Free-rider problem

In the social sciences, the free-rider problem occurs when those who benefit from resources, public goods, or services do not pay for them, which results in an underprovision of those goods or services.[1] For example, a free-rider may frequently ask for available parking lots (public goods) from those who have already paid for them, in order to benefit from free parking. That is, the free-rider may use the parking even more than the others without paying a penny. The free-rider problem is the question of how to limit free riding and its negative effects in these situations. The free-rider problem may occur when property rights are not clearly defined and imposed.[2]

The free-rider problem is common with goods which are non-excludable, including public goods and situations of the Tragedy of the Commons.

Although the term "free rider" was first used in economic theory of public goods, similar concepts have been applied to other contexts, including collective bargaining, antitrust law, psychology and political science.[3] For example, some individuals in a team or community may reduce their contributions or performance if they believe that one or more other members of the group may free ride.[4]

The economic problem with free riding

Free riding is a problem of economic inefficiency when it leads to the under-production or over-consumption of a good. For example, when people are asked how much they value a particular public good, with that value measured in terms of how much money they would be willing to pay, their tendency is to under report their valuations.[5]

Goods which are subject to free riding are usually characterized by the inability to exclude non-payers. This problem is sometimes compounded by the fact that common-property goods are characterized by rival consumption. Not only can consumers of common-property goods benefit without payment, but consumption by one imposes an opportunity cost on others. This will lead to overconsumption and even possibly exhaustion or destruction of the common-property good. If too many people start to free ride, a system or service will eventually not have enough resources to operate.

The other problem of free-riding is experienced when the production of goods does not consider the external costs, particularly the use of ecosystem services.

Economic and political solutions

Assurance contracts

An assurance contract is a contract in which participants make a binding pledge to contribute to building a public good, contingent on a quorum of a predetermined size being reached. Otherwise the good is not provided and any monetary contributions are refunded.

A dominant assurance contract is a variation in which an entrepreneur creates the contract and refunds the initial pledge plus an additional sum of money if the quorum is not reached. (The entrepreneur profits by collecting a fee if the quorum is reached and the good is provided.) In game-theoretic terms this makes pledging to build the public good a dominant strategy: the best move is to pledge to the contract regardless of the actions of others. [6]

Coasian solution

A Coasian solution, named for the economist Ronald Coase, proposes that potential beneficiaries of a public good can negotiate to pool their resources and create it, based on each party's self-interested willingness to pay. His treatise, "The Problem of Social Cost" (1960), argued that if the transaction costs between potential beneficiaries of a public good are low—that it is easy for potential beneficiaries to find each other and organize a pooling their resources based upon the good's value to each of them—that public goods could be produced without government action.[7]

Much later, Coase himself wrote that while what had become known as the Coase Theorem had explored the implications of zero transaction costs, he had actually intended to use this construct as a stepping-stone to understand the real world of positive transaction costs, corporations, legal systems and government actions:[8][9]

I examined what would happen in a world in which transaction costs were assumed to be zero. My aim in doing so was not to describe what life would be like in such a world but to provide a simple setting in which to develop the analysis and, what was even more important, to make clear the fundamental role which transaction costs do, and should, play in the fashioning of the institutions which make up the economic system.

Coase also wrote:

The world of zero transaction costs has often been described as a Coasian world. Nothing could be further from the truth. It is the world of modern economic theory, one which I was hoping to persuade economists to leave. What I did in "The Problem of Social Cost" was simply to shed light on some of its properties. I argued in such a world the allocation of resources would be independent of the legal position, a result which Stigler dubbed the "Coase theorem".[10]

Thus, while Coase himself appears to have considered the "Coase theorem" and Coasian solutions as simplified constructs to ultimately consider the real 20th-century world of governments and laws and corporations, these concepts have become attached to a world where transaction costs were much lower, and government intervention would unquestionably be less necessary.

A minor alternative, especially for information goods, is for the producer to refuse to release a good to the public until payment to cover costs is met. Author Stephen King, for instance, authored chapters of a new novel downloadable for free on his website while stating that he would not release subsequent chapters unless a certain amount of money was raised. Sometimes dubbed holding for ransom, this method of public goods production is a modern application of the street performer protocol for public goods production. Unlike assurance contracts, its success relies largely on social norms to ensure (to some extent) that the threshold is reached and partial contributions are not wasted.

