TCS Daily

C'mon and Take a Free Ride

By Pete Geddes - June 19, 2003 12:00 AM

BOZEMAN, Mont. - Snow is still deep on the Spanish Peaks just south of town, but summer is coming to the Gallatin Valley. The emergence of kayaks and mountain bikes on roof-top car racks signals Bozemanites are shifting gears after a long ski season. As summer arrives, our community has much to celebrate. One is the creative ways we solve a difficult social problem, the "free rider." A free rider is one who receives the benefits of a good without helping to pay for its costs.

This problem is especially vexing when we try to provide public goods. Public goods are problematic for it is not possible to exclude nonpayers. (Incidental to this argument, one person's use of the good does not diminish the amount available to others, e.g., listening to a radio station.) National defense is the classic example of a public good. It's clearly impossible for a private supplier to make it available only to those who have paid their Defense Subscription Fee. Even pacifists who pay no income taxes receive the benefit of national defense.

The free-rider problem sets up a pernicious paradox: If there is no incentive to pay for a particular good or service, there is diminished incentive for entrepreneurs to provide it. Hence, even valuable public goods are frequently undersupplied. Here's an example.

The Gallatin Valley Land Trust (GVLT) works to build and maintain our popular "Main Street to the Mountains" trail system. The trails weave through neighborhoods and along scenic ridgelines. One day they'll be fully connected, providing easy access to the public lands surrounding town. While the benefits rebound to many, the costs are borne by a few; primarily GVLT members. Since there is no user fee and it is impractical to "police" the trails, many of us are free riding. What can we do? Three solutions come to mind.

First. When the value of a public good is high, entrepreneurs strive to find creative ways to finesse the free-rider problem. For example, satellite television providers scramble transmissions to exclude nonsubscribers. Some highways are financed by tolls.

For years economists believed 19th-century English lighthouses were a good that only government could provide. In 1974 Nobel-winner Ronald Coase destroyed that myth by showing that many lighthouses were privately owned. Owners discovered they could charge merchants in nearby ports. Those ports where merchants refused to pay for lighthouse services had a hard time attracting ships and the business they created.

The public goods argument can be used to justify all sorts of government action. This leads to a second possible solution - employing the coercive power of government (e.g., imposing a "trail tax"). But this is a slippery slope, and we do well to remember the political equivalent to the law of gravity: Well-off, well-organized groups use government to transfer wealth and opportunities from the poorly organized and less well-off to themselves. The continuing ethanol boondoggle, led by Archer Daniels Midland, is but one example of this principle.

So long as you're receiving benefits, this may seem acceptable. But America's founders struggled to devise institutions to arrest government as an engine of plunder. In Federalist 51 James Madison wrote: "It is of great importance...not only to guard the society against the oppression of its rulers, but to guard one part of the society against the injustice of the other part."

The third option is for voluntary organizations to apply social pressure. Our local Nordic ski area, Lindley Park, operates on this model. To raise money for trail grooming, the local ski club posts signs in the park and in ski shops urging skiers to buy a $10.00 "Ski Lindley Park" button. The highly visible button makes it easy to spot those who have paid. Free riders are made to feel guilty by fellow skiers. Could this work for our trails?

As Alexis de Tocqueville explained early in our history, Americans excel at building voluntary institutions that foster cooperative pursuit of shared interests. Let's celebrate both GVLT and de Tocqueville's observation by recognizing and resolving the free-rider problem through voluntary action. Such a course fosters trust and helps create a responsible society. Surely this goal merits our efforts.

Pete Geddes is program director of the Foundation for Research on Economics and the Environment (FREE) and Gallatin Writers. Both are based in Bozeman, Montana.

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