The Ultimate Public Good
Murphy makes some standard points here. In the event of impending aggression, people can either take out insurance against the threat or simply sell their property to large firms (call options). In both cases, the liability of the many becomes the liability of the few, allowing better coordination and elimination of free riders.
However, these are really just roundabout ways of getting consumers to pay for defense. There's still an opportunity to be a free rider. You can simply not purchase insurance or not sell your house and hope everyone else does. There is no way around the fact that when you are offered this deal, you are being asked to pay for something that might be provided anyway if you just shut your door. Because the free rider option is available to everyone, they'll all try to take it, and defense will suffer.
I searched and searched for good solutions to this problem and could not find anything. If you know of any resources that deal with pure public goods/free rider problems please link them. Most of the literature I sifted through tried to blurr the distinction between public/private goods, or simply claimed that free riding was not significant enough to be a problem. How unsatisfactory.
Two solutions
1) Centralism. The common thread between statism, call options, and insurance, is that they transform communities of otherwise disjoint ownership to single ownership. So the only criterion for successful defense is to have a single owner of strategically significant resources.
Modern community and capital organization is the result of statist provision of defense, allowing unorganized, scattered, and otherwise vulnerable arrangements to persist. Anarchism would rearrange many social structures to more efficient means. One parameter would be effifacy of defense. Problem solved.
2) Competition among free riders. Everyone wants to be a free rider. But everyone also wants the defense to go through. So people are not interested in being free riders, they want to be free riders GIVEN that the service will be provided.
So lets say 90% of the population is needed to pitch in for some defense. Given that the defense is provided, everyone has a 10% chance of being a free rider. This means that they will accept a contract that binds them to this expected contribution. So at a certain date, you role a d10 and pay if its 2-10. Alternatively they could just agree to pay 90% of the cost up front... whatever risk aversity.
However, this is still a contract that, on average, binds the signer to pay. Why not slam the door and try to be a free rider? Because as stipulated, everyone wants to be a free rider and have the service provided. Signing the contract does not diminish the person's chance of becoming a free rider. It is in fact beneficial to them because they increase the chances of the services being provided.
In order to prevent hardcore free riders from waiting till the last minute to sign the contract, the number of signers might be kept secret. Alternatively, the threshold for it to go through might be set at 99.9% of the population, diminishing the chances to be a true free rider to practically zero, which can be outweighed by some psychic or real benefit to providing defense.
In fact, in the above example, the defense won't even work unless everyone signs the contract... so the first signers are not at any particular risk. A clever contract might offer better odds to people based on the order in which they sign up, facilitating faster organization of promises2pay.
Closing
I haven't made reference to ostracism because it uses the same kind of logic as statists. You have to threaten people somehow to get them to pay up. The kind of boycott against free riders may well be unstable and unworkable. It could be a good idea but it seems to concede too much. If ostracism doesn't work the next logical step is threatening people with guns.
Any feedback is much appreciated. I feel like this is a very serious issue for anarchism that doesn't get talked about a lot, even though it is a potentially fatal circumstantial flaw in universal respect for property rights.
What I never see discussed that much in this area is what if two homeowners, next door to each other, want two different insurance or defense agencies covering them, or what if an entire neighborhood is covered by agency a, and there's ten people who don't like their service (for whatever reason)? They could just be freeriders based on it would be out of their way to get on a different company completely, or those homeowners could all put in for another company.
Maybe even the companies themselves could have some slack in their policy as "we will tolerate a 10% of freeriders per given area of customers".
Bert:What I never see discussed that much in this area is what if two homeowners, next door to each other, want two different insurance or defense agencies covering them, or what if an entire neighborhood is covered by agency a, and there's ten people who don't like their service (for whatever reason)?
Bert:They could just be freeriders based on it would be out of their way to get on a different company completely, or those homeowners could all put in for another company.
Bert:Maybe even the companies themselves could have some slack in their policy as "we will tolerate a 10% of freeriders per given area of customers".
