Free rider problem

For the article about when a brokerage client purchases shares beyond his or her means, see free riding.

In economics, collective bargaining, psychology, and political science, a free rider (or freeloader) is someone who consumes a resource without paying for it, or pays less than the full cost. The free rider problem is the question of how to limit free riding (or its negative effects). Free riding is usually considered to be an economic problem only when it leads to the non-production or under-production of a public good (and thus to Pareto inefficiency), or when it leads to the excessive use of a common property resource. The term free rider comes from the example of someone using public transportation without paying the fare. If too many people do this, the system will not have enough money to operate. Another example of a free rider is someone who does not pay his or her share of taxes, which help pay for public goods that all citizens benefit from, such as roads, water treatment plants, and fire services.

Bargaining

When bargaining, players often bid less than they are prepared to pay in the hope of improving their positions. This creates problems because it is impossible to discover the players' true demand payoff curves, and therefore inefficient allocation of resources is likely to result.

In the context of labor unions, a free rider is an employee who pays no union dues or agency shop fees, but nonetheless receives the same benefits of union representation as dues-payers. Under U.S. law, unions owe a duty of fair representation to all workers that they represent, regardless of whether they pay dues. Free riding has been a point of legal and political contention for decades.^[1] In Canadian labour law, the Rand formula (also referred to as automatic check-off) is a workplace situation in which the payment of trade union dues is mandatory, regardless of the worker's opinion about the union.

See also

• Assurance contract
• Canadians of convenience
• Copyright Infringement
• Criticisms of welfare
• Freighthopping
• Inequity aversion
• Leech (computing)
• Moral hazard
• Parasitism (social offense)
• Public good
• Stowaway
• There ain't no such thing as a free lunch
• Tragedy of the commons
• Vaccination policy
• Welfare state

References

1. ^ Gurley, Fred (May 1954). "Unalienable Rights versus Union Shop". Proceedings of the Academy of Political Science (The Academy of Political Science) 26 (1): 58–70. doi:10.2307/1173610. JSTOR 1173610. 

External links

• Stanford Encyclopedia of Philosophy entry