, Toutatis,

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narrowly missed the planet.

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An asteroid wiped out the dinosaurs,

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and it could end humanity as well.

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In fact, your probability of
dying from an asteroid strike

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is about the same as
your probability of dying

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from an airplane crash.

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Now, the probability

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that a big asteroid will
hit the planet is very low,

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but if one does hit, it's probably
gonna kill everyone.

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So the risk is actually
much higher than it appears.

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So, can the invisible hand
protect us from asteroids?

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Sadly, no.

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A good like asteroid protection

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has some unusual properties
that challenge markets.

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If you pay for a pair
of jeans, for example,

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then you get the exclusive
use of those jeans,

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and if you don't pay,

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you are excluded from using those jeans.

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Well, that's pretty obvious.

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But asteroid protection is different.

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Asteroid protection is non-excludable,

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even people who don't
pay will be protected.

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So think about whether you want to pay

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for asteroid protection.

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Your payment is probably not
going to make a difference

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between a successful and
an unsuccessful defense

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so there are really only
two cases to consider.

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Either enough other people
pay so that you are protected

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- Good deal.

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- Or enough other people don't pay

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so that you aren't protected.
- Bad deal, dude.

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[bell ringing]

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Either way, whether you pay or not

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doesn't determine whether you
get the protection or not,

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but paying does determine
whether you get the jeans.

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Faced with this logic,

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many people may decide to buy the jeans

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and try to free ride on
the kindness of others

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who pay for asteroid protection.

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But if lots of people free
ride, then no one is protected,

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even if asteroids threaten everyone.

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Asteroid protection is an example

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of what economists call a "public good".

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A good that is non-excludable
and also non-rival,

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meaning that it doesn't cost
more to protect more people.

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[people clapping]

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We will be looking at more
non-excludable, non-rival goods,

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the challenges these
goods give to markets,

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and the options for providing
these goods in the next video.

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If you wanna test yourself,
click Practice Questions.

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Or if you're ready to move
on, just click Next Video.

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