Public Goods, Perfect Competition, and Underproduction

Recently, the classical position that free markets will underprovide public goods has come under attack. Critics have argued that, if exclusion is costless, the proposition is false. Underlying this argument, however, is the assumption that preference maps of consumers are known. In this paper, this assumption is relaxed. It is shown that a system of atomistic competition will lead to suboptimal levels of public goods, and that those public goods which are produced will be inefficiently allocated. Furthermore, owing to different intensities of use, units of public goods will command different prices. However, for any particular 'unit of public good, price will be the same for all individuals.