16.19 : Free Rider Problem

The free rider problem occurs when individuals benefit from goods or resources consumed without contributing towards the cost of producing them. This situation often arises with common resources and public goods, both of which are non-excludable (non-paying consumers cannot be excluded from consuming the good or resource). Examples include public parks, public broadcasting, and national defense.

Why It Happens?

The problem stems from individuals believing their contributions are too small to affect the quantity or quality of the good being produced and that the payment of others will adequately cover the costs of production. This perspective leads to some consumers benefiting without compensating the producer of the good, creating a shortage in production that is not socially optimal.

Consequences of Free Riding

1. Underfunded Services: Lack of contributions limits the resources available for providing and maintaining the socially optimal quantity of public goods.
2. Lower Quality: As fewer people contribute, the quality of the resource or service declines.
3. Overburdened Contributors: Those who do contribute face a heavier financial or effort burden.
4. Reduced Participation: Over time, contributors may lose motivation, further worsening the issue.
5. Risk of Service Termination: If contributions fall too low, the service or resource may be discontinued.

Solutions to the Free Rider Problem

1. Mandatory Contributions: Governments can enforce taxes or fees to ensure everyone pays their share.
2. Positive Social Incentives: Offering rewards like recognition or small perks, or creating community agreements that offer social encouragements, can encourage more voluntary contributions.
3. Negative Social Incentives: Using social norms to discourage under-contributing can reduce free riding.