Mancur Olson
Mancur Olson
1932-1998
1962, The Logic of Collective Action
1982, The Rise and Decline of Nations
Another Classic Economic Problem
Public Good: a good that is non-rival and non-excludable
Rivalry: one use of a resource removes it from other uses
Excludability: ability or right to prevent others from using it (ownership)
The Free Rider Problem
Individual bears a private cost to contribute, but only gets a small fraction of the (dispersed) benefit of a good
If individuals can gain access to the good (nonexcludable) without paying, may lead to...
Free riding: individuals consume the good without paying for it
Examples?
Market Failure from Public Goods
No incentive for people to contribute and pay for the good
If enough people obtain the benefits without incurring the costs...
Not profitable for private market actors to supply it
Adam Smith on Public Goods
Adam Smith
1723-1790
"The third and last duty of the sovereign or commonwealth is that of erecting and maintaining those public institutions and those public works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expence to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain. The performance of this duty requires, too, very different degrees of expence in the different periods of society," (Book VI, Ch. 9).
Smith, Adam, 1776, An Enquiry into the Nature and Causes of the Wealth of Nations
Public Goods ≠ "Good for the Public"
Generalizing: Collective Action Problems
Collective action problem: situation where an individual's interest and a group's interest may conflict
Benefