Free Rider: Definition and Features

In the economic field, it is known free rider or stowaway, as a problem that occurs when a natural or legal person seeks to obtain a benefit, without paying for it.

In this sense, stowaways are known as parasitic consumers, since, under certain contexts, they consume goods and services paid for or financed by others.

This term is also used in the stock market, the investor buys shares exceeding the amount of money he owns, that is, they buy shares that later they cannot pay.

Free rider features

• It happens in the middle of a collective activity or event, that is, when various elements of society are present.
• It can be a casualty or an intentional event.
• It may be harmful or it may not have any negative consequences.
• It is based on a group ethics and political model.

What causes the free rider?

• In the psychosocial environment one of the most frequent causes is the need to obtain benefits with the least possible effort.
• Not being able to determine the scope of the favorable or lucrative effect that any good generates, that is, no know the context in which the benefit is generated or how people get involved with it profit.
• Not having a clear regulation that can establish the limitations of a product and the way in which the subjects who neither worked nor pretend to be creditors of this product are involved.

What consequences does the free rider bring?

There are only real sequels if it is shown that the element produced could have generated greater economic benefits, than in reality.

Sometimes the attempts to avoid stowaways in a certain profitable activity generate limitations in the same activity, by pretending that the actions are related to the least exposure conditions that in turn tend to cause people to have to pay for an unsolicited service, in other words fortuitous benefits without having sought it directly.

Real applications of the stowaway problem

The problem of the free rider can often be observed at the societal level. The most common is common when public goods are used without any regularization or control. What causes that there is an unsupported expense for the repair and maintenance processes, in addition to an extra burden on their consumption at an ecological and economic level for those who do comply with the pay.

This fact, in which some individuals benefit from the action of the rest of a group of people, exists in any sphere of social organization, in condominiums for example; when one or more people take advantage of general services and do not pay their respective fee.

At an industrial and technological level, when units are produced without paying for the license, benefits are obtained without having paid the related expenses With intellectual property, you are a stowaway because you get benefits from the intellectual work of a third party and you avoid paying for the patent correspondent.

In the tax area, the problem of the stowaway is present in any activity that seeks to evasion of taxes, by avoiding paying the tribute that corresponds to it, increasing the benefits acquired and taking advantage of the enjoyment of public services provided by the state, such as medical assistance, access to free education, security, recreation, use of infrastructure and other services public.

Everyday examples of the presence of a free rider.

Intentionally:

• The tax evader, when he owns two or more organizations but only declares the taxes of one.

When studying the free rider in the public economy, the most particular and recurrent case is presented in tax evasion, evaders take advantage of public goods and services that do not pay, being financed by those who do pay their taxes, that is, by those who do comply with their fiscal and tax obligations, often resulting in the deterioration of the same services and depressing the quality of life of the common citizen.

• The one that is illegally connected to a public service, for example, to an electricity network.
• Whoever attends a social event, previously agreed to participate in the expenses, but knowingly does not comply with his contribution.

By chance:

• When any activity generates a waste and this waste is used by a third party. A better example could be planting trees, since multiple collective benefits are generated from this planting, such as shade, fruits, raw material.

How to avoid the free rider?

• Applying regulations that allow regulating the interaction between productive activity and its secondary effects.
• Sanctions that seek to avoid any type of fraudulent action that produces some type of obstacle to any productive activity.
• Generate secondary or parallel activities that generate benefits by regulating any activity that involves the action of the stowaway or free rider, causing him to be held accountable to the originator of the activity primary.
• Since it is inherent to the condition of the human being, the search for the lowest possible cost, are necessary activities that seek to educate society in order to achieve greater ethics Social.