On free ridership, and the State as superhero

Who needs a coercive state? People who are concerned about externalities and free riders, that's who! I create externalities when I make decisions and you have to bear the consequences. I become a free rider when you expend resources to create a benefit and I derive the benefit without contributing.

Both phenomena arise from the fact that the ideal of “private property” often fails to adequately describe our world: we affect each other more than we might like to admit. This market failure demonstrates the absurdity of thinking that people can live together without coercion.

Or does it? Still working on the externality issue. But evidence suggests that free ridership is not the deal-breaker I had thought. Pretty much all institutions operate in the face of them. I can’t really recall any endeavor in which I would honestly say that all participants received benefits in proportion to the burdens they bore.

Lo and behold, a new study focuses on the financing mechanisms of two forms of voluntary association: synagogues and churches. Synagogues typically charge an annual membership fee; churches typically request voluntary donations. As you might expect, there’s a larger disparity in levels of giving in churches than in synagogues. But as you might not expect, all else being equal, these two systems generate roughly equal amounts of revenue. In other words, begging is a perfectly viable business model, notwithstanding the fact that plenty of people will decline to contribute.
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Honestly, I’m having a problem accepting this. Free riders PISS ME OFF. They offend my sense of justice. I want to believe that we need a state to coerce these people into paying their fair share because I WANT TO COERCE THESE PEOPLE INTO PAYING THEIR FAIR SHARE. It’s not about the outcomes; it’s about the fairness.

I'm gradually coming to the view that I just need to get over it. But it’s hard. And that’s given me a new insight.

If I place less reliance of the coercive power of the state, I will experience injustice without hope of remedy. If I place greater reliance on the coercive power of the state, I will still experience injustice. I may even experience greater injustice. But at least I am able to cling to the abstract notion that there exists a coercive power in the universe – God, Superman, the state – that could and might remedy injustice.

And perhaps it is this hope – even if delusional – that dooms libertarianism. In this sense libertarianism becomes akin to atheism and existentialism: Embracing this view requires letting go of some comforting delusions. It’s a pretty bitter pill to swallow. I appreciate anew how difficult it may be to persuade any large number of people to swallow it.

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Yet when we avoid this

Yet when we avoid this downside, so the lighthouse is not built, and your ship hits a reef, and you drown, I can perceive some downsides to that arrangement as well. Yet people don’t seem to label this situation “coercive.” Do people really expect to negotiate mutually-agreeable terms with the waves?

Of course we don't label every accident "coercion". Coercion labels particular bad things. Look, if a meteor falls on your head, you're dead. And if somebody stalks you and murders you in a dark alley, you're also dead. So in both cases you're equally dead. And yet I hope you can see why we would not want to call both deaths "murder".

The point that a lot of libertarians make and that I would like to make is that people are pretty inventive at coming up with ways to internalize externalities, ways to turn public goods into (more) private goods, and doing so without the help of government. Current efforts include for example DRM, which is an attempted technological fix for a problem that law has proven less than entirely effective in fixing. There are, notoriously, problems with DRM. But it has been somewhat successful, and in any case it is an illustration of the fact that private entities really are hard at work trying to find ways to get paid for their work, trying to minimize the problem of externalities, the problem of freeriding. One way that all the piracy in the world can't take away from the musicians is live performance. People love watching famous musicians live. And said famous musicians will always be able to cash in on this by having concerts and charging for admission. Well, "always" is a long time, but for the forseeable future.

So people find a noncoercive way, often. Maybe not always, but I think a lot more often than they're usually given credit for. The government gets in people's way, making it illegal to do anything but whatever the government's scheme has to be, so people are deprived of the chance to fix the problem themselves.

The institution of private property itself, which I am sure is not a government creation, is presumably one of the earliest and certainly one of the most important solutions to the problem of free riding. Nobody wants to put a lot of work into something if at any time someone else can grab it. That's a huge free riding problem. It's solved through the institution of private property. Here are various means by which private property is defended: walls, locks, secrecy, selective violence. If you want to see private property in action, try to pick a random person's pocket but do it so that they definitely notice what you are doing. Observe how they react. I predict that many will react with violence against your person. They will probably grab you. They might push you. They might strike you. They will almost certainly get very angry with you - and anger is an emotion that primes a person to commit violence. This is all aside from calling the police. Alternatively, break into someone's home. Observe his reaction. Break into a lot of homes in an area where it is not illegal to possess a gun, and see what fraction point a gun at you.

