Explain why the free-rider problem is likely to happen when a group must decide to provide a public good

The Free Rider Problem

The free rider problem is an economic concept of a market failure that occurs when people are benefiting from resources, goods, or services that they do not pay for. If there are too many free riders, the resources, goods, or services may be underprovided. Therefore, this would create a free rider problem. The problem is commonly seen with public goods (goods with non-excludable benefits).

Examples of the Free Rider Problem

Here are two examples of the free rider problem:

#1

John builds a lighthouse on the coast to serve as a navigational aid. As a result, all sailors are now able to benefit from the lighthouse even if they are not paying towards its upkeep. If too many sailors are free riding, there would be no incentive for John to maintain the lighthouse, as he is the only person contributing to its upkeep.

Public Goods and the Free Rider Problem

Public goods commonly face a free rider problem due to the two characteristics of a public good:

1. Non-rival: Consumption of the good or service by one individual does not reduce the availability of the good to others.
2. Non-excludable: It is impossible to prevent other consumers from consuming the good or service.

Examples of public goods include:

• National defense
• Fresh air
• Lighthouses
• Street lighting

Public goods create a free rider problem because consumers are able to utilize public goods without paying for them.