Do We Have a Useful Free Rider Experiment Here?

100113mmattMAGWhen a public program is proposed such as free mass transit or free medical care, the idea gets attention, for both good and bad reasons.  Some people get optimistic, some get alarmed.  There will be arguments for and against, of course, but at the core of these opposing positions is something like a free rider problem.  The opposing sides will have different perspectives.  Does the proposal get enough support on the one hand and does it deserve support on the other, for example.

A true free rider problem comes along when people are voluntarily asked to pay for something like a public good, park admission, perhaps.  It is presumed that enough will pay to support the park, but if everyone volunteers not to pay, then the project fails.  Again, you will have different views on this.  Some will fine if some people do not — or cannot — pay, others will see this as an injustice or an abuse.

People tend to be petty — some more than others — when they believe someone else might be getting something free for which they have to pay.  People who primarily drive on highways lament subsidies for mass transit.  People who ride buses complain about the priorities for roads.  Never mind that smart investment in both roads and transit have beneficial externalities that serve both.

There is an ethic, especially in the United States, that you should earn and pay your way.  Even in matters of life and death such as health insurance, there are millions of people unwilling to support even the most basic health care subsidies for people who need them.  I think that is the dark side of our nation that people like to believe is based on so-called Christian values, but that’s a different discussion.  That is a moral argument.

A more pragmatic argument is one that says free mass transit or free health care won’t work because people will abuse the service if they don’t have to pay for it.  This might result in there not be enough of the service to go around (e.g., long waits for health care) or poorer quality because of overuse (e.g., crowded, dirty subways).

Of course there are remedies, the most obvious is something we seemingly cannot do anymore and that is long term planning and funding of programs.  Let’s put that aside for the moment and come back to it.

stock-footage-gas-burner-lighting-on-a-kitchen-stoveThe example I want to propose as an ongoing experiment is very simple and very common.  Apartment renters often sign leases that include some utilities, primarily water and cooking gas.  I understand that property owners factor in the costs of those utilities, just as a prudent and responsible government should factor in the costs of any public good it chose to support.  The question is, do these “free” included utilities get abused?

Take cooking gas, for example.  Can we say that people with access to “free” cooking gas — for certainly that is how it would seem to the renter — use more of it?  After all it is a sort of use it or lose it sort of proposition.  You have a month’s worth of free cooking gas.  You can’t carry it forward, you can’t sell it.  What can you do?

My guess is that there is not much difference in the amount of home cooking done when you compare people who receive a monthly gas bill and people who don’t.  I’m guessing it is very much the same.  Likewise for water.  It isn’t likely that a renter uses his shower or toilet more than a non-renter.  Right?

506a2605fb04d60a65000f68._w.1500_s.fit_The examples I gave here might not be perfect.  They might not be the best examples of a free rider problem.  (The best I remember is of union membership.  If someone chooses not to belong to a union, but a union negotiates better working conditions and wages, the non-paying worker benefits as well.  He is a free rider.)  And I have some thoughts about “free” driving up usage as a final thought here.

However I think the example gives us something to think about when your neighbors or our politicians raise the argument that “free” health  care or free education will lead to ruin.  It will only lead to ruin if we do not appropriately plan, manage, and support the program.

President Barack Obama has proposed free community college education be made available to Americans.  Many oppose it because they chafe at the idea of someone getting something for free or something for which they have no need.  (I think that is the real issue.  Pettiness.  If the long-term value of a better educated future where considered calmly, we might see we would all be better off whether we used the service or not.)

But sometimes so-called responsible people will suggest we cannot support an idea because it will be abused, leading to class room shortages or poor quality.  That is a red herring.  If the private sector can forecast and manage supply and demand, those same skills can be applied to the public sector.  The real issue is paying for it — and perhaps a knee-jerk dismissal of government — and has little to do with whether not we can actually do something that the rest of the economically developed world does for its people.

Just a thought.

AAA Not A SermonNow I have to share this.  Before starting this post, I did some searches for energy use.  The most damning on my claims is from Housing Perspectives, and a post written by Elizabeth La Jeunesse.  Her report on the subject includes useful links.  She concludes — and I cannot disagree based on what I see here — that the studies show “the general tendency of people to consume more of something when there is no added cost for doing so.”

In Elizabeth Jeunesse’s report, she notes the problems of efficiency and points out the study is a measure of energy use per square foot.  Smaller space with similar energy use will give you a higher energy use ratio per square foot.

But that’s not important to me.  I’m willing to concede that there is a tendency to use more if you pay less.  We know costs matter.  If it is free there will be more usage.  In my post here, I specifically chose cooking versus gas (e.g., heat) for a reason…I have no data.  Instead I am thinking aloud and looking for plausible example to think about.  It is also why I tried to frame this as a free rider problem.

I have given you a thesis, not a study.

If we worry that some people might use more of something if they get it free or at a reduced rate, does that make the proposal a bad one?  Is private health insurance — in overall costs and benefits, for example — more efficient than a public health care?  (Comparisons with our economic peers would suggest it is not.)    Much of the concern here resembles a free market problem.  I am arguing that the problem is not always what it seems — cooking gas and water — and that the problem is largely a political one.  We can choose to fund education or we can choose not to fund it.  If we opt for a free public service we have to manage and support it.  Insufficient planning will cause a program to fail, not a so-called free rider problem.  In the end it is a political problem.

Now I am done.  (Hit post!)

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One thought on “Do We Have a Useful Free Rider Experiment Here?

  1. Gary Farland

    Shane, you say that people in the USA like to think that they have as their base so-called Christian values and that they don’t live up to them. However, I think they do. They believe in a god who sanctions torture chambers for everyone who doesn’t believe that he allowed his son to be put to a cruel death as payment to himself for the sins of people. American behavior I think does live up to this ideal.

    Reply

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