Public Radio and Public Goods

I listen to a decent amount of public radio on my various commutes to school and work. Inevitably, there comes a time every couple months where the station that I listen to tries to coerce its listeners into donating money to support the station. “Coerce” might be a strong word, but I do want to emphasize that these reporters really lay it on thick.

And they use a number of tactics. First, they try to emphasize that the dollar amount they’re asking for is really small. Who can’t part with a mere $5 a month? Second, they inform their listeners about some great deal where, if the listeners donate a certain amount, a charitably-minded company will match that amount. Of course this amazing opportunity only lasts for a short period of time, so listeners had better jump on it. Third, they share testimonials of individuals who have donated to the station and whose lives have consequently been changed for the better. Finally, and most interestingly, they appeal to the listener’s sense of morality. Is it really fair to be listening to the station without paying for it? Listeners who are basically stealing from the station in this way must feel so guilty. (Though, it should be noted that the station is offering their programming for free, so its hard to blame listeners for doing what the station is encouraging them to do. But more on this later.)

This entire process takes a good chunk of time. By the end of it I generally wonder why I didn’t just switch to a different station, but then I wouldn’t be able to write this post.

So what leads radio stations to behave in this way? Well, they are offering a good at no price and have to find some way to make money. The world is full of similar goods that consumers have the opportunity to benefit from without paying for directly. (Think of national defense, clean air, Thunder Over Louisville, etc.) In the world of Economics these are called “Public Goods” and have two distinctive characteristics: a) they are non-excludable, meaning it is difficult/impossible to prevent people from consuming them; b) they are non-rival, meaning that two individuals can consume the same good without limiting each other’s consumption.

Based on their characteristics, Public Goods suffer from a specific problem known as the “Free Rider” dilemma. If consumers know that a good will be available to them regardless of whether or not they pay for it, they will not be motivated to pay for it. The proper way to handle this issue would be to have each person pay what the good is worth to them. However, if you try to figure out how much said good is worth to them, they will likely understate its value.

There are a number of ways to handle this problem. From a government perspective, funding for Public Goods often comes from taxes. In the private arena businesses use advertisements, sponsorships, and other similar strategies to obtain funding.

Public radio is an interesting version of a public good, because they can use advertising to obtain funding but also often try (really hard) to get donations from their listeners. While these donations do provide the stations with money, they still fail to be completely efficient. Some people who pay a significant amount per month are still paying less than the station is worth to them, while others who were guilted into paying a small amount might be paying more than the station is worth to them.

I actually haven’t donated to this station and I probably will not, because it just is not that valuable to me. (Side note: I also disagree with many of this station’s positions, so I would have a hard time justifying supporting this station from that perspective. But that is really a separate issue.) Or to say that differently, to me the most valuable feature of public radio is the fact that it is free. If a price were imposed on my listening of a certain station, I would, without any remorse, merely switch to a different station or listen to music on my iPod. I admit that I am a “Free Rider” in this situation and I am okay with that.

If radio stations were really serious about obtaining funding from their listeners, they would try to restrict their product from being consumed freely. They could create some sort of subscription and only allow paid listeners to benefit from their programming. They haven’t done this yet, and I imagine that it is because there are significant amounts of listeners like me who would not continue to consume their products if they were no longer free. There are so many free substitutes available to consumers that, unless all radio stations imposed a price, the non-free stations would likely suffer significantly in this situation.

Public radio stations are in a unique and challenging situation. And until a workable solution comes forward, they will likely continue to try to obtain funding by begging their listeners for money. Maybe the true cost of listening to public radio is being tormented by twenty straight minutes of donation requests?

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I hope you found this post to be interesting and/or informative. If you agree or disagree with the view expressed in this post, please leave a comment or shoot me an email. Thanks for reading!

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