Free-rider problem facts for kids

The free-rider problem happens when people use a resource or service without paying for it. Imagine a public park or a library. Everyone can use them, even if they don't pay taxes that help fund them. This is called "free riding."

Free riding can cause problems for shared resources. If too many people use something without contributing, that resource might not be produced enough. Or it could get overused and damaged. Even if people are usually cooperative, free riders can make others less willing to help. This makes the problem worse.

The free-rider problem is common with "public goods." These are things that are:

• Non-excludable: You can't stop people from using them, even if they don't pay.
• Non-rivalrous: One person using the good doesn't stop another person from using it too.

For example, a government-built road system is non-excludable and non-rivalrous. Anyone can use it, and one car on the road doesn't stop another car from using it. If a coastal town builds a lighthouse, ships from anywhere can use its light for free. A crowd watching fireworks also shows this. The fireworks don't get "used up" by more people watching. In these cases, it's hard to make people pay, and many people can enjoy the benefit at once.

The idea of "free riding" started in economics. But it's also used in other areas. For example, in a team project, some members might do less work. They hope others will pick up the slack. This is also a form of free riding.

Why People Free Ride

The free-rider problem often comes from how people make choices. Think of it like a simple game. Imagine two people who could help pay for a new police station.

• If both pay, the police station gets built, but they both spend money.
• If one person doesn't pay, hoping the other will, they become a free rider. The other person has to pay the full cost.
• If neither pays, the police station isn't built, and no one benefits.

This shows that people might choose not to pay if they can get the benefit for free. This idea is part of "rational choice theory." It suggests that people usually make choices that give them the most benefit for themselves. So, if something is free, why pay for it?

Impacts of Free Riding

Free riding can lead to problems because resources are not used in the best way. For example, people might say they value a public park less than they do. This is because they know they can use it without paying.

Things that cause free riding usually have these features:

• It's hard to stop non-payers from using them.
• One person using it doesn't reduce its availability for others.
• The resource needs to be produced or maintained.

If you can stop non-payers, a public good can become a "club good." For example, a free public road might become a toll road. Or a free museum might start charging an entry fee.

Free riding is a bigger problem when non-excludable goods are also "rivalrous." This means one person's use reduces what's available for others. These are called "common-pool resources." A good example is a shared fishing pond. If too many people fish without limits, the fish might run out. This is known as the "Tragedy of the Commons." Each person tries to get the most for themselves. This can lead to the shared resource being overused or even destroyed. If too many people free ride, a system or service might run out of money or resources.

A real-world example is dealing with global climate change. Reducing pollution in one country helps everyone. But some countries might not want to pay the costs. They might "free ride" on the efforts of other countries. This raises questions about fairness. Countries like Tuvalu, which are most affected by climate change, often contribute the least pollution. They also have fewer resources to help fix the problem.

Some experts believe the free-rider problem will always be a challenge. They think it's part of how people behave.

Solutions to Free Riding

People have come up with different ways to deal with the free-rider problem.

Agreements to Contribute

One solution is an "assurance contract." This is an agreement where people promise to pay for a public good. But they only pay if enough other people also promise to pay. If not enough people join, no one pays, and the money is returned.

A "dominant assurance contract" is a special type. Here, a person or group sets up the contract. If not enough people join, they return the money plus a little extra. If enough people join, the organizer gets a fee. This makes it a good idea for everyone to pledge, no matter what others do.

Working It Out Together

Another idea, from economist Ronald Coase, suggests that people who benefit from a public good can work together. If it's easy for them to talk and organize, they can pool their money to create the good. This means they might not need the government to step in.

For example, on websites like Kickstarter, people can pledge money for a new product or project. Their credit card is only charged if the total funding goal is met. The internet makes it much easier for many people to contribute small amounts. This helps fund projects that might not get traditional investors.

Making Goods Exclusive

Sometimes, a public good can be turned into a "club good." This means you can stop people from using it if they don't pay. Laws like copyright and patent laws do this for things like books or inventions. They give creators special rights to control who can copy or use their work. This encourages people to create new things.

However, these laws can also create problems. They can lead to high prices because the creator has a monopoly. This means fewer people might be able to access the good. For example, a drug company with a patent might charge a lot for a medicine.

Sometimes, even if a good could be exclusive, it's still treated as a public good. Governments or groups might provide it for free or at a low cost. Examples include public golf courses or cable television. This is because the benefits of everyone having access might be greater than the problems of free riding.

Social Pressure and Rules

People can also solve free-riding problems through social rules. In many cultures, free riders are recognized. Sometimes, people will punish those who don't contribute to a shared resource. This is called "peer-to-peer punishment." For example, if someone doesn't help with a group project, the other members might give them a lower grade or exclude them.

This punishment can be costly for the person doing the punishing. So, sometimes groups create "common property regimes." In these systems, the group decides on rules and might even reward people who punish free riders. As long as the benefits of protecting the resource are greater than the costs of enforcing the rules, this can work. These local rules often work better than rules made by outsiders. This is because the people involved know the resource best.

Helping Others (Altruism)

Sometimes, people help others even without being rewarded. This is called "altruism."

Social Norms

Different cultures have different ideas about free riders. But in all cultures, free riders are noticed. Social norms, or unwritten rules, can influence how much people contribute to public goods. For example, the idea of punishing free riders is common everywhere. Research tries to understand why people sometimes punish others even when it costs them something.

Altruistic Punishment

People sometimes punish free riders even if they don't get a reward. The reasons for this are still being studied. Some research suggests that people might punish free riders because they fear losing something themselves. For example, in some experiments, people only got their money back if they always punished free riders. This kind of group punishment can be more effective than individual punishment. This research can help in making public policies to reduce free riding.

See also

In Spanish: Problema del polizón para niños