One of the purest Coasian solutions today is the new phenomenon of Internet crowdfunding. Here rules are enforced by computer algorithms and legal contracts as well as social pressure. For example, on the Kickstarter site, each funder authorizes a credit card purchase to buy a new product or receive other promised benefits, but no money changes hands until the funding goal is met.[11] Because automation and the Internet so reduce the transaction costs for pooling resources, project goals of only a few hundred dollars are frequently crowdfunded, far below the costs of soliciting traditional investors.

Government provision

If voluntary provision of public goods will not work, then the solution is making their provision involuntary. This saves each of us from our own tendency to be a free rider, while also assuring us that no one else will be allowed to free ride. One frequently proposed solution to the problem is for governments or states to impose taxation to fund the production of public goods. This does not actually solve the theoretical problem because good government is itself a public good. Thus it is difficult to ensure the government has an incentive to provide the optimum amount even if it were possible for the government to determine precisely what amount would be optimum. These issues are studied by public choice theory and public finance.

Sometimes the government provides public goods using "unfunded mandates". An example is the requirement that every car be fit with a catalytic converter. This may be executed in the private sector, but the end result is predetermined by the state: the individually involuntary provision of the public good clean air. Unfunded mandates have also been imposed by the U.S. federal government on the state and local governments, as with the Americans with Disabilities Act, for example.

Regardless the role of the government is provide vital goods to all individuals, some of which they cannot obtain on themselves.[12] In order to ensure that government services are properly funded taxes and other government controlled entities are enforced.[13] Although enforced taxes deter the free-rider problem many contend that some goods should be excluded and made into private goods. However, this not possible with all goods such as pure public goods that are inseparable and inclusive, thus require "provision by public means".[14] In short, the government has a responsibility to ensure that the social welfare of individuals is met as opposed to privatized goods.[15]

Subsidies and joint products

A government may subsidize production of a public good in the private sector. Unlike government provision, subsidies may result in some form of a competitive market. The potential for cronyism (for example, an alliance between political insiders and the businesses receiving subsidies) can be limited with secret bidding for the subsidies or application of the subsidies following clear general principles. Depending on the nature of a public good and a related subsidy, principal–agent problems can arise between the citizens and the government or between the government and the subsidized producers; this effect and counter-measures taken to address it can diminish the benefits of the subsidy.

Subsidies can also be used in areas with a potential for non-individualism: For instance, a state may subsidize devices to reduce air pollution and appeal to citizens to cover the remaining costs.

Similarly, a joint-product model analyzes the collaborative effect of joining a private good to a public good. For example, a tax deduction (private good) can be tied to a donation to a charity (public good). It can be shown that the provision of the public good increases when tied to the private good, as long as the private good is provided by a monopoly (otherwise the private good would be provided by competitors without the link to the public good).

Privileged group

The study of collective action shows that public goods are still produced when one individual benefits more from the public good than it costs him to produce it; examples include benefits from individual use, intrinsic motivation to produce, and business models based on selling complement goods. A group that contains such individuals is called a privileged group. A historical example could be a downtown entrepreneur who erects a street light in front of his shop to attract customers; even though there are positive external benefits to neighboring nonpaying businesses, the added customers to the paying shop provide enough revenue to cover the costs of the street light.

The existence of privileged groups may not be a complete solution to the free rider problem, however, as underproduction of the public good may still result. The street light builder, for instance, would not consider the added benefit to neighboring businesses when determining whether to erect his street light, making it possible that the street light isn't built when the cost of building is too high for the single entrepreneur even when the total benefit to all the businesses combined exceeds the cost.

An example of the privileged group solution could be the Linux community, assuming that users derive more benefit from contributing than it costs them to do it. For more discussion on this topic see also Coase's Penguin.

Another example is those musicians and writers who create music and writings for their own personal enjoyment, and publish because they enjoy having an audience. Financial incentives are not necessary to ensure the creation of these public goods. Whether this creates the correct production level of writings and music is an open question.

