What Is the Free Rider Problem?

Many benefit from collective resources, goods, or services in an economy, but free riders do not contribute to the costs. When free riding occurs, payers may choose to contribute less, knowing that free riders aren't paying their fair share or anything at all.

The free rider has little incentive to contribute to a collective resource since they can enjoy its benefits even if they don't pay. As a consequence, the producer of the resource cannot be sufficiently compensated and may seek subsidies or donations.

Contributing Factors

The free rider problem occurs when everyone can consume a resource in unlimited amounts, no one can limit anyone else's consumption, but someone has to produce and maintain the resource.

Businesses would not voluntarily produce goods or services under these conditions. When the free rider problem looms, businesses back away. Either the shared resource will not be provided, or a public agency must provide it using taxation.

Examples

The free rider problem is an inefficient distribution of goods or services that occurs when some individuals are allowed to consume more than their fair share of the🉐 shared resource or pay less than their fair share of the costs.

In an urban area, a city council may debate whether and how to force suburban commuters to contribute to the upkeep of its roads and sidewalks or the protection of its p🥀olice and fire services. A public radio or broadcast station devotes airtime to fundraising in hopes of coaxing donations from listeners who are listening but not contributing.

If a community sets voluntary pollution standards that encourage all residents to cut back on carbon-based fuels, many will respond positively. But some will refuse to make any change in their habits. If enough follow the standards, tꦚhe air quality will improve, and all the residents will benefit equally, even the free riders.

Solutions

• Tax Dollars: A government might address the problem by collecting and distributing tax dollars to subsidize public services.
• Privatization: Communities can turn their public resource into a private or club resource, charging dues to make sure everyone who uses it contributes to it.
• Fees: Communities can impose a small fee on everyone. This will limit over-consumption.

The Bottom Line

The free rider problem occurs when there are resources that anyone can use, that no one can 🔯limit, and that cost something to produce or maintain. The ♛free rider problem is evident in various settings, such as public facilities, free media, and the environment.