The ‘free rider problem’: How do we finance stuff everyone uses?

If you’ve got something that you can’t prevent non-paying consumers from using, and that doesn’t actually change with more people using it, how do you work out what it costs, and who should take care of it? That’s the free rider problem—if we can get it for free, we’ll probably try, but someone’s got to keep it going. Some people say privatize it, but other people say that doesn't always work.

The obvious examples of goods that suffer from this problem are things like public roads, public parks, clean air, or even national defense. You could even look at things like YouTube, Spotify, or Wikipedia for the same question—everyone uses it, no-one’s use limits anyone else’s use, but someone’s got to sustain it. So what can be done?

One answer: Tax. These goods benefit everyone, so everyone should pay for them. But that's not necessarily always fair.

For example: air is a good that suffers from the free-rider problem. More of us breathing doesn't exactly diminish the amount of air in the atmosphere. But if one company starts polluting the air, should we tax all companies for repairing the damage? Another example: a country is going to war on another country's territory, so the government needs to pay for the military costs. It's not like having to defend more people will cost more money, because the war is being fought abroad anyway. But what if only half the population wanted the war to go ahead?

With tax, everyone pays, even if they had different levels of involvement in the decision-making, or used the service different amounts, or had different levels of responsibility in some other sense. That's because even if you didn't make the choice, you will benefit from the product (you can’t exactly not defend the voters who didn’t vote for more defense, for example.) The political assumptions behind taxation are really tricky and governments could easily get into trouble.

Regulation is another option. Rather than charging someone for the problem, make sure it never happens. Again, this means a government has to make a pre-emptive decision about how much is too much, and what can and can’t be tolerated in terms of use of public goods.

Some would say we should privatise these goods - sell them to individuals or companies who can make a profit from them rather than keeping it in government hands or on a public stock exchange. That way, they can put toll booths on roads, and fees in public parks—and set a price that’s profitable, but affordable. Spotify and YouTube make a lot of their profits from advertising. But can we really put a price tag on air, or a public park?