Merging free riders

Another method of overcoming the free rider problem is to simply eliminate the profit incentive for free riding by buying out all the potential free riders. A property developer that owned an entire city street, for instance, would not need to worry about free riders when erecting street lights since he owns every business that could benefit from the street light without paying. Implicitly, then, the property developer would erect street lights until the marginal social benefit met the marginal social cost. In this case, they are equivalent to the private marginal benefits and costs.

While the purchase of all potential free riders may solve the problem of underproduction due to free riders in smaller markets, it may simultaneously introduce the problem of underproduction due to monopoly. Additionally, some markets are simply too large to make a buyout of all beneficiaries feasible—this is particularly visible with public goods that affect everyone in a country.

Introducing an exclusion mechanism (club goods)

Another solution, which has evolved for information goods, is to introduce exclusion mechanisms which turn public goods into club goods. One well-known example is copyright and patent laws. These laws, which in the 20th century came to be called intellectual property laws, attempt to remove the natural non-excludability by prohibiting reproduction of the good. Although they can address the free rider problem, the downside of these laws is that they imply private monopoly power and thus are not Pareto-optimal.

For example, in the United States, the patent rights given to pharmaceutical companies encourage them to charge high prices (above marginal cost) and to advertise to convince patients to persuade their doctors to prescribe the drugs. Likewise, copyright provides an incentive for a publisher to act like The Dog in the Manger, taking older works out of print so as not to cannibalize revenue from the publisher's own new works.[16]

The laws also end up encouraging patent and copyright owners to sue even mild imitators in court and to lobby for the extension of the term of the exclusive rights in a form of rent seeking.

These problems with the club-good mechanism arise because the underlying marginal cost of giving the good to more people is low or zero, but, because of the limits of price discrimination those who are unwilling or unable to pay a profit-maximizing price do not gain access to the good.

If the costs of the exclusion mechanism are not higher than the gain from the collaboration, club goods can emerge naturally. James M. Buchanan showed in his seminal paper that clubs can be an efficient alternative to government interventions.[17]

On the other hand, the inefficiencies and inequities of club goods exclusions sometimes cause potentially excludable club goods to be treated as public goods, and their production financed by some other mechanism. Examples of such "natural" club goods include natural monopolies with very high fixed costs, private golf courses, cinemas, cable television and social clubs. This explains why many such goods are often provided or subsidized by governments, co-operatives or volunteer associations, rather than being left to be supplied by profit-minded entrepreneurs. These goods are often known as social goods.

Joseph Schumpeter claimed that the "excess profits", or profits over normal profit, generated by the copyright or patent monopoly will attract competitors that will make technological innovations and thereby end the monopoly. This is a continual process referred to as "Schumpeterian creative destruction", and its applicability to different types of public goods is a source of some controversy. The supporters of the theory point to the case of Microsoft, for example, which has been increasing its prices (or lowering its products' quality), predicting that these practices will make increased market shares for Linux and Apple largely inevitable.

A nation can be seen as a club whose members are its citizens. Government would then be the manager of this club. This is further studied in the Theory of the State.

Altruistic solutions

Social norms

When enough people do not think like free-riders, the private and voluntary provision of public goods may be successful. For example, a free rider might come to a public park to enjoy its beauty, yet discard litter that makes it less enjoyable for others. Other public-spirited individuals don't do this and might even pick up existing litter. Reasons for the act could be that the person derives pleasure from helping their community, feels ashamed if their neighbors or friends saw them, or could be emotionally attached to the public good. Even people who engaged in free-riding by littering elsewhere are less likely to if they see others hold on to their trash.

Social norms can be observed wherever people interact, not only in physical spaces but in virtual communities on the Internet. For example, if a disabled person boards a crowded bus, everyone expects that some able-bodied person will volunteer their seat. The same social norm, although executed in a different environment, can also be applied to the Internet. If a user enters a discussion in a chat room and continues to use all capital letters or to make personal attacks ("flames") when addressing other users, the culprit may realize he or she has been blocked by other participants. As in real life, users learning to adapt to the social norms of cyberspace communities provide a public good—here, not suffering disruptive online behavior—for all the participants.

