What is the Free Rider Problem for Public Goods?
Private companies find it difficult to produce public goods. If a good or service is nonexcludable, like national defense, so that it is impossible or very costly to exclude people from using this good or service, then how can a firm charge people for it?
When individuals make decisions about buying a public good, a free rider problem can arise, in which people have an incentive to let others pay for the public good and then to “free ride” on the purchases of others. We can express the free rider problem in terms of the prisoner’s dilemma game,
When individuals make decisions about buying a public good, a free rider problem can arise, in which people have an incentive to let others pay for the public good and then, since once there is a provided public good it is available to all, to “free ride” on the purchases of others.
Related Topics
- Market Competition and Innovation
- New Technology and Positive Externalities
- Externality
- Network Externality
- Pigovian Tax
- Coase Theorem
- Agglomeration Diseconomies
- Education – Private and Social Rate of Return
- Government Approaches to Encouraging Innovation
- Public Good
- Public, Private, Club, Common Goods
- Excludable and Rivalrous Goods
- What is the Free Rider Problem for Public Goods?
- Free Rider
- Social Loafing
- Role of Government in Paying for Public Goods
- What is the Tragedy of Commons for Common Resources?
- Income Inequality
- Poverty Line?
- Poverty Trap
- Public Safety Net
- Measuring Income Inequality
- Lorenz Curve
- Ladder of Opportunity
- Tradeoff between Incentives and Income Equality