Or rather, don't do these experiments, and just accept that people protect their own private property. The police are not the first line of defense of private property. The owner himself is the first line of defense. Private property is defended privately first of all. So that's one major step toward eliminating the problem of free riding, and it is a step taken privately.

Advertising is another major way that people have been able to make money from their work, from work that without advertisers would have had many free riders. Broadcast television stations just take their programming and send it out and anybody with a TV set can capture it and enjoy it without paying them a dime. And yet for decades TV stations have done exactly that. Cable television, which now pretty much everybody has, introduced another possibility, of charging customers directly for access to the programming. With the Internet and Tivo people are figuring out ways to get programming without subscribing and without watching the advertising. So these particular business models may become obsolete - or maybe not. We'll see. And with their demise (if demise it is), there may or may not arise new business models for creators to monetize their creative output. We'll see. I wouldn't write them off as a lost cause just yet.

Yes, coercive practices

Yes, coercive practices warrant scrutiny,....

And what form of coercion will you prescribe to solve that public goods problem?

Or, if we don't need coercive measures to get individuals to reign in coercive government, why do we need them to build lighthouses?

Who chooses $ X?

I choose it as often as I can!

Oh, wait -- never mind.

For purposes of the exercise, $X can be known beforehand. It represents some incremental cost that a captain would bear to dock at a harbor with a lighthouse. It needn't be a fixed sum; it could be some kind of formula. Lots of practical challenges in public finance, but they're beyond the scope of this discussion as far as I'm concerned.

Plus...

Thus, even though every party would prefer to live in a world wherein there is a lighthouse and a tax

Plus, this is a contradiction. A tax is a coerced payment. The parties that are being taxed, by definition, do not prefer being taxed to keeping their money. Regular payments that people are willing to pay are called subscriptions and may be entered into or exited willingly.

Fine, skip the tax.

Imagine a world in which a single person owns a port and is considering whether to also incur the cost of building a lighthouse. If she does so, she will enable more shipping at lower cost, and avoid more deaths. But she will also need to increase the fees she charges ships to dock at her ports to offset the cost.

Furthermore, assume that all parties would prefer a world with a lighthouse and higher port fees to a world without a lighthouse and higher port fees.

Yet also assume that all parties will be free to evade the higher port fees by going to a neighboring port. Furthermore, assume that the transaction costs of negotiating and enforcing a voluntary arrangement among an ocean-full of ships would be prohibitive.

Finally, assume that shipping is a competitive industry, and that shippers that keep their costs low will displace shippers that do not.

Please describe how a subscription model would work to achieve the optimal arrangement. Each shipper would have an incentive to contribute. But each shipper would know that if it did so, while its competitors did not, it would seal its own doom.

I submit that the analysis doesn't change, whether you look at this as a problem of private entities or public ones. The problem arises from the failure of the property model -- a model that presumes that owners exercise monopoly control over their property, including the right to withhold the property's benefits from those who decline to pay the owner for the privildge of receiving those benefits. It's a very efficient model, where it applies. It doesn't apply well here.

Since you bring up

Since you bring up lighthouses, Coase wrote an important paper on them which concerns this very problem. It has been critiqued but the latest word is:

Barnett and Block (2007) qualify these critiques by showing that private lighthouses were indeed historically operational.

Also look at the progression of government takeover. In brief, government "solved" a problem which, according to Barnett and Block, did not need solving. And lo, their "solution" created a new problem which government solved by an outright takeover. We see a parallel in healthcare and in finance today. Government has created problems in healthcare and finance for years, and is in the process of "solving" the healthcare problem through even greater government intervention, which will in turn lead ultimately to a thorough government takeover. Similarly, government has "solved" the financial crisis in a way which will lead only to a greater economic crisis down the road, doubtless followed by further government takeovers similar to the GM takeover.

