The free-rider problem in public goods provision becomes increasingly acute primarily because:

The true willingness to pay of an individual is his private information, and the provider cannot observe it. Since a public good, once provided, is available to everyone, each individual can gain by understating his valuation to reduce his share of the cost and still enjoy the good. When everybody reasons in this way, the total stated demand falls well below the true demand and the good is under-provided. The problem becomes more serious as the group grows larger, because each person’s contribution becomes less significant and free-riding is harder to detect. On the other options: in (A), for a public good the marginal social benefit exceeds the marginal private benefit (a positive externality), not the other way round. In (C), the marginal cost of serving one more user is zero, not negative. In (D), the problem arises from the lack of enforceable property rights (non-excludability), not from their over-assignment. In (E), public goods are non-rival, not rival. Hence the correct option is (B).