What is the problem of the free rider, how to solve it

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:54

In economics, the free rider problem occurs when those who use resources, goods and services do not pay for them. This leads to the fact that their number decreases. Everyone else has to pay even more for them. If the number of free riders continues to increase, then a situation is possible when the production of a good stops altogether. The main issue is to limit freeriding and its negative effects. The free rider problem occurs when property rights are not clearly defined and are not effectively regulated.

General information

When one person does not buy a bus ticket, but rides it to work, this will not create any problems for the economy. So he will save some of his budget. But what if so many people start doing this? How will the driver be paid, buses repaired and new ones bought? QuickerMost of all, the owner will try to strengthen control and increase fines. If the bus ticket cannot be forced to buy the majority of passengers, the route will be closed. This means that not only those who did not pay, but also quite respectable citizens will suffer.

The free rider problem is particularly common in the distribution of public goods. It arises if payment for them is voluntary. A similar concept is used in negotiation theory, antitrust law, psychology, and political science. For example, some team members may start to give less if they believe there are freeriders on the team. A similar situation arises in the presence of unscrupulous trade union members. Defense spending is a prime example. Someone may not pay taxes, but they can still count on the same level of protection as the rest of the citizens.

Like an economic concept

If we talk about what the free rider problem is, then its essence can be reduced to the fact that there is a certain group of people who benefit from the use of goods, but do not pay for them. This leads to their underproduction. This situation is associated with Pareto inefficiency. The free rider effect is reflected in the stocks of resources that are common property, leading to their rapid depletion. It is rather difficult to distribute such benefits fairly, because the management does not have the necessary information. If you ask people how they estimate their value, then they are very likely to underestimate it. ExceptMoreover, when distributing public goods, it is difficult to exclude non-payers from it. If too many people start freeriding, there will eventually come a point where the system or service will stop working due to lack of funds.

Research the issue

What is the meaning of the problem of a free rider (freerider, hare, non-payer) is actively studied by specialists in the field of the public sector of the economy. Some citizens evade paying taxes, making the existence of the rest of the population more difficult. The work of Wicksell, Lindahl and Musgrave is devoted to this problem. Their sphere of interest was the sphere of effective taxation. This problem was also de alt with by specialists in business, international economic relations, the theory of integration associations, and environmental protection. However, freeriding is poorly consecrated in Russian literature. Most of the publications on this topic are exclusively related to the shadow sector of the economy.

Freerider figure

The free rider problem has the following implications:

• underproduction of public goods;
• deterioration of their quality;
• excessive depletion of resources that are used by everyone.

The classic example is the Tragedy of the Commons. It occurs when a group is allocated a piece of land. If you do not regulate and regulate the number of grazing cows, then soon no one will be able to use it.

However, a freerider is not only a person who does not contribute a certain amountmoney for the good they consume. There is also a problem when it is not calculated for him in other forms. For example, military service, providing informal services to colleagues, quality work, information. The actions of a freerider are contrary to ethical, social and group norms of behavior, national and international legislation. Often such behavior is a conscious civic position. And it negatively affects all other consumers of this public good. The free rider issue is linked to the issue of social justice.

Free rider identification

To identify a freerider, you must first determine the existence of the good itself. A free rider on transport may intentionally not pay the fare and forget to do so. So, it is necessary to distinguish between a freerider and a subject who is not aware of the need for payment. The latter may not understand that he is consuming a public good. The problem of identifying a free rider is often associated with rapid changes in modern society. Many public goods are characterized by a rather complex structure. Therefore, it is difficult to determine in which particular link freeriders began to appear.

The problem of underestimating public goods

If you ask a person if he is paid enough, he will most likely answer this question in the negative. However, we often tend to underestimate the work of others. The same is true for public goods. Their production most often has to be partially financed by the state. In addition, it is often difficult to take into accountall costs, so the price of the public good may be underpriced.

Reasons for free riders

Most often, freeriding is a conscious choice and life position. People may view the public good as imposed and unnecessary. It is also possible that they are not satisfied with its quality. Another reason is the low income of the population. In this case, people are looking for a way to avoid additional costs and save money in this way. However, if free riders appear because of the poor quality of service, then how can it be improved if there is a chronic shortage of money because of them? It turns out a vicious circle.

To solve the problem, it is necessary to change the very economic mechanism for creating public goods, its financing and consumption. Many experts consider it necessary to transform them into services and goods for individual use. Some politicians are in favor of temporarily suspending the provision of, for example, water, gas, electricity to non-payers. However, this requires an effective legislative framework.

Freerider within organization

One variation of the free rider problem is that unscrupulous businessmen take advantage of the favorable environment created by other entrepreneurs. Freeriding occurs when an individual works under the "sign" of a certain brand, but does not make any contribution to its positive image. Another example would be an assistant professor at a prestigious university whoengaged in scientific activities. He enjoys the benefits of his work, but does not contribute to the ranking of the department in which he works. So does the soloist of the Bolshoi Theater, who does not improve his skills. He only exploits the "sign", and he does not make any contribution to the future of the institution. A similar problem may arise in a trade union or any other organization. To solve this problem, many companies do not transfer all operations to a franchise basis. This way they can control the quality of the service provided by distributors.

There is also freeriding within the organization. It appears when a group of people has the opportunity to evade the performance of their functions. To eliminate it, companies are restructuring. Work must be effectively supervised. It should be noted that the larger the group, the more acute the free rider problem becomes. And it can be counteracted only through a thorough assessment of the performance of each employee. Therefore, often the cost of finding freeriders is not worth the effect.

Possible exits

Solving the free rider problem is the task of the government. The state should have not only normative rules, but also mechanisms to enforce them. Most often, the state applies measures to prevent environmental degradation and excessive use of resources. These include the imposition of various taxes and the encouragement of charitable contributions. It is also possible thatpublic goods are turned into consumer goods.

In practice

In the Russian Federation, the free rider problem, examples of which can be found in all spheres of public relations, is very common. The role of the state in the national economy is constantly growing. It seeks not only to ensure the normal operation of market mechanisms, but also to alleviate socio-economic problems.

However, the need for the state as a regulator is a rather controversial issue. In the long run, this can be a significant loss. This is due to the fact that the production of public goods by the state is provided through taxation. And in this area, as we have already found out, the problem of a free rider is especially common. Therefore, a balance is important here between the role of the state and the collective actions of small groups of people. The participation of the government in the creation of so-called pure public goods is quite expedient, but it is better to minimize it in the production of mixed goods.