Free Rider Problem

Accretion

What is the problem with the Free Rider?

The problem of stowaways is the burden on a shared resource created by its use or overuse by people who do not pay their fair share or who pay nothing at all.

The stowaway problem can arise in any community, large or small. In an urban area, a city council can debate whether and how to compel commuters to contribute to the maintenance of its roads and sidewalks or to the protection of its police and fire departments. A radio or public radio station spends air time raising funds in the hopes of encouraging donations from listeners who do not contribute.

Key points to remember

  • The free ride is considered a failure of the conventional free market system.
  • The problem occurs when certain members of a community do not contribute their fair share to the costs of a shared resource.
  • Their inability to contribute makes the resource economically impossible to produce.

Understanding the Free Rider problem

The stowaway problem is an economic problem. It is considered an example of market failure. That is, it is an inefficient distribution of goods or services that occurs when certain people are allowed to consume more than their fair share of the shared resource or to pay less than their fair share. costs.

The free ride prevents the production and consumption of goods and services through conventional free market methods. For the free rider, there is little incentive to contribute to a collective resource because they can benefit from it even if they do not. As a result, the producer of the resource cannot be adequately compensated. The shared resource must be subsidized in another way, otherwise it will not be created.

When the Free Rider problem arises

The problem of stowaways as an economic problem only occurs under certain conditions:

  • When everyone can consume a resource in unlimited quantities.
  • When no one can limit someone else’s consumption.
  • When someone has to produce and maintain the resource. In other words, it is not a natural lake, it is a swimming pool, and someone had to undertake its construction and maintenance.

Economists point out that no company would voluntarily produce goods or services under these conditions. When the problem of free rider looms, companies shrink. Either the shared resource will not be provided, or a public body must provide it using taxpayer funds.

As an economic problem, the problem occurs when everyone can consume a resource in unlimited quantities, no one can limit someone else’s consumption, but someone has to produce and maintain the resource.

On the positive side, some people in each community will demonstrate that they feel they have to pay their fair share. A combination of a high sense of trust, positive reciprocity and a sense of collective duty makes them ready to pay their fair share.

Beyond the economy

The problem of stowaways can arise when the resource is shared by all and free for all. Like the air. If a community sets voluntary pollution standards that encourage all residents to reduce carbon-based fuels, many will respond positively. But some will refuse to change their habits. If the standards are sufficiently followed, the air quality will improve and all residents will also benefit, even the free riders.

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Free rider problem

Solutions to the Free Riding Problem

Communities facing a free ride problem can try several solutions.

  • The government is tackling the problem by collecting and distributing public funds to subsidize public services. Theoretically, taxes are proportional to income, so that fair cost sharing can be achieved.
  • Communities can transform their public resource into a private or club resource, by charging fees to ensure that everyone who uses it contributes to it.
  • Communities can impose a small fee on each. This will limit overconsumption and, over time, may even stimulate selfless behavior. In other words, many people may like the idea of ​​making a small contribution to a resource they use.

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