The Free Rider Fallacy

The Free Rider Fallacy

Posted on 20111102 by silver

A young man posted this scenario some years ago at TMM:

You live in a small town with five houses. You live in the center of town and four other people live north, south, east and west, completely surrounding you. This is a voluntary community – a gulch, if you will.

At the town hall meeting, the citizen who lives to the north of you brings up the fact that there is a gang of a hundred violent motorcycle nomads who will be raping and pillaging your town in two days.

Your four neighbors each decide independently that they will hire a private security force, and when they all learn of each other’s plans, they choose to go into it together, because they get a discount

You decide you do not want to be involved

Fifty heavily armed and trained mercenaries arrive at the gulch the next morning, and they form a perimeter around the town.
The nomads surround your town and attack the mercenaries. The mercenaries slaughter all of the nomads.
You have just been protected by your neighbors. You did not pay in. You just got something for nothing.

This scenario and its variants is offered as justification for coercive taxation, the theft of money from the unwilling citizen.

The free rider problem is a fallacy employed by people who use violence to obtain their personal goals. As the very construction of the scenario proved, there was no problem. Four out of five people thought the expenditure for defense services worthwhile. The fact that others benefit from their purchase does not change their economic calculation. Either there is enough demand for the defensive services for the consumers to part with their money and buy them, or there isn’t.

Using violence to take money from people who don’t want the good or service in question may lower the cost to the band of thieves who support such immoral behavior, but so does just killing the holdouts and taking their property.

Mises treated this nonsense thoroughly, see pages 650-656 of Human Action (Scholars edition).

If the results of an actor’s action benefit not only himseIf, but also other people, two alternatives are possible:

  1. The planning actor considers the advantages which he expects for himself so important that he is prepared to defray all the costs required. The fact that his project also benefits other people will not prevent him from accomplishing what promotes his own well-being.

  2. The costs incurred by a project are so great that none of those whom it will benefit is ready to expend them in full. The project can be realized only if a sufficient number of those interested in it share in the costs.

The example given used the second scenario. While no individual could afford the services, four could pool their resources, and did so. There is no problem. The decision of the 5th person that refusing to participate would maximize his personal satisfaction is may prove to be incorrect. His neighbors will remember his refusal to help defend the community. They may shun him or at least reduce their trust and trade with him. But there is no guarantee that free men make the correct choices at all times, only the guarantee that they are free to choose.

Here’s a real-life example of Mises first scenario. I keep bees. My bees fly far and wide, providing pollination services to over 8,000 acres.

As a free man, I decided to keep bees because I judged the benefits TO ME outweighed the costs. The fact that my bees would be providing a valuable service to others did not enter my calculation; I considered only what mattered to me.
Now if I were an amoral person who employed violence to get my way, I could demand money from all those neighbors in payment for the services of my bees. Services that they did not ask for and can not refuse, given the nature of bees.
Since I have renounced the use of violence to satisfy my desires, that isn’t a problem.
The reductio ad absurdum of the free rider fallacy was written by the great Hans Herman Hoppe:

You, dear reader, have never hired me as an economic consultant. You have not taken advantage of this marvelous opportunity open to you. However, whether you know it or not, whether you realize it or not, whether you appreciate it or not, you actually benefit from my economic analysis. You are thus a selfish, chiseling free-rider on these multifaceted benefits I have long provided for you, gratis. But now it is time to stop you from exploiting me regarding these spillover gains you have long enjoyed for free. It is time for you to pay your fair share! Accordingly, I am hereby presenting you with this bill for $100,000, a bargain at the price.

The free rider “problem” is a trivial fallacy. It only appears complex because there are so many cowardly thugs among us, willing to use violence but unwilling to do the dirty deeds themselves. They invent this free rider nonsense, they teach it to defenseless children in state indoctrination camps, and they quote it whenever they sense the opportunity to steal something. These people deserve contempt and disgust, nothing more. The charitable might try to educate the victims of this delusion, but tolerance of this pernicious nonsense is not a virtue.

Will someone summarize, please?

Will someone summarize, please?

Freedom works.

http://farm5.static.flickr.com/4149/5116916182_2af2373afc.jpg
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Again, I think you are laboring under a misconception of human nature and human society. You seem to view society as a voluntary collection of human individuals, and that just is not the way things are. It is not a real view of what it is to be human, it’s a fiction. Fantasy.

Will someone summarize, please?

The free-rider scenario is often used to justify taxation for services. The argument is that society is full of those who would refuse to pay for a service that benefits all citizens so long as some smaller number were willing to foot the bill.

There is a fantasy land, completely divorced from human experience and reality.

Will someone summarize, please?

The free-rider scenario is often used to justify taxation for services. The argument is that society is full of those who would refuse to pay for a service that benefits all citizens so long as some smaller number were willing to foot the bill.

Yes, that is the argument that those who prefer to relate through compulsion make. This just demonstrates that it doesn’t have to be that way.

Sigh. These questions don’t even touch on the heart of the matter, but:

What if none of the other four will cough up the dough to protect all five of you unless all five people chip in?

What if the other four don’t have enough money to pay for their mercenaries without the fifth’s contribution?

