In economics, the free rider problem arises when those who use resources, goods and services do not pay for them. This leads to the fact that their number is reduced. Everyone else is forced to pay more for them. If the number of fare dodgers continues to increase, then a situation is possible when the production of goods stops completely. The main issue is to limit freeriding and its negative effects. The stowaway problem arises when property rights are vaguely defined and inefficiently regulated.
General information
When one person does not buy a bus ticket, but goes to work in it, this will not create any problems for the economy. So he will save some of his budget. But what if many begin to do so? How will the driver's labor be paid, buses repaired and new ones bought? Most likely, the owner will try to strengthen control and increase fines. If the majority of passengers fail to get a bus ticket, the route will be closed. This means that not only those who did not pay will suffer, but also quite respectable citizens.
Particularly common is the problem of a stowaway in the distribution of public goods. It arises if payment for them is voluntary. A similar concept is used in negotiation theory, antitrust law, psychology and political science. For example, some members of the team may start to give all the best if they consider that there are freeriders in it. A similar situation arises in the presence of unscrupulous union members. A prime example is defense spending. Someone may not pay taxes, but he can still count on the same level of protection as other citizens.
Like an economic concept
If we talk about the problem of free riders, then its essence can be reduced to the fact that there is a certain group of people who benefit from the use of goods, but do not pay for them. This leads to their underproduction. This situation is associated with Pareto inefficiency. The free rider effect is reflected in the reserves of resources that are common property, leading to their rapid depletion. It is difficult enough to distribute such benefits fairly, because management does not have the necessary information. If you ask people how they value 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 the moment will come when the system or service will stop working due to insufficient funds.
Research issue
What is the meaning of the free rider problem (freerider, hare, deadbeat), experts in the field of the public sector of the economy are actively studying. Some citizens evade taxes, making the existence of the rest of the population more difficult. This issue is devoted to the work of Wicksell, Lindahl, and Musgrave. Their area of interest was the field of efficient taxation. This problem was also dealt with by specialists in business, international economic relations, the theory of integration associations, and environmental protection. However, in Russian literature, free riding is poorly consecrated. Most publications on this subject are exclusively related to the shadow sector of the economy.
Freerider figure
The stowaway problem has the following consequences:
- underproduction of public goods;
- deterioration in 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 land is allocated to a group. If you do not regulate and do not regulate the number of grazing cows, then soon nobody will be able to use it.
However, a freerider is not only a person who does not contribute a certain amount of money for the good he consumes. There is a problem when he does not pay for it in other forms. For example, military service, the provision of informal services to colleagues, quality work, information. Freerider actions are contrary to ethical, social and group norms of behavior, national and international law. Often this behavior is a conscious civic position. And it negatively affects all other consumers of this public good. The stowaway problem is related to the issue of social justice.
Stowaway Identification
To identify a freerider, you must first determine the existence of the good. A fare dodger in transport may intentionally not pay for travel and forget to do so. So, you need to distinguish between a freerider and a subject who does not know about the need to pay. The latter may not understand what consumes the public good. The problem of identification of a stowaway 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 began to appear.
The problem of underestimating public goods
If you ask a person if he is paid enough, he will most likely answer this question in the negative. However, we often tend to underestimate the work of others. It happens with public goods. Their production most often has to be partially financed by the state. In addition, it is often difficult to consider all costs in advance, so the price of a public good can be underestimated.
The reasons for the appearance of free riders
Most often, freeriding is a conscious choice and position in life. People may consider the public good imposed and unnecessary. It is also possible that they are not satisfied with its quality. Another reason is the low income of the population. In this case, people are looking for a way to avoid additional costs and save in this way. However, if fare dodgers appear because of the poor quality of service, how can it be improved if there is a chronic shortfall in receiving money because of them? It turns out a vicious circle.
To solve the problem, it is necessary to change the economic mechanism of creating public goods, its financing and consumption. Many experts consider it necessary to transform them into services and personal goods. 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 internally
One of the varieties of the free-rider problem is the use by unscrupulous businessmen of the favorable environment created by other entrepreneurs. Freeriding occurs when an individual works under the “guise” of a certain brand, but does not make any contribution to its positive image. Another example is the assistant professor of a prestigious university that does not engage in scientific activities. He takes advantage of his activities, but does not contribute to the rating of the department where he works. The soloist of the Bolshoi Theater, who does not improve his skills, also acts. He only exploits the "sign", and he himself does not make any contribution to the future of the institution. A similar problem may arise in a union or any other organization. To solve this problem, many companies do not transfer all operations to a franchise basis. So they can control the quality of services provided by distributors.
There is free riding inside the organization. It appears when a group of people has the opportunity to evade their functions. To eliminate it, companies are restructuring. The execution of work must be effectively controlled. It should be noted that the larger the group, the more acute the problem of stowaways. And it can be counteracted only through a thorough assessment of the activities of each employee. Therefore, often the costs of detecting freeriders are not worth the effect obtained.
Possible outputs
Solving the free rider problem is a government task. The state should have not only normative rules, but also mechanisms for enforcing them. Most often, the state takes measures to prevent environmental degradation and excessive use of resources. These include the introduction of various taxes and the encouragement of charitable contributions. It is also possible that public goods are turned into individual goods.
