Free riders and how they add value

Recently I was looking for a good icon online to represent free riding as economic concept. Unfortunately most of the pictures the internet provided me were of either skiing, riding a bike or motor bike. But I did come across one picture that represented it quite well as represented here. I was curious and came across a blog called a Little Tour in Yellow by Shane Schmidt. He wrote a very intriguing post on the free riding concept from free thoughts I presume he got on the road while being a salesman.

In his article he proposes a free riding experiment. Having studied some Experimental Economics and having a direct interest in the concept of free riding I went through his post I thought I would draft an appropriate response. The link can be found here: Do we have a useful free rider experiment?

In the post he proposes the following and I quote: ” Apartment renters often sign leases that include some utilities, primarily water and cooking gas.  I understand that property owners factor in the costs of those utilities, just as a prudent and responsible government should factor in the costs of any public good it chose to support.  So the question was, do these “free included” utilities get abused?

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My straight response is, I think his experiment will work, but with one simple added feature. Should there be some malfeasance by the tenant, that this penalty be lost via the deposit or insurance so as to cover the landlord; or that this person’s reputation is affected in such a way that this person is temporarily unable to access other assets or resources to which created such malfeasance. Another option would be to force such a person to go on a course to rectify any ignorance in this area. There are many risks in renting out an apartment and some type of coverage is good for all those involved.. But it is preferable that the tenant take some of the risk in one way or another.. How many people cannot afford to pay even basic amounts. So where does that leave them? How can you punish someone whom has nothing left to give?

Then one must also remember that access and consumption are also two different forms of consumption in the demand curve. Access is a protective mechanism to ensure the asset or feature is not destroyed by the user. Consumption or utilisation of the resource however is to ensure the benefit of the resources is not wasted. Access need not be charged but is more a protective mechanism. Consumption needs to be charged by vendors so that loss is incurred by people accessing the amenity and enjoying the benefits of the consumption so that natural utilization of the resource is recovered. Access to a service or a tool (aka archetype) should be as cheap as possible though, so that consumption is not an issue (otherwise this causes all sorts of problems with consumers, etc accessing your product or service). Consumption needs to sustainable though and inevitably proves the value of the product or service as the person satisfies his or her requirement(s).

Expanding further on this topic, many common area assets (economic terminology for municipal and government assets) are blocked by the current economic system through a rigid legal dictate we call ownership while and then this concept is often confused with custodianship (especially in South Africa). This legal term inherited through the ages since writing was invented by the Sumerians and the Egyptians between 2000 & 3000 BC. The advantage of a clear ownership system being that the rights to the asset are clear. The downside of this system however is that has many shared resources e.g. land are closed off and made exclusive to certain individuals that have performed well in the economic game or perhaps have inherited large amount of wealth. This all while the ecological and some of the social economic spheres continues to suffer under the assumptions of fewer custodians.

The economic game measures your performance based on monetary accumulation or wealth. But the social and environmental game metrics are not so clear as the are based on balance or harmony. All common areas require either past assets (built from labour) or current labour (e.g. ongoing maintenance) or future labour (liabilities or negative assets that need to resolved e.g. pollution or social discourse). The common underlying being labour for all.

Also of interest is the rather large issue around access to tertiary education in South Africa, I believe education should be the same. Access should be cheap (with a slight punishable behavioral effect if malfeasance) and a built in ability for the person to option up (pay more) if the student believes this is what he or she wants to focus on. Education is also has the major benefit of empowering people to utilize assets more optimally. That is in economic, social and the environmental spheres. But access still need to be charged either my monetary or in perhaps a labour form so as to ensure any amenities are not destroyed by the user.

Education however can continue to add value without additional cost if we are able to automate it all online. (With proper online portals, forums and pre-loaded tutorial matter I don’t see why not). Also each class could add tutorial matter as the course evolves over time. Some alumni may “free-ride” classes just to see how the classes adapt and change over time and to help them keep up to date with the course material as it adapts over time. Especially those classes that are very highly rated (this may already occur with the auditing access given by some MOOC’s but I am not sure if this has been optimised). With these enhancements I think education could become even more organic in its growth (with the more direct feedback from experienced practictioners) but remembering the need for minimal achievement levels for completion for each subject, especially those subjects which are cumulative in the way you learn them. This experiment or trend really interests me as I believe academics don’t need to be involved when your online class reaches a certain critical mass of size and quality (lets say competing with other classes of similar form or nature). After a while teachers just need motivation to share tacit information that can assist the students in applying theories i the real world. So more social measurables can taken a priority and some of the agendas of the academics to control how the class evolve and priced, are restrained (these are economic priorities for the teacher who would prefer to steepen the demand curve for their skills by creating more barriers to entry). The interactivity between smart students and alumni students (aka teachers) however is important for further evolution of the knowledge of mankind together with the access both students may need for the tools of their particular trade (also controlled by various barriers to entry and cost of consumption).

The above concepts are rather complex to consider, I agree, and need to be considered in the context of how specialised the skill set is. But free riding I believe is a very complex topic that is underestimated by most economics because it assumes people are not interested in improving either their mental or physical selves.




November 29, 2016