Free Rider Case Study

1. Case study:
Public Finance Principle: The Free Rider Problem
The free rider problem is when an individual or entity allows others to pay for a benefit or service they enjoy without paying for it themselves (Rosen & Gayer, 2014).
The topic is Health Insurance. In the article Duska concludes that there is an unclear notion to the right of health insurance (Duska, 2008). There are millions of people that do not have health insurance, and some of them do not, as they chose not to purchase it (Duska, 2008). Based on the fact that people have the “right to health care” and they chose not to purchase insurance, this in effect becomes a free rider issue. Having the right to health care and choosing not to purchase health insurance puts others
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This is relevant because setting market rates and targets for inflation is a key finance principle used by the government. Market interest rates help drive or control the level of inflation. In this article it is pointed out that rates have been low for an extremely long period of time and even at close to full employment, inflation remains near 1% (Ip, 2016). The situation here is what to do with rates. Inflation and interest rates are linked. Typically when rates rise, the economy slows and inflation is lowered. At this time, rates don’t have much room to go, or to be lowered. The article states that it is necessary to raise rates and it may be wise to allow the inflation rate to be higher to maintain the growth or allow the economy to continue to grow. Although raising the rates is not what we would typically see from the Feds when the inflation rate is so low, there is no room to lower the rates and employment is at a strong level. Ip (2008), states “John Williams, president of the Federal Reserve Bank of San Francisco, made the case for a higher inflation target in a bank newsletter.” The reason for raising the inflation target is not to slow the economy but more for the need to reset the rates and repair the Fed’s ammunition when necessary to lower rates. By raising the inflation target it would likely allow the rates to …show more content…
Businesses purchase insurance policies to transfer their risk of property damage losses and liability to the insurance company (Baker, 2016). There are many types of insurance policies different firms or businesses purchase, depending on the type of business they are in. This is also an efficient practice for an individual. I personally have purchased additional life insurance to help support my family in the event of my death. Understanding the policy I have in place through my employer and the amount of debt I carry with my house, I have additional protection to help alleviate those expenses, or to lower the risk of many family suffering a loss of our assets in the event of my death. I carry home owners insurance to limit my risk of a loss in the event something were to happen to my home, as well as car insurance that mitigates the chance of my sustaining a loss of my vehicle (or the money I have invested in my vehicle) if it were to be damaged in an accident. It is important for a business to purchase insurance to protect itself from a loss. In my personal life, it is equally important for me to carry insurance to protect myself and my family from suffering a significant

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