Problem of Free Riders

views updated

Problem of Free Riders

What It Means

The problem of free riders is an economic dilemma that emerges in situations involving what economists call public goods. A public good is a product or service that, in being made available to one person, can be freely enjoyed by others. People cannot be easily prevented from using the good, and one person’s use of the good does not diminish its usefulness to other people. For example, if Jane’s neighborhood association pools money to build new sidewalks, everyone in the neighborhood will benefit equally. Jane’s enjoyment of the sidewalks does not prohibit her neighbors’ enjoyment of the sidewalks in the way that her use of a car prevents her neighbor from using that particular car.

If, however, Jane suspects that the project will still go ahead even without her contribution to the neighborhood association’s pool of money, she may decide not to pay her share because she knows that she will still get the benefits of the new, smooth sidewalks anyway. Jane has chosen, in this situation, to be what is known as a free rider. If a large proportion of her neighbors made the same calculation that Jane made and chose not to pay their share, the new sidewalks might not get built.

In situations involving public goods, economists, governments, and other interested parties must address the problem of free riders: that is, they must consider ways of discouraging free-riding, of guarding against its negative effects, or both.

When Did It Begin

Thinkers in a wide variety of contexts have, throughout the history of civilization, addressed the problems arising from public goods. Some scholars suggest that the logic behind free-riding is embodied by the arguments of Glaucon, a character in Plato’s Republic (c. 360 bc ; Plato, who lived from approximately 428 to 348 bc , was an important ancient Greek philosophers, and one of his best-known works is The Republic, which concerns the form that a model society should take). Glaucon suggests that people have no reason to obey laws if they can be certain that they will not be caught or, if caught, that they will not be punished.

The founder of economics, Scottish philosopher Adam Smith (1723–90), wrote at length in his landmark work An Inquiry into the Nature and Causes of the Wealth of Nations (1776) about the public benefits that arise when individuals independently pursue their own self-interest. His treatment of this topic suggests an understanding of the concept of public goods, but Smith saw the positive effects of the phenomenon more clearly than the potential problems. Smith’s friend and contemporary, the Scottish philosopher David Hume (1711–76), had an earlier and more thorough grasp of what we now call the free-rider problem. In A Treatise of Human Nature (1739–40), Hume noted that, though two neighbors might agree to share the burden of draining a meadow they own together, trying to get a thousand people to agree on any common project and on their share of the burden would be all but impossible.

Since that time the problem of the free rider has been a fixture in popular notions of human nature. Economists and other social scientists only began analyzing the problem in detail in the latter part of the twentieth century, however, after the publication of The Logic of Collective Action (1965) by American economist Mancur Olson (1932–98). Olson dealt thoroughly with what motivates individuals in the realm of collective action and public goods, and his theories have inspired detailed study of the conflicts between private drives and public goals in the decades since.

More Detailed Information

The problem of free riders emerges in many situations involving public goods, but it becomes a bigger problem, generally, as the number of people who share in the use of a particular good grows. The phenomenon of neighbors cooperating to fix sidewalks or otherwise improve their common living conditions is a fairly common one in today’s world. The frequent success of these projects probably results from the fact that a relatively small number of people are usually involved. When a small group of people band together to solve some problem, each individual’s participation is often vital to the success of the project.

If the sidewalk project in Jane’s neighborhood involves five square blocks’ worth of houses, Jane may understand that the project will not go forward if she does not pay her share. If she wants the benefit of sidewalks, then she has an incentive to pay her share. If the sidewalk project encompasses twenty square blocks of houses, however, Jane may feel that her participation is less vital and that she may as well save her money and enjoy the new sidewalks without contributing.

Voting in national elections is commonly influenced by the problem of free riders. Jane’s political beliefs may be strong, and she may want a certain candidate to be elected president of the United States, but she may feel that the large number of votes cast means that one measly vote cannot possibly have any effect on the ultimate outcome. Jane chooses to avoid the effort of taking time off work to go to the polls, trusting others to cast their votes for her candidate and bring about the outcome that she wants; or she may not vote because she doesn’t believe her vote can help her candidate can win. If a large number of people feel as Jane does, the results of the elections will not reflect the desires of the voters.

Another factor that can encourage people to free ride is if the difficulty or expense of the burden they are being asked to share seems too great. For instance, if Jane’s neighbors want to fix the sidewalks on their own and they ask Jane to contribute 20 hours of heavy labor in addition to money for materials, she would be much more likely to free ride than if she only had to contribute a small amount of money and no labor. Because of this phenomenon efforts encouraging people to vote often address the ease of voting. Polling places frequently open early and stay open late to enhance the convenience of voting, and there are no registration or other fees required to vote.

Solutions to free-rider problems are often devised by governments. National defense is a classic example of a public good that would flounder under the free-rider problem if the government did not step in. It is a public good in that no one can be prevented from enjoying it and in that one person’s enjoyment of it does not prevent another person’s enjoyment of it. The amount of money and effort required to protect a nation from invasion and turmoil is immense, however. An effective national defense simply would not result from the self-interested actions of private individuals, so the government collects taxes and undertakes the burden of defending the nation’s people independently of individual attitudes toward the problem.

Recent Trends

In the early twenty-first century one of the public goods most susceptible to the problem of free riders is the health of the natural environment. Although most people accept that such threats as global warming and air pollution are serious issues and cannot be ignored, individual Americans are generally unwilling to do their part to bring about such desired public goods as clean air and reduced carbon emissions (carbon emissions, which contribute to global warming, are the pollutants that result from burning fossil fuels, such as coal and oil). Jane may be worried about global warming, but she may not be willing to change her lifestyle to help decrease it (by taking public transportation to work and by minimizing her plane travel and use of air conditioning, for instance) because she believes that she alone can do little to solve the problem. Meanwhile, many other people are making the same calculation as Jane, and the problem continues to grow. Addressing global warming requires vast changes in the habits of typical Americans, and most economists agree that only government has the power to solve the problem of free riders under these circumstances.

About this article

Problem of Free Riders

Updated About content Print Article


Problem of Free Riders