What is wrong with free riding? I do it when ever possible. The internet is one giant free riding system. But people continue to contibute to it. The issue with Free Riders is one of pure envy and a lack of logic and moral sensibiliities. If I and my neighbor are both agressed against, then my defense of my person and property are my problem. If my neighbor gets his/her person and property defended then they are better off. Otherwise you end with this mass insanity of a central bureaucracy trying to prevent envy by stealing from everybody instead of those with the most interest in defending their person and property.
Bogart: The issue with Free Riders is one of pure envy and a lack of logic and moral sensibiliities. If I and my neighbor are both agressed against, then my defense of my person and property are my problem. If my neighbor gets his/her person and property defended then they are better off.
Sieben:However, these are really just roundabout ways of getting consumers to pay for defense. There's still an opportunity to be a free rider. You can simply not purchase insurance or not sell your house and hope everyone else does. There is no way around the fact that when you are offered this deal, you are being asked to pay for something that might be provided anyway if you just shut your door. Because the free rider option is available to everyone, they'll all try to take it, and defense will suffer.
Bogart:Otherwise you end with this mass insanity of a central bureaucracy trying to prevent envy by stealing from everybody instead of those with the most interest in defending their person and property.
The alleged free rider problem has always been the most curious to me of all the criticisms of the free market. For one thing, the free rider problem is an inherent problem of the State, or any other collective form of organization. If anything, only the market minimizes this problem and almost completely eliminates it.. It's sort of like the reality of scarcity. The market doesn't eliminate scarcity, but alleviates its. Where as the State not only can't alleviate it, but is responsible for creating artificial scarcity.
In other words, I don't see the problem here at all. The market will always find a way to insensitive most people to not become free riders, while the State only does the opposite.
DD5:In other words, I don't see the problem here at all. The market will always find a way to insensitive most people to not become free riders, while the State only does the opposite.
The use of force is anything but straight forward. There are an assortment of issues that people encounter the first of which is what is the cost of compliance. My feeling about Free Riders is that their costs is insignificant compared to the cost of enforcing and collecting taxes that force free riders to pay. Then there are a myriad of unintended effects from behavior changes in individulas trying to avoid the tax.
"So lets say 90% of the population is needed to pitch in for some defense."
Why 90%? Although I do realize this is just an example. Do you realize that probably less then 30% of people today are actually paying for your defense?
"Why not slam the door and try to be a free rider? "
There will always be some benefits that would be part of the services that would exclude all of those "free riders". A defense agency for example may come to your aid out of good will only at very particular and life threatening situations. Or it may bill you for its services retroactively at higher non-member rates, where your "free rider" history and behavior could be recorded in some data base like a credit rating system.
"the defense won't even work unless everyone signs the contract..."
This is simply not true. How many times have you stopped at a gas station that had a little food store just to go to the restrooms? According to you, this should be a classical free rider situation, and consumers at that food store should be refusing to patronize it since they are paying for those restrooms, while you are not.
"Why 90%? Although I do realize this is just an example. Do you realize that probably less then 30% of people today are actually paying for your defense?"
The implication of your comment, IMO, is that 30% is probably not adequate to overcome whatever free-rider problem might exist in a freed market. That is probably true, and no sense arguing it. I mention this because I think this is an unfair implication. Whatever fraction of people are factually paying for the services rendered by the Pentagon et al., those services cannot accurately be labeled "defense".
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David Z
"The issue is always the same, the government or the market. There is no third solution."
Let me try again. Fancy diagram this time.
So, a priori, being in the upper right is the best possible game plan. Being in the bottom right could be good too if the cost is not too high. The cost depends on the number of free riders there are. So some public goods will be provided regardless of if we solve the free rider problem.
We can at the very least avoid anyone landing in the bottom left corner via contingency contracts. I.e. no one has to pay unless the good is actually provided.
If everyone shoots for the upper right hand box individually by being a pure free rider, we land in the upper left hand box. On the other hand, if the pure-free riders communicate, they can choose to bind some by contract to the bottom right box, while the rest can be in the upper right box. One's chances to be in the upper right hand box drastically increase, and the probabilities can be set such that landing in the bottom right hand box is profitable too.
