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In economics, the free-rider problem is a type of market failure that occurs when those who benefit from resources, public goods and common pool resources do not pay for them [1] or under-pay. Examples of such goods are public roads or public libraries or other services or utilities of a communal nature.
It develops a theory of political science and economics of concentrated benefits versus diffuse costs. Its central argument is that concentrated minor interests will be overrepresented and diffuse majority interests trumped, due to a free-rider problem that is stronger when a group becomes larger.
In economics, the literature around public goods dilemmas refers to the phenomenon as the free rider problem. The economic approach is broadly applicable and can refer to the free-riding that accompanies any sort of public good. [ 18 ]
Situations like this include the prisoner's dilemma, a collective action problem in which no communication is allowed, the free rider problem, and the tragedy of the commons, also known as the problem with open access. [12] An allegorical metaphor often used to describe the problem is "belling the cat". [13]
The forced rider has been cited in various authors' views concerning taxation. Pacifists are required to pay for national defense. [1] [2] [3] [page needed] Environmentalists may be required to pay for public works projects, such as dams, which they feel destroy natural habitats in ways they do not condone. [1]
An assurance contract, also known as a provision point mechanism, or crowdaction, [1] is a game-theoretic mechanism and a financial technology that facilitates the voluntary creation of public goods and club goods in the face of collective action problems such as the free rider problem. The free rider problem is that there may be actions that ...
In economics, excludability is the ... Samuelson additionally highlighted the market failure of the free-rider problem that can occur with non-excludable goods.
Tiebout first proposed the model informally as a graduate student in a seminar with Richard Musgrave, who argued that the free rider problem necessarily required a political solution. Later, after obtaining his PhD, Tiebout fully described his hypothesis in a seminal article published in 1956 by the Journal of Political Economy .