The Distinction Between True and Induced Free Riders: an Application to Gatt de Facto Membership

Abstract

In the former international trade organization, GATT, there were 28 countries who were free riders through a special class of de facto membership. This article distinguishes between two classes of free riders, true and induced, depending on whether the free riders, if faced with exclusion, would be willing to pay the full cost of membership and join, or whether they would opt out of membership. A logit model of GATT membership is used to predict whether these de facto countries would have joined GATT as full members. Those that would join are considered true free riders, whereas those that would not join are considered induced riders. It is estimated that approximately 20 of the 28 de facto countries were true free riders. The distinction between true and induced, free riders is important because in a free rider situation, only the true free riders contribute to an undersupply of the good.