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Free rider

AnalyticsTrade Team
AnalyticsTrade Team Last updated on 26 Apr 2023

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Free Rider

A free rider is an individual or entity that benefits from a service or product without paying for it. This term is commonly used in economics and finance to describe someone who takes advantage of a situation without contributing to it. Free riders can be found in many different contexts, from public goods to private investments. In economics, free riders are seen as a problem because they can reduce the incentives for others to contribute to a project or service.

History of the Term

The term โ€œfree riderโ€ was first used in the early 20th century by economist Arthur Cecil Pigou. Pigou used the term to describe individuals who take advantage of public goods without paying for them. He argued that free riders reduce the incentives for others to contribute to the public good, leading to a decrease in overall welfare. Since then, the term has been used in a variety of contexts, including private investments, public goods, and even international relations.

Comparison Table

Free Rider Paying Contributor
Benefits without paying Pays for the service or product
Reduces incentives for others Increases incentives for others
Can be found in many contexts Can be found in many contexts

Summary

A free rider is an individual or entity that benefits from a service or product without paying for it. This term is commonly used in economics and finance to describe someone who takes advantage of a situation without contributing to it. Free riders can be found in many different contexts, from public goods to private investments. For more information on free riders, you can visit websites such as Investopedia, The Balance, and Investing Answers.

See Also

  • Public Goods
  • Private Investments
  • Externalities
  • Tragedy of the Commons
  • Opportunity Cost
  • Marginal Cost
  • Marginal Benefit
  • Game Theory
  • Public Choice Theory
  • Risk Aversion

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