Although it is true that if the water fountain were, in fact, funded and created that it would generate a positive externality, the free-rider problem prevents the funding and creation of the water fountain from happening. In this case, the failure to maximize total societal utility by funding the water fountain
means that the market is not efficient. Although this particular market is inefficient, this does not mean markets are inefficient in general. This situation is somewhat similar to the Tragedy of the Commons in that the failure to cooperate results in an outcome that isn't optimal. The Tragedy of the Commons, however, refers specifically to a situation in which a resource that is open to everyone by default is overused because each individual has the incentive to overuse it until it is depleted, at which point it benefits no one. This occurs because consumers do not internalize the negative externality imposed on others due to their consumption of the common resource. On the other hand, the free-rider problem is associated with goods that will not receive enough funding because there is a positive externality on others associated with their creation. In the case of a public good, government intervention is usually implemented to solve the free-rider problem. This typically occurs through the federal, state, or local governments taxing individuals and then using these funds to provide public services to the community, such as a water fountain.
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