This article needs attention from an expert in Business_and_Economics.(July 2010)
In economics, a good or service is called excludable if it is possible to prevent people (consumers) who have not paid for it from having access to it. By comparison, a good or service is non-excludable if non-paying consumers cannot be prevented from accessing it.
food, clothing, cars, parking spaces
fish stocks, timber, coal
cinemas, private parks, satellite television
free-to-air television, air, national defense
An architecturally pleasing building, such as Tower Bridge, creates an aesthetic non-excludable good, which can be enjoyed by anyone who happens to look at it. It is difficult to prevent people from gaining this benefit. A lighthouse acts as a navigation aid to ships at sea in a manner that is non-excludable since any ship out at sea can benefit from it.
The ease and availability of file sharing technology has made many forms of information, especially music, movies, e-books, and computer software non-excludable. If the content producers want to make their works excludable, they have to use either "copy protection" schemes, or use law enforcement in order to prevent one owner of a copy from being able to share it with others.
An example of an excludable good could be a magazine; people who do not pay for the subscription are mostly excluded from obtaining a copy directly from the publisher. Another case is a pay television subscription, which is excludable but non-rivalrous.
Public goods will generally be underproduced and undersupplied in the absence of government subsidies, relative to a socially optimal level. This is because potential producers will not be able to realize a profit (since the good can be obtained for free) sufficient to justify the costs of production. In this way the provision of non-excludable goods is a classic example of a positive externality which leads to inefficiency. In extreme cases this can result in the good not being produced at all, or it being necessary for the government to organize its production and distribution.
A classic example of the inefficiency caused by non-excludability is the tragedy of the commons (which Hardin, the author, later corrected to the 'tragedy of the unmanaged commons' because it is based on the notion of an entirely rule-less resource) where a shared, non-excludable, resource becomes subject to over-use and over-consumption, which destroys the resource in the process.
Brito and Oakland (1980) study the private, profit-maximizing provision of excludable public goods in a formal economic model. They take into account that the agents have private information about their valuations of the public good. Yet, Brito and Oakland only consider posted-price mechanisms, i.e. there are ad-hoc constraints on the class of contracts. Also taking distribution costs and congestion effects into account, Schmitz (1997) studies a related problem, but he allows for general mechanisms. Moreover, he also characterizes the second-best allocation rule, which is welfare-maximizing under the constraint of nonnegative profits. Using the incomplete contracts theory, Francesconi and Muthoo (2011) explore whether public or private ownership is more desirable when non-contractible investments have to be made in order to provide a (partly) excludable public good.
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