What if the other four hire their mercenaries, but allow the bandits safe passage to the house in the middle?

What if the other four hire their mercenaries, but allow the bandits safe passage to the house in the middle?


Bingo. Remember the outrage when a fire company let a home burn to the ground because it had not paid?

What if the other four hire their mercenaries, but allow the bandits safe passage to the house in the middle?

This seems like an exceedingly likely scenario.

Or this one:

What if the other four hire their mercenaries, and save on costs by allowing the mercenaries to take the house in the middle as payment?

Sigh. These questions don’t even touch on the heart of the matter, but:

What if none of the other four will cough up the dough to protect all five of you unless all five people chip in?
Then either all five chip in and the service is procured, or they make the value judgement that the service is not worth the cost and they handle it differently.

What if the other four don’t have enough money to pay for their mercenaries without the fifth’s contribution?
You don’t have a right to a service that you cannot afford to pay for. Robbing your neighbor so you can buy it isn’t the answer.

What if the other four hire their mercenaries, but allow the bandits safe passage to the house in the middle?
Thank you for demonstrating that there are an infinite number of ways that things can play out and that we really don’t need to resort to the initiation of force to conduct our lives in a moral and ethical fashion.

What if the other four hire their mercenaries, but allow the bandits safe passage to the house in the middle?

This seems like an exceedingly likely scenario.

Or this one:

What if the other four hire their mercenaries, and save on costs by allowing the mercenaries to take the house in the middle as payment?

Which is amazingly similar to the system we have today that everyone seems so fond of.

a more likely scenario involves hundreds of property owners spread over tens or hundreds of square miles - - - simply organizing a single community purchase of security is nearly impossible - in other words, 80% of 1000 homeowners are not going to magically pull of a discount purchase of security

What you would more likely end up with would be a set of ‘tribes’ - folks grouping together by local geography ( ex: valley) and/or family and providing/buying security - what you’d end up with is Afghanistan.

This is going to require some thinking…so bear with me.

What if:

The fifth person doesn’t want to pay for security but is one of four of the five neighbours who wants to chip in for a pool next summer and is one of a different four of the five neighbours who wants to buy streetlights.

Months ago, all 5 neighbours were separately wrestling with the same dilemma. They knew that when an issue came up they didn’t want to pay for their instinct would be to simply refuse payment - deep down they knew that paying for something they didn’t want would show good faith when projects they wanted did come up, that you have to give a little to get a little - but they still knew they wouldn’t pay. They appreciated, as you appear not to, that people just aren’t that rational and that the free rider instinct is alive and well.

Slowly, spearately, the five neighbours came to a conclusion that the only way to curb their instincts, to ensure the success of projects that a majority of them wanted and to ensure the development of their nascent society was to voluntarily vest a government with the power to compel them to do things they may say at the time they didn’t want to do but which, in the grander scheme of things, they knew they could at least go along with. Concerned about the scope of the power they were vesting in their government they built in checks and balances and voila: they created something that looks like every developed society the world has known. Amazing.

Edit to add: “that everyone seems so fond of” in your prior post is obviously meant to be sarcastic. But it shouldn’t be. That the union is not perfect is painfully obvious and for sure it’s fine to point out flaws. Forget the 1% vs the 99% though, I am reasonably confident that in terms of comfort, security and life expectancy as an American today I am within the top 0.00001% of people who have ever lived. “Fond” doesn’t even come close - I LOVE the “system” we have today.

What if the other four hire their mercenaries, but allow the bandits safe passage to the house in the middle?

This seems like an exceedingly likely scenario.

Or this one:

What if the other four hire their mercenaries, and save on costs by allowing the mercenaries to take the house in the middle as payment?

Which is amazingly similar to the system we have today that everyone seems so fond of.

Please explain!

a more likely scenario involves hundreds of property owners spread over tens or hundreds of square miles - - - simply organizing a single community purchase of security is nearly impossible - in other words, 80% of 1000 homeowners are not going to magically pull of a discount purchase of security

What you would more likely end up with would be a set of ‘tribes’ - folks grouping together by local geography ( ex: valley) and/or family and providing/buying security - what you’d end up with is Afghanistan.

Afghanistan - the libertarian paradise!

a more likely scenario involves hundreds of property owners spread over tens or hundreds of square miles - - - simply organizing a single community purchase of security is nearly impossible - in other words, 80% of 1000 homeowners are not going to magically pull of a discount purchase of security

What you would more likely end up with would be a set of ‘tribes’ - folks grouping together by local geography ( ex: valley) and/or family and providing/buying security - what you’d end up with is Afghanistan.

Maybe. Or maybe people and the market can be just a teensy weensy bit more creative. Perhaps we’d be more like Costa Rica than Afghanistan. After all, there are lots of products and services that we don’t dictate through brute force on the collective. And yet we somehow seem to find a way to work it out.

Maybe. Or maybe people and the market can be just a teensy weensy bit more creative.

People AND the market? I thought they were the same thing?

Perhaps we’d be more like Costa Rica than Afghanistan.

Carbon-neutrality program which coercively increases the cost of energy.

Government monopoly health insurance which undercuts private insurers!