The house I live on is on a private street shard by about 20 other houses. The City of Los Angeles does not maintain the street, so when repairs are needed, the residents must pay for them. Over the last couple of years, a lot of big potholes have formed. Several of the residents decided something needed to be done about it, and sent copies of repair estimates to everyone who lives on the street. If everyone pitched in an equal amount, the price per household would be $2,500 to fix the street.
Most of the households paid the $2,500, but a few refused to pay. The excuses were interesting, and not entirely invalid. One person said because his house is at the end of the street, right next to the public street that connects to it, he shouldn’t have to pay as much as the person who lives at the far end of the street and uses the entire length of the private street. Another person says he drives very little, and he shouldn’t have to pay as much as a household with three or more cars. And then there were those people who flat-out refused to pay, offering no excuse. The paying neighbors argued that everyone should kick in an equal amount because a nice road helps everyone’s property values. That argument didn’t work.
This situation is a classic example of the “free rider” problem, in which a few individuals are able to benefit from something that they don’t contribute to. (The term “free rider” comes from people who ride public transportation without paying the fare. If everyone did that, the buses and trains would not have the money needed to operate.)
Unfortunately, it’s hard to stop free riders. The people who refused to pay for the repairs to our street will receive the benefits of a newly paved street, while the rest of us paid more than our fair share. There’s nothing we can do about it.
Or is there?
A research team at the California Institute of Technology (Caltech) recently conducted an experiment in which a group of volunteers were offered an abstract public good. The price for the public good was fixed, but each group member would benefit differently from it. So how do you determine how much each person should pay? In this experiment, the researchers scanned the volunteers’ brains using functional magnetic resonance imaging as the volunteers stated how much they were willing to pay. The researchers analyzed the fMRI images to obtain information about how much the person really valued having the public good, and then compared it with how much they were willing to pay for it.
The kicker was that volunteers whose measured value closely matched the amount they were willing to pay were charged less than people whose fMRI value was higher than the amount they were willing to pay. In other words, the folks who lied about how much the public good was worth to them were penalized by having to pay more than the people who told the truth about how much they valued the public good. As Caltech graduate student Ian Krajbich, who co-wrote the paper about the experiment for the online edition of the journal Science, put it, “The rules of the experiment are such that if you tell the truth your expected
tax will never exceed your benefit from the good.”
It didn’t take many iterations for the volunteers to learn that honesty was the best policy, at least in this laboratory. The researchers said that once volunteers understood the penalty for lying, they told the truth 98 percent of the time.
As far as I’m concerned, the age-old free rider problem has been solved. Now all I need to do is drag my free riding neighbors into the nearest brain scanning center and make them pay up.
Mark Frauenfelder – Editor-in-chief of MAKE magazine and the founder of the popular Boing Boing weblog, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online.
Mark Frauenfelder Credit.com contributor, editor-in-chief of MAKE magazine and the founder of the popular site Boing Boing, Mark was an editor at Wired from 1993-1998 and is the founding editor of Wired Online. He covers creative DIY projects and how-tos that will help you make the most of your money.
{ 7 comments… add a comment }
That’s interesting, but it doesn’t really solve the problem in this post.
It seems implied that if someone refuses to pay for repairs you have no recourse to make them pay at all, let alone pay a penalty.
Their mentality seems to be, “I’m going to refuse to pay, but I know you’re going to fix the street anyway.” Sure, everyone might do the same, but they know it wont happen. And even if it did, if there are no potholes enroute to their own house, it would hardly matter to them if the street goes unrepaired.
The way our society is set up, there seems to be little satisfactory remedy for those who refuse to contribute to it.
Perhaps the solution is to repair the potholes using materials taken from the area of the street at the ends of the non-paers’ driveways?
What’s wrong with fixing the potholes and putting in a tire bursting strip on the non compliant driveways at the same time?
Who’s right and who’s is wrong is very subjective.
What happens if the majority want to paint the road yellow for 10.000? Some people who don’t want to participate must surely feel that it’s their good right to not be forced to participate.
What you usually see is that there are contract in place that define rules for shared property maintenance. When you buy a house in that street you’ll have to sign that too.
The person at the start of the street has a good point. He is being taken to the cleaners so that people at the far end of the street get an unreasonably good deal. Even though fixing the potholes may have a positive impact on his property value, it is small compared to the impact it will have on the property values farther down the street. I question who is the “free rider” in this example.
The argument that everyone should pay the same amount because everyone benefits is bogus. Not everyone benefits equally, those who benefit more should pay more.
Simple, don’t pave the part of the street in front of their houses. As long as you can thread a line all the way down the street, all the payers will have paved roads.
The non-payers will have strips of unpaved road in front of their houses to mark them as cheapskates and deny them the benefit.
The plan meets some problems if two free riders live directly across from each other, since you can’t simply pave half the street in that case.
So the point of the brain scan is to determine who is lying about how much they think something is worth. How about someone who honestly believes repaving the road is not necessary at the current time, and hence worth nothing to them? Would you charge them nothing?
Seriously, though, if it’s a private street, it must be owned by someone – your HOA, which should have the power to levy assessments against all property owners. If not, I suppose you could set up a toll booth at the entrance and pay for it that way