Question

Please explain the difference between "free-rider problem” and "tragedy of commons". Give an example for each one of them.

Answer 1

The Tragedy of Commons is the overexploitation by human, rational actors of a common good.

The commons tragedy is the destruction of a common good by individuals who behave individually and rationally according to the self-interest of each. Consider, in international waters the fish proof. Any individual fisherman, acting independently, will decide rationally to catch some of the fish to be sold. That makes sense: the fisherman is able to use a tool to produce a profit. However, when a lot of fishermen, all of them thinking that way, catch the fish, the total fish stock may be exhausted.

When the fish stock is exhausted, none of the fishermen are willing to continue fishing, even though each fisherman would have preferred not to deplete the fish in the long term. The commons tragedy defines circumstances in which people remove capital to achieve short-term benefits without taking into account the long-term consequences.

However, not all commons suffer from the catastrophe of the commons. If individuals have enlightened self-interest, they will realize the long-term negative effects of their decisions on the short term. This would be the same as the fishermen knowing they would restrict their fishing for the long-term survival of fish stocks.

The problem with free rider is when people profit from a public good without charging their share of the cost.
Thinking of the public goods as free is quick. You benefit from public utilities such as roads and bridges in your daily life, even though no transaction takes place when you use them. Also the public goods must be paid for, however. In the case of roads and bridges, the government is paying tax by all, who then uses the taxes to pay for public goods.

For example, take the Military. National protection is a public good: it is non-rival and non-excludable to both. To have this kind of public benefit, everybody pays taxes that the government then uses to fund the military. No doubt, though, there are people who have not paid their taxes. Such citizens also profit from the defense offered by the military, without having paid their share of the costs of providing a military. They are free-riders.