Public Good
A public good is an economic concept describing a good or service that is non-excludable — meaning individuals cannot be prevented from using it — and non-rival — meaning one person's use does not reduce availability for others — with national defense, basic research, and broadcast television as classic examples.
The theory of public goods is one of the foundational justifications for government provision of certain services in mainstream economics. Paul Samuelson formalized the concept in 1954, distinguishing public goods from private goods on two dimensions. Excludability refers to whether it is possible to prevent individuals who have not paid from consuming the good. Rivalry refers to whether one person's consumption reduces the amount available for others. A private good like a sandwich is both excludable (the seller can refuse to hand it over) and rival (if you eat it, no one else can). A public good is neither excludable nor rival.
National defense is the canonical public good. The military defense provided to one U.S. citizen is simultaneously provided to all citizens — my protection is not diminished by the fact that my neighbor is also protected (non-rival) — and it is not feasible to selectively exclude individuals who have not paid from receiving the defense (non-excludable). Basic research provides another example: once scientific knowledge is published, it is available to everyone simultaneously and one researcher's use of a formula does not diminish its availability to others.
The economic problem with public goods is that they will be systematically underprovided by private markets. Because non-payers cannot be excluded, private firms cannot profitably charge for public goods — they cannot capture the full value they create, so they underinvest relative to the social optimum. This is the economic rationale for government provision of national defense, basic scientific research, public health infrastructure, and the legal system itself.
For financial markets, the public good framework has several important applications. Market price discovery itself has public good characteristics: when one investor conducts research and trades on it, the information is gradually incorporated into the price for all investors. This creates the classic free-rider problem in investment research: if prices quickly reflect research, why pay for research at all? The resulting underinvestment in fundamental research — if everyone free-rides on others' analysis — is a key argument for why financial markets may not be perfectly efficient and why institutional research maintains value.
Financial market infrastructure — the trading venues, clearing systems, settlement networks, and regulatory frameworks that underpin market confidence — also has significant public good characteristics. The systemic risk externalities of financial crises arise in part because financial stability is a public good: each institution's stability contributes to the overall confidence of the system, but no single institution can capture this positive externality fully in its pricing decisions, creating underinvestment in stability at the individual firm level.