Public and Private Goods in Education: Defining the Boundaries

Understanding the economic nature of goods helps us make sense of how societies allocate resources, fund public services, and design education systems. When economists classify goods as “public” or “private,” they’re not simply describing who owns them-they’re identifying fundamental characteristics that determine how these goods behave in markets and why government intervention might be necessary.

What makes a good public or private? 🔗

In 1954, Nobel laureate Paul Samuelson formally introduced the theory of public goods to modern economics, building on earlier ideas from John Stuart Mill and Swedish economist Knut Wicksell. Samuelson defined a “collective consumption good” as one that all individuals enjoy in common, where each person’s consumption leads to no reduction in anyone else’s consumption. This characteristic is now called non-rivalry.

A few years later, economist Richard Musgrave introduced a second criterion: non-excludability. A good is excludable if it’s possible to prevent individuals from consuming it-essentially, whether you can “draw a fence around it.” When a good possesses both non-rivalry and non-excludability, economists classify it as a pure public good.

Consider national defence as a classic example. Protecting one citizen from external threats doesn’t reduce the protection available to others, and once defence is provided, excluding specific individuals from its benefits is virtually impossible. Clean air operates similarly-one person breathing doesn’t significantly reduce the air available to others, and preventing people from accessing outdoor air is impractical.

Private goods: the opposite end of the spectrum 🔗

Private goods operate on completely opposite principles. They are both rival and excludable. When you purchase a car, your ownership and use of that vehicle prevents someone else from simultaneously using it. The same applies to food-once an apple is eaten, it cannot be consumed by others.

Most tangible goods we encounter daily fall into this category. A smartphone, a textbook, a meal at a restaurant-all are rival in consumption and easily excludable through pricing mechanisms. Markets handle these goods efficiently because producers can charge for them and consumers can make individual purchasing decisions based on their preferences and budgets.

The spectrum between pure categories 🔗

Reality rarely presents us with goods that fit neatly into pure categories. Economists recognise that the boundaries between different types of goods are neither sharp nor fixed. Some goods are rivalrous but non-excludable-these are called common pool resources. Fish stocks in the ocean exemplify this: one person’s catch reduces what’s available to others, yet preventing fishing in international waters proves difficult.

Other goods are non-rival but excludable, known as club goods. Watching a film in a cinema fits this description-multiple people can enjoy the same screening without diminishing each other’s experience, yet the theatre can exclude non-paying customers. Digital streaming services operate similarly.

Where does education fit? 🔗

Education presents one of the most interesting classification challenges in economics. At first glance, it appears to be a private good. Students occupy seats in classrooms, receive individual attention from teachers, and earn credentials that belong exclusively to them. Having a degree from a prestigious institution is certainly a private good-excludable and, in terms of the credential itself, rival.

However, education generates significant positive externalities-benefits that extend beyond the individual receiving it to society at large. This dual nature places education in a unique position between public and private goods.

The externalities of education 🔗

When one person becomes educated, the benefits ripple outward. According to economist Walter McMahon, the positive externalities of education include better health outcomes for the population, lower crime rates, a cleaner environment, and more stable democratic governance. These benefits accrue to everyone in society, not just those who receive education directly.

College graduates strengthen democratic participation and contribute more substantially to economies through higher employment rates and greater lifetime earnings-which means more tax revenue and less reliance on welfare services. A better educated population makes it easier for businesses to thrive, and everybody profits from a thriving economy, not only those who are well-educated.

When a medical professional completes training, they benefit personally through career opportunities and income. But society also benefits from having another qualified healthcare provider. When an engineer develops skills through education, businesses gain access to talent that enables innovation and economic growth.

The merit goods perspective 🔗

Richard Musgrave introduced another useful concept in the 1950s: merit goods. These are commodities that society believes individuals should consume regardless of their ability or willingness to pay. Musgrave identified education, healthcare, and subsidised housing as important examples.

Merit goods don’t fit neatly into the public-private dichotomy. Musgrave described them as goods considered so meritorious that their provision comes through public budgets, beyond what markets would provide. The argument for treating education as a merit good rests on several foundations.

First, individuals lacking education may be incapable of making informed choices about education’s benefits-a situation that might justify compulsory schooling. Second, people tend to undervalue long-term benefits when making present decisions. Third, the positive externalities mean that purely private provision would result in less education than is socially optimal.

Implications for education policy 🔗

Understanding education’s dual nature has profound policy implications. Because individuals making private educational choices consider primarily their personal costs and benefits, they may ignore the broader social value their education creates. This market failure provides economic justification for government intervention through subsidies, public provision, or mandatory education policies.

The historical evolution reflects this understanding. In the nineteenth century, higher education was essentially free in many places. Colleges trained teachers, ministers, and community leaders who served the public good. An investment in an individual was understood as an investment in the social fabric.

However, perspectives have shifted over recent decades. The mission of college has evolved from strengthening democracy toward emphasising individual economic advancement. Students increasingly view higher education as a path to personal financial security rather than a contribution to collective wellbeing. This philosophical shift has influenced funding models, with governments transferring more of the financial burden to students.

The free-rider problem 🔗

Public goods create what economists call the free-rider problem. Since benefits flow to everyone regardless of who pays, individuals have incentives to let others bear the costs. Samuelson himself noted that it is in each person’s selfish interest to give false signals, pretending to have less interest in collective consumption than they actually have.

With education, this manifests in complex ways. If education were funded purely through voluntary contributions, some people would enjoy the societal benefits-lower crime, better public health, economic growth-without contributing to educational funding. This provides the economic rationale for taxation-funded public education systems.

Comparing goods across the spectrum 🔗

To clarify these concepts, consider how different goods compare:

Pure public goods like national defence and clean air are fully non-rival and non-excludable. Markets typically cannot provide these efficiently because no one can be excluded from benefits, eliminating the incentive to pay.

Pure private goods like cars, food, and clothing are fully rival and excludable. Markets handle these effectively because sellers can exclude non-payers and each unit consumed is unavailable to others.

Education blurs these boundaries. The act of learning is partly rival-a seat in a classroom, attention from a teacher. But the knowledge gained and its societal effects are largely non-rival. Exclusion is possible (through tuition fees) but society often chooses not to exclude (through public funding).

This positioning explains why education systems worldwide combine public and private provision, why debates about education funding remain contentious, and why purely market-based approaches to education face criticism for potentially underserving social needs.

The ongoing debate 🔗

The classification of education continues to evolve with technology and social values. Technology affects excludability-radio broadcasts were once public goods because preventing people from tuning in was impractical, but digital encryption changed this. Similarly, online education platforms can exclude non-subscribers, yet the knowledge itself remains non-rival once shared.

What property rights and social norms prevail also shapes these classifications. Different societies reach different conclusions about whether education at various levels should be treated more as a public or private good, reflected in vastly different funding models and access policies worldwide.

What do you think? Given education’s demonstrated benefits to both individuals and society, how should the costs be shared between public funding and private payment? And as educational delivery methods continue to evolve through technology, will education become more public or more private in nature?

References

1. https://plato.stanford.edu/entries/public-goods/
2. https://en.wikipedia.org/wiki/Rivalry_(economics)
3. https://www.ebsco.com/research-starters/economics/public-good-economics
4. https://www.bestcolleges.com/news/analysis/2022/03/01/is-higher-education-a-public-or-private-good/
5. https://courses.lumenlearning.com/suny-oldwestbury-publicfinanceandpublicpolicy/chapter/positive-externalities-and-technology/
6. https://en.wikipedia.org/wiki/Merit_good
7. https://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/merit-goods