Free-rider problem: Difference between revisions

Free riding is a problem of [[Pareto efficiency|economic inefficiency]] when it leads to the underproduction or overconsumption of a good. For example, when people are asked how much they value a particular [[Public good (economics)|public good]], with that value measured in terms of how much money they would be willing to pay, their tendency is to under-report their valuations.<ref name="Economics and the Environment">{{cite book |last1=Goodstein |first1=Eban |title=Economics and the Environment |date=2014 |publisher=Library of Congress |location=University of Minnesota |isbn=978-1-118-53972-9 |edition=7}}</ref> Goods that are subject to free riding are usually characterized by : the inability to exclude non-payers, its consumption by an individual does not impact the availability for others and that the resource in question must be produced and/or maintained. Indeed, if non-payers can be excluded by some mechanism, the good may be transformed into a [[club good]] (e.g. if an overused, congested public road is converted to a toll road, or if a free public museum turns into a private, admission fee-charging museum). This problem is sometimes compounded by the fact that common-property goods are characterized by [[Rivalry (economics)|rival]] consumption. Not only can consumers of common-property goods benefit without payment, but consumption by one imposes an opportunity cost on others. The theory of '[[Tragedy of the commons]]' highlights this, in which each consumer acts to maximize their own utility, and thereby relies on others to cut back their own consumption. This will lead to overconsumption and even possibly exhaustion or destruction of the common-property good. If too many people start to free ride, a system or service will eventually not have enough resources to operate. Free-riding is experienced when the production of goods does not consider the [[Externality|external costs]], particularly the use of [[ecosystem services]].