Question

Because they are nonrivalrous and nonexcludable, public goods provide a lot of marginal benefit to a lot of people when they are produced. However, some people really benefit a lot from them. For example, people who drive a lot benefit the most from freeways. Why can’t we just sit back and let those people voluntarily buy the public goods we need? There are two main reasons. In what ways would this lead to an inefficient outcome?

Answer 1

A discussed in the question, some people derive marginal benefits from public goods even when they are not paying (freeways). The free riders benefit the public goods without paying their share of the cost. Public goods have this free rides problem because of its non-exculability and non-rivalry nature. The non-exculdability nature can't stop anyone from consuming public goods and the non-rivalry nature doesn't reduce the benefits available to others. Two main reasons why we can't let people voluntarily use all the public goods are namely

1. Overconsumption: When more free riders consume public goods, it will lead to the exploitation of resources, depletion of common resources, and will lead to the tragedy of commons. The problem arises when the individuals neglect the wellbeing or welfare of the society for their personal gains

2. Economic Inefficiency: Since the problem of free-riders is considered as a market failure, it will lead to economic inefficiency.   Allocative inefficiency occurs when the consumers are not paying the price that is needed to maintain the resource.

The question of how it will lead to inefficient outcomes by the inefficient distribution of goods and services because some people are allowed to consume more than their share for the cost they paid. And this will affect the overall welfare of the economy.