Solving the "Problem" of the Free Rider - Ben O'Neill
The Anarchist Society vs. the Military State: The Insignificance of the Free Rider by Vedrun Vuk
Protection and the Market for Security by Hans Hermann-Hoppe Private Defense: Now More Than Ever by Hans Hermann-Hoppe
National Goods versus Public Goods: Defense, Disarmament and Free Riders - Hummel
DD5:Why 90%? Although I do realize this is just an example. Do you realize that probably less then 30% of people today are actually paying for your defense?
DD5:Or it may bill you for its services retroactively at higher non-member rates, where your "free rider" history and behavior could be recorded in some data base like a credit rating system.
DD5:This is simply not true. How many times have you stopped at a gas station that had a little food store just to go to the restrooms? According to you, this should be a classical free rider situation, and consumers at that food store should be refusing to patronize it since they are paying for those restrooms, while you are not.
"This is theft. I can't do stuff for you then force you to pay..."
No no, this is not theft. You misunderstood. They will bill you for the services they have provided you with. Nobody is forcing you to pay but it may be in your interest. Consider a Hospital that performs life saving treatments on you after a car accident even though you don't have some catastrophic insurance. Why would it be theft to bill you afterwards?
Or consider that your house is on fire but you have no fire insurance. It would make sense that if you request firemen services retroactively that they will indeed comply, but then bill you at a higher rate. Even if it is your neigbor who made the call in fear of his house catching fire a result, while you were not around to approve, it would still be perfectly legitimate for the fire department to bill you. Don't pay, but consider the social consequences of being a systematic free rider. You may find yourself socially isolated.
And it is certainly legitimate for them to report you to a private rating agency if you don't pay. There is nothing here that violates your property rights.
Right I did misunderstand. But I think what you're advocating is an imperfect solution to the pure public goods problem.
I don't know what "imperfect solution" can possibly even mean in this context. And I don't agree that there is a public goods problem so I have not meant to offer any solution.
DD5:I don't know what "imperfect solution" can possibly even mean in this context.
"But I want to consider the case of really a pure public good, such as preventing a meteor from hitting the earth."
I don't understand why when we are talking about markets, then it is assumed that if anyone happens to somehow benefit from some positive externality then we are talking about some sort of a market failure or "free rider" problem. Every market transaction is a free rider problem. The price of any commodity is determined by the marginal buyers and sellers. In this case, all of the non-marginal buyers and sellers are free riders?
If a natural disaster is fostered upon us, then people will (as they do now) organize and cooperate by pure voluntary means. Some will send money, some more then others. Some will volunteer their time and labor, some more then others. And some will just stay at home and watch the media coverage. That's the beauty of the market! It will respond to the demand, which is bound to be versatile in quality and quantity.
But here is the crux of the fallacy I think about some of the claims that government in certain circumstances can solve such alleged free rider problems or prisoner dilemmas. It is assumed that the government can have the ability to prepare, organize, and respond to some alleged emergency public goods such as deflecting a meteor heading our way. I am almost laughing when even thinking about it. This is totally baseless, as I think an abundant of past empirical evidence can suggest. Government is ready for such disasters only in Holywood. There is no basis to the assertion that the voluntary society won't have some organiztions or institutions that would already be in place to also try to organize and respond to such disasters. For all I know, it could be the AAA or Mcdonalds with its human division (or whatever) that attempts to take the leading roll. Who knows who would fill the gaps for all the government is currently crowding out.
DD5:And some will just stay at home and watch the media coverage. That's the beauty of the market! It will respond to the demand, which is bound to be versatile in quality and quantity.
Sieben,
Why are you just reiterating some common mainstream definition of the alleged market failure to provide so called public goods.? I am fully aware of the arguments. You are trying to prove way too much with that argument. It can and has been used for every public good provided by the government. And it is totally fallacious! Here is why.
Your error stems from considering only monetary calculation in your cost-gain analysis. Usually a harmless mistake but in this case, it's catastrophic. Looking beyond the monetary calculations is why many Austrians have an easier time dismissing such concepts as "public goods" and "free riders".
The "I won't pay if I don't know that he does also if he benefits" is nothing but a cost, albeit a psychic cost. If people want the service, that is, if they perceive the benefit to outweigh the costs then they will pay for it. That you are worried that some free rider will benefit at your expense is really your problem and you are free to think that the alternative - of not buying the service under such circumstance - is the preferred choice for you. That is not a market failure but the market at work!
