This chapter discussed the free-rider problem. Consider the following two situations in relation to the free-rider concept

Question

a. The Taft-Hartley Act (1947) allows workers to be employed at a firm without joining the union at their workplace or paying membership fees to the union. This arrangement is known as an open shop. Considering that unions negotiate terms of employment and wages on behalf of all the workers at a firm, why do you think that most unions are opposed to open shops?
b. For your business communication class, you are supposed to work on a group assignment in a team of six. You soon realize that a few of your team members do not contribute to the assignment but get the same grade as the rest of the team. If you were the professor, how would you redesign the incentive structure here to fix this problem?

Answer 1

a. The free rider problem could explain why unions are opposed to open shops. If a union negotiates wages and employment terms on behalf of all the workers at a firm, then even those workers who do not join the union will benefit. This means that workers no longer have an incentive to pay union fees as they can free-ride on those who do.
b. Since all the team members get the same grade, an individual team member can free ride on the work that the others have done. This means that an individual student does not have the incentive to contribute to the group assignment. To prevent this from happening, the professor can ask students to work on the assignment together but hand in individual papers.