Economist's Notebook: The Free-Rider Problem

When economists talk about the problem of the provision of public goods they generally talk about the free-rider problem.  This is the private incentive to shirk contributions for such good in the belief that it will be provided anyway through the contribution of others.

This is a perfect example.

Brent Wojahn/The Oregonian/2007

Portland's New Bridges: Do Economists Care About Uplifting the Soul?

Last weekend, I attended the graduation of my (much younger) sister from the University of Washington's College of Architecture and Urban Planning. The commencement speaker spoke of Architecture and Planning's ability to improve the human condition and uplift the soul. That got me thinking about the planning process for the new I-5 and Sellwood bridges and the question of whether the bridge should be striking and beautiful or just functional. In particular, it got me thinking about what economics has to say about such a question.

Contrary to what most people expect, economics does not just deal with dollars and cents. Economics starts with individual utility maximization. People buy art, commission architects and purchase beautiful things because it returns some utility - it makes them happy - and that happiness is worth some monetary payment. But what does this mean for a public works project like a bridge? Well, we run into the familiar problems of externalities, public goods and free-riders - problems that affect the building of the bridge regardless of the design.

If a beautiful design confers a benefit to users and residents then it has a real value and that values should be taken into account in any cost-benefit calculation dealing with bridge construction. But how do you measure such a benefit?

One way that economists have tried is through something called 'contingent valuation' - a survey of individuals willingness to pay for generally some non-market resource (like clean air). This allows economists to try and come up with a number that assesses the worth of such a resource. The problem is, of course, it is all hypothetical and the valuations, it turns out, can be highly influenced by how the question is asked. [One example: while I was in grad school, an Ag. Econ professor compared the results of a hypothetical 'how much would' you pay to save a tree' to a real tree he brought into the room and would threaten to kill if not enough money were raised - the real tree raised valuations a lot]

Another way is through some sort of democratic process, but as I have talked about previously, voting induces some selfish behavior, most notably free-riding: "I would love to have a nice bridge, and would even pay for it, but if I can get everyone else to pay for it and not have to myself, even better!"

So, in the end, I think policy makers will simply have to understand that design does matter, and that a beautiful bridge (like the Golden Gate and St. Johns above) is worth a lot.

The Glenn Jackson (to the left) is a inoffensive and very functional bridge, but forgettable. Below is Boston's new Zakim bridge. Which would you rather have? Oh yea, how much is it worth to you...?