The free rider problem and why it arises in public goods

What the free rider problem is. A free rider is a person who enjoys the benefit of a good while avoiding payment for it. The free rider problem is the outcome when many people behave in this way: each waits for others to pay, too little money is raised, and a good worth more to the group than it costs is not provided, or is provided too little.

Why it arises in public goods. A public good has two properties, and each plays a part:

• Non-excludable. It is extremely hard to keep anyone from enjoying the good once it exists. So a person can get the benefit whether or not she has paid, and this is the direct cause of free riding.
• Non-rival. One person's use does not reduce what is left for others. So the free rider takes nothing visible away from anyone, and no one has to compete with her for the good, which makes holding back easy.

For each person the reasoning runs: if others pay, I get the good free; if they do not, my small payment will not provide it. The source of the problem is a positive externality: each payer's contribution benefits others, who do not pay her for it, and she does not count that benefit when deciding whether to pay. Left to the market, a public good is therefore supplied in an inefficient quantity.

Example: fogging against mosquitoes. Our own example. Residents of a large colony in Lucknow want fogging against mosquitoes every week of the monsoon. The spray cleans the air over the whole colony: no household can be left out (non-excludable), and one household's protection does not reduce another's (non-rival). All the residents would be better off with the fogging at the share of cost each would pay. Yet a household can reason that if enough neighbours contribute it will be protected anyway, so it pays nothing. When many households reason in this way the collection falls short and the fogging does not happen, and every household is worse off.

How it is overcome. Making payment compulsory removes the problem: with each member required to pay, nobody can ride free. This is why governments provide public goods and pay for them from taxes, deciding which are worthwhile by comparing total benefits with total costs.

Conclusion. The free rider problem is the tendency to enjoy a good without paying for it. It arises in public goods because non-paying users cannot be excluded, and it leads to under-provision unless payment is made compulsory.