The free-rider problem arises when the number of beneficiaries is large and exclusion of any of them is impossible.
The correct answer and explanation is :
Answer:
The free-rider problem occurs when individuals benefit from a good or service without contributing to its cost, particularly in cases where exclusion is difficult or impossible.
Explanation:
The free-rider problem is most commonly associated with public goods, which are non-excludable (meaning no one can be prevented from using them) and non-rivalrous (one person’s use does not diminish another’s). Classic examples include national defense, public parks, street lighting, and clean air. Since these goods are available to everyone, individuals may choose to refrain from paying for them, expecting others to bear the cost while still enjoying the benefits. This leads to an under-provision of these goods.
Why Does the Free-Rider Problem Occur?
- Lack of Incentive to Pay – Individuals assume that whether or not they contribute, the good will still be provided.
- Large Number of Beneficiaries – In a large group, it is harder to track individual contributions, making it easier for some to avoid paying.
- Non-Excludability – Since no one can be denied access, there is no immediate consequence for not contributing.
Consequences of the Free-Rider Problem
- Market Failure: When too many people free-ride, the good may be underfunded or not provided at all.
- Inefficiency: Governments or organizations may struggle to fund essential public goods.
- Equity Issues: Those who pay end up shouldering the burden for non-payers.
Solutions
- Government Intervention: Taxes ensure everyone contributes.
- Voluntary Contributions & Donations: Used for services like Wikipedia and charities.
- Social Pressure & Incentives: Encouraging ethical participation.
In conclusion, the free-rider problem highlights the difficulty of providing public goods efficiently without external enforcement or incentives.