The free rider problem: economics and climate action

Wikipedia is certainly one of the best examples of the free rider problem. A platform that gives people around the world knowledge for free whose annual call for donations is clicked away by many. Why pay for something when you can have it for free?

The free rider problem, first described in economics, has since become part of numerous social science theories. Free riding in the economy describes a market failure that occurs when those who benefit from resources, goods, or services do not contribute to the costs. As a result, others may contribute less, knowing that there are individuals who free ride.

Why pay for Wikipedia when other users may not?

The free rider problem can be applied to many questions. In recent years, it has received particular attention in the debate about climate change. Numerous economists describe free riding as one of the main difficulties in tackling the problem.

“In the end, each country would like the other country to put in the effort to reduce emissions,” explains Jean Tirole. “If France reduces emissions, it’s going to get only a small fraction of the benefit, but it’s going to bare 100 percent of the costs.”

Given the urgent need for climate protection, there doesn’t seem to be a good reason why France, or any other country, wouldn’t want to address the problem immediately, without considering the costs. But when viewed through the eyes of an economist, who knows well that incentives take precedence, the problem becomes clear.

The benefits of reducing emissions in a country will largely be felt outside of its own borders. As a result, countries that act in their own self-interest are incentivized to minimize their mitigation efforts and to free ride on the efforts of other countries.

“‘My country first’ is a big slogan in almost every country nowadays,” says Tirole. “That’s a difficulty. We all want others to do the job.”

Christopher Pissarides explains how the world has come closer together in recent decades. Trade liberalization, globalization, the establishment of multinational institutions such as the EU are all examples of this.

“That’s the gradual elimination of borders,” says Pissarides. “Human beings still don’t look at the whole earth as one that’s belonging to all of them, but the environment is gradually bringing them together. Hopefully, one day we’ll reach the point where people are less territorial. Economic borders will have to fall.”