What is the free rider problem?

Name: Problem 15, Chapter 13: Principles of Economics
Uploaded: 2019-08-21T17:38:42-08:00
Duration: 5 min 12 s
Channel: Cody Paxton
Description: What is the free rider problem?

Key Concepts

Public Goods

Public goods are resources that are available to all members of a society without exclusion and with use by one individual not reducing availability to others. Their inherent nature of being non-excludable and non-rivalrous makes them particularly vulnerable to the free rider problem, as people may benefit regardless of contribution.

Non-Excludability

Non-excludability is a characteristic of some goods, particularly public goods, meaning that once the good is provided, it is difficult or impossible to prevent individuals from accessing it without paying. This leads to challenges in funding and maintenance because it creates incentives for individuals to avoid paying, relying on others to cover the full cost.

Free Rider Problem

The free rider problem is an economic dilemma where individuals benefit from resources, goods, or services without paying for them, expecting others to cover the cost. This behavior undermines the provision of such goods because if everyone acts as a free rider, the incentive to produce or maintain the good diminishes, leading to under-provision or complete absence of the service.

Transcript

00:02 Okay, today i will be explaining the free rider problem in the microeconomics curriculum.

00:10 So before we get into the math part of this with these numbers, i'll just explain what the problem is.

00:16 So the free rider problem, when people in a society have to pay for social services or public goods or something of that nature, when certain groups begin to not pay, then the groups that do pay begin to lose incentive to do so because their overall value goes down.

00:38 So let's just get into the numbers here because it will be a lot easier to explain.

00:43 So let's start with two groups for this example.

00:46 Group a and group b, each group contains 100 people.

00:50 So let's say that some sort of social service or public good cost for each of these groups would be $10.

00:57 So let's say group a pays $10 per person, therefore bringing the total to $1 ,000.

01:03 Dollars of contributed money towards this and let's say group b pays zero dollars nobody pays in group b therefore their value contributed is zero dollars so so far the total gain for these programs or public services or goods is one thousand dollars and i'm not putting dollar signs on all of these but just these are dollars so then let's say that the social value of this $10 that we're initially contributing is $15.

01:39 So let's say it is a, these numbers are arbitrary, by the way.

01:43 They don't mean anything.

01:43 It's just to visualize the problem.

01:45 So let's say that whatever is contributed gets 150 % gain.

01:53 Sorry, 50 % gain.

01:57 So this $1 ,000 would then turn into $1 ,500 worth of value, not necessarily money, but value.

02:05 So it would be $1 ,500...

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