The market can work to reduce this cost (psychic cost) by various methods, some of which, we have already discussed. But it can never totally eliminate this cost due to the the reality of scarcity.
You can always point to how people will want some service or good if only the costs were lower. But I'm sure you will agree that not perceiving the benefit to outweigh the associated costs is not a market failure. Likewise in this case, the benefit of paying for the public good may not outweigh the costs, where part of that cost may well be people who do not want to feel like suckers and would rather go without the good.
Look, I am not trying to simply ignore or work around the alleged dilemma you are bringing to the table. I am trying to show you that if you take subjectivism to its ultimate conclusions, then you will realize that there is no such thing as a public goods failure.
DD5:Your error stems from considering only monetary calculation in your cost-gain analysis. Usually a harmless mistake but in this case, it's catastrophic. Looking beyond the monetary calculations is why many Austrians have an easier time dismissing such concepts as "public goods" and "free riders".
DD5: If people want the service, that is, if they perceive the benefit to outweigh the costs then they will pay for it.
DD5:That you are worried that some free rider will benefit at your expense is really your problem and you are free to think that the alternative - of not buying the service under such circumstance - is the preferred choice for you.
DD5:The market can work to reduce this cost (psychic cost) by various methods, some of which, we have already discussed. But it can never totally eliminate this cost due to the the reality of scarcity.
All the cases where public goods are provided through other organizational means are nice, but I want something really general. Its kind of like how poor people are sometimes benefitted by free market charity, but really you can also show that no matter what psychological dispositions market participants have, the result is going to be better for poor people.
Thanks Conza. I didn't see your post for a while for some reason.
I had already looked at the first two sources you linked.
" Their maximal profit is clearly to be a free rider AND not pay for it."
It's not a problem. It's something he choses to do. Many here use the services of Mises.org but none of us contribute an equal amount to support it. It's not a problem, it's just how some things are structured in the market.
" I'm considering the case where everyone really does want the service, but because of the distribution of property rights (namely that each man controls and is liable for his own actions), it is in each individuals rational self interest to try and be a free rider on the public good. I'm trying to demonstrate a way to get around this."
You are dealing with a problem that is none-existent in my opinion The assertion that it is in each individual's self interest to become a free rider in a purely voluntary society is groundless. There are literally hundreds, if not thousands of organizations that could not exist according to your assertion. Ambulance corps, Rescue, fire fighting in some places, charity work, etc....
DD5:It's not a problem. It's something he choses to do.
DD5:There are literally hundreds, if not thousands of organizations that could not exist according to your assertion. Ambulance corps, Rescue, fire fighting in some places, charity work, etc....
.
If enough people make this choice, a pure public good may not be provided, as in the case of a meteor hitting the earth. Everyone wants a laser to be built, but no one wants to pay for it. Each individual calculates for himself that he will be best off if he doesn't pay and everyone else pays. So everyone doesn't pay and the earth gets destroyed.
That is false and serves to fully demonstrate the fallacy that is public goods theory and the free rider problem. The law of marginal utility makes this simple. This is how it works. The marginal product of not contributing is death and the marginal product of contributing is living. Therefore, everyone who values his life more than his wealth will not only pay, he will pay all of his wealth and also do everything else required to get it built, including rallying other people to pay and will do so regardless of how many other people pay. In summary, what you would be willing to contribute to the laser is equal to the value you place on your life, regardless of what anyone else may or may not theoretically do.
This 100% debunks the free rider problem. However, I will explain exactly where the public good thinking goes wrong. The first assumption is that a person bases his decisions on the theoretically possible alternatives for stopping the meteor. The second assumption is that risk is neutral. It follows that everyone will hold out to the final instant hoping for the alternative of someone else taking action and the meteor will hit Earth. Nobody was affected by risk assessment in the choice of what to do in the limited time between discovering the meteor and it hitting Earth.
As in the meteor scenario, it is theoretically possible for you to stumble on a briefcase with a million dollars. Yet your unwillingness to rely on the chance of this happening will cause you to seek employment anyway. Now assume away the risk of not finding the million dollar briefcase. You, and everyone else on Earth, will hold out until you starve to death- a metaphorical meteor of hunger.
