Free-rider Paradox

Free-rider Paradox in a term in economics for a situation in the market when everyone tries to free ride creating a paradox in which no one ultimately get benefited and everyone is worse off. Such a situation occurs when free riders are benefiting from resources, goods, or services without paying for them. In such a market benefits and costs cannot be allocated accurately or at all to users by the markets or otherwise. A free rider tries to take advantage of this situation, but when everyone tries to become a free rider, the paradox is created.

An important example is the natural environment. Most industrial users of the natural environment are free riders. Everyone collectively is worse off but no one individually finds it worthwhile to stop. An important recent example is the basic research part of corporate research and development. In takeovers, it is impossible to limit the benefits from basic research to the corporation who pays the bill. Therefore, there will be a strong temptation for companies to free ride. Competition in the product and takeover market should increase this temptation.

Nearby pages
Freedom, Freedom of the Will, Freemasonry, Freiberg, Freiburg