What is the effect of the free rider problem on public goods provision?

• A. It leads to efficient private provision
• B. It has no impact on provision
• C. It causes under-provision by the market
• D. It causes over-provision by the government

Answer: (C)

Public goods are non-excludable and non-rival in consumption, so people can benefit without paying. When everyone expects others to pay, individuals have little incentive to contribute themselves, causing the total funding to fall short of the good’s social value. Private markets therefore under-provide public goods relative to the efficient level. Government funding or provision financed through taxes can correct this misallocation. The other options don’t fit: private provision isn’t efficient for public goods, there is an impact, and government provision isn’t typically over-provision due to the free rider problem.