Free Rider
The Journol of Liberrorion Sludies,
Vol. V, No. 4 (Fall 1981)
The Free Rider as a Basis for Government Intervention by E. C. Pasour, Jr.*
Department of Economics and Business, North Carolina State University
The "free rider problem," arising from the fact that an individual may be able to obtain the benefits of a good without contributing to the cost, is discussed in a number of different contexts. In the case of a "public good" where the provider cannot exclude, a good which others provide for themselves will also be provided to the free rider. In the public good view of charity, for example, each donor is said to have an incentive to hold down his own contribution and free ride on the redistribution from other members of the non-poor group. Thus, the free rider in the case of charity and other public goods is commonly taken to provide a rationale for state intervention. A similar situation exists in the case of a common property resource, as when oil is pumped from a pool beneath the land of several owners. It is in the interests of all producers to hold down output but in the interest of the single producer to expand output if other producers hold back. The resulting "Tragedy of the Commons" is taken to be an example of "market failure" and, consequently, a basis for government intervention. The "free rider problem" also arises in the case of the cartel. A group of competitive producers, for example, may be able t o gain through collusion by restricting output and increasing price. The ability to collude, however, is undercut by the incentive each member has to "chisel" or free ride. Thus, government sanctions are sought to restrain free rider activity in the case of cartels in agriculture, labor unions, transportation, occupational licensure and other areas. A common feature of each of the cases just cited is the absence of property rights. When property rights are not clearly defined and enforced, the individual motivated by self-interest has an economic
Vol. V, No. 4 (Fall 1981)
The Free Rider as a Basis for Government Intervention by E. C. Pasour, Jr.*
Department of Economics and Business, North Carolina State University
The "free rider problem," arising from the fact that an individual may be able to obtain the benefits of a good without contributing to the cost, is discussed in a number of different contexts. In the case of a "public good" where the provider cannot exclude, a good which others provide for themselves will also be provided to the free rider. In the public good view of charity, for example, each donor is said to have an incentive to hold down his own contribution and free ride on the redistribution from other members of the non-poor group. Thus, the free rider in the case of charity and other public goods is commonly taken to provide a rationale for state intervention. A similar situation exists in the case of a common property resource, as when oil is pumped from a pool beneath the land of several owners. It is in the interests of all producers to hold down output but in the interest of the single producer to expand output if other producers hold back. The resulting "Tragedy of the Commons" is taken to be an example of "market failure" and, consequently, a basis for government intervention. The "free rider problem" also arises in the case of the cartel. A group of competitive producers, for example, may be able t o gain through collusion by restricting output and increasing price. The ability to collude, however, is undercut by the incentive each member has to "chisel" or free ride. Thus, government sanctions are sought to restrain free rider activity in the case of cartels in agriculture, labor unions, transportation, occupational licensure and other areas. A common feature of each of the cases just cited is the absence of property rights. When property rights are not clearly defined and enforced, the individual motivated by self-interest has an economic