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Free Rider Problem and Public Goods

Level:
AS, A Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 20 Apr 2021

The free rider problem leads to under-provision of a good or service and thus causes market failure.

Pure public goods are not normally provided by the private sector because they would be unable to supply them for a profit. For example, national defence is a pure public good that will not be provided at all if the government does not provide it because of the free rider problem.

The free rider problem leads to under- provision of a good or service and thus causes market failure.

Free riders have little or no incentive to reveal how much they are willing and able to pay for a public good because they can enjoy a benefit without paying.

Free Rider Problem and Public Goods

Overcoming the free rider problem

  • Compulsory taxation to fund collective provision of services such as national defence systems
  • Appealing to people’s altruism and sense of social purpose
  • Community solutions for example establishing social norms to manage common pool resources such as fishing grounds and grazing land
  • Government legislation – regulations enforceable in law such as fishing quotas, copyright and patent laws to protect intellectual property

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