Government Hired a Firm for $13.6M to Hire Recruits. It Hired 2

I'm not sure why this concept is such a challenge for me to convey. I'm probably not doing a very good job of it.

The investors aren't particularly concerned about small positive externalities such as the increase in surrounding property values. (If the positive externalities are very large, they would probably attempt to capture them somehow -- such as buying up the whole neighbourhood before proceeding with the development. This is why profitable train companies in Asia build train lines to where they own the land, and develop the area around their stations into shopping malls and residential complexes).

That's very different than having free riders. If you give your investors the option of paying $100 per share, or $0 per share, and in either case they'll get the same number of shares, then you suddenly won't find any investors willing to pay. Even if it's a profitable endeavour at $100 per share!

Why would you be offering such a strange deal to your investors? Well, you wouldn't, because it would totally undermine your ability to get your project funded. But it's exactly the model you're proposing when you suggest that private citizens might donate to the government if they really want public infrastructure to get funded! The ones who don't donate are paying $0/share, and the ones who do are paying $100/share, and they all get equal use of the infrastructure.

The free rider problem is not when you try to get investors to buy into your project, even though a few people who don't buy in will also benefit slightly. It's when you try to get investors to buy into your project, even though anybody who doesn't buy in benefits just as much.

Having said this, now let me put it in the context of your quote:

> "This is just not something I consider in any way when choosing to make an investment"

When you consider purchasing shares of a company for $100/share, do you not consider in any way the possibility that these shares might be available for a lower price from another seller? I would expect you would do research and pay the lowest price that is on offer. And if someone is offering them for $0/share, wouldn't you consider that when deciding whether or not to pay $100?

edit: Let me bring this back to the example. How are you going to pitch investors to pay to upgrade a water treatment plant, when they'll reap exactly the same gains from it as their neighbours who didn't contribute a dime? Or, after attempting this and failing to raise any funds whatsoever, let alone the required $500 million, how might you alter your fundraising strategy to make it more successful?

To simplify, let's assume that every one of the 5 million citizens has equal wealth, and the identical preferences, and is willing contribute up to at most $200 for this project, but prefers to pay the minimum possible amount and will always opt to pay $0 if the treatment plant gets built regardless.

Game theory tells us why it has to be mandatory: if everyone pays everyone profits, but for any one individual it pays off to stop paying as long as everyone else keeps paying (because they still receive roughly the same benefits). So most people stop paying, and everyone is worse off. It's basically the prisoner's dilemma.

Note how even denying non-payers all public services doesn't work. If you don't pay for the fire brigade but your neighbor does you profit (since a fire in his house is less likely to go out of control and jump over to your house). The resulting situation would be less fair than just forcing everyone to pay for firefighting services.

How do people like these not get prosecuted?

What I'm saying is that empathy is completely useless... other than the fact that it allows you to turn "someone I don't care about" into "someone I don't know, but care about enough to make meaningful sacrifices for." So the whole point of empathy is that it allows you to avoid a frame of mind where you're spending other peoples' money on things that don't benefit anybody.

>"But it's exactly the model you're proposing when you suggest that private citizens might donate to the government if they really want public infrastructure to get funded! The ones who don't donate are paying $0/share, and the ones who do are paying $100/share, and they all get equal use of the infrastructure."

Why do people donate nearly a billion dollars per year to American Heart Association (https://www.forbes.com/companies/american-heart-association/...) even though I won't, but I could still get the same benefit for free? Because my benefit is irrelevant to their decision...

The only time it makes sense to care about someone else benefiting for free is if it means you are benefiting less for the same price. This concern about free riders is irrational.

>"And if someone is offering them for $0/share, wouldn't you consider that when deciding whether or not to pay $100?"

I'd take the free shares and then go ahead with the purchase for $100/share as well. Edit: Actually, best thing to do is take the free shares, then dump them on the market. Then use the original funds to buy more shares at a lower price.

>"How are you going to pitch investors to pay to upgrade a water treatment plant, when they'll reap exactly the same gains from it as their neighbours who didn't contribute a dime?"

Explain the benefits of the plant, telling them to see if they can get any of the neighbors to contribute too so it will be cheaper for them (nb: the price per person becomes more favorable, not the benefits). And anyway, you can always charge people for the water later so this example is not even very good...