Question

What is the problem of a free rider, and how does it relate to public goods? Provide an example of such a problem, and make a couple suggestions on how to mitigate the free rider issue.

Answer 1

Free rider problem happens when people can take advantage of a product / service without contributing something to it.
It also happens, if people can get away with only making a nominal donation (something less than their total benefit) because enough people can enjoy a good without paying for the cost – then there is a danger that the good will be under-provided or not given at all in a free market. The question of free-riders is popular for public goods – products for non-exclusive benefits, for example if you minimize emissions, everybody in society will benefit. When pollution is may-it will help all.

A public good has a classic free rider problem because public goods have two characteristics Non-excludability and Non-rivalry

In a free market, therefore, public goods such as national security, street lighting, beautiful gardens that not be offered.

It's also said that a free rider problem exists when mutual resources are overconsumed. – This is also known as TheTragedy of the Commons A fisherman, for example, can take a high catch and free ride on other fishermen who are more concerned with conserving healthy fish stocks.

One alternative is to view the multiple beneficiaries as one user and split the costs equally afterwards. British national defence, for example, is costing £31bn. It includes higher rates for taxpayers in the UK. Hence, UK citizens fund the expense of national security indirectly. This means that everyone benefiting from the service pays to the rate. Some may oppose this strategy, for example, some anti-war protestors have sought to withhold a certain amount of their tax on the grounds that they don't want to contribute to illegal war. Yet, most people continue to pay taxes.

For certain products such as visiting a greenhouse, if you enjoy your visit, the greenhouse might be able to collect funds by soliciting donations. There'll probably be plenty of 'free riders' not making a donation. Nevertheless, there might be enough people willing to make a donation to cover garden / museum expenses. This approach is useful only for services that cost relatively little. People don't mind charging £4 if someone else's ride is safe.

To tackle the issue of free rider associated with overconsumption of common resources. The government has sought various options such as: quotas – hard to enforce and hard to track, legislation– on net size, number of fishing vessels, compensation to switch away from fishing.