Picture a crowded bus where a few riders slip on without paying. The bus runs anyway, so those riders enjoy the trip at no cost. The same logic applies to things many people share, like a clean park, public radio, or safe streets. Everyone can enjoy them, even those who don't contribute to the cost. If too few people contribute, the shared good can end up underfunded or may not be provided at all.
Economists call this the “free-rider problem”, and it shapes how societies pay for the things everyone relies on. Some of the clearest insights into it come from Elinor Ostrom, whose Nobel Memorial Prize-winning work showed that communities can often solve it on their own, more than standard theory predicted.¹,²
This article explains what the free-rider problem is, what causes it, where it appears, and what actually helps.
What is the free-rider problem?
The free-rider problem occurs when people can benefit from a shared good without contributing to its cost. A shared good like street lighting on a public road is one that many people can use at the same time. Once the lights are on, everyone who passes benefits, including those who never paid.²
If there is no way to exclude non-payers, each person has a reason to rely on others to cover the cost while still enjoying the result. If enough people follow that logic, the good may be underfunded or never provided at all.²
Who shaped the study of the free-rider problem?
Inpolitical economy, the free-rider problem is a core concept for understanding public goods, shared natural resources, and group decisions. The idea did not come from a single economist, but took shape over several decades as a series of thinkers connected free-riding to public goods, to political life, and to the management of shared resources.
Paul Samuelson and the theory of public goods
The modern theory of public goods was set out by Paul A. Samuelson, who was honored with the Nobel Memorial Prize in Economic Sciences in 1970 for developing static and dynamic economic theory and raising the analytical level of the field.³ His 1954 paper described goods that one person can use without leaving any less for everyone else, and worked out the conditions for providing them.⁴ Because such goods are hard to charge for, they create the very setting in which free-riding takes hold.
Mancur Olson and the logic of collective action
Defining these goods was one step. Explaining why people avoid paying for them was another, and in the twentieth century the free-rider problem became a more direct object of study in economics and the social sciences.² The first book-length study of it came from Mancur Olson in 1965, who explained how free-riding tends to grow stronger as a group gets larger.²
In a large group, each member's share of the benefit is small, and a single contribution is easy to overlook, so the temptation to let others bear the cost rises. Olson also argued that this is why small, well-organized groups often carry more weight in politics than the larger but looser public they affect.²
James Buchanan and public choice
James M. Buchanan carried this same logic from markets into politics. Good government and sound policy can be seen as shared goods too, so a single voter has little reason to put in much effort to protect them, or to push back against smaller, better-organized groups. This echoes the free-riding pressure Olson identified.
Buchanan turned this into a theory, treating voters and officials as people who act in their own interest, and argued that the answer is to get the constitutional rules that shape those incentives right. This work on the contractual and constitutional bases of political decision-making earned him the 1986 Nobel Memorial Prize in Economic Sciences and helped found the field of public choice.⁵
Elinor Ostrom and the commons
Where Buchanan examined the rules of states, Elinor Ostrom turned to communities. She studied the commons, the fisheries, forests, and groundwater that whole communities share.⁶ These are the free-rider problem in physical form, since each user gains by taking more while everyone else is left with less, and without limits the resource can be drained.²
Ostrom’s central finding, that communities often solve this themselves by making and enforcing their own rules rather than relying only on private ownership or government control, brought her the 2009 Nobel Memorial Prize in Economic Sciences, shared withOliver E. Williamson.⁶
What factors contribute to the free-rider problem?
There are several conditions that make free-riding more likely to happen. Each one weakens the reason to contribute and strengthens the reason to take the benefit for free.
1. Non-excludability
A good is non-excludable when there is no practical way to stop people who have not paid from enjoying it. Once clean air, an open radio broadcast, or a public park exists, anyone can benefit, whether or not they helped cover the cost. That makes voluntary funding hard to sustain, because the people who benefit cannot easily be charged for what they receive.⁷
2. Non-rivalry
A good is non-rival when one person's use does not reduce what is available to everyone else.⁷ A streetlight or a national defense system serves an extra person at no added cost, so nothing is lost when one more individual benefits. Because adding a free-rider does not visibly shrink the benefit for others, people feel little pressure to pay their own share.²
3. Large group size
Free-riding becomes harder to resist as a group grows. In a small group, one person's contribution is noticeable, and a missing one is obvious. However, in a large crowd, each share of the benefit looks tiny and a single absent contribution barely registers. With less at stake for each person and weaker social pressure, free-riding spreads more easily in big, anonymous populations.²
4. Weak monitoring and enforcement
Cooperation depends on people believing that others will also pay their share. When there is no reliable way to see who is contributing, or to apply consequences to those who are not, that belief breaks down. Even willing contributors may hold back once they suspect others are free-riding, and cooperation tends to unravel.²
5. Low personal visibility
Social norms work best when behavior can be seen. When contributions and failures to contribute are hard to observe, as in large or widely dispersed settings, reputation carries less weight. People who might otherwise be praised or shamed for their choices stay anonymous, so one of the strongest checks on free-riding loses its force.²
What are examples of the free-rider problem?
