What Is a Free Rider Problem?

The free-rider problem is a problem that occurs on public property. It means that the resource consumed by an individual in the economy exceeds his fair share, or the production cost assumed is less than his fair share. Refers to the need for some kind of public property. But claiming in advance that they don't need it, and after others pay for it, they can enjoy the results without any effort. It usually refers to the consumption of public goods in macroeconomics.

Hitchhiking problem

Suppose there are 25 residents in a street, and the street is about to undergo a sanitary renovation. The cost of the renovation is $ 2500. The cost of retrofitting to each household is therefore $ 100. Although the renovation of the facility will benefit all households, when the cost is paid voluntarily, some households will definitely refuse to pay. This part of the household is calculated that other households will share the cost of renovation, and such sanitary facilities will definitely be put into use.
The solution is to make 25 independent households pay the cost as a whole, that is, the collective will represents the will of the individual. In this case, residents can decide whether to carry out the renovation of the facility by voting. If the result of the vote is that a renovation should be undertaken, all households must pay the fee.
It is for this reason that some
Overview
due to
Hitchhiking between travel agencies
Due to the non-exclusiveness of public goods, people who do not contribute to public goods can also obtain public goods. The existence of free-riding psychology may lead to
Hitchhiking problem
Public goods are not available, so there is no free ride. This is the so-called "hitchhiking dilemma" (Yu Yongding et al., 1999: 701). The problem of hitchhiking between travel agencies refers to the horizontal externality caused by the development of tourist routes. "The horizontal externality has caused a public goods problem" (Taylor, 1997: 232). Travel agencies can use their own development services instead of developing Tourism routes (the so-called hitchhiking), thus resulting in an insufficient supply of public goods for "tourist route development" (no hitchhiking).
Sun Jianchao et al. (2002) used the externality theory of microeconomics to analyze the above issues, and proposed the vertical division of labor development, wholesale, and retail within the travel agency based on Oliver Williamson's vertical integration theory. Solve the problem of hitchhiking between travel agencies. As Sun Jianchao et al. (2002) said: The vertical integration of travel agencies can replace market transactions through internal coordination, so that some market costs can be saved. In other words, this vertical integration can eliminate vertical externalities between tourism development wholesalers and tourism retailers. However, this vertical integration cannot eliminate the horizontal externality among travel agencies, which is the main manifestation of the externality of tourism route development. It is this horizontal externality that causes the free-rider problem between travel agencies. Therefore, the so-called vertical integration of travel agencies by Sun Jianchao et al. (2002) lacks sufficient pertinence to solve the problem of free-riding of travel agencies.
If this kind of vertical integration is effective in solving the free-rider problem, it is also an indirect effect. The travel agency has expanded the size of the company through vertical integration, and if the travel agency is large and has a high market share, the travel agency can benefit the most from its own development activities, and it tends to develop itself to get paid instead of waiting for " Hitchhiking ", which can eliminate the negative consequences of externalities of tourist routes. In fact, if the travel agency hitchhiking must be solved by an integrated method, it should be horizontal integration, that is, mergers between tourism developers, forming a monopoly pattern of the tourism developer market. Due to the many legal and economic difficulties of this kind of merger, it is impossible to form a complete monopoly, but an oligopoly situation may be formed. The tourism development in many foreign countries is largely monopolized by several tourism developers. At this time, the game result is complicated, and the free-riding problem is generally not too serious.

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