The Free Rider Problem The free rider issue has become one of the most serious economic issues today. The free rider is a lazy type person who wants the benefits that others bring in without having to do the work. The free rider typically takes advantage of a public good. Living in a civilized society presents many opportunities for free riding, which we have yet to find a way to control. Economists regard the possibility for free riding as a problem for the free market, which usually leads to government intervention. government intervention is not generally needed in a free market society but in this case if there were no government intervention this problem would not find a solution.
The free-rider issue is often seen as a serious problem because of the assumption that a free rider’s best self-interest is that they interact with others by force and fraud. If they can get away with the fraud and begin to gain the benefits of others they have reached their first goal. Their next goal is to make some good money or get credit for someone else’s hard work before they get caught. Then they get out and are long gone by the time anyone notices. Life in a civilized society allows each of us the opportunity to enjoy the benefits of the work of people with productive ability far greater than our own, but what happens when people begin doing this? They get used to not having to do much work and become lazy. In some cases people look at welfare in this way.
The Term Paper on What Solutions Are Possible to the Free Rider Problem, Both Inside and Outside of Government
Outline of the Chapter • Bond pricing and sensitivity of bond pricing to interest rate changes • Duration analysis – What is duration? – What determines duration? • Convexity • Passive bond management – Immunization • Active bond management 16-2 Interest Rate Risk • There is an inverse relationship between interest rates (yields) and price of the bonds. • The changes in interest rates cause ...
If a person is able to get a good job and chooses not to, but instead, to live on our government, this would be considered free riding. This causes a fluctuation in our market and it can have a negative effect. When the benefits go away people do not want to go back to work and eventually will loose their jobs or quit and become a true free rider. Clearly there is an essential difference between cases in which one can’t contribute to the benefits one enjoys and cases in which one chooses not to make a contribution that is within one’s power. But apart from this distinction, we can differentiate between harmless free riding and the worthless free riding. The free rider wants anything he can get for free and will think nothing of it if he can get away with it.
Free riders take advantage of public goods without having to contribute to them. For example, if society decides to encourage people to use less of a product and many people actually respond to this call, the product’s market will improve. Although the free rider may continue using this product, he will benefit. This creates a tremendous problem for activists who attempt to start a movement to improve the environment. Many people, seeing no incentive to join personally in the movement, just continue behaving the way they did before and yet reap the benefits of other people’s work. When everyone acts as a free rider, no benefit at all will come from the proposed action.
Because it is in everyone’s personal interest not to participate in the collective movement, the movement is highly vulnerable to failure. Though society as a whole may try to conserve a resource, the free rider can easily take advantage of this by not participating in the conservation effort. Those who believe in the concept of the free rider and the problems such people create might advocate government policy to require everyone to take part in efforts to improve the environment. Such people might contend that government action is the only fair and reliable way to prevent environmental problems. David Hume recognized the free-rider problem associated with public goods, even before the time of Adam Smith’s writings. Each citizen who can enjoy the benefit of a public good has an incentive to try to lay the whole burden of provision on others, whenever the exclusion of non payers is very costly or impossible.
Creating Our Ideal Society The perfect society does not exist. If it did however, it would probably sound much like the vacation brochures you can read at your travel agency. The air and water would be clean. You could have a perfect view of anything you wanted. Also, the weather would be perfect for any activity you wanted to do.This Utopia does not physically exist, but in our minds, it goes ...
Markets work to exhaust the gains from trade and cooperation because each individual has an interest in finding and capturing any and all such gains. Of course, when free riders can enjoy a public good without payment or trade, production and the potential gains from it may never occur. Efforts to originate government programs and to control them in the public interest are no different. The public decision-making process is a procedure for generating a public good and the persons involved in it, whether they are the voters, judges, legislators, or civil servants, all can be expected to treat it as any other public good. A public good is a very special class of goods, which cannot practically be withheld from one individual consumer without withholding them from all. In other words, a public good is given to everyone.
The free riders like public goods because they are easy to get to and there are tons of them. When there are this many goods, it is hard to spot some of them missing until a bunch are gone and by that time the free rider has moved on too. When this good is used and not paid for, the results can be very ugly. The free rider takes these goods for free, leaving the rest of the hard working people to make up the difference. This difference we have to make up is usually a higher tax. In raising the tax the price of the good goes up and when price goes up demand tends to go down.
As the demand keeps falling and the price keeps rising the product usually ends up off the market and filing a chapter eleven. It typically does not go that far but this is an example of what could happen. A free market is a privilege to have and it is a shame people have to take advantage of it because they do not feel the need to work hard or to go out of their way to do something for someone else. The free rider is a menace in our society and we do not need to let him take our money and put it to his use.
Ten Principles of Economics HOW PEOPLE MAKE DECISIONS There is no mystery about what an economy is. Whether we are talking about the economy of Los Angeles, the United States, or the whole world, an economy is just a group of people dealing with one another. Because the behavior of an economy reflects the behavior of the individuals who make up the economy, we begin our study of economics with ...
We have found ways such as government intervention and price lids to help control the problem but we have yet to find a solution. Once a solution is found we will have fewer worries and possibly a true free market. These are very difficult problems to stop and may never be stopped. It will take a long period of time to begin the process to bring it to an end, but it will be nice to maybe some day have a true free market without the problem of a free rider.