05 January 2011

Free Rider Problem: Game Theory for Noobs

The Free Rider problem is similar to the Tragedy of the Commons in that a common resource is shared. It's a game theory problem slightly in reverse, as with the Tragedy of the Commons, everyone kept exploiting a commonly held resource until it was spent. With the Free Rider problem, a resource is paid for by an entire community, but a few individuals do not contribute their required share. The free riders thus gain from the communal resource without contributing to the communal resource.

A few Free Rider examples

  • Chickens are kept on enclosed pastures, or free range. However, chickens do not contribute to the labour performed. According to Karl Marx's labour theory of value, chickens that do not contribute to labour are not a commodity that creates value. In the Marxist sense, labour is the only commodity with value that adds value. Chickens are thus not only free rangers, but also free riders.

  • Military protection and indeed any social security benefits are rarely used by those who pay for them. Those who pay taxes, and by extension for social security and military expenditure, are often berated for being greedy, money hungry or inhumane. However, without them, where would be no social security because those who live on such benefits do not pay for them. People who live on social security are free riders.

Day old chick chicken free rider free ranger cock sucker
A day old chick. Just look at this cock sucker.

The Free Rider problem is not a big issue in times of surplus when nobody has to be concerned with real scarcity or the optimal distribution of resources as conjectured by the Coase Theorem. It does however become a problem when beggars become choosers and would like to have your cake and eat it too. Eat a chicken tonight, just to keep them in their place.

How do you deal with the Free Rider problem?

Most problems in game theory are solved the cold-hearted, calculated way. This means the Free Rider problem is solved by convincing free riders that it is in their best interest to contribute their fair share to society. Of course the most obvious way to do this is to stop social security and welfare programs and military spending, but promises of a free lunch tend to win elections. Military spending is also a multi-headed beast, with some real benefits and some real disadvantages over and beyond getting returns on investment. Industries resulting from military research, such as the information technology industry, more than pay for themselves. The absurd amount of money (and the resulting inflation) spent on military budgets could be better spent, on cosmonaut programs, for example.

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