Free Riding and National Defense - some problems and possible solutions

Economics Political Theory
1

The Ultimate Public Good

Murphy makes some standard points here.

In the event of impending aggression, people can either take out insurance against the threat or simply sell their property to large firms (call options). In both cases, the liability of the many becomes the liability of the few, allowing better coordination and elimination of free riders.

However, these are really just roundabout ways of getting consumers to pay for defense. There’s still an opportunity to be a free rider. You can simply not purchase insurance or not sell your house and hope everyone else does. There is no way around the fact that when you are offered this deal, you are being asked to pay for something that might be provided anyway if you just shut your door. Because the free rider option is available to everyone, they’ll all try to take it, and defense will suffer.

I searched and searched for good solutions to this problem and could not find anything. If you know of any resources that deal with pure public goods/free rider problems please link them. Most of the literature I sifted through tried to blurr the distinction between public/private goods, or simply claimed that free riding was not significant enough to be a problem. How unsatisfactory.

Two solutions

1) Centralism. The common thread between statism, call options, and insurance, is that they transform communities of otherwise disjoint ownership to single ownership. So the only criterion for successful defense is to have a single owner of strategically significant resources.

Modern community and capital organization is the result of statist provision of defense, allowing unorganized, scattered, and otherwise vulnerable arrangements to persist. Anarchism would rearrange many social structures to more efficient means. One parameter would be effifacy of defense. Problem solved.

2) Competition among free riders. Everyone wants to be a free rider. But everyone also wants the defense to go through. So people are not interested in being free riders, they want to be free riders GIVEN that the service will be provided.

So lets say 90% of the population is needed to pitch in for some defense. Given that the defense is provided, everyone has a 10% chance of being a free rider. This means that they will accept a contract that binds them to this expected contribution. So at a certain date, you role a d10 and pay if its 2-10. Alternatively they could just agree to pay 90% of the cost up front… whatever risk aversity.

However, this is still a contract that, on average, binds the signer to pay. Why not slam the door and try to be a free rider? Because as stipulated, everyone wants to be a free rider and have the service provided. Signing the contract does not diminish the person’s chance of becoming a free rider. It is in fact beneficial to them because they increase the chances of the services being provided.

In order to prevent hardcore free riders from waiting till the last minute to sign the contract, the number of signers might be kept secret. Alternatively, the threshold for it to go through might be set at 99.9% of the population, diminishing the chances to be a true free rider to practically zero, which can be outweighed by some psychic or real benefit to providing defense.

In fact, in the above example, the defense won’t even work unless everyone signs the contract… so the first signers are not at any particular risk. A clever contract might offer better odds to people based on the order in which they sign up, facilitating faster organization of promises2pay.

Closing

I haven’t made reference to ostracism because it uses the same kind of logic as statists. You have to threaten people somehow to get them to pay up. The kind of boycott against free riders may well be unstable and unworkable. It could be a good idea but it seems to concede too much. If ostracism doesn’t work the next logical step is threatening people with guns.

Any feedback is much appreciated. I feel like this is a very serious issue for anarchism that doesn’t get talked about a lot, even though it is a potentially fatal circumstantial flaw in universal respect for property rights.

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Undercutter war insurance agencies
2

What I never see discussed that much in this area is what if two homeowners, next door to each other, want two different insurance or defense agencies covering them, or what if an entire neighborhood is covered by agency a, and there’s ten people who don’t like their service (for whatever reason)? They could just be freeriders based on it would be out of their way to get on a different company completely, or those homeowners could all put in for another company.

Maybe even the companies themselves could have some slack in their policy as “we will tolerate a 10% of freeriders per given area of customers”.

3

I think if people wanted to patronize different agencies, the agencies would work together.

Or maybe an even more extreme example where they don’t care at all about providing defense. But then they’re not really free riding, and if we attacked them we’d be guilty of wealth redistribution.

Ya. The point is that everyone tries to be a free rider but they all can’t be. So everyone trying to free ride has an expected cost with a certain variance. A defense contract can go through if its expected cost is the same as the expected cost of being a free rider, and then the variance can be manipulated depending on the subjective risk preferences of the consumer.

4

What is wrong with free riding? I do it when ever possible. The internet is one giant free riding system. But people continue to contibute to it. The issue with Free Riders is one of pure envy and a lack of logic and moral sensibiliities. If I and my neighbor are both agressed against, then my defense of my person and property are my problem. If my neighbor gets his/her person and property defended then they are better off. Otherwise you end with this mass insanity of a central bureaucracy trying to prevent envy by stealing from everybody instead of those with the most interest in defending their person and property.