The free-rider problem shows up in many different settings. The clearest case is a classic public good like national defense, clean air, or public health. Everyone benefits at once, but no single household or company has enough reason to pay for it alone, so these goods are usually paid for through taxes.⁷ The same pattern appears in less obvious places, even when the details change.
1. Common-pool resources
Common-pool resources are shared resources that can actually be used up, such as a fishery or a groundwater basin.² Because they are open to everyone, each user has a reason to take as much as they can before the others do, and if they all do, the resource can be drained for good.²
This makes them a harder problem than a public good that is merely underfunded. An underfunded good can be paid for later, but a collapsed fishery or an emptied aquifer may be gone for good. Ostrom spent years on these cases, asking one question: can communities govern shared resources themselves, without the state or privatization?⁶
2. Team and workplace settings
Free-riding also happens at work, in project teams, committees, and volunteer groups. For instance, when a whole team is judged on one shared result, a member who does little can still share in the credit the others earn, and the temptation to hold back grows as the team gets bigger.
A related and well-studied pattern is that each group member's productivity tends to decline as the group grows, a phenomenon researchers call the Ringelmann effect.² Teams often counter this by making each person's contribution visible, for example through individual assessment and peer review.²
3. Digital commons
Free tools like open-source software and online encyclopedias face the same problem. Anyone can use them without using them up, and no one can easily be shut out, so they work much like public goods. They keep going only because a small number of people contribute, while most users simply benefit.²,⁸ In open-source software, for example, about 5% of developers create roughly 96% of the value that everyone else draws on.⁸
How do you solve the free-rider problem?
The right approach to solve the free-rider problem depends on the resource, the size of the group, and the tools available for enforcement.
1. Government provision through taxation
When a benefit reaches everyone, and no one can be charged for it, the state can provide it and fund it through taxes. This is the usual answer for classic public goods such as national defense and public health, which private markets have little incentive to provide on their own. It works well where a government has the institutional capacity to collect taxes and spend them effectively.⁷
2. Turning the good into a “club good”
Another option is to make the benefit excludable, so that only those who pay can use it. When the good is also non-rival, meaning one member's use does not reduce what is left for others, economists call the result a club good, a concept introduced by James Buchanan.² A subscription journal or a paid streaming service fits this well, since one more subscriber does not use up the content, yet anyone who has not paid can be shut out. The trade-off is that some people who would have benefited are now priced out.
3. Community self-governance
Communities can also solve the problem themselves, without either privatizing the resource or handing it to the state. Studying commons around the world, Elinor Ostrom found that successful cases tend to share a common set of features, including clear boundaries around who may use the resource, local monitoring, graduated penalties for breaking the rules, and a real say for users in setting those rules.⁹ These arrangements work best in smaller groups where people can communicate and can agree on the rules together.²
4. Social norms and reputation
In small groups, cooperation is often held together by social pressure rather than formal rules.² Studies find that people contribute more when they expect to deal with each other again and when each person's reputation is known to the others, so repeated, close-knit groups sustain cooperation more easily.⁹ Reputation, reciprocity and the wish to avoid shame all encourage people to pay in, and making contributions visible, through public recognition or peer feedback, strengthens these norms and makes free-riding harder to hide.²
Final thoughts: why the free-rider problem can be managed, but not removed
The free-rider problem is a permanent feature of any economy that produces shared value. It cannot be removed, but it can be managed, and the right approach depends on the setting. Large, anonymous populations usually rely on state provision or excludability, while small, repeated groups can sustain cooperation through self-governance and shared norms. Online communities often blend the two, using paywalls for excludability and reputation systems to make contributions visible.
The deepest shift came from Elinor Ostrom. Economists had long assumed a shared resource could be protected only by government or private ownership, but her research across fisheries, forests, and irrigation systems worldwide showed that ordinary communities, under the right conditions, repeatedly organized themselves to manage what they held in common.⁹ Her lasting insight is that communities can often solve the free-rider problem on their own terms, without depending on the market or the state alone.⁹
For insights into political economy and related fields by Elinor Ostrom and other Nobel laureates, visit UBS Nobel Perspectives & Economic Views.
Recommended reading about political economy
References
- Nobel Prize Outreach.Popular information. NobelPrize.org, 2009.
- Cullity G.The Free Rider Problem. Stanford Encyclopedia of Philosophy, 2025.
- Nobel Prize Outreach.Paul A. Samuelson – Facts. NobelPrize.org, 1970.
- Samuelson PA.The Pure Theory of Public Expenditure. The Review of Economics and Statistics, 1954.
- Nobel Prize Outreach.Press release. NobelPrize.org, 1986.
- Nobel Prize Outreach.Press release. NobelPrize.org, 2009.
- International Monetary Fund.Back to Basics: What Are Global Public Goods? Finance & Development, 2021.
- Hoffmann M, Nagle F, Zhou Y.
The Value of Open Source Software. Harvard Business School Working Paper 24-038, 2024. - Ostrom E.Beyond Markets and States: Polycentric Governance of Complex Economic Systems. American Economic Review, 2010.