Excludability: excludability refers to the ability to prevent persons who have not paid for a good or service from consuming it. Low excludability means that it may be difficult to exclude people from 'free riding' and enjoying the benefits of goods and services even if they have not paid towards their provision. Producers would find it difficult to recoup the full costs of their provision and, from a social efficiency viewpoint, would thus tend to under-produce such goods.
Externality or spillover: an externality or spillover exists whenever the production or consumption decisions of one individual unintentionally impact on the production or consumption decisions of others in some way other than through the market.
Free-rider: a person who enjoys the benefits of goods and services even if s/he has not paid for them.
Principal-agent problem: in the presence of asymmetric information the principal who employs an agent to perform a task is often less well informed than the agent. This allows the agent to behave opportunistically.
Private goods: private goods have the characteristics of both high excludability and high rivalrousness. These goods can be effectively provided by the private sector through the market mechanism.
Public goods: public goods have the characteristics of both low excludability and low rivalry. Typically, they are provided by the government and paid for out of taxation as they potentially benefit all members of the community and 'free riding' makes it difficult to charge users directly for these services
Rivalry or rivalrousness: most goods are rivalrous in the sense that one person's consumption of the good reduces the availability of that good for others. Some goods, however, have a characteristic of low rivalrousness, this means that one person's consumption of the good does not reduces its availability to others. As the cost to society of additional consumers enjoying the benefits of such a goods is zero, social efficiency requires their price to be set at zero. As a result it would not be profitable for the private sector to attempt to sell these goods.
