Free Rider Problem
Reviewed by Aug 27, 2020| Updated on
What is the Free Rider Problem?
The free-rider problem is the strain on a resource shared because of its use or overuse with the people who don't pay their fair share for it or pay nothing at all. The issue with the free-rider can occur in any society, large or small.
In an urban area, a city council will debate whether and how to compel suburban drivers to help maintain their roads and sidewalks or how to protect their police and fire services. A public radio or television station devotes airtime to fundraising, aiming to attract contributions from non-contributing listeners.
When the Free Rider Problem Arises?
Here are the circumstances in the economy under which the free-rider problem arises:
- When every person can consume unlimited resources
- When no one else can control others' resource consumption
- When someone has the power to create and sustain. That is when it's a swimming pool, and not a natural lake, somebody must build and maintain it.
Economists stress that under these conditions, no business would voluntarily produce goods or services. When the problem of a free rider is looming, businesses are back away. Either they will not provide the shared resource, or they must be supported by a public agency using taxpayer funds.
On the bright side, there are some people in every community who feel a responsibility to pay their fair share. Some combination of a strong sense of confidence, positive reciprocity, and a sense of collective duty makes them willing to pay their fair share.
Solutions to Free Rider Problems
Communities facing a problem of free-riding can try out any of several solutions.
The government addresses the problem by collecting and distributing tax amount to subsidise public services. In theory, taxes are proportionate to income, thus ensuring equitable cost-sharing.
Communities may convert a public resource into a private resource or a club resource, paying duties to ensure that everyone who uses it contributes.
Communities should charge everyone a small fee. This will restrict over-consumption, and may even encourage generous behaviour over time. That is, the concept of making a small contribution to a resource used by them may satisfy many people.