ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Definition of the Free Rider Problem – This is a situation where individuals are able to consume a good without paying. This creates a situation where there is little incentive to pay for the good – instead, we hope that others pay for it and we can get the good and save our money.

Detailed explanation-2: -You’ll find the free rider problem in various situations where everyone enjoying a public good doesn’t reduce service availability. Examples include: 1. Lighthouses: All sailors, regardless of nationality, benefit from a country’s lighthouses to keep them safe, despite not paying for their construction or upkeep.

Detailed explanation-3: -As we can see, when people visit from other countries and use public roads, they are considered free riders. This can apply to any government good or service that is non-excludable and non-rivalrous. Non-rivalrous goods are goods that someone can use without preventing someone else from using the same good.

Detailed explanation-4: -If both parties donate, they are out of pocket and society benefits. If one party doesn’t pay (in the hopes that someone else will) they become a free-rider, and the other will have to cover the cost. If the other party also decides to become a free-rider and neither pay, then society receives no benefit.

Detailed explanation-5: -The free rider problem is the burden on a shared resource that is created by its use or overuse by people who aren’t paying their fair share for it or aren’t paying anything at all. The free rider problem can occur in any community, large or small.