radford@calgary.UUCP (Radford Neal) (12/31/85)
Frequently one sees postings in this group claiming that so-called "Free Rider" problems require government intervention for their solution. A typical situation: Residents of a river valley would all benefit from a dam upstream for flood control. But without the government taxing them to pay for it, they will all wait for someone else to pay and hence the dam will never be built, to everyone's disadvantage. We may distinguish two "bad" results from such situations: 1) The dam is never built, even though the cost is less than the benefit. 2) The dam is built, but its financing is "unfair". (E.g. half the people pay for it even though all benefit). I propose a solution here which eliminates the first bad result and most of the second. The dam gets built as follows: A promoter for the scheme defines the project and determines how much it will cost. He establishes a trust fund to be used to fund the scheme. Anyone may donate money to the trust fund. No money is disbursed until the fund contains enough money to complete the project. If enough money is not collected by some specified time, all money is given back to the contributors. Some details: 1) Provision could be made to compensate the promoter for his efforts out of the trust fund. 2) Management of the project could be controlled by the contributors to the fund in whatever fashion the promoter defined initially. 3) The "cost" of the dam could be estimated on the high side to allow for contingincies and any excess refunded to the contributors. 4) People wishing to contribute who don't have cash could borrow via usual channels. 5) Refunds in the event of the project not going ahead would include interest. (The trust fund would be invested in some conservative fashion.) Would people contribute? They would if they percieve the benefits as actually exceeding the cost. If a resident thinks the dam is worth 1000 dollars to him, he will rationally contribute up to that amount unless he has a liquidity problem which financial institutions won't help him with for some reason. (In that case, a 1000 dollar tax increase would be disastrous for him.) If the dam never gets built he loses nothing; if it does, he benefits. Would people hold back in the hopes that the dam will be built using other people's contributions, giving them the benefits for no cost? Maybe, but they delay their benefits if they do. The longer the dam goes unbuilt, the less likely it seems that they can get away with this and the more likely they are to contribute what they think is "fair". A possible disadvantage is that contributors might resent non-contributors whom they thought benefitted. This sort of envy is not very rational, and not very moral, but could cause ill-feeling anyway. Some advantages absent from governmental schemes: 1) People who truely don't benefit don't pay. (e.g. those who don't mind floods, don't think the dam will work, think it costs too much relative to the benefit for them). 2) No coercion is required. So: Any comments? Have I convinced those who didn't think this problem could be solved in a libertarian context? Note that I'm not attempting here to solve all problems with building dams. In particular, I'm not addressing the "eminent domain" problem concerning getting the land for it. Radford Neal
mmt@dciem.UUCP (Martin Taylor) (12/31/85)
>Frequently one sees postings in this group claiming that so-called >"Free Rider" problems require government intervention for their solution. >A typical situation: > > Residents of a river valley would all benefit from a dam upstream > for flood control. But without the government taxing them to > pay for it, they will all wait for someone else to pay and hence > the dam will never be built, to everyone's disadvantage. >... >I propose a solution here which eliminates the first bad result and >most of the second. > >The dam gets built as follows: > > A promoter for the scheme defines the project and determines how > much it will cost. He establishes a trust fund to be used to > fund the scheme. Anyone may donate money to the trust fund. No > money is disbursed until the fund contains enough money to > complete the project. If enough money is not collected by some > specified time, all money is given back to the contributors. I suppose, to be fair, that those who don't want the dam built are allowed to take out of the trust fund an amount corresponding to the damage they think it will cause them? (Of course, they would have to give it back if the dam eventually was not built ... but that's something for the grandchildren to worry about, isn't it?). Do you really think anyone would contribute to such a crazy scheme? If so, I think I will set up a "Dams for Saskatchewan" fund. I could do with an upgrade or two for my Mac! -- Martin Taylor {allegra,linus,ihnp4,floyd,ubc-vision}!utzoo!dciem!mmt {uw-beaver,qucis,watmath}!utcsri!dciem!mmt
janw@inmet.UUCP (01/01/86)
[ Radford Neal radford@calgary]
>/* ---------- "Solution to Free Rider problem" ---------- */
Looks like a *general* solution ! Details could vary, of course -
e.g., subscribers could send pledges instead of actual money,
but it should work for DEFENSE and everything else as well
(welfare, education, road repair, space exploration ...).
