Free riders problem in prectice

1. Free Rider Problem in Practice Business Management Faculty, Finance Major. Public Finance Prof., Dr. Tatiana Papiashvili By: Nino Bazhunaishvili 09/10/13

2. Contents Free Riders Problem 1 Public Goods 2 Problem Solution 3

3. Public Goods Collectively consume 1. One person’s consumption does not prevent another person It is i mpossible to exclude one to derive benefit Public goods

4. Public Good Public Good non – excludable their benefits are available to anyone, regardless of whether they have contributed to the cost of providing them.. . non- rivalrous A type of good that may only be possessed or consumed by a single user.

5. Public Goods fresh air , systems K nowledge , lighthouses national defense, flood control sewer systems, public parks radio broadcasts,  

6. Contents Free Riders Problem 1 Public Goods 2 Problem Solution 3

7. Free Riders Problem In economics, the free rider problem refers to a situation where some individuals in a population either consume more than their fair share of a common resource, or pay less than their fair share of the cost of a common resource.

8. Free Rider Problem 1 Someone who sneaks into a concert, baseball game or the like without paying admission. 2 A member of a club who goes to all club events without contributing to the club's annual fund drive or, even worse, not helping to clean up the mess after each party. 4 occurs if an employee pays no  union dues  or  agency shop  fees, but benefits from union representation. 3 Someone who markets a new product without paying royalties

9. Contents Free Riders Problem 1 Public Goods 2 Problem Solution 3

10. Solution Solution Of Free rider problem Market Regulatory

11. Solution Regulatory solutions to free riding take the form of  union security practices The (pre-entry) closed shop, the hiring hall and the preferential shop The union shop (post-entry closed shop) and maintenance of membership agreements The agency shop (compulsory bargaining fees)

12. Free Rider Problem Market solution : Assurance contracts Coasian solution Government provision Subsidies and joint products Privileged group Merging free riders Introducing an exclusion mechanism (club goods) Social norms

13. Solution( assurance contract) An  assurance contract  is a contract in which participants make a binding pledge to contribute to building a public good, contingent on a quorum of a predetermined size being reached.

14. Solution( coasian ) The  coasian solution , named for the economist  Roalnd Coase , proposes a mechanism by which potential beneficiaries of a public good band together and pool their resources based on their willingness to pay to create the public good

15. Solution (Public Provision) If voluntary provision of public goods will not work, then the obvious solution is making their provision involuntary. This saves each of us from our own tendency to be a free rider, while also assuring us that no one else will be allowed to free ride.

16. Solution Subsidies and joint products A government may subsidize production of a public good in the private sector. Privileged group The study of collective action shows that public goods are still produced when one individual benefits more from the public good than it costs him to produce it; examples include benefits from individual use, intrinsic motivation to produce, and business models based on selling complement goods. A group that contains such individuals is called a Privileged group.

17. Solution Merging free riders Another method of overcoming the free rider problem is to simply eliminate the profit incentive for free riding by buying out all the potential free riders. Introducing an exclusion mechanism (club goods) to introduce exclusion mechanisms which turn public goods into  Club Goods . One well-known example is copy right and patent laws. Social norms If enough people do not think like free-riders, the private and voluntary provision of public goods may be successful.

18. bibliography http://www.investopedia.com/search/default.aspx?q=non-excludable http://en.wikipedia.org/wiki/Public_good#The_free_rider_problem http://www.slideshare.net/aquinaseconomics/public-goods-24530101?from_search=1 http://newunionism.wordpress.com/2012/09/30/conor_cradden/ http://www.who.int/trade/glossary/story041/en/index.html https://www.google.ge/search?q=benefits+of+a+public+good&newwindow=1&rlz=1C1SNNT_enGE485GE485&es_sm=122&source=lnms&tbm=isch&sa=X&ei=umRUUqvHJomQ7AbWlICwCA&ved=0CAkQ_AUoAQ

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