The Privatization of Roads and Highways - Ludwig von Mises Institute

Public Goods and Externalities: The Case of Roads 125
for this reason that Savas holds that “public goods are properly
paid for by the public at large, for their benefits cannot be
charged to individual consumers or small collective groups.” 38
For a more elaborate rendition of this point of view, we turn
to Haveman:
The posting of signs on a highway, for example, is a public
good. The benefits cannot be denied to anyone who travels the
road. Similarly, when a society provides national defense, the
benefits accrue to all of its citizens. Because it is so costly to
ration the system of city streets once it has been put into place,
they, too, are public goods.
Because one can not economically be excluded from the benefits
of a public good once it has been provided, private firms
have no incentive to produce and market these commodities.
Any potential buyer would refuse to pay anything like what
the commodity is worth to him. Indeed, he would be likely to
express an unwillingness to pay anything at all for it. He would
reason: “If I simply sit tight and refuse to pay, I may get the benefit
of the good anyway, if someone down the line provides it
for himself—after all, it’s a public good.” However, if each
buyer reasons this way (and presumably he will), the good will
not be provided. Public goods will only be provided if collective
action, usually through a government, is taken. Only
through collective action can the availability of worthwhile
public goods be assured. 39
Needless to say, there are many compelling problems with
this argument. As we have seen, highway sign-posting is a public
good only when private ownership is forbidden and no price
is charged. It becomes a private good just as soon as the externalities
are internalized by the market. It is easy to see this point. No
one, after all, would call signs in a privately owned department
store public goods. Yet the benefits of the signs, usually posted on
each floor as well as on elevators and escalators, indicating the
39 Haveman, The Economics of the Public Sector, pp. 42–43.