The free rider problem is a burden on a shared resource created by its use or overuse by people who aren’t paying their fair share for it, or aren’t paying anything at all.
This dilemma can occur in any community, large or small. In an urban area, a city council may debate how to enforce contributions from suburban commuters for the upkeep of its roads and sidewalks, or for the protection offered by its police and fire services. Similarly, a public radio or broadcast station may devote airtime to fundraising in hopes of encouraging donations from non-contributing listeners.
Key Takeaways
- Free riding is viewed as a failure of the conventional free market system.
- The problem arises when some community members do not contribute their fair share to the costs of a shared resource.
- This lack of contribution makes the resource economically unsustainable to produce.
Understanding the Free Rider Problem
The free rider problem is an important issue in economics, often considered a form of market failure. It occurs when certain individuals consume more than their fair share of a shared resource or pay less than their fair share of the costs.
Free riding inhibits the production and consumption of goods and services through conventional free market methods. For the free rider, there is minimal incentive to contribute to a collective resource since they can enjoy its benefits regardless of contribution. Consequently, the producer of the resource cannot be sufficiently compensated, and the resource must be subsidized through other means, or it will cease to be provided.
When the Free Rider Problem Arises
Several conditions must be met for the free rider problem to occur:
- Everyone has the freedom to consume a resource in unlimited amounts.
- No one can restrict anyone else’s consumption.
- Someone must produce and maintain the resource.
Under these conditions, no business would voluntarily produce goods or services. Businesses would withdraw, leading to the non-provision of the shared resource unless a public agency steps in using taxpayer funds.
On a positive note, some individuals in every community feel a responsibility to pay their fair share, driven by a sense of trust, positive reciprocity, and collective duty.
Beyond Economics
The free rider problem also appears when a resource is publicly shared and accessible to all, like air quality. If a community sets voluntary pollution standards, encouraging reductions in carbon emissions, many will comply. However, some may refuse to change their behaviors. If the majority adheres to the standards, air quality improves, benefiting everyone, including the free riders.
Solutions to the Free Riding Problem
Communities facing a free riding problem can implement several strategies:
- Government Solutions: Governments collect and distribute tax dollars to subsidize public services. Taxes being proportionate to income can achieve fair cost-sharing.
- Privatization or Club Resources: Turning a public resource into a private or club resource and charging dues ensures everyone who uses it contributes to its upkeep.
- Imposing Small Fees: A nominal fee on everyone can limit over-consumption and eventually encourage altruistic behavior, as people begin to value their contribution to a resource they use.
By understanding and addressing the free rider problem, communities can ensure the sustainable management and preservation of shared resources for the benefit of all.
Related Terms: market failure, public goods, free market, collective resources.
