Final answer:
The free rider problem occurs when individuals have an incentive to let others pay for a public good and then benefit from it without contributing themselves. Free riding can be individually rational when the cost of contributing is higher than the personal benefit.
Step-by-step explanation:
The free rider problem occurs when individuals have an incentive to let others pay for a public good and then benefit from it without contributing themselves. This situation arises because public goods are non-excludable, meaning that once they are provided, they are available to everyone. Let's consider a scenario to explain when free riding would be individually rational.
Scenario:
Imagine there is a group of friends who decide to independently contribute money to buy a TV for their common room. Each friend wants to enjoy the TV without paying for it. In this case, free riding becomes individually rational if the cost of contributing is higher than the personal benefit one would derive from having access to the TV. For example, if the cost of contributing is $100, and an individual values access to the TV at $70, it would be rational for that individual to free ride and not contribute. However, if the cost of contributing is lower than the personal benefit, it would be rational for the individual to contribute and not free ride.
Overall, free riding can be individually rational in certain scenarios, especially when the cost of contributing is higher than the personal benefit one would receive from the public good.