Social sanctions (punishment)

Experimental literature suggests that free riding can be overcome without any state intervention. Peer-to-peer punishment, that is, members sanction those members that do not contribute to the public good at a cost, is sufficient to establish and maintain cooperation.[18][19] Such punishment is often considered altruistic, because it comes at a cost to the punisher, however, the exact nature remains to be explored.[20] Whether costly punishment can explain cooperation is disputed.[21] Recent research finds that costly punishment is less effective in real world environments. For example, punishment works relatively badly under imperfect information, where people cannot observe the behavior of others perfectly.[22]

Voluntary organizations

Organizations such as the Red Cross, public radio and television or a volunteer fire department provide public goods to the majority at the expense of a minority who voluntarily participate or contribute funds. Contributions to online collaborative media like Wikipedia and other wiki projects, and free software projects such as Linux are another example of relatively few contributors providing a public good (information) freely to all readers or software users.

Proposed explanations for altruistic behavior include biological altruism and reciprocal altruism. For example, voluntary groups such as labor unions and charities often have a federated structure, probably in part because voluntary collaboration emerges more readily in smaller social groups than in large ones (e.g., see Dunbar's number).

While both biological and reciprocal altruism are observed in other animals, our species' complex social behaviors take these raw materials much farther. Philanthropy by wealthy individuals—some, such as Andrew Carnegie giving away their entire vast fortunes—have historically provided a multitude of public goods for others. One major impact was the Rockefeller Foundation's development of the "Green Revolution" hybrid grains that probably saved many millions of people from starvation in the 1970s. Christian missionaries, who typically spend large parts of their lives in remote, often dangerous places, have had disproportionate impact compared with their numbers worldwide for centuries. Communist revolutionaries in the 20th century had similar dedication and outsized impacts. International relief organizations such as Doctors Without Borders, Save the Children and Amnesty International have benefited millions, while also occasionally costing workers their lives. For better and for worse, humans can conceive of, and sacrifice for, an almost infinite variety of causes in addition to their biological kin.

Religions and ideologies

The noblest motive is the public good - Jefferson Building - Library of Congress
"The noblest motive is the public good." Thomas Jefferson Building, Library of Congress.

Voluntary altruistic organizations often motivate their members by encouraging deep-seated personal beliefs, whether religious or other (such as social justice or environmentalism) that are taken "on faith" more than proved by rational argument. When individuals resist temptations to free riding (e.g., stealing) because they hold these beliefs (or because they fear the disapproval of others who do), they provide others with public goods that might be difficult or impossible to "produce" by administrative coercion alone.

One proposed explanation for the ubiquity of religious belief in human societies is multi-level selection: altruists often lose out within groups, but groups with more altruists win. A group whose members believe a "practical reality" that motivates altruistic behavior may out-compete other groups whose members' perception of "factual reality" causes them to behave selfishly. A classic example is a soldier's willingness to fight for his tribe or country. Another example given in evolutionary biologist David Sloan Wilson's Darwin's Cathedral is the early Christian church under the late Roman Empire; because Roman society was highly individualistic, during frequent epidemics many of the sick died not of the diseases per se but for lack of basic nursing. Christians, who believed in an afterlife, were willing to nurse the sick despite the risks. Although the death rate among the nurses was high, the average Christian had a much better chance of surviving an epidemic than other Romans did, and the community prospered.

Religious and non-religious traditions and ideologies (such as nationalism and patriotism) are in full view when a society is in crisis and public goods such as defense are most needed. Wartime leaders invoke their God's protection and claim that their society's most hallowed traditions are at stake. For example, according to President Abraham Lincoln's Gettysburg Address during the American Civil War, the Union was fighting so "that government of the people, by the people, for the people, shall not perish from the earth". Such voluntary, if exaggerated, exhortations complement forcible measures—taxation and conscription—to motivate people to make sacrifices for their cause.

