Mancur Olson noted as follows despite the common idea in those days:
“It is not in fact true that the idea that group will act in their self-interest follows logically from the premise of rational and self-interested behavior. … Indeed, unless the number of individuals in a group is quite small, or unless there is coercion or some other special device to make individuals act in their interest, rational, self-interested individuals will not act to achieve their common or group interests.“
Olson’s book, “The Logic of Collective Action”, was the first book which treated this issue of free riders. In this book, Olson formalized his main idea by using simple mathematics.
The source of the problem is that public goods are equally allocated to all individuals, regardless of their contribution to the collective action. Let’s say a political party composed of N people aims to achieve some political goal. In that case, an individual who belongs to the party has two choices: (1) to positively participate the party movement by paying cost C, thus increasing the party’s gain by T, and his gain by T/N or (2) to just look at the party movement and pay no cost.
Under the circumstances, as N becomes larger, the marginal contribution of individual cost to the gain becomes smaller, and thus individuals tend not to act to achieve their common interest. This is the reason why we have free riders. The larger the group, the farther it will fall short of providing an optimal amount of a collective good.
Free riders are everywhere. They can be seen all collective actions, from political activities to employees action in gigantic corporations. John James has done empirical work regarding collective actions and found that in a variety of institutions, “action taking” groups and subgroups tended to be much smaller than “non-action taking” groups and subgroups. According to his study, the average size of the “action taking” subgroups was 6.5 members, whereas the average size of the “non-action taking” subgroups was 14 members. The other studies show that small groups are more efficient and viable than large ones.
As the principle shows, the key to prevent individuals from being free riders is to (1) make the size of the group small, (2) coerce individuals to follow their common goal (that is why many labor unions have compulsory membership, as written in chapter 3), or (3) come up with special device. Regarding the point (3), Olson suggests “Byproduct theory” to explain why many people join organizations. There could be byproduct (other than the main purpose) that the attendants gain when they participate the collective action.
As a founder of an NGO, I have experienced free riders many times. Although the issue and its solution are not new to me, the book reminds me of the ways I came up with to deal with free riders.
Facing the free rider problem, our NGO introduced “team system” in which the members organize small groups and tackle a fraction of problems. This indeed worked, but we had undesirable byproduct - sectionalism, which lessened overall performance of the organization. After then we modified the team system so that it would be more flexible – now members more flexibly switch the team to join.
We also have tried to come up with the special device to avoid free riders. Sharing the mission and cultivate social capital among participants work to the certain extent. In some cases, mission works as a byproduct which incentivizes the members: feeling that he or she is following mission of an organization can be the motivation for members to positively participate the collective action. Another device we came up with is social capital. Perhaps feeling of being connected alone could motivate the members to join the group action. This idea explains why people try to upload their photo and texts without receiving any financial benefits.
Mancur Olson Jr., “The Logic of Collective Action: Public Goods and the Theory of Groups, Second printing with new preface and appendix”, Harvard Economic Studies, 1971