As soon as someone licks the crummy eminent domain problem
- which could never arise in 3 DIMENSIONS anyway - we
are ready for the *last* constitutional convention ! ( :-)?) .
tw8023@pyuxii.UUCP (T Wheeler) (01/02/86)
I just love the free rider solution. I hope it goes into effect soon because I am going to run around the country looking for dam sites to start new projects. I will find myself a top-notch ad agency to plug the project so that the locals will be beating down my door hoping to contribute to the trust fund. As soon as the fund reaches a sizable amount, I will drop the idea and collect my reasonable fee for my troubles. What a great way to make money. I won't have to bother with any construction or such. I'm amazed that the writer has not realized that in any dam building situation, there are folks who would be living upstream from the dam who would probably not be too excited about having their land and homes inundated by a lake. Take the situation of the Hartwell Dam in South Carolina. The damn cost many, many millions of dollars. Yet, those who directly benefited with flood control and irrigation and such, were only a few hundred. To make that few people pay for a giant damn, if it was going to benefit them, would have been the ultimate of dumbness since 98% of those people were hovering on the poverty borderline in the first place. I just wish the netters who put forth these `pie-in-the-sky' schemes would look at both sides of the story and use a little logic. T. C. Wheeler
radford@calgary.UUCP (Radford Neal) (01/03/86)
> > >Frequently one sees postings in this group claiming that so-called > >"Free Rider" problems require government intervention for their solution. > >A typical situation: > > > > Residents of a river valley would all benefit from a dam upstream > > for flood control. But without the government taxing them to > > pay for it, they will all wait for someone else to pay and hence > > the dam will never be built, to everyone's disadvantage. > >... > >I propose a solution here which eliminates the first bad result and > >most of the second. > > > >The dam gets built as follows: > > > > A promoter for the scheme defines the project and determines how > > much it will cost. He establishes a trust fund to be used to > > fund the scheme. Anyone may donate money to the trust fund. No > > money is disbursed until the fund contains enough money to > > complete the project. If enough money is not collected by some > > specified time, all money is given back to the contributors. > > I suppose, to be fair, that those who don't want the dam built are > allowed to take out of the trust fund an amount corresponding to the > damage they think it will cause them? (Of course, they would have to > give it back if the dam eventually was not built ... but that's something > for the grandchildren to worry about, isn't it?). I was assuming in this illustrative example that everyone agreed that the dam was a good idea, they just don't necessarily agree on *how* good it is. If there are people harmed by the dam, buying their agreement to it would be part of its cost. > Do you really think anyone would contribute to such a crazy scheme? > If so, I think I will set up a "Dams for Saskatchewan" fund. I could > do with an upgrade or two for my Mac! Why do you think the scheme is crazy? The only argument you seem to be giving is that implied by your last sentence. Do you really think it is impossible to find reputable managers of such a trust fund? > Martin Taylor Radford Neal
sykora@csd2.UUCP (Michael Sykora) (01/03/86)
>/* tw8023@pyuxii.UUCP (T Wheeler) / 8:44 am Jan 2, 1986 */ >I just love the free rider solution. I hope it goes into effect >soon because I am going to run around the country looking for >dam sites to start new projects. I will find myself a top-notch >ad agency to plug the project so that the locals will be beating >down my door hoping to contribute to the trust fund. As soon as >the fund reaches a sizable amount, I will drop the idea and >collect my reasonable fee for my troubles. What a great way to >make money. I won't have to bother with any construction or >such. This is called fraud, and can be used in most commercial situations. By and large governments commit it more often than businesses do, but it is also more often legal when governments do it. In any case, what makes you so sure people will invest with a disingenuous swine like you? >I'm amazed that the writer has not realized that in any dam building >situation, there are folks who would be living upstream from the >dam who would probably not be too excited about having their land >and homes inundated by a lake. Take the situation of the Hartwell >Dam in South Carolina. The damn cost many, many millions of dollars. >Yet, those who directly benefited with flood control and irrigation >and such, were only a few hundred. To make that few people pay for >a giant damn, if it was going to benefit them, would have been >the ultimate of dumbness since 98% of those people were hovering >on the poverty borderline in the first place. If the damn would cause damage to the property of some then it should be illegal for EITHER the private sector OR the government to build it. >I just wish the netters who put forth these `pie-in-the-sky' >schemes would look at both sides of the story and use a little >logic. I just wish the netters who put forth gratuitous insults would think twice -- they're so boring. >T. C. Wheeler Mike Sykora