See also

Notes

  1. ^ Baumol, William (1952). Welfare Economics and the Theory of the State. Cambridge, Massachusetts: Harvard University Press.
  2. ^ Pasour, Jr., E. C. "The Free Rider as a Basis for Government Intervention" (PDF). Libertarian Studies. Retrieved 2014-10-25.
  3. ^ Hendriks, Carolyn M. (December 2006). "When the Forum Meets Interest Politics: Strategic Uses of Public Deliberation". Politics & Society (Vol. 34-4). doi:10.1177/0032329206293641.
  4. ^ Ruël, Gwenny Ch.; Bastiaans, Nienke and Nauta, Aukje. "Free-riding and team performance in project education"
  5. ^ Goodstein, Eban (2014). Economics and the Environment (7 ed.). University of Minnesota: Library of Congress. ISBN 978-1-118-53972-9.
  6. ^ "{title}" (PDF). Archived (PDF) from the original on 12 January 2013. Retrieved 16 October 2013.
  7. ^ Coase, Ronald (October 1960). "The Problem of Social Cost". Journal of Law and Economics. 3: 1–44. doi:10.1086/466560.
  8. ^ Fox, Glenn. "The Real Coase Theorems" (PDF). Cato Journal 27, Fall 2007. Cato Institute, Washington, D.C. Archived from the original (PDF) on 23 July 2013. Retrieved 17 February 2014.
  9. ^ Coase, Ronald (1988). The Firm, the Market and the Law. Chicago, Illinois: University of Chicago Press. p. 13.
  10. ^ Coase, Ronald (1988). The Firm, the Market and the Law. Chicago, Illinois: University of Chicago Press. p. 174.
  11. ^ "Kickstarter FAQ". Archived from the original on 26 February 2014. Retrieved 17 February 2014.
  12. ^ Thompson, Donald. "The Proper Role of Government: Considering Public Goods and Private Goods". The Pennsylvania State University, 2015
  13. ^ Jakacky, Gary. "The Role of Government in Providing". Newsmax Finance, 2016
  14. ^ Jackson, Bill. "Public Goods and Services". The Social Studies Help Center, 2016
  15. ^ Holtz, Brian. "The Proper Role of Government". Holtz for Congress, 2016
  16. ^ Examples from the entertainment industry include Walt Disney Studios Home Entertainment's "vault" sales practice and its outright refusal to issue Song of the South on home video in most markets. Examples from the computer software industry include Microsoft's decision to pull Windows XP from the market in mid-2008 to drive revenue from the widely criticized Windows Vista operating system.
  17. ^ James M. Buchanan (February 1965). "An Economic Theory of Clubs". Economica. 32 (125): 1–14. doi:10.2307/2552442. JSTOR 2552442.
  18. ^ Elinor Ostrom; James Walker; Roy Gardner (June 1992). "Covenants With and without a Sword: Self-Governance Is Possible". American Political Science Review. 86 (2): 404–17. doi:10.2307/1964229. JSTOR 1964229.
  19. ^ Fehr, E., & S. Gächter (2000) "Cooperation and Punishment in Public Goods Experiments", 90 American Economic Review 980.
  20. ^ Fehr, Ernst; Gächter, Simon (2002). "Altruistic punishment in humans". Nature. 415 (6868): 137–40. doi:10.1038/415137a. PMID 11805825.
  21. ^ Dreber, Anna; et al. (2008). "Winners don't punish". Nature. 452 (7185): 348–51. doi:10.1038/nature06723. PMC 2292414. PMID 18354481.
  22. ^ Kristoffel Grechenig, Nicklisch; Thöni, C. (2010). "Punishment despite reasonable doubt – a public goods experiment with sanctions under uncertainty". Journal of Empirical Legal Studies. 7 (4): 847–67. doi:10.1111/j.1740-1461.2010.01197.x. SSRN 1586775.

Further reading

Asian Dust

Asian Dust (also yellow dust, yellow sand, yellow wind or China dust storms) is a meteorological phenomenon which affects much of East Asia year round but especially during the spring months. The dust originates in the deserts of Mongolia, northern China and Kazakhstan where high-speed surface winds and intense dust storms kick up dense clouds of fine, dry soil particles. These clouds are then carried eastward by prevailing winds and pass over China, North and South Korea, and Japan, as well as parts of the Russian Far East. Sometimes, the airborne particulates are carried much further, in significant concentrations which affect air quality as far east as the United States.

