Micro Foundations · intro
What moves on the Public Goods & the Free-Rider Problem diagram
Free-riding hides true willingness to pay. The private MB curve shifts left while social MB stays put, widening the underprovision gap.
The good is funded by voluntary contributions, which reveal only private willingness to pay.
People realize they get the benefit whether or not they chip in, so more and more stop paying.
Revealed private willingness to pay collapses: the private MB curve shifts left.
Provision falls even further below the social optimum. The true social value hasn't changed at all, only what people admit to.
Examiners ask this as: free rider, donations collapse, public broadcaster, nobody pays, voluntary contributions dry up.
Other scenarios on Public Goods & the Free-Rider Problem