References some nebulous "entrepreneurial" solution to the free rider problem. This thread is trying to find out what that solution could be.
For there to be a solution, there needs to be a problem. What's the problem?
I'm sorry I reject the notion that there is one. The concept of static efficiency is a chimera.
I have read hoppe in the past. Is his treatment of free riders different from the other authors? I do not want to read the same thing over again...
I'd also add the Myth of National Defense.
I have not read this extensively, but skimmed it for "free rider". My basic response is that yes there are free rider problems in both the political and free markets, but in politics the free riders are fixed. It is not merely the fact that free riders exist on the free market, but that everyone can try to become one, which poses such great threats to the provision of public goods.
Everyone wants to become one? Don't think so.
"There is no way around the fact that when you are offered this deal, you are being asked to pay for something that might be provided anyway if you just shut your door. Because the free rider option is available to everyone, they'll all try to take it, and defense will suffer."
I suggest you listen to the entire: The Anarchist Society vs. the Military State: The Insignificance of the Free Rider by Vedrun Vuk
Caley McKibbin:The marginal product of not contributing is death and the marginal product of contributing is living. Therefore, everyone who values his life more than his wealth will not only pay, he will pay all of his wealth and also do everything else required to get it built,
Caley McKibbin:including rallying other people to pay and will do so regardless of how many other people pay. In summary, what you would be willing to contribute to the laser is equal to the value you place on your life, regardless of what anyone else may or may not theoretically do.
Caley McKibbin:The first assumption is that a person bases his decisions on the theoretically possible alternatives for stopping the meteor.
Caley McKibbin:The second assumption is that risk is neutral. It follows that everyone will hold out to the final instant hoping for the alternative of someone else taking action and the meteor will hit Earth. Nobody was affected by risk assessment in the choice of what to do in the limited time between discovering the meteor and it hitting Earth.
Conza88: I'm sorry I reject the notion that there is one. The concept of static efficiency is a chimera.
Conza88:Everyone wants to become one? Don't think so.
Conza88:I suggest you listen to the entire: The Anarchist Society vs. the Military State: The Insignificance of the Free Rider by Vedrun Vuk
[duplicate post]
"insurance, is that they transform communities of otherwise disjoint ownership to single ownership"
Nope, that isn't how the insurance industry works. It's nothing like that at all. They spread the risk. There are RE-insurers and it goes on.
Apologies, I can't be bothered addressing the rest of your post.
^right I was trying to describe both insurance and call options. Insurance is a transfer of liability of the many to that of the few.
Not if you think it will be built regardless of your participation.
The only reasons to think that it would be built are (a) it has been built before and (b) it is already being built. In other words, there is no reason to think that it would be built at the start of the scenario.
Thats the whole point of this thread. To try and describe ways of getting free riders to pay by appealing to their profit motive.
The whole point of the thread is to assume that the false free rider problem hypothesis is correct and attempt to solve it. Because it is false there is no need to solve it.
His maximal profit is to free ride given that the public good is provided.
That is the maximal profit in the most ideal fantasy. Reality and fantasy are two different things. In reality the maximal profit may well involve you paying. You don't profit at all from finding a million dollar briefcase if you starved to death. Real people do not act on the assumption that the most heavenly fantasy will occur. They act based on what they believe will probably happen. Profit is only profit if the profitable thing happens; A is only A if A exists.
Let me point out something that you have not yet realized from my reductio ad absurdum comparison between the meteor and briefcase scenarios. It is a common parlour trick to create a thesis and then apply it to hypothetical events that never have and probably never will occur. What this does is avoid immediately obvious falsification that might be provided by applying it to a real event. That is why the meteor scenario is the poster child of the free rider problem hypothesis. It's a part of a greater irony that neo-classical proclaims the importance of empirical evidence and always fails by using anything but.
This is one of the things I exploit in the "competition among free riders" part of the OP.
Competition is irrelevent to the topic.
Caley McKibben:The only reasons to think that it would be built are (a) it has been built before and (b) it is already being built. In other words, there is no reason to think that it would be built at the start of the scenario.
