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Introduction to the Free-Rider problem 🚲

  • The free-rider problem refers to a specific type of market failure 
  • Non-excludable goods, usually public goods, are not paid for by those who benefit them 
  • These consumers are able to continue to access the good without being forced to pay for it
  • Taking advantage of those consumers who pay more than their fair share for the good

Example

  • For example, a man builds street lights on his street so that he can drive his car back home at night. 
  • While he is the sole investor in this good, others on his street free-ride on his good by refusing to pay him for the use of the street lights he built
  • If this problem continued and the government did not intervene, people like this man would stop erecting necessary resources for the benefit of all, thus creating chaos within communities. 
  • Roads, parks, community centers, and even nuclear defense facilities would not be created for the simple reason that free-riders would reap the benefits of these goods without paying their fair share for them.

The Role of the Government 🏛

  • The free-rider problem, a market failure, is one of the main reasons a government is necessary in creating a stable society for all its citizens to live in.
  • It illustrates how people act primarily based off of their self-interest 
  • The government in this case acts as an intermediary between its citizens, listening to their arguments and creating public facilities to satisfy the needs of its people. 
  • This is one of the main reasons the government exists, for it is essential in creating public facilities that are not provided otherwise as a result of market failure.

Eagar, MaRi. “Free Riders on Trust.” A Medium Corporation [US], 25 Dec. 2017, medium.com/distributed-economy/free-riders-on-trust-9d7c42695df3.


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