Public Goods and Market Failure - What is the Free Rider Problem?

The free rider problem refers to the tendency for individuals to benefit from a public good or service without contributing to the cost of providing it. This can occur when the benefits of a good or service are non-excludable, meaning that it is not possible to prevent someone from using or enjoying the good or service, regardless of whether or not they have paid for it.

The free rider problem can be a significant issue in situations where the provision of a good or service is funded by voluntary contributions, such as charitable giving or crowdfunding. In these cases, individuals may be less likely to contribute if they know that they can still benefit from the good or service even if they don't pay for it.

Some examples of the free rider problem might include:

• People who use public parks or recreational facilities without paying for them
• People who download music or movies illegally instead of paying for them
• People who do not pay for a subscription to a news website, but still read the articles that are published
• People who do not donate to a charity, but still benefit from the services that the charity provides

The free rider problem can be addressed through a variety of policy measures, such as taxes, subsidies, or regulations. These measures can help to internalise the costs of providing a good or service and encourage more equitable and efficient resource allocation.

Overcoming the free rider problem

• Compulsory taxation to fund collective provision of services such as national defence systems
• Appealing to people’s altruism and sense of social purpose
• Community solutions for example establishing social norms to manage common pool resources such as fishing grounds and grazing land
• Government legislation – regulations enforceable in law such as fishing quotas, copyright and patent laws to protect intellectual property