What is free riding problem in economics?

Answer 1

Free riding is a problem encountered with public goods. (Public goods are those goods which are considered to be (mostly) non-rival and non-excludeable. That is, one person's consumption of the good doesn't "use up" the good, and it is very hard, expensive or impossible to keep someone from consuming the goods. A common example is national defense. Many environmental goods are, at least in part, public goods.) A free rider is someone who consumes a public good (because their consumption is non-excludeable) without paying for it.

In fact, from the point of view of the individual consumer, it is rational to consider free riding, as long as others are willing to buy enough of the public good to satisfy your needs. For example, Bill Gates might have more to lose were the United States invaded, so he might be willing to pay enough for national defense to satisfy the needs of a hobo in Hoboken. However, from a societal standpoint, it is optimal to have everyone who wants to use the public good split the cost. Usually, the only way to accomplish this is through mandatory taxation, which is why most public goods are provided by the government and not private enterprise.