sykora@csd2.UUCP (Michael Sykora) (01/03/86)
/* csd2:net.politics.theory / lkk@teddy.UUCP / 2:39 pm Jan 2, 1986 */ >How many people do you know who are rational? Well, we know of at least one that isn't. >This is a major flaw in >libertarian thinking, assuming rational agents. People rationalize, but >thats not the same thing, is it? Every one makes decisions with some rationality. One can often guess the impact of the rationality on the outcome of the decision. How does one guess at the impact of the irrationality? Everyone is capable of rational thinking to one extent or another, and evryone is capable of growing in this direction. Should we implement policies that encourage people to grow in this direction or policies that encourage people to grow away from it? What do you suppose would be the long term impact if we implement the latter? >The biggest flaw in libertarian thinking is, however, the notion that >people are independent free agents. That one can exist in a societal >vacuum, just "minding one's business" and dealing with others only on a >formal or informal contractual basis. This sounds bad even in theory. What PRECISELY do you mean by "independent free agents?" Perhaps you can provide some justification for these claims. What sort of criticism is "sounds bad?" >In >practice, it doesn't come close to modeling real societies (except perhaps >the "society" of net.land, which might explain the high number of libertarians >around.) Why are you around, Larry? >>Some advantages absent from governmental schemes: >> >> 1) People who truely don't benefit don't pay. (e.g. those who >> don't mind floods, don't think the dam will work, think it >> costs too much relative to the benefit for them). >How many people to you know who LIKE FLOODS? Well, there used to be this guy called Noah . . . >A statement like this >shows just how detached from reality libertarians are. Nobody likes floods, >yet some people won't pay. How do you explain this and deal with it? You're gonna get a heart attack if you keep jumping so far to conclusions. It is not clear that he was postulating that there are people who like floods. More likely, he was stating that if such people were involved, they wouldn't have to pay for it, as an illustration of the fact that under such schemes, whoever does not wish to participate -- for whatever reason -- doesn't have to. >Larry Kolodney (INTERNET) lkk@mit-mc.arpa Mike Sykora
radford@calgary.UUCP (Radford Neal) (01/06/86)
The following reply to my posting on the free-rider problem leaves me almost speachless, but I'll try to respond anyway: > I just love the free rider solution. I hope it goes into effect > soon because I am going to run around the country looking for > dam sites to start new projects. I will find myself a top-notch > ad agency to plug the project so that the locals will be beating > down my door hoping to contribute to the trust fund. As soon as > the fund reaches a sizable amount, I will drop the idea and > collect my reasonable fee for my troubles. What a great way to > make money. I won't have to bother with any construction or > such. Another netter raised much the same objection. *I* thought people would object that no one would contribute to worthwhile projects organized this way. That fraud of the above sort would be at all common seems to me to be incredibly unlikely. We are talking about a *trust fund*, administered by the most reputable financial institutions around. The promoter gets money out only under whatever conditions are in the trust agreement. This might include some support during the period before the required sum has been raised, but if this amount was so large as to make it profitable for a promoter to set up fake schemes no one would contribute (at least after the newspapers found out). The idea that a good ad campaign will convince people they need flood control when there have been no floods in living memory is rather ludicrous. We're talking about *their personal money* here, not *somebody else's money* like with current dam projects. > I'm amazed that the writer has not realized that in any dam building > situation, there are folks who would be living upstream from the > dam who would probably not be too excited about having their land > and homes inundated by a lake. Take the situation of the Hartwell > Dam in South Carolina. The damn cost many, many millions of dollars. > Yet, those who directly benefited with flood control and irrigation > and such, were only a few hundred. To make that few people pay for > a giant damn, if it was going to benefit them, would have been > the ultimate of dumbness since 98% of those people were hovering > on the poverty borderline in the first place. A quote from my original article: Note that I'm not attempting here to solve all problems with building dams. In particular, I'm