In Microeconomics there are 4 types of externalities - Positive Consumption Externality, Positive Production Externality, Negative Consumption Externality, and Negative Production Externality. And along with externalities you learn about common resources and public goods which are classified according to their excludability and rivalry.

I believe that common resources go in the category of negative externality since they tend to be over-produced, and that public goods go in the category of positive externality since they tend to be under-produced.

What I'm confused about is whether common resourses are classified as Negative Consumption Externality or Negative Production Externality. The two have different characteristics that are represented by their different graphs, where the Negative Production Externality has two Cost Curves (Private Marginal Cost and Social Marginal Cost) and one Utility curve, while Negative Consumption Externality has two Utility Curves (Private Marginal Utility and Social Marginal Utility) and one Cost curve. I'm confused as to which negative externality common resources belongs to.

The same goes for public goods. Are public goods Positive Consumption Externality, or Positive Production Externality? Like the explanation written previously, the two have different features and graphs as well depending on whether it is consumption, or production externality.

So to sum up I guess I have two questions which are a bit similar:

  1. Are Common Resourses classified as Negative Consumption Externality, or Negative Production Externality?

  2. Are Public Goods classified as Positive Consumption Externality, or Positive Production Externality?

I would sincerely appreciate it if someone can provide me with a detailed explanation regarding each question. Thanks! :)


1 Answer 1


First let's clarify some terminology: I assume that with "common resources" you mean goods that are non-excludable but rivalrous. The term that applies in those cases is open access. In common resources there are shared property rights so some excludability (this is one of the mistakes in Hardin's tragedy of the commons).

The answer to your two related questions then is: it depends on the type of good. Public goods and externalities are related but distinct problems.

Take a classic public good: national defense. That is not a problem where production or consumption have unintended effects and hence there are no externalities. It is also a very clear example of a public good: one cannot be excluded from national defense and one person's protection does not diminish someone else's protection.

That is not to say that the two never go together. Air pollution is a classic example of a production consumption externality (the companies do not intentionally pollute the air, but reduce consumer health nonetheless) and often a public bad: if one lives in the area one cannot be excluded and breathing the polluted air by one doesn't reduce the overall pollution level.

The classic Gordon-Schaefer fishing model is both an open access resource problem and a production-production externality: the catch of an additional fish by one producer raises the costs of other producers.


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