Since the turn of the 21st century, it has become a serious problem due to the increase of industrial pollutants contained in the dust and intensified desertification in China causing longer and more frequent occurrences, as well as in the last few decades when the Aral Sea of Kazakhstan and Uzbekistan started drying up due to the diversion of the Amu River and Syr River following a Soviet agricultural program to irrigate Central Asian deserts, mainly for cotton plantations.

Assurance contract

An assurance contract, also known as a provision point mechanism, or crowdaction, is a game theoretic mechanism and a financial technology that facilitates the voluntary creation of public goods and club goods in the face of collective action problems such as the free rider problem.

The free rider problem is that there may be actions that would benefit a large group of people, but once the action is taken, there is no way to exclude those who did not pay for the action from the benefits. This leads to a game theoretic problem: all members of a group might be better off if an action were taken, and the members of the group contributed to the cost of the action, but many members of the group may make the perfectly rational decision to let others pay for it, then reap the benefits for free, possibly with the result that no action is taken. The result of this rational game play is lower utility for everyone.

Charles Tiebout

Charles Mills Tiebout (1924–1968) was an economist and geographer most known for his development of the Tiebout model, which suggested that there were actually non-political solutions to the free rider problem in local governance. He graduated from Wesleyan University in 1950, and received a PhD in economics in University of Michigan in 1957. He was Professor of Economics and Geography at the University of Washington. He died suddenly on January 16, 1968, at age 43.

Tiebout is frequently associated with the concept of foot voting, that is, physically moving to another jurisdiction where policies are closer to one's ideologies, instead of voting to change a government or its policies.

Collective action problem

A collective action problem is a situation in which all individuals would be better off cooperating but fail to do so because of conflicting interests between individuals that discourage joint action. The collective action problem has been addressed in political philosophy for centuries, but was most clearly established in 1965 in Mancur Olson's The Logic of Collective Action. The collective action problem can be observed today in many areas of study, and is particularly relevant to economic concepts such as game theory and the free-rider problem that results from the provision of public goods. Additionally, the collective problem can be applied to numerous public policy concerns that countries across the world currently face.

Copyright alternatives

Various copyright alternatives in an alternative compensation systems (ACS) have been proposed as ways to allow the widespread reproduction of digital copyrighted works while still paying the authors and copyright owners of those works. This article only discusses those proposals which involve some form of government intervention. Other models, such as the street performer protocol or voluntary collective licenses, could arguably be called "alternative compensation systems" although they are very different and generally less effective at solving the free rider problem.

The impetus for these proposals has come from the widespread use of peer-to-peer file sharing networks. A few authors argue that an ACS is simply the only practical response to the situation. But most ACS advocates go further, holding that P2P file sharing is in fact greatly beneficial, and that tax or levy funded systems are actually more desirable tools for paying artists

than sales coupled with DRM copy prevention technologies.

Eurobonds

European bonds are proposed government bonds issued in euros jointly by the 19 eurozone nations. The idea was first raised by the European Commission in 2011. Eurobonds would be debt investments whereby an investor loans a certain amount of money, for a certain amount of time, with a certain interest rate, to the eurozone bloc altogether, which then forwards the money to individual governments.

Eurobonds have been suggested as a way to tackle the European sovereign debt crisis as the indebted states could borrow new funds at better conditions as they are supported by the rating of the non-crisis states.

Because Eurobonds would allow already highly indebted states access to cheaper credit thanks to the strength of other eurozone economies, they are controversial, and may suffer from the free rider problem.

Free rider

Free rider may refer to:

Free rider, someone who enjoys the benefits of an activity without paying for it, see free-rider problem

Free rider (Stowaway), a person who secretly boards a vehicle to travel without paying and without being detected

Free Rider and sequels, biking webgames similar to the popular web toy Line Rider, but with a controllable player

Freeloading

Freeloading and mooching are colloquial terms for when a person uses resources that do not belong to them, for their own gain or benefit. A person who freeloads is called a freeloader or a mooch. When unpaid overuse of public resources occurs in the public sphere, it raises a free-rider problem. An example of freeloading would be an uninvited guest abusing the hospitality of their family members, friends, or neighbors, by staying at their house, eating their food, and using their things, without offering to pay for such use.