5

Actually just taxing everyone to pay for the public good is pretty straightforward.

6

The alleged free rider problem has always been the most curious to me of all the criticisms of the free market. For one thing, the free rider problem is an inherent problem of the State, or any other collective form of organization. If anything, only the market minimizes this problem and almost completely eliminates it.. It’s sort of like the reality of scarcity. The market doesn’t eliminate scarcity, but alleviates its. Where as the State not only can’t alleviate it, but is responsible for creating artificial scarcity.

In other words, I don’t see the problem here at all. The market will always find a way to insensitive most people to not become free riders, while the State only does the opposite.

7

Right so this thread is trying to find real ways in which that might happen… I mean on the surface it might look like a world government is the best solution to a meteor hitting the earth. It can simply tax and build a giant laser. So we really do need to tackle it pragmatically… I’d be interested in a critique, particularly of my “competition among free riders” point.

8

The use of force is anything but straight forward. There are an assortment of issues that people encounter the first of which is what is the cost of compliance. My feeling about Free Riders is that their costs is insignificant compared to the cost of enforcing and collecting taxes that force free riders to pay. Then there are a myriad of unintended effects from behavior changes in individulas trying to avoid the tax.

9

“So lets say 90% of the population is needed to pitch in for some defense.”

Why 90%? Although I do realize this is just an example. Do you realize that probably less then 30% of people today are actually paying for your defense?

"Why not slam the door and try to be a free rider? "

There will always be some benefits that would be part of the services that would exclude all of those “free riders”. A defense agency for example may come to your aid out of good will only at very particular and life threatening situations. Or it may bill you for its services retroactively at higher non-member rates, where your “free rider” history and behavior could be recorded in some data base like a credit rating system.

“the defense won’t even work unless everyone signs the contract…”

This is simply not true. How many times have you stopped at a gas station that had a little food store just to go to the restrooms? According to you, this should be a classical free rider situation, and consumers at that food store should be refusing to patronize it since they are paying for those restrooms, while you are not.

10

“Why 90%? Although I do realize this is just an example. Do you realize that probably less then 30% of people today are actually paying for your defense?”

The implication of your comment, IMO, is that 30% is probably not adequate to overcome whatever free-rider problem might exist in a freed market. That is probably true, and no sense arguing it. I mention this because I think this is an unfair implication. Whatever fraction of people are factually paying for the services rendered by the Pentagon et al., those services cannot accurately be labeled “defense”.

11

Let me try again. Fancy diagram this time.

So, a priori, being in the upper right is the best possible game plan. Being in the bottom right could be good too if the cost is not too high. The cost depends on the number of free riders there are. So some public goods will be provided regardless of if we solve the free rider problem.

We can at the very least avoid anyone landing in the bottom left corner via contingency contracts. I.e. no one has to pay unless the good is actually provided.

If everyone shoots for the upper right hand box individually by being a pure free rider, we land in the upper left hand box. On the other hand, if the pure-free riders communicate, they can choose to bind some by contract to the bottom right box, while the rest can be in the upper right box. One’s chances to be in the upper right hand box drastically increase, and the probabilities can be set such that landing in the bottom right hand box is profitable too.

12

Solving the “Problem” of the Free Rider - Ben O’Neill

The Anarchist Society vs. the Military State: The Insignificance of the Free Rider by Vedrun Vuk

Protection and the Market for Security by Hans Hermann-Hoppe

Private Defense: Now More Than Ever by Hans Hermann-Hoppe

National Goods versus Public Goods: Defense, Disarmament and Free Riders - Hummel

13

Right… i just chose a high number because that allows me to cover more expensive public goods.

This is theft. I can’t do stuff for you then force you to pay…

Yeah it was stipulated in the example. The way the contract was written, there just wouldn’t be enough funds if 100% of the people didn’t agree to the contract. It could still work if 99 or even maybe only 90% did. Its just all about how the wannabe free riders organize themselves. They key is to point out that there is competition between free riders, which leads them to come up with this kind of solution.

