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Explain free rider problem of public goods with an example.

Explain free rider problem of public goods with an example.

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Answer #1

This occurs when people can benefit from a good/service without paying anything towards it.

It also occurs, if people can get away with making only a token contribution (Something less than their overall benefit)

If enough people can enjoy a good without paying for the cost – then there is a danger that, in a free market, the good will be under-provided or not provided at all.

The free-rider problem is common with public goods – goods with non-excludable benefits, e.g. if you reduce pollution, everyone in society will benefit. Once pollution is reduced – everyone has to benefit.

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