Free rider problem

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A free rider, in economics, refers to someone who benefits from resources, goods, or services without paying for the cost of the benefit. The term "free rider" was first used in economic theory of public goods, but similar concepts have been applied in to other contexts, including collective bargaining, antitrust law, psychology and political science.[citation needed] Free riding may be considered as a free rider problem when it leads to under-provision of goods or services, or when it leads to overuse or degradation of a common property resource.[1]

Although the term originated in economic theory, similar concepts have been cited in political science, social psychology, and other disciplines. Some individuals in a team or community may reduce their contributions or performance if they believe that one or more other members of the group may free ride.[2]

Examples[edit]

In a labor union, free riding occurs if an employee pays no union dues or agency shop fees, but benefits from union representation.

Non-excludable goods such as street-sweeping services may give rise to free riding. For example, imagine an urban street with several property owners along its length. A street-cleaning service would clear the street of litter at a fixed, non-divisible cost, but some owners may refuse to pay, anticipating that the other owners will still pay the cost of the service. If enough owners refuse to pay, the service cannot be hired. One possible solution would be for all the property owners to form a collective organization and agree to act according to a majority vote of their membership. In the event a majority favors street sweeping, all members would be obliged to pay regardless of their own vote. However, mechanisms to divide the cost may not always be considered fair. The utility and value of the service may vary among owners. A pro-rata split may not be feasible.[citation needed][original research?]

See also[edit]

Notes[edit]

  1. ^ Baumol, Willaim (1952). Welfare Economics and the Theory of the State. Cambridge, MA: Harvard University Press. 
  2. ^ http://som.eldoc.ub.rug.nl/FILES/reports/themeA/2003/03A42/03a42.pdf

References[edit]

  • Cornes, Richard; Sandler, Todd (1986). The Theory of Externalities, Public Goods and Club Goods. New York: Cambridge University Press. ISBN 052130184X. 
  • Venugopal, Joshi (2005). "Drug imports: the free-rider paradox". Express Pharma Pulse 11 (9): 8.  This article refers to the free-rider problem in global pharmaceutical research.

External links[edit]