Spillover benefits versus the Free Rider problem Instructor Name December 7, 2011 Abstract Spillover effects are very common in the economical markets. Negative spillover effects are called the costs which are paid by people who are directly influenced by some activity or process…
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The government should make such legislations in order to avoid this problem as these may eventually lead to the destruction of economical infrastructure. Spillover benefits versus the Free Rider problem Societies, people, environments go through many negative & positive situations due to different circumstances that occur. By positive effects it means the benefits & advantages enjoyed by them when come along the way, & by negative effects it means the harmful & dangerous effects which are imposed over them. These positive & negative effects are directly related in some cases, but it may have an indirect effect on other people or surroundings due to someone else. Such external or indirect effects are termed as externalities or spillover effects. Spillover is defined here to mean – “indirect or unexpected benefits to other users from the up-take of research, including consumer surpluses generated through competition and diffusion of knowledge through development of technical skills. These benefits can also arise from the creation of new knowledge platforms that substantially modify processes, products or services”. (Spillover benefits from TBGs. ...
The chemical that is released from the factory directly affects those people who are not affiliated with the factory. Hence they have to pay a price or cost of being the residents of that area although they have no concern or advantages from the factory. Such effects are termed as negative spillover effects or spillover costs. On the other hand, when someone enjoys particular benefits from such a thing or process through which he/she is not directly related with, it is termed as positive spillover effects or spillover benefits. There can be many examples set in this regard; the trade agreements between any two countries or organizations directly affect the persons who are involved in import-export business, although there has been no force from their side to make such an agreement. Hence they enjoy the benefits by spending nothing from themselves. Other examples may include education, which train youngsters how to be a good & beneficial citizen of the society, hence the more children get educated in these terms, the more society would benefit as the crime rate will reduce and there would be enough peace in the country. Through proper education, more skilled workers will enter into the market which will thus make good quality products & provide better services to their employers. These spillover benefits, when exceed through a certain limits, are also termed as the “free rider problem”, derived from the concept of someone riding in a public transport without paying its fare. Hence all such people who enjoy the spillover benefits are called free riders. The free rider problem is of great concern all over the world, since there are a huge number of people who consume such resources
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