not addressing the "eminent domain" problem concerning getting the land for it. I'm not very interested in dams. I was addressing the general "free rider" problem using dams as an illustrative example. I certainly have no intention of coming up with a scheme which would finance all the dams currently being built. I've never heard of the Hartwell dam, but if your information above is correct it clearly should never have been built. Many millions of dollars to benefit a few hundred people? Lets see, that works out to maybe 100,000 dollars a person? If these people were offered the option of $100,000 cash or a dam, which do you think they would have taken? Right, the cash. Such projects get built only with taxpayer's money because they aren't justifiable by any criterion other than benefit to the politicians involved. > I just wish the netters who put forth these `pie-in-the-sky' > schemes would look at both sides of the story and use a little > logic. > T. C. Wheeler This reply has certainly raised my conciousness of conservatism in the net population. My proposal is not "pie-in-the-sky". It is a straight-forward application of existing social structures to the free-rider problem. Does no one out there have any imagination? Radford Neal
radford@calgary.UUCP (Radford Neal) (01/06/86)
> In article <20@calgary.UUCP> radford@calgary.UUCP (Radford Neal) writes: > > > [How to build a dam without coercive government interference] > > > >The dam gets built as follows: > > > > A promoter for the scheme defines the project and determines how > > much it will cost. He establishes a trust fund to be used to > > fund the scheme. Anyone may donate money to the trust fund. No > > money is disbursed until the fund contains enough money to > > complete the project. If enough money is not collected by some > > specified time, all money is given back to the contributors. > > > >Would people contribute? They would if they percieve the benefits as > >actually exceeding the cost. If a resident thinks the dam is worth 1000 > >dollars to him, he will rationally contribute up to that amount... > > How many people do you know who are rational? This is a major flaw in > libertarian thinking, assuming rational agents. People rationalize, but > thats not the same thing, is it? People certainly are not always rational, but in evaluating a scheme like this seeing what they rationally would do looks like a good start. You haven't presented any reason to think people are subject to irrationalities relevant to this discussion. > >Some advantages absent from governmental schemes: > > > > 1) People who truely don't benefit don't pay. (e.g. those who > > don't mind floods, don't think the dam will work, think it > > costs too much relative to the benefit for them). > > How many people to you know who LIKE FLOODS? A statement like this > shows just how detached from reality libertarians are. Nobody likes floods, > yet some people won't pay. How do you explain this and deal with it? As I thought was obvious from the title, the dam bit is *an illustrative example* of general free-rider situations. The existence of people who do not benefit from a project which is thought to be generally for the "public good" is not at all unrealistic. Besides, if you use your imagination, you can come up with any number of people who don't benefit from flood control: 1) Seasonal residents who don't live there during the flood season and whose houses are in safe spots. 2) People running a wilderness park where floods are actually an advantage in maintaining the original ecology. 3) Farmers who think they gain more in soil fertility from floods than they loose in later planting time. > Larry Kolodney (INTERNET) lkk@mit-mc.arpa Radford Neal
radford@calgary.UUCP (Radford Neal) (01/06/86)
> In article <20@calgary.UUCP> radford@calgary.UUCP (Radford Neal) writes: > > A promoter for the scheme defines the project and determines how > > much it will cost. He establishes a trust fund to be used to > > fund the scheme. Anyone may donate money to the trust fund. No > > money is disbursed until the fund contains enough money to > > complete the project. If enough money is not collected by some > > specified time, all money is given back to the contributors. > > >Would people hold back in the hopes that the dam will be built using > >other people's contributions, giving them the benefits for no cost? > >Maybe, but they delay their benefits if they do. The longer the dam > >goes unbuilt, the less likely it seems that they can get away with this > >and the more likely they are to contribute what they think is "fair". > > If the resident is interested only or mainly in the benefits to himself, > he probably won't contribute anything. The effect of his contribution on > the probability that the dam will be built is small. Let's suppose there > are 10,000 residents concerned, and let's generously assume that his > contribution of $500 increases the probability, as he judges it, by 1/1000. > Then the expected monetary benefits of contibuting are $1000 * 1/1000 - $500, > or -$499. At last! A sensible argument against my scheme. Your mathematics isn't quite