Free-rider problem

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This article describes a market failure situation, i.e. a situation where the rational pursuit of self-interest by individual agents leads to an outcome that fails a Pareto optimality criterion.|See a list of market failures

Definition

The free-rider problem refers to a problem associated with public goods: non-excludable goods that are also non-rival goods. In other words, it is possible to neither restrain or charge for the consumption of the good by any particular person, nor does consumption by one person inhibit consumption by another person.

The problem in this case is how to get people to pay for the creation of the good in the first place, because people know that even if they do not pay for the creation of the good, they can still enjoy the benefits.

Alternatives to apparent free-rider problem

Tragedy of the commons

Further information: Tragedy of the commons versus free-rider problem

A closely related problem is the tragedy of the commons. This is for rival goods that are non-excludable. These are goods where it is not possible to restrain or charge for consumption, but such that consumption by one person does inhibit or reduce the potential for consumption by another person. An example would be a physical commons such as a park or playground.