Caley McKibben:In reality the maximal profit may well involve you paying. You don't profit at all from finding a million dollar briefcase if you starved to death. Real people do not act on the assumption that the most heavenly fantasy will occur. They act based on what they believe will probably happen. Profit is only profit if the profitable thing happens; A is only A if A exists.
Caley McKibben:What this does is avoid immediately obvious falsification that might be provided by applying it to a real event. That is why the meteor scenario is the poster child of the free rider problem hypothesis. It's a part of a greater irony that neo-classical proclaims the importance of empirical evidence and always fails by using anything but.
Caley McKibben:Competition is irrelevent to the topic.
When the enterpreneur trying to solve the problem goes to the individual, the individual thinks: Hmm.... if I turn him down, there's a good chance the service will be provided anyway because he's organizing etc. Every individual takes this option, the project fails because people didn't coordinate who got to be free-riders and payers.
I expected you to say that. That is a false psychological hypothesis. Everyone expects everyone else to think the same as he does, including second guessing everyone else, second guessing everyone else's second guess of him and so on ad infinitum. You can only make a decision based on what you know. Thus, the infinitesimal regression is null and the decision will be left to what you do know, which is that you can minimize the chance of the meteor hitting Earth by contributing to the laser. That is how a real person thinks in the real world.
It doesn't even matter whether any other human than the individual in question exists. Materially, whether the possible outcome includes other humans or any other phenomenon offering the possibility of a chance save is no matter.
I did not know whether you in particular would try using this, but I was aware of this phony psychology. If it is accurate, you can evidence it easily enough. Simply refer to a real case study with an equivalent set of options and consequences (including complete annihilation) where the hypothesized outcome happened. You should have such a thing before you believe it to begin with in the world of empiricism, after all.
And you can max your profit by benefitting from the public good AND not paying for it.
You can find a briefcase with a million dollars. It means nothing.
Well if I tried to consider common examples of public goods, they won't be pure public goods and the conversation will be very boring.
That's what they all say. I thought that the idea in an argument was to determine the accuracy of a proposition. I guess I'm just very boring like that.
Competition is never irrelevent in the market provision of goods.
It is irrelevant to bogus hypotheses about unreal things.
Caley McKibben:Everyone expects everyone else to think the same as he does, including second guessing everyone else, second guessing everyone else's second guess of him and so on ad infinitum.
Cely McKibben:It doesn't even matter whether any other human than the individual in question exists. Materially, whether the possible outcome includes other humans or any other phenomenon offering the possibility of a chance save is no matter.
Caley McKibben:Simply refer to a real case study with an equivalent set of options and consequences (including complete annihilation) where the hypothesized outcome happened. You should have such a thing before you believe it to begin with in the world of empiricism, after all.
Caley McKibben:You can find a briefcase with a million dollars. It means nothing.
Caley McKibben:That's what they all say. I thought that the idea in an argument was to determine the accuracy of a proposition. I guess I'm just very boring like that.
Caley McKibben:It is irrelevant to bogus hypotheses about unreal things.
"See I would expect many public goods to be provided because imperfect solutions exist,"
All solutions are imperfect. I wouldn't take this path if I were you.
Is there a way somehow to get all the drivers on the freeway to accelerate and brake at the same time as if each were part of one long train? Think about the incredible increase in efficiency in traffic.
The answer is that perhaps there can be such an innovative solution and perhaps the market will one day get us there. But according to you, that the market has not made such an innovation possible [yet] is a market failure. Any other solution to regulate traffic is imperfect???
And I hope you don't tell me it's a bad example. That drivers don't accelerate and brake at the same time can be explained by a sort of prisoners dilemma.
Sorry. I mean when actors are rational and transaction costs are negligible.
"Sorry. I mean when actors are rational and transaction costs are negligible."
Is this an evasion of the question.
You're challenging my calling the OP's solution "perfect" as distinguished from other "imperfect" solutions. You point out that there are still public goods that won't be provided in real life because of transaction costs and rationality, so no solution is perfect.
I agree in the practical sense. But I want to consider ratex world where transaction costs are low. So by "perfect" i meant that it would always work in this world. Ostracism etc are imperfect solutions because they only work depending on the structure and incentives of the market.