right. Remember he gets the money back (with interest) if the scheme doesn't go ahead. The question seems very complex from a game-theoretic point of view. First of all, there is not a single "contribute / don't contribute" decision. He might initially decide not to contribute but change his mind in a few months after it turns out other people haven't either. Even if we constrain people to make a single irrevocable decision before they know anything about other contributions, their decision will be affected not only by how much the contribution increases the probability of the scheme going ahead (call this dP) but by the probability of it going ahead without the contribution (call this P). If the benefit is B and the contribution amount (assumed fixed) is C, the expected return from contributing is B*dP-(P+dP)*C. Hence, he is more likely to contribute to unlikely projects in this model. But this is unstable - a likely project would immediately become unlikely if everyone followed this logic. The analysis is certainly beyond me. Various devices might help alleviate the problem: 1) Make contributions to the fund secret, so no one knows how close it is to its goal. After some fixed time period, refund excess contributions in proportion to amount contributed. 2) Make it a part of the trust agreement that all contributions are refunded if, say, 90% of the supposed beneficiaries do not make some minimum contribution by the expiry date. The bottom line which ought to make the scheme work, in the sense that the dam actually gets built, is that all contributors benefit compared to the dam not being built. Eventually, people would get tired of not having a dam and pay up. If they've gone through this before, "eventually" ought not to be very long. > --Paul V. Torek, now at umcp-cs!flink, soon at umich!torek Radford Neal
janw@inmet.UUCP (01/06/86)
[laura@l5] >As far as I can tell, there are two sorts of free-riders that >some people think should be coerced. >Type A: > This guy really and sincerely believes that the Good Thing is not worth > his money. [ ... ] >Type B: > This guy really and sincerely believes that the Good Thing is worth his > money. But it will get done without him, so why should he bother [...] Valid distinction, but there is a 3d type, probably the most important. Type C: This gal really and sincerely believes that the Good Thing is worth her money. And she is willing to do her share, *provided others do theirs*. But, there being no guarantee, she does not. This is the classical Prisoner's Dilemma - but with two crucial distinctions: (1) There is an exchange of benefits, not of harm. A prisoner cannot incrementally *unsqueal*, once he has squealed. (2) *Communication is possible*. Radford Neal's scheme makes use of these differences. It is a general solution for type C. On popular issues like defense or charity, I believe this category to be the most numerous. It is also *articulate* (as is A) whereas B is typically shy to voice its position. The moral side of the issue (I am appealing to common feeling, not to specifically libertarian sensibilities): Type C deserves something better than to be coerced. The right to coerce the conscientious objector type A is doubtful . That leaves type B - the willing free riders. OK, they are that - on this one issue. They may be contributing more than their share on something else. Radford's scheme simply ignores them, in the hope that some of them may come on board, if they see that it is *not* being done without them; and it lets the rest have a free ride. My guess is that it would work. After all, even the income tax system worked for a long time, with very little enforcement. (Now it is breaking down, with a lot of enforcement). Charities work, too, and collect more and more. And neither of them has the advantages of this scheme. Jan Wasilewsky
berman@psuvax1.UUCP (Piotr Berman) (01/07/86)
> > [ Radford Neal radford@calgary] > >/* ---------- "Solution to Free Rider problem" ---------- */ > > Looks like a *general* solution ! Details could vary, of course - > e.g., subscribers could send pledges instead of actual money, > but it should work for DEFENSE and everything else as well > (welfare, education, road repair, space exploration ...). > As soon as someone licks the crummy eminent domain problem > - which could never arise in 3 DIMENSIONS anyway - we > are ready for the *last* constitutional convention ! ( :-)?) . I would not hurry for the convention. What you propose is to burden all citizens with evaluating private offers for everything. Indeed, one simple project may task the intelectual capacity of citizens pretty heavily. A solution which is good for each of 100 problems does not need to be good for all of them. Piotr Berman
janw@inmet.UUCP (01/08/86)
