Question

What is meant by the free-rider problem? How does it relate to the provision of public goods? How can it be over-come?

Answer 1

Thre free rider problem occurs when the people using goods and serives do not make any subsequent payment for them. eg- say that the state governent of Arizona decides to build an open air thatre for the residents of the city Phoenix thourgh taxes paid by the residents of Phoenix. However, once it has been constructed, it is accessible also to those people who do not reside in Phoenix and one often finds tourists / people residing outside the city entering the thatre.

Considering the example above, free-riders often result in under-provision of a public good. Suppose that the thatre was constructed for the use of 1000 people per day whereas is actually being visited by 1200 people per day (200 of them being free riders).

The problem of free riders is often solved by charging the users a minimum price as entrace and/or maintainance fee. This means that everyone who is accessing the good must pay for it as much as everyone else does - thereby eliminating the free rider problem.

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