Public goods can lead to free rider problems from "summary" of Public Finance by Harvey S. Rosen
Public goods are goods that are non-excludable and non-rival in consumption. This means that individuals cannot be prevented from consuming the good, and one person's consumption of the good does not reduce the amount available for others. Examples of public goods include national defense, clean air, and lighthouses. Due to their non-excludable nature, individuals can benefit from public goods without having to pay for them. This creates a free rider problem, where individuals have an incentive to "ride free" on the contributions of others. Since individuals cannot be excluded from enjoying the benefits of public goods, they may choose not to contribute to their provision, hoping that others will cover the costs instead. The presence of free riders can lead to under-provision of public goods. If everyone acts in their own self-interest and chooses not to contribute, the public good may not be provided at all or may be provided at a suboptimal level. This can result in a situation where society as a whole is worse off, even though the public good would benefit everyone if it were provided. Various solutions have been proposed to address the free rider problem associated with public goods. One approach is government intervention, where the government collects taxes from individuals and uses the revenue to provide public goods. This ensures that everyone contributes towards the provision of public goods, thereby overcoming the free rider problem. Another solution is the use of voluntary contributions or fundraising campaigns to finance public goods. By appealing to individuals' sense of altruism or community spirit, it may be possible to raise enough funds to provide public goods without relying on government intervention. However, this approach may not always be effective, as individuals may still choose to free ride rather than contribute voluntarily.- The free rider problem is a significant challenge in the provision of public goods. Without effective mechanisms in place to address this problem, public goods may be under-provided, leading to suboptimal outcomes for society as a whole. Addressing the free rider problem is crucial for ensuring the efficient provision of public goods and maximizing societal welfare.
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