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Saturday, June 11, 2011

Free Riders

Free rider problem

From Wikipedia, the free encyclopedia

In economics, collective bargaining, psychology, and political science, "free riders" are those who consume a resource without paying for it, or pay less than the full cost of its production. Free riding is usually considered to be an economic "problem" only when it leads to the non-production or under-production of a public good (and thus to Pareto inefficiency), or when it leads to the excessive use of a common property resource. The free rider problem is the question of how to limit free riding (or its negative effects) in these situations.

The name "free rider" comes from a common textbook example: someone using public transportation without paying the fare. If too many people do this, the system will not have enough money to operate.

Politics

A common example of a free rider is someone who chooses to not pay his or her share of taxes, which help pay for public goods that all citizens benefit from, such as: roads, police, water treatment plants, fire services, the military and food safety inspectors.

Lysander Spooner, an individualist anarchist argued, however, that competition between mutual insurance companies, voluntarily patronized by property owners, could provide a practical alternative to government monopoly on protection over a particular territory.[1]

Bargaining

When involved in bargaining, players may often bid less than they are prepared to pay in the hope of improving their own position. This creates problems because it is impossible to discover the players' true demand payoff curves, and therefore inefficient allocation of resources is likely to result.

In the context of labor unions, a free rider or freeloader is an employee who pays no union dues or agency shop fees, but nonetheless receives the same benefits of union representation as dues-payers. Under U.S. law, unions owe a duty of fair representation to all workers that they represent, regardless of whether they pay dues. Free riding has been a point of legal and political contention for decades.[2] In Canadian labour law, the Rand formula (also referred to as automatic check-off) is a workplace situation in which the payment of trade union dues is mandatory, regardless of the worker's opinion about the union.

Example

Suppose there is a street, on which 25 small businesses are run, and which suffers from a serious litter problem that detracts customers. It costs £100 annually for each business to keep the front of their store clean. If a storeowner decides to keep the front of their store clean, all businesses on the street will have improved sales. Suppose every business on the street will have a £10 increase in annual sales for each business that decides to keep the front of their store clean. If more than ten businesses clean their storefronts, then all of the businesses will make more money, including the businesses that clean. If some businesses clean but fewer than ten do so, then the businesses that clean will lose money, while the businesses that do not clean will gain money.

If everyone were to keep the front of their store clean, every business would benefit: a £250 increase in sales with a cost of £100 yields a £150 gain. However, an individual business could save £100 by not doing the cleaning, yet suffer only £10 for their defection, yielding a £240 gain, which is greater than they would have if they cooperated. Despite the fact they may be prepared to contribute £100, they can avoid doing so in hope that others in the street will clean anyway, and they receive the benefit for no personal expense.

Thus, under these assumptions, at any given point, any businesses will benefit more by not keeping the front of their stores clean. As a result, it may happen that no business will clean the street in front of their store. Such a situation would be the Nash equilibrium. This is despite the fact that allocative efficiency would be improved if they had cooperated.

Solution

One common solution to the problem is to contractually bind the 25 businesses to make them behave like a single entity. A vote could be taken so that if the answer is yes, everyone will be forced to pay regardless of their individual support. Contractual obligation in this problem provides the same function as a government in providing public services like military defense.

Problems

The solution suggested above is not without its problems. In most real-life scenarios, the utility for the 25 businesses varies from one to another, each benefiting incongruently. In some cases, such a good may even be considered by some to have negative utility. Further contributing to the payoff asymmetry, cultural norms of social reciprocity may influence one's willingness to cooperate or defect in a public goods game. In other words, one may value the actual act of cooperating with their neighboring businesses to a greater extent than they value the additional money they would get for defecting.

6 comments:

Rudy h said...

Dont worry Ed it's waaaay over the " head " of the
" 44 " who voted against the Union. It's too much for them

Joe said...

So much for building bridges...huh Rudy?

morethanubrgn4 said...

Problem: The recently expired contract has no enforcement mechanism to force "freeriders" to pay dues. Despite the fact that Ronnie continues to assert the union security clause is not flawed, it is indeed fatally flawed.He would not be in small claims court seeking remedy if the clause was properly worded. In a properly worded union security clause employees are forced to pay dues within 30 days of being hired or beginning of the contract or the company will be required to terminate any employee who violates the union security clause for failure to pay dues. The contract clearly stated that an employee cannot be terminated for failure to pay dues.Thus, paying dues is clearly not a condition of employment. We all know what happens to employees who violate conditions of employment; they are terminated. As far as civil court goes, does anyone think a contract between LA Times Communications (Party A) and the Teamsters Local 140N (Party B) can force "Freeriders" (Party C) to pay dues? "Freeriders" did not agree to and sign said contract, so how are they to be forced to pay dues? The answer will come in December and Ronnie is likely to leave the courtroom an unhappy person.

Solution: In the next contract negotiated get a properly worded union security clause that provides for termination of any employee in the bargaining group who fails to pay dues within 30 days of ratification of said contract. Russ may very well say "Quid Pro Quo" " I give you union security clause, you give me ??" What would the union be willing to give up to get the properly worded clause????

K.E Reising said...

after reading the title i assumed it was about the movie "Easy Rider"
good topic though

Rudy h said...

yup " joe " when "they " make the FIRST move

Ronnie Pineda said...

A majotity of the employees voted to accept the current agreement (extended through the month of June) thus being the Collective Bargaining Agreement that binds employees to pay dues.

If the freeriders disagree with the contract, then have them give back the signing bonus and the 2% lump sum payments they have enjoyed for the last 3 years.

The defendants continue to claim that the Union Security language is flawed, the fact is, it is not, we did not want to seek to terminate of anyone for their decision to not join our Union. We will apparently have to seek termination language which will create a Union Security clause requiring our Local to seek termination. Which sounds worse, pay dues, as a member or as a Beck Objector, or lose your job?

This Local has an obligation to represent those that would refuse to pay their fair share and accept the benfits of a collective bargaining agreement and go the extra mile and assist the company to create hurdles that prevent our Local from getting the language we seek negotiated into our next agreement.

We've proven what we can do together, now join us and lets do more and get a better contract for ALL who print the Los Angeles Times.

We have won our recent challenges and I have no doubt we will prevail in this matter as well.

This is my response and I will not debate the issue unless it is in a forum where I can face my opposition.

Ronnie Pineda,
President,
GCC/IBT Local 140-N