Free rider problem

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In economics, collective bargaining, psychology, and political science, "free riders" are those who consume more than their fair share of a public resource, or shoulder less than a fair share of the costs of its production. Free riding is usually considered to be an economic "problem" only when it leads to the non-production or under-production of a public good (and thus to Pareto inefficiency), or when it leads to the excessive use of a common property resource. The free rider problem is the question of how to limit free riding (or its negative effects) in these situations.

The name "free rider" comes from a common textbook example: someone using public transportation without paying the fare. If too many people do this, the system will not have enough money to operate.

Contents

Politics

A common example of a free rider problem is defense spending: no one person can be excluded from being defended by a state's military forces, and thus free riders may refuse or avoid paying for being defended, even though they are still as well guarded as those who contribute to the state's efforts. Therefore, it is usual for governments to avoid relying on volunteer donations, using taxes and, in some countries, conscription instead.

Government is indeed the primary mechanism by which societies address free rider problems. In addition to fiscal measures noted above, regulation is another form of collective action taken by governments to resolve free riders problems such as environmental degradation or excessive resource use.

The free rider problem is also one justification for the existence of governments which provide public goods. Some ideologies, such as Anarcho-capitalism, are often rebuked, because in such a system all property in a society would be privately owned, away from any state involvement or regulation. Anarchists such as Lysander Spooner suggest that competition between mutual insurance companies, voluntarily patronized by property owners, could provide a practical alternative to government monopoly on protection over a particular territory.[1]

Bargaining

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