Question

Explain the free rider problem in private provision of public goods and depicts the problem using a two person two action game. The two actions are to pay for public goods and not to pay for public goods.

Answer 1

A free rider problem occurs in case of public goods where it is the Government who is the sole authority to pay for the establishment of the good along with its maintenance. And the public can keep on using it without any mandatory payments.

This action however causes a problem for the sole authority to keep up the maintenance cost alone, where if the cost is shared by all the users there would be more efficiency and better utilization.

The two person two action game defines the utilization as depending upon the builder and the user. Both must contribute towards the creation and maintenance of the public good. One way of doing this is the charging of "Taxes" by the Government. With this the Government gets a one sided mandatory payment through which it works towards developing varied public good.