Question

What is free riding? How is free riding related to the need for public goods?

Short answer

Free riding is a situation where an individual benefits from a resource without paying for it or contributing to its existence. Public goods, which are non-excludable and non-rivalrous, provide an environment for free riding because individuals cannot be prevented from using them, and one person's usage does not reduce the good's availability to others. This leads to the free rider problem, where the good may be under-provided or not provided at all as a result of free riding.

Step-by-step solution

Define Free Riding

Free riding is a term used in economics to describe a situation where someone benefits from a resource without paying for it or contributing to its existence. It typically occurs in the context of public goods.

Define Public Goods

Public goods are goods that are both non-excludable and non-rivalrous. Non-excludable means that once the good is provided, no one can be prevented from using it. Non-rivalrous means that the good's use by one person does not reduce its availability to others.

Explaining the Connection

The connection between free riding and public goods lies on these characteristics of public goods being non-excludable and non-rivalrous. Because no one can be excluded from using public goods and one person's use doesn't reduce its availability to others, individuals have the incentive to be free riders - that is, to use the good without paying for it. This often leads to what is known as the free rider problem.

Key concepts

Public Goods

Imagine a local park where everyone can enjoy leisure activities regardless of whether they've contributed to its upkeep. This is an example of a public good.
Public goods are remarkable in their accessibility and endless capacity for use. They are provided freely, and once in existence, remain available for all to enjoy without hindering anyone else’s experience.

This abundant and persistent nature of public goods creates a unique scenario where the market might struggle to provide them efficiently. It’s hard to charge for something that doesn’t dwindle with use and can’t effectively exclude non-payers. This is where the government often steps in to fund such goods through taxes, ensuring their continuous availability for the collective benefit.

Non-Excludable

Now, consider a lighthouse. Its guiding light serves all ships nearby without distinction. This is because the lighthouse is non-excludable.

The term 'non-excludable' refers to the trait of a good or service that makes it impossible, or highly impractical, to prevent people from using it. Once a non-excludable good is made available, everyone has access without barriers. This feature is a key aspect of public goods and essential for understanding certain economic behaviors, including government involvement to supply such goods when the market fails to do so efficiently.

Non-Rivalrous

To grasp non-rivalrous goods, picture a broadcasted baseball game on TV. One person’s viewing doesn't prevent others from watching the same live game.

The term 'non-rivalrous' is used to describe a good where one person's consumption does not decrease the quantity available for others. Unlike a slice of pie, where more for one means less for another, non-rivalrous goods can satiate numerous desires all at once. As a result, these goods have the potential to offer wide-ranging benefits, but they also complicate traditional business models that depend on selling individual units.

Free Rider Problem

Delving into the free rider problem, imagine a scenario where a community enjoys the benefits of a well-kept neighborhood without certain individuals contributing to the cleaning efforts.

The free rider problem emerges when individuals avoid contributing to the cost of a public good while still reaping the benefits offered by that good. It's akin to having your cake and eating it too, without paying for it. Since the public good will be provided regardless of individual contributions, there's little incentive for people to voluntarily pay their share. This can lead to underfunding and underprovision of essential services or goods, making it a significant challenge for societies aiming to balance individual interests with collective needs.