14

“This is theft. I can’t do stuff for you then force you to pay…”

No no, this is not theft. You misunderstood. They will bill you for the services they have provided you with. Nobody is forcing you to pay but it may be in your interest. Consider a Hospital that performs life saving treatments on you after a car accident even though you don’t have some catastrophic insurance. Why would it be theft to bill you afterwards?

Or consider that your house is on fire but you have no fire insurance. It would make sense that if you request firemen services retroactively that they will indeed comply, but then bill you at a higher rate. Even if it is your neigbor who made the call in fear of his house catching fire a result, while you were not around to approve, it would still be perfectly legitimate for the fire department to bill you. Don’t pay, but consider the social consequences of being a systematic free rider. You may find yourself socially isolated.

And it is certainly legitimate for them to report you to a private rating agency if you don’t pay. There is nothing here that violates your property rights.

15

Right I did misunderstand. But I think what you’re advocating is an imperfect solution to the pure public goods problem.

16

I don’t know what “imperfect solution” can possibly even mean in this context. And I don’t agree that there is a public goods problem so I have not meant to offer any solution.

17

Its not generalizable to all public goods problems. I don’t think firefighting is a pure public good. National defense, to some extent is not a pure public good because individual houses can be ransacked. But I want to consider the case of really a pure public good, such as preventing a meteor from hitting the earth. Maybe I should have started with that but hayekianxyz already had a thread on it, and I think large scale defense is a more important issue.

18

“But I want to consider the case of really a pure public good, such as preventing a meteor from hitting the earth.”

I don’t understand why when we are talking about markets, then it is assumed that if anyone happens to somehow benefit from some positive externality then we are talking about some sort of a market failure or “free rider” problem. Every market transaction is a free rider problem. The price of any commodity is determined by the marginal buyers and sellers. In this case, all of the non-marginal buyers and sellers are free riders?

If a natural disaster is fostered upon us, then people will (as they do now) organize and cooperate by pure voluntary means. Some will send money, some more then others. Some will volunteer their time and labor, some more then others. And some will just stay at home and watch the media coverage. That’s the beauty of the market! It will respond to the demand, which is bound to be versatile in quality and quantity.

But here is the crux of the fallacy I think about some of the claims that government in certain circumstances can solve such alleged free rider problems or prisoner dilemmas. It is assumed that the government can have the ability to prepare, organize, and respond to some alleged emergency public goods such as deflecting a meteor heading our way. I am almost laughing when even thinking about it. This is totally baseless, as I think an abundant of past empirical evidence can suggest. Government is ready for such disasters only in Holywood. There is no basis to the assertion that the voluntary society won’t have some organiztions or institutions that would already be in place to also try to organize and respond to such disasters. For all I know, it could be the AAA or Mcdonalds with its human division (or whatever) that attempts to take the leading roll. Who knows who would fill the gaps for all the government is currently crowding out.

19

People don’t want to pay. People also want the service provided. People will not pay and hope that the service gets provided anyway. If enough people take this option, provision of the public good will fail.

20

Sieben,

Why are you just reiterating some common mainstream definition of the alleged market failure to provide so called public goods.? I am fully aware of the arguments. You are trying to prove way too much with that argument. It can and has been used for every public good provided by the government. And it is totally fallacious! Here is why.

Your error stems from considering only monetary calculation in your cost-gain analysis. Usually a harmless mistake but in this case, it’s catastrophic. Looking beyond the monetary calculations is why many Austrians have an easier time dismissing such concepts as “public goods” and “free riders”.

The “I won’t pay if I don’t know that he does also if he benefits” is nothing but a cost, albeit a psychic cost. If people want the service, that is, if they perceive the benefit to outweigh the costs then they will pay for it. That you are worried that some free rider will benefit at your expense is really your problem and you are free to think that the alternative - of not buying the service under such circumstance - is the preferred choice for you. That is not a market failure but the market at work!

The market can work to reduce this cost (psychic cost) by various methods, some of which, we have already discussed. But it can never totally eliminate this cost due to the the reality of scarcity.

You can always point to how people will want some service or good if only the costs were lower. But I’m sure you will agree that not perceiving the benefit to outweigh the associated costs is not a market failure. Likewise in this case, the benefit of paying for the public good may not outweigh the costs, where part of that cost may well be people who do not want to feel like suckers and would rather go without the good.

Look, I am not trying to simply ignore or work around the alleged dilemma you are bringing to the table. I am trying to show you that if you take subjectivism to its ultimate conclusions, then you will realize that there is no such thing as a public goods failure.