Here's the relevant bit:

Historical records showed that those lighthouses which ran on voluntary payment did not survive long, and had to be eventually granted the right to collect a light due by the government. Although other light houses were run privately, the right to collect a non-negotiable light due was supported by a patent from the crown. In other words, they were not privately provided via the free market as understood by the earlier writers. Eventually all these rights were withdrawn or bought up by the authorities because the total light dues that had to be paid by ships were too high as a result of rent-seeking activities of these so-called private providers of lighthouses.

So government stepped in to "solve" a problem (granting a special privilege), which was of course abused, which of course led to a total government takeover. And Barnett and Block appear to say that the initial intervention was not needed.

We who have lived through even the recent decades have seen that government intervention leads to greater intervention without end, and the only possible endpoint of this is total government takeover, ie, socialism.

Frankly, I prefer a free market with some free riding to a command economy. You will rarely see statists who push for government intervention admit that this is in fact a very real slippery slope which slants only one way.

I am a fatalist. We are going to get much more socialist in the coming years. The tea party will fail to prevent it. Ultimately the government will collapse, which will create the possibility of a renewal of freedom.

I am fatalist, but I don't have to like it.

Perhaps I read this differently than you do

Haven't read the Barnett and Block piece, so it's hard to evaluate it. But the statement "Historical records showed that those lighthouses which ran on voluntary payment did not survive long" suggests to me that, absent government intervention, the private lighthouses would be abandoned. So I don't understand your suggestion that government was creating a problem for the lighthouse industry; rather, it seems the industry was troubled from its inception for the very reasons we've been discussing.

In any event, I sense we're still confusing a Scenario 1 or 2 situation with a Scenario 3 situation. To really make the claim I think you're making, you'd need to show not merely that private actors created lighthouses (as we find in Scenario 1 and 2). You'd need to also claim that there were no situations in which private parties failed to create a lighthouse that could have produced net social benefit (Scenario 3). To demonstrate the inadequacy of reliance of voluntary transactions, a person would simply need to identify a single, net-beneficial lighthouse that private forces failed to build but public forces succeeded in building.

Does such a lighthouse exist? Beats me. My only point is to argue that there are theoretically sound reasons to doubt that voluntary transactions would achieve the optimal arrangement.

(And, returning to the initial premise of the post, to suggest that there's a growing body of evidence suggesting that, in practice, free riders are not as big a problem as theory might suggest.)

Haven't read the Barnett and

Haven't read the Barnett and Block piece, so it's hard to evaluate it. But the statement "Historical records showed that those lighthouses which ran on voluntary payment did not survive long" suggests to me that, absent government intervention, the private lighthouses would be abandoned

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Yes it does, but as I point out, Barnett and Block dispute this. Going to their abstract:

Coase (Journal of Low and Economics 17(2):185–213, 1974) failed to appreciate that the construction and maintenance of nineteenth-century lighthouses were in part financed by British taxpayers. Bertrand (Cambridge Journal of Economics 30:389–402, 2006) rightly calls him to account. While agreeing with Bertrand’s conclusion, we dispute her reasoning and argue that lighthouses nevertheless could have been supplied by the private sector.

Key phrase here is: "could have been supplied by the private sector" - in other words, could have been supplied even without forced financing.

And of course Barnett doesn't take this lying down - he has a response. So sure, reading all through it we might or might not come back to the initial conclusion that government intervention is necessary to the existence of lighthouses. So the question is uncertain from my point of view, since I have not read through everything. Coase looms large in my mind as an economist not to ignore (despite the Austrians having a problem with him apparently) despite the claimed refutation of this major point.

Does such a lighthouse exist? Beats me. My only point is to argue that there are theoretically sound reasons to doubt that voluntary transactions would achieve the optimal arrangement.

I am not disputing this. My point in adding my 2 cents was to make sure the other participants were aware that the lighthouse example is actually one that has been studied in depth with respect to its implications for government intervention, and that at least Coase thought that the initial, standard conclusion was wrong.

And of course Barnett doesn't

And of course Barnett doesn't take this lying down - he has a response.

Oops, I mean Bertrand doesn't take it lying down. And Bertrand is a she.

Fair enough

Good thought; I sometimes don't realize that what looks like a stylized argument to me will look like a novel, specific argument to others.

And while I had heard about Coase's arguments about lighthouses, I'd also heard that they'd been debunked. I hadn't heard that Barnett and Block had rejuvenated the dispute. Thanks for that contribution.