What Is the Free Rider Problem?
The free rider problem is the burden on a shared resource that is created by its use or overuse by people who aren't paying their fair share for it or aren't paying anything at all.
The free rider problem can occur in any community, large or small. In an urban area, a city council may debate whether and how to force suburban commuters to contribute to the upkeep of its roads and sidewalks or the protection of its police and fire services. A public radio or broadcast station devotes airtime to fundraising in hopes of coaxing donations from listeners who aren't contributing.
Key Takeaways
- Free riding is considered a failure of the conventional free market system.
- The problem occurs when some members of a community fail to contribute their fair share to the costs of a shared resource.
- Their failure to contribute makes the resource economically infeasible to produce.
Understanding the Free Rider Problem
The free rider problem is an issue in economics. It is considered an example of a market failure. That is, it is an inefficient distribution of goods or services that occurs when some individuals are allowed to consume more than their fair share of the shared resource or pay less than their fair share of the costs.
Free riding prevents the production and consumption of goods and services through conventional free-market methods. To the free rider, there is little incentive to contribute to a collective resource since they can enjoy its benefits even if they don't. As a consequence, the producer of the resource cannot be sufficiently compensated. The shared resource must be subsidized in some other way, or it will not be created.
When the Free Rider Problem Arises
The free rider problem as an economics issue only occurs under certain conditions:
- When everyone can consume a resource in unlimited amounts.
- When no one can limit anyone else's consumption.
- When someone has to produce and maintain the resource. That is, it's not a natural lake, it's a swimming pool, and someone had to undertake its construction and maintenance.
Economists point out that no business would voluntarily produce goods or services under these conditions. When the free rider problem looms, businesses back away. Either the shared resource will not be provided, or a public agency must provide it using taxpayer funds.
As an economic issue, the problem occurs when everyone can consume a resource in unlimited amounts, no one can limit anyone else's consumption, but someone has to produce and maintain the resource.
On the positive side, some people in every community will demonstrate that they feel a responsibility to pay their fair share. Some combination of a high sense of trust, positive reciprocity, and a sense of collective duty makes them willing to pay their fair share.
Beyond Economics
The free rider problem can crop up when the resource is shared by all and free to all. Like air. If a community sets voluntary pollution standards that encourage all residents to cut back on carbon-based fuels, many will respond positively. But some will refuse to make any change in their habits. If enough follow the standards, the air quality will improve and all the residents will benefit equally, even the free riders.
Solutions to the Free Riding Problem
Communities that face a free riding problem may try any of several solutions.
- Government addresses the problem by collecting and distributing tax dollars to subsidize public services. Theoretically, taxes are proportionate to income, so fair cost-sharing can be achieved.
- Communities can turn their public resource into a private or club resource, charging dues to make sure everyone who uses it contributes to it.
- Communities can impose a small fee on everyone. This will limit over-consumption and, over time, may even spur altruistic behavior. That is, many people may like the idea of making a small contribution to a resource that they use.
FAQs
Free riding is considered a failure of the conventional free market system. The problem occurs when some members of a community fail to contribute their fair share to the costs of a shared resource. Their failure to contribute makes the resource economically infeasible to produce.
What are the solutions to the free rider problem? ›
Solutions to the Free Rider Problem
- Tax and government provision. One solution is to treat the many beneficiaries as one consumer and then divide the cost equally. ...
- Appealing to people's altruism. ...
- Make a public good private. ...
- Legislation.
National defense is a classic example of the free rider issue. All citizens benefit from international security, but not only a few contribute to it. People always anticipate that someone else will pay and plan on riding for free.
What is a free rider and why do they become a problem quizlet? ›
What is the "free rider problem"? Individuals have an incentive not to take direct action if they can benefit without making any direct contribution.
What is the free rider problem a challenge to ____________? ›
The free-rider problem poses a challenge to social contract theory because it suggests that some individuals may be able to benefit from the social arrangements created by the state without contributing to their maintenance.
What is an intuitive explanation of the free rider problem? ›
The free rider problem concerns mainly non-excludable goods, be it public goods or common resources. It comes from the assumption that individuals who share a good consume more than they need, and/or contribute less than they ought to.
How can government solve free rider problem? ›
Non-excludable
It usually falls upon the government to provide these goods, such as national defense or transportation infrastructure. These public goods can avoid the free rider problem because technically you are paying the government to provide these services — through taxes.
What is an example of a free rider problem as a student? ›
Free-rider problem refers to a group scenario where passive students get to enjoy and benefit from the work and effort exerted by actively involved students. For instance, students who are part of a group project may contribute inadequately compared to others but still receive the same grade.
Which of the following is the best example of a free rider problem? ›
c) A person without health insurance visiting an emergency room since they cannot be turned away. The free rider problem occurs when individuals who gains from resources, goods, or services but do not pay for them. This creates an under provision of those goods or services.
What does the free rider problem make it unlikely that poverty will be? ›
The free-rider problem makes it unlikely that poverty will be entirely eliminated through private charity. A study that compares the costs and benefits to society of providing a public good is called externality analysis.
Free riders don't pay costs for some goods or services. For example, free riders are people who listen to music which singers sing on concert, but they didn't pay tickets for this concert.
What is the free rider problem economics quizlet? ›
What is the free rider problem? It is a problem occuring due to the due to the non-excludable nature of public goods firms have no financial incentive to provide them.
How could the free rider problem be solved the public good is ignored and never produced? ›
How could the free rider problem be solved? The government subsidized people to provide the public good. The government taxes people and uses the revenue to provide the public good. The market will adjust and fix itself so the public good will be provided without interference.
How do public television stations like PBS try to overcome the free rider problem? ›
Answer and Explanation:
Public television like PBS adopts other various techniques to overcome the problem of free-rider. some of the techniques include giving contributors gifts, encouraging membership with gifts, and providing specific incentives to donor organizations.
Why can't everything be free? ›
Namely: If everyone had to produce for free, there would be virtually nothing to buy. If everything had a price of zero, consumers would strive to fill their shopping carts with anything they could get their hands on. Producers, however, would basically stop working.