>[Frank Adams ihpn4!philabs!pwa-b!mmintl!franka] >In article <2679@umcp-cs.UUCP> flink@maryland.UUCP (Paul V Torek) writes: >>A solution to the free-rider problem would be very important in its own >>right. > >So would trisecting the angle. The free-rider problem is a mathematical >fact, which can and sometimes does apply to real world situations. >Restricting the range of possible actions (as by categorically ruling out >the use of force) makes it more likely to be applicable; and often when >it is applicable there are actions which can be taken which reduce the >harm resulting from it; but there is no solution in general. "Problem is a fact" is ambiguous. It can mean :(1) the FR problem is a mathematical *problem* that may or may not have a solution - in which case the comparison to angle trisection begs the ques- tion; or (2) it is a mathematical problem proven to have no solu- tion under certain assumptions which may or may not be applicable to real life. In which case a general solution for *real life* situations (under some other set of assumptions) is thinkable. Only a *real-life* counterexample would preclude such a solution. >Restricting the range of possible actions (as by categorically ruling out >the use of force) makes it more likely to be applicable... This sounds plausible - at the first glance. But *does* ruling out the use of force merely *restrict* range of action *by a so- ciety* ? No, it restricts it in some directions and also *ex- pands* it in others. Because members of the society may now plan their actions under the assurance that force won't be used against them. This is a very practical matter - e.g., instability of tax laws does chill business activity, and possibility of confiscation (where it is present) freezes investment. Generally, *force* generates *fear* ; and a fearful society has a *narrowed* range of action. Jan Wasilewsky
radford@calgary.UUCP (Radford Neal) (01/09/86)
> ...The free-rider problem is a mathematical > fact, which can and sometimes does apply to real world situations. > Restricting the range of possible actions (as by categorically ruling out > the use of force) makes it more likely to be applicable; and often when > it is applicable there are actions which can be taken which reduce the > harm resulting from it; but there is no solution in general. > > Frank Adams ihpn4!philabs!pwa-b!mmintl!franka True in a sense. Confronted with a free-rider situation, someone will at a minimum have to take the time to perform one of the "actions which can be taken to reduce the harm resulting from it". This is a cost in time which wouldn't be required if everyone altruistically paid their "fair" share. My proposed solution is an attempt to show a generally applicable mechanism for transforming a free-rider situation into a non-free-rider situation, or at least into a more tractable free-rider situation. The mechanism proposed (trust fund, etc.) entails certain administrative costs, of course, but so do the coercive alternatives. Radford Neal
radford@calgary.UUCP (Radford Neal) (01/13/86)
> One major weakness of the scheme outlined by Radford is that it does not > distinguish between abstention and active opposition to the construction of > the dam. If I am against building the dam (on environmental or economic > grounds, let's say) then I am free to take out full-page ads in the local > papers urging people not to contribute but this does not change the fact > that only 'yes' votes are counted. > > Gabor Fencsik {ihnp4,dual,lll-crg,hplabs}!qantel!gabor The scheme is an attempt to solve the Free Rider problem of how to finance projects which will benefit everyone if they benefit anyone. If some people are actually harmed, we have another problem to handle also - one traditionally "solved" by use of eminent domain and political definitions of acceptable costs. I was not attempting to solve this problem. For now, you can imagine any proposal to build a dam in this way being subject to the usual constraints of any private project, e.g. they will have to buy the land that gets flooded first, if they cause water pollution they may be sued, etc. Radford Neal
radford@calgary.UUCP (Radford Neal) (01/13/86)
> The real question to me though is whether anyone is in fact being > coerced by a governmental solution to free rider problems. If we > have a situtation which involves only Jan W's category C indviduals, > each of which will contribute but only if everyone else does, then > the government is only coercing them to do what they prefer. Can > anyone be said to be forced into doing something they want to do? The problems with the governmental solution of the Free Rider problem are the following: 1) Most real projects will not benefit *everyone*. At best a large majority will benefit. E.g: a government-financed program to find a cure for tooth decay will not benefit me, because I am naturally immune to dental caries. Some people consider it unethical to require non-beneficiaries to pay for what they don't need. 2) Using political means to decide which projects are beneficial is likely to be very inaccurate. Many projects which are not worth their cost will be built; many worthwhile projects will not be financed. Do you favour research into a cure for cancer? Of course! Who couldn't? How about a new sewage treatment plant? I don't know, doesn't sound exciting... Cost vs. benefit is seldom mentioned. A system which ties decisions to the individual's judgement of the affect on them and of the cost to them might do better. Radford Neal