Excludability

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Excludability is the degree to which a good, service or resource can be limited to only paying customers, or conversely, the degree to which a supplier, producer or other managing body (e.g. a government) can prevent consumption of a good. In economics, a good, service or resource is broadly assigned two fundamental characteristics; a degree of excludability and a degree of rivalry.

Excludability was originally proposed in 1954 by American economist Paul Samuelson where he formalised the concept now known as public goods, i.e. goods that are both non-rivalrous and non-excludable.^[1] Samuelson additionally highlighted the market failure of the free-rider problem that can occur with non-excludable goods. Samuelson's theory of good classification was then further expanded upon by Richard Musgrave in 1959, Garrett Hardin in 1968 who expanded upon another key market inefficiency of non-excludeable goods; the tragedy of the commons.^[2]

Excludability is not an inherent characteristic of a good. Therefore, excludability was further expanded upon by Elinor Ostrom in 1990 to be a continuous characteristic, as opposed to the discrete characteristic proposed by Samuelson (who presented excludability as either being present or absent).^[1] Ostrom's theory proposed that excludability can be placed on a scale that would range from fully excludable (i.e. a good that could theoretically fully exclude non-paying consumers) to fully non-excludeable (a good that cannot exclude non-paying customers at all).^[3] This scale allows producers and providers more in-depth information that can then be used to generate more efficient price equations (for public goods in particular), that would then maximize benefits and positive externalities for all consumers of the good^[4]