What is the problem of a free rider, the ways to solve it

In the economy, the free rider problem occurs when those who use resources, goods and services do not pay for them. This leads to the fact that their number decreases. All the rest are forced to pay for them even more. If the number of stowaways continues to increase, then it is possible that the production of the good ceases altogether. The main issue is to limit freeriding and the negative effects from it. The free rider problem arises when ownership rights are unclear and inefficiently regulated.

General information

When one person does not buy a bus ticket, but travels to work, it will not create any problems for the economy. So he will save some of his budget. But what if many people start doing this? Due to what the driver's work will be paid, buses will be repaired and new ones bought? Most likely, the owner will try to strengthen control and increase fines. If the bus ticket is forced to buy most of the passengers will not succeed, then the route will be closed. So, not only those who did not pay, but also quite respectable citizens will suffer.

Especially often there is a free rider problem in the distribution of public goods. It occurs if payment for them is voluntary. A similar concept is used in the theory of negotiations, antimonopoly legislation, psychology and political science. For example, some team members may begin to give less, if they believe that it has freeriders. A similar situation arises when there are unscrupulous members of the trade union. A vivid example is the cost of defense. Someone may not pay taxes, but he can still count on the same level of protection as other citizens.

As an economic concept

If we talk about the problem of the free rider, its essence can be reduced to the fact that there is a certain group of people who benefit from the use of goods, but does not pay for them. This leads to their underproduction. This situation is associated with Pareto inefficiency. The free-rider effect affects resource stocks that are common property, leading to their rapid depletion. It is quite difficult to distribute such goods fairly, because the management does not have the necessary information. If you ask people how they evaluate their value, they are likely to underestimate it. In addition, when distributing public goods, it is difficult to exclude non-payers from it. If too many people start freeriding, then eventually there will come a time when the system or service will stop working because of insufficient funds.

Study of the question

What is the sense of the problem of a free rider (freerider, rabbit, non-payer), actively studying specialists in the public sector of the economy. Some citizens evade paying taxes, making the existence of the rest of the population more difficult. This problem is devoted to the work of Wicksell, Lindal and Musgrave. Their sphere of interest was the sphere of effective taxation. This problem was also handled by specialists in business, international economic relations, the theory of integration associations, environmental protection. However, in Russian literature, freeriding is weakly consecrated. Most of the publications on this topic are connected exclusively with the shadow economy sector.

Freerider figure

The free-rider problem has the following consequences:

• Underproduction of public goods;
• Deterioration of their quality;
• Excessive depletion of resources that are used by all.

A classic example is the "tragedy of communities". It occurs when a group of people is given a piece of land. If you do not regulate and regulate the number of grazed cows, soon nobody will be able to use them.

However, the freerider is not only a person who does not contribute a certain amount of money for the benefit that he benefits. The problem is also when it is not calculated for it in other forms. For example, service in the army, the provision of informal services to colleagues, quality work, information. The actions of the freeride are contrary to ethical, social and group norms of conduct, national and international legislation. Often this behavior is a conscious civic attitude. And it negatively affects all other consumers of this public good. The free rider problem is connected with the issue of social justice.

Identification of a free rider

To identify a freerider, you must first determine the existence of the good itself. A free rider in transport may deliberately not pay the fare and forget to do it. So, you need to distinguish between a freerider and a subject who does not know about the need for payment. The latter may not understand that it consumes the public good. The problem of identifying a free-rider is often associated with rapid changes in modern society. Many public goods are characterized by a rather complex structure. Therefore it is difficult to determine in which link the freeriders started to appear.

The problem of underestimation of public goods

If you ask a person if he is paid enough, he will most likely answer this question negatively. However, often we tend to underestimate the work of others. It also happens with public goods. Their production is most often partially funded by the state. In addition, it is often difficult to take into account all costs in advance, so the price of public goods may be understated.

The reasons for the appearance of stowaways

More often freeriding is a conscious choice and a vital position. People can regard the public good as imposed and unnecessary. There is also a situation where they are not satisfied with its quality. Another reason is low incomes of the population. In this case, people are looking for a way to avoid additional costs and save in this way. However, if the free riders appear because of poor quality of service, then how can you improve it if there is a chronic shortage of money because of them? It turns out a vicious circle.

To solve the problem, it is necessary to change the economic mechanism of creation of public goods, its financing and consumption. Many specialists consider it necessary to transform them into services and goods for individual use. Some politicians advocate a temporary suspension of the provision, for example, of water, gas, electricity to non-payers. However, this requires an effective legislative framework.

Freerider inside the organization

One of the variants of the free rider problem is the use by unscrupulous businessmen of a favorable environment created by other entrepreneurs. Freeriding occurs when an individual works under the "sign" of a certain brand, but does not make any contribution to his positive image. Another example may be an associate professor at a prestigious university that does not engage in research. He takes advantage of his activities, but does not contribute to the rating of the department he works for. Also the soloist of the Bolshoi Theater does not improve his skills. He only exploits the "sign", and he does not make any contribution to the future of the institution. A similar problem can arise in the union or any other organization. To solve this problem, many companies do not translate all operations into a franchise basis. So they can control the quality of the services provided by the distributors.

There is freeriding also within the organization. It appears when a group of people have the opportunity to evade the performance of their functions. To eliminate it, companies are restructuring. Effective control must be carried out for the performance of the work. It should be noted that the larger the group, the sharper the free rider problem becomes. And it can only be counteracted through a thorough evaluation of the activities of each employee. Therefore, often the cost of finding freeriders is not worth the effect.

Possible Outputs

The problem of the free rider is the government's task. In the state there should be not only normative rules, but also enforcement mechanisms for their execution. Most often, the state applies measures to prevent environmental degradation and excessive use of resources. They include the introduction of various taxes and the encouragement of charitable contributions. It is also possible that public goods are converted into goods of individual consumption.

On practice

In Russia, the problem of a free rider, examples of which can be found in all spheres of public relations, is very common. The role of the state in the national economy is constantly growing. It seeks not only to ensure the normal operation of market mechanisms, but also to mitigate socio-economic problems.

However, the need for the state as a regulator is a rather controversial issue. In the long run, there can be significant losses from this. This is due to the fact that the production of public goods by the state is provided by taxation. And in this sphere, as we have already explained, the problem of a free rider is especially common. Therefore, the balance between the role of the state and the collective actions of small groups of people is important here. It is sufficiently expedient to involve the government in the creation of so-called pure public goods, but in the issue of mixed ones it is better to minimize it.