By Sam Gutterman
A good deal of political science discussion has dealt with the implications of public and private goods. Two fundamental characteristics of a public good are non-excludability, meaning it is difficult to prevent people from using it, and non-rivalry, where one person’s use does not reduce its availability to others.
These characteristics distinguish public goods from private ones and help explain their importance in both economic theory and social policy. Public goods are essential for society’s economic and political stability due to their fundamental importance, as they support economic growth, social equity, and the smooth functioning of democratic institutions. Key issues relate to their scope, access, acceptability, and financing.
Let’s consider the following examples, which illustrate the range of public goods:
Scientific knowledge. Although it may be kept secret for proprietary purposes, sharing ideas benefits society in the long run.
Public safety and national defense. These protect everyone in a country, regardless of who pays taxes.
Clean air. Everyone can breathe it, and one person’s use doesn’t reduce what’s available to others.
Infrastructure. Systems such as legal and political institutions, public parks, bridges, sewage treatment, and GPS benefit everyone.
To this list, I would add what philosopher John Rawls called primary social goods, which encompass rights, liberties, and opportunities. They are essential for individuals to pursue their values and maintain their self-respect. These include education, employment, and freedom of expression.
However, private markets rarely supply either public or primary social goods effectively or equitably. If left to market forces alone, such goods can become limited or unaffordable. Governments often step in to fund, regulate, or directly provide certain public or primary social goods.
It falls to governments or other public entities to address these needs through collective provision, funding, or oversight. In doing so, they can promote and benefit from social inclusion and equitable access through Social Security, Medicare, and other assistance programs, which also help foster social cohesion essential for well-ordered societies.
But there are challenges, such as the free-rider problem. Because people cannot easily be excluded from using public goods, many benefit without contributing to their cost. Private markets struggle to supply many public goods due to the free-rider problem; however, technology can be used to enhance access to certain public goods by producing them more efficiently or disseminating them more cost-effectively.
Collectively, we should be able to reach a consensus on the extent to which certain public goods are desirable, although disagreements may arise regarding the best ways to achieve these goals and how to fund them.
A just social system usually requires financial or structural incentives to ensure fair access to public and primary social goods and opportunities. But there may be limited incentives for individuals to pay for things that can be used without contributing to their cost. If more people free-ride, funding for public goods such as parks, public health, or national security may become insufficient to maintain their quality or accessibility, leading to classic market failures. To address these issues, governments can apply tools such as taxes or regulations.
So far, I have described these concepts in broad terms. The following examples illustrate how actuaries are involved in the provision and sustainability of public goods, as well as how they address the free-rider problem:
Public health initiatives involve collective actions aimed at preventing disease and promoting well-being across populations. These include vaccination programs, addiction treatment services, sanitation and waste management, and efforts to ensure access to clean air and water. While vaccines are often viewed as direct health protection for individuals, their broader function lies in preventing the spread of infectious diseases. This collective benefit, as seen in the control of diseases such as measles, influenza, and COVID-19, demonstrates the public health sector’s role as a public good. Although actuaries have not often been directly involved with such public policy issues, they do deal with the consequences of resolving these issues. Other public health actions, involving such areas as management of sanitation and waste, addiction, and environmental degradation, are often overlooked but are critical to preventing illness and death, especially in those who are vulnerable or who have co-morbidities. Even in non-crisis periods, the cumulative impact of these issues can be significant.
Risk pooling mechanisms, such as those used in private-sector insurance and pensions, represent another collective strategy for managing risk. These include designing, pricing, and evaluating products that utilize the pooling of risks-core functions of actuaries. Insurance and pension programs provided by the private sector have been within the domain of insurance practice for far more than a century. While participation in these programs is not free and eligibility is often based on employment status or baseline health, they allow individuals with similar risk characteristics to share the financial burdens of adverse events such as death, disability, longevity, and property damage. Actuaries and regulatory supervisors play a key role in ensuring that financial promises are kept. In their projections, actuaries account for the impact of individuals who leave the risk pool, recognizing that these individuals no longer affect the experience of those who remain, even if the average experience of the overall pool changes.
In addition to these examples, actuaries serve the public good in many other ways, including through their work on climate resilience, long-term care, retirement security, and insurance affordability-where actuarial insight helps inform sound policies that protect vulnerable populations and promote equitable outcomes. These actions align with the Academy’s mission to serve the public and demonstrate how the profession contributes to the effective provision of public goods in a rapidly changing world.
In sum, I hope this overview helps actuaries focus on the underlying characteristics of those participating in or using various goods, whether public, private, social, or hybrid. Institutions that protect against risk or mitigate uncertainty stand to benefit from rigorous actuarial analysis, especially as society grapples with how best to deliver and sustain goods critical to its well-being.
Sam Gutterman is chairperson of the Social Security Committee and member of the Retirement Practice Council.