Emdm-2
EMDM-2Q.3(A) answer:-
Definition of The Free Rider Problem. This occurs when people can enjoy a good service without paying anything (or making a small contribution less than their benefit.) If enough people can enjoy a good without paying for the cost then there is a danger that, in a free market, the good will be under-provided or not provided at all.
More on Definition of Free Rider Problem
Public Good and a Free Rider Problem
A public good has a classic free rider problem because the good has two characteristics: 1. Non-excludability – can’t stop anyone from consuming good 2. Non-rivalry – benefiting from good or service does not reduce the amount available to others.
Therefore, public goods like national defence, street lighting, beautiful gardens may not be provided in a free market.
A free rider problem is also said to occur when there is overconsumption of shared resources. – Also known as The Tragedy of the Commons. For example, a fisherman may take a high catch and free ride on other fishermen who are more concerned to preserve sustainable fish stocks.
Solutions to Free Rider Problem
1. Tax.
One solution is to treat the many beneficiaries as one consumer and then divide the cost equally. For example, UK national defence costs £31bn. This results in higher taxes for UK taxpayers. Therefore the cost of national defence is paid indirectly by UK taxpayers. This ensures everyone who benefits from the service pays towards the cost. Some may dislike this approach e.g. some anti-war protesters have tried to withhold a certain % of their tax arguing they don’t want to make contributions to illegal wars. But, most people accept paying taxes.
2. Appealing To People’s Altruism.
For some goods like visiting a garden, the garden may be able to raise funds by asking for donations if you enjoy your visit. There will be probably be many ‘free riders’ who don’t make donation. But, enough people may be willing to make a donation to fund the cost of the
Definition of The Free Rider Problem. This occurs when people can enjoy a good service without paying anything (or making a small contribution less than their benefit.) If enough people can enjoy a good without paying for the cost then there is a danger that, in a free market, the good will be under-provided or not provided at all.
More on Definition of Free Rider Problem
Public Good and a Free Rider Problem
A public good has a classic free rider problem because the good has two characteristics: 1. Non-excludability – can’t stop anyone from consuming good 2. Non-rivalry – benefiting from good or service does not reduce the amount available to others.
Therefore, public goods like national defence, street lighting, beautiful gardens may not be provided in a free market.
A free rider problem is also said to occur when there is overconsumption of shared resources. – Also known as The Tragedy of the Commons. For example, a fisherman may take a high catch and free ride on other fishermen who are more concerned to preserve sustainable fish stocks.
Solutions to Free Rider Problem
1. Tax.
One solution is to treat the many beneficiaries as one consumer and then divide the cost equally. For example, UK national defence costs £31bn. This results in higher taxes for UK taxpayers. Therefore the cost of national defence is paid indirectly by UK taxpayers. This ensures everyone who benefits from the service pays towards the cost. Some may dislike this approach e.g. some anti-war protesters have tried to withhold a certain % of their tax arguing they don’t want to make contributions to illegal wars. But, most people accept paying taxes.
2. Appealing To People’s Altruism.
For some goods like visiting a garden, the garden may be able to raise funds by asking for donations if you enjoy your visit. There will be probably be many ‘free riders’ who don’t make donation. But, enough people may be willing to make a donation to fund the cost of the