You and 3 other players each receive $10 every round. Each player decides how much to contribute to a public pot.
The public pot is multiplied by 1.6x and then split equally among all 4 players -- regardless of who contributed.
You will play 5 rounds. Your goal: maximize your total earnings.
You have $10 this round. Any amount you don't contribute, you keep.
| Player | Total Earnings |
|---|
The Free-Rider Problem: Each dollar you contribute costs you $1 but only returns $0.40 to you (1.6 / 4 players). Individually, it is rational to contribute nothing and let others fund the public good. But if everyone free-rides, the pot is empty and everyone is worse off.
Social vs. Private Optimum: If all 4 players contribute their full $10, the pot becomes $64 (40 x 1.6), and each earns $16 -- far more than the $10 from keeping everything. The socially optimal outcome is full contribution, but the individually rational strategy is to contribute $0.
Why Public Goods Are Underprovided: Public goods are non-excludable (you cannot stop someone from benefiting) and non-rivalrous (one person's use does not reduce another's). Because of these properties, markets underprovide public goods -- people wait for others to pay. This is why governments often step in to provide national defense, public parks, and clean air regulations.
Real-World Examples: Climate change mitigation, public radio/television, open-source software, vaccination programs, and street lighting are all public goods vulnerable to free-riding.