Charlie loves watching Teletubbies on his local public TV station, but he never sends any money to support the station during its fund-raising drives.
a. What name do economists have for Charlie?
b. How can the government solve the problem caused by people like Charlie?
c. Can you think of ways the private market can solve this problem? How does the existence of cable TV alter the situation?
(a) As watching Teletubbies on his local public TV station is not excludable, Charlie can have incentive to watch TV without sending any money, Economists call Charlie as a ‘free rider’
(b) The Government, if it decides that the total benefits of a public good exceeds its cost, can provide such interest with tax revenue and make everyone better off. This solves the free-rider problem.
(c) Private markets can solve the free-rider problem by making the goods or services excludable but not rival in consumption.
Cable TV can be operated by private firms by charging monthly fees for providing cable facilities to its customers. This makes the goods excludable. However, one person's consumption of this service does not diminish other people's use of it. Hence it is not rival in consumption. This type of good is called natural monopolies.