Free-rider problem
Another example is if a coastal town builds a lighthouse, ships from many regions and countries will benefit from it, even though they are not contributing to its costs, and are thus "free riding" on the navigation aid.
[citation needed] Although the term "free rider" was first used in economic theory of public goods, similar concepts have been applied to other contexts, including collective bargaining, antitrust law, psychology, political science, and vaccines.
[7] The economic free-rider problem is equally pertinent within the realm of global politics, often presenting challenges in international cooperation and collective action.
In global politics, states are confronted with scenarios where certain actors reap the benefits of collective goods or actions without bearing the costs or contributing to the efforts required to achieve these shared objectives.
This phenomenon creates imbalances and hampers cooperative endeavors, particularly in addressing transnational challenges like climate change, global security, or humanitarian crises.
[8] The underlying incentive which generates the free-rider problem can be explained[weasel words] via the application of the prisoner's dilemma[9] within the context of contributing to a public good.
According to the prisoner's dilemma, certain conclusions can be drawn from the results of this scenario: This demonstrates[disputed – discuss] that the free-rider problem is generated by individuals' willingness to let others pay when they themselves can receive the benefit at zero cost.
[12] Goods that are subject to free riding are usually characterized by: the inability to exclude non-payers, its consumption by an individual does not impact the availability for others and that the resource in question must be produced and/or maintained.
[14][full citation needed] Theodore Groves and John Ledyard believe that Pareto-optimal allocation of resources in relation to public goods is not compatible with the fundamental incentives belonging to individuals.
When stress levels rise on individuals in the workplace and many fear losing their employment, they devote less of their human capital to the public sphere.
[citation needed] This cycle will reset itself because as individuals' work for public benefit becomes less praiseworthy, supporters' level of commitment to collective action projects will decrease.
[citation needed] Supporters of Hirschman's model insist that the important factor in motivating people is that they are compelled by a leader's call to altruism.
Scholars like Friedman do not think the free-rider problem is part of an unchangeable virtuous or vicious circle, but instead seek possible solutions or attempts at improvement elsewhere.
In terms of game theory, this makes pledging to build the public good a dominant strategy: the best move is to abide by the contract regardless of the actions of others.
[18] A Coasian solution, named for the economist Ronald Coase, proposes that potential beneficiaries of a public good can negotiate to pool their resources and create it, based on each party's self-interested willingness to pay.
Unlike assurance contracts, its success relies largely on social norms to ensure (to some extent) that the threshold is reached and partial contributions are not wasted.
One of the purest Coasian solutions today is the new phenomenon of Internet crowdfunding,[23] in which case rules are enforced by computer algorithms and legal contracts, as well as social pressure.
For example, on the Kickstarter site, each funder authorizes a credit card purchase to buy a new product or receive other promised benefits, but no money changes hands until the funding goal is met.
For example, in the United States, the patent rights given to pharmaceutical companies encourage them to charge high prices (above marginal cost) and to advertise to convince patients to persuade their doctors to prescribe the drugs.
[citation needed] Intellectual property laws also end up encouraging patent and copyright owners to sue even mild imitators in court and to lobby for the extension of the term of the exclusive rights in a form of rent seeking.
This is a continual process referred to as "Schumpeterian creative destruction", and its applicability to different types of public goods is a source of some controversy.
[citation needed] Often on the foundation of game theory, experimental literature suggests that free-riding situations can be improved without any state intervention by seeking to measure the effects of various forms of social sanctions.
[13] So long as the benefits of preserving the resource outweigh the cost of communication and enforcement, members often compensate punishers for sanctioning free riders.
Social norms impact on privately and voluntarily provided public goods; however, is considered to have some level of effect on the problem in many contexts.
[36] Collectively this research, although it is experimental in nature, may prove useful when applied in public policy decisions seeking to improve free-rider problems within society.