Labor rights

Labor rights or workers' rights are a group of legal rights and claimed human rights having to do with labor relations between workers and their employers, usually obtained under labor and employment law. In general, these rights' debates have to do with negotiating workers' pay, benefits, and safe working conditions. One of the most central of these rights is the right to unionize. Unions take advantage of collective bargaining and industrial action to increase their members' wages and otherwise change their working situation. Labor rights can also take in the form of worker's control and worker's self management in which workers have a democratic voice in decision and policy making. The labor movement initially focused on this "right to unionize", but attention has shifted elsewhere.

Critics of the labor rights movement claim that regulation promoted by labor rights activists may limit opportunities for work. In the United States, critics objected to unions establishing closed shops, situations where employers could only hire union members. The Taft–Hartley Act banned the closed shop but allowed the less restrictive union shop. Taft–Hartley also allowed states to pass right-to-work laws, which require an open shop where a worker's employment is not affected by his or her union membership. Labor counters that the open shop leads to a free rider problem. Willing freelancers counter that union contracts are often inherently ageist (with substantial seniority bonuses undercutting the concept of equal pay for equal work) and punitive to the rootless or the adventuresome, who thrive on more diverse career trajectories.

Leecher (computing)

In computing and specifically Internet, a leech is one who benefits, usually deliberately, from others' information or effort but does not offer anything in return, or makes only token offerings in an attempt to avoid being called a leech. In economics, this type of behavior is called "free riding" and is associated with the free rider problem.

Depending on context, leeching does not necessarily refer to illegal use of computer resources, but often instead to greedy use according to etiquette: to wit, using too much of what is freely given without contributing a reasonable amount back to the community that provides it.

The name derives from the leech, an animal that sucks blood and then tries to leave unnoticed. Other terms are used, such as "freeloader" and "sponge", but leech is the most common.

Preference revelation

In public choice theory, preference revelation (also preference revelation problem) is an area of study concerned with ascertaining the public's demand for public goods. If government planners do not have "full knowledge of individual preference functions", then it's likely that public goods will be under or over supplied.

Private good

A private good is defined in economics as "an item that yields positive benefits to people" that is excludable, i.e. its owners can exercise private property rights, preventing those who have not paid for it from using the good or consuming its benefits; and rivalrous, i.e. consumption by one necessarily prevents that of another. A private good, as an economic resource is scarce, which can cause competition for it. The market demand curve for a private good is a horizontal summation of individual demand curves.Unlike public goods, private goods are less likely to have the free rider problem. Assuming a private good is valued positively by everyone, the efficiency of obtaining the good is obstructed by its rivalry, that is simultaneous consumption of a rivalrous good is theoretically impossible; the feasibility of obtaining the good is made difficult by its excludability, that is people have to pay for it to enjoy its benefits.One of the most common ways of looking at goods in the economy is by examining the level of competition in obtaining a given good, and the possibility of excluding its consumption; one cannot, for example, prevent another from enjoying a beautiful view, or clean air.

Privileged group

In economics, a privileged group is one possible condition for the production of public goods.

A privileged group contains at least one individual that benefits more from a public good than its production costs. Therefore, the good will be produced although other members of the group benefit without paying. However, this free rider problem may still result in an undersupply of the good compared to the Lindahl equilibrium.

Public good

In economics, a public good is a good that is both non-excludable and non-rivalrous in that individuals cannot be excluded from use or could be enjoyed without paying for it, and where use by one individual does not reduce availability to others or the goods can be effectively consumed simultaneously by more than one person. This is in contrast to a common good which is non-excludable but is rivalrous to a certain degree.

