Free rider stock market
The free rider problem is a market failure that occurs when people take advantage of being able to use a common resourceor collective good, without paying for it, as is the case when citizens of a country utilize public goods without paying their fair share in taxes.
The free rider problem only arises in a market in which supply is not diminished by the number of people consuming it and consumption cannot be restricted. Goods and services such as national defense, metropolitan police presence, flood control systems, access to clean water, sanitation infrastructure, libraries and public broadcasting services are able to be obtained through free riding.
The psychology behind it for certain people is there is little incentive to expend money or time toward the production of a collective good when they stand to enjoy its benefits even if they expend none at all.
Because the free rider problem occurs with public goods, governments are usually the ones left to enforce as much regulation as possible to deter people from engaging in the practice.
In the United States, the Internal Revenue Service IRS is the agency in charge of collecting taxes and upholding tax laws. Free riding also occurs in a workplace that is partly unionized, because all of the company's employees experience wage hikes and a better working environment, nyse pre market stock quotes of whether they belong to the union.
On a deeper level, free riding reflects a behavioral tendency, the tendency free rider stock market shirk responsibility or work when the effects of doing so are minimal or when the negative effects do not have an immediate and direct impact. This tendency is one of the forces leading to what was coined by Garrett Hardin in as the "Tragedy of the Commons," when the well-being of society or a particular market is overlooked for personal gain.
A natural example of the Tragedy of the Commons is when an abundant acre of grass is overgrazed to the point where the field becomes barren and prone to soil erosion.
Cod fisheries off the coast of Newfoundland experienced the Tragedy of the Commons in the s when new fishing technologies allowed fisherman to catch a significantly larger amount, ultimately resulting in the collapse of an industry that had existed for hundreds of years.
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Free Rider Problem
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Stock Trading Pitfalls: Freeriding (BSX, JNJ) | Investopedia
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