Public goods include knowledge, official statistics, national security, common language(s), flood control systems, lighthouses, and street lighting. Public goods that are available everywhere are sometimes referred to as global public goods. There is an important conceptual difference between the sense of "a" public good, or public "goods" in economics, and the more generalized idea of "the public good" (or common good, or public interest), "a shorthand signal for shared benefit at a societal level". Examples of public good knowledge is mens, womens and youth health awareness, environmental issues, such as maintaining a nation's biodiversity, provision of welfare services and safety nets for future generations, sharing and interpreting contemporary history with a cultural lexicon, particularly about protected cultural heritage sites and monuments, popular and entertaining tourist attractions, libraries and universities.

Many public goods may at times be subject to excessive use resulting in negative externalities affecting all users; for example air pollution and traffic congestion. Public goods problems are often closely related to the "free-rider" problem, in which people not paying for the good may continue to access it. Thus, the good may be under-produced, overused or degraded. Public goods may also become subject to restrictions on access and may then be considered to be club goods or private goods; exclusion mechanisms include copyright, patents, congestion pricing, and pay television.

There is a good deal of debate and literature on how to measure the significance of public goods problems in an economy, and to identify the best remedies.

In a non-economic sense, the term is often used to describe something that is useful for the public generally, such as education and infrastructure, although these are not "public goods" in the economic sense.

The Logic of Collective Action

The Logic of Collective Action: Public Goods and the Theory of Groups is a book by Mancur Olson, Jr. published in 1965. It develops a theory of political science and economics of concentrated benefits versus diffuse costs. Its central argument is that concentrated minor interests will be overrepresented and diffuse majority interests trumped, due to a free-rider problem that is stronger when a group becomes larger.

Tiebout model

The Tiebout model, also known as Tiebout sorting, Tiebout migration, or Tiebout hypothesis, is a positive political theory model first described by economist Charles Tiebout in his article "A Pure Theory of Local Expenditures" (1956). The essence of the model is that there is in fact a non-political solution to the free rider problem in local governance. Specifically, competition across local jurisdictions places competitive pressures on the provision of local public goods such that these local governments are able to provide the optimal level of public goods.

Union security agreement

A union security agreement is a contractual agreement, usually part of a union collective bargaining agreement, in which an employer and a trade or labor union agree on the extent to which the union may compel employees to join the union, and/or whether the employer will collect dues, fees, and assessments on behalf of the union.

Welfare reform

Welfare reforms are changes in the operation of a given welfare system, with the goals of reducing the number of individuals dependent on government assistance, keeping the welfare systems affordable, and assisting recipients become self-sufficient. Classical liberals, libertarians, and conservatives generally argue that welfare and other tax-funded services reduce incentives to work, exacerbate the free-rider problem, and intensify poverty. Socialists, on the other hand, generally criticize welfare reform because it usually minimizes the public safety net, and strengthens the capitalist economic system. Welfare reform is constantly debated because of the varying opinions on the government's determined balance of providing guaranteed welfare benefits, and promoting self-sufficiency.

Wheel tax

A wheel tax is a vehicle registration fee commonly used on automobiles generally less than 8000 pounds in the United States by some cities and counties. The problem that a wheel tax attempts to solve is that many people come into a community from outside to work and, as a result, use the community's roads, water, sewer, and so forth, but pay no taxes into the community as a result of living outside of the municipality. It is an example of a problem in governance sometimes called the free rider problem. The tax is charged to motorists based upon the vehicle's weight, and it is often collected at the time of annual vehicle registration renewals. A proposed wheel tax in Omaha was $50 per year.Proponents have argued that wheel taxes are fair since persons who drive into a community without paying taxes to that specific community contribute to the wear-and-tear of public roadways, and therefore they should pay for the upkeep. Critics of wheel taxes have argued that wheel taxes are not fair since they are an example of taxation without representation since the people taxed have no political representation within the community.Chicago has a wheel tax, which is actually a registration fee that is imposed on city residents and businesses, rather than outsiders. Many suburbs of Chicago such as Evanston have also adopted residents-only vehicle registration fees (also called a wheel tax by some of the municipalities). Enforcement of the collection of registration fees has sometimes been expedited by the use of cameras. Authorities can search car registration records to identify what city a car's registered owner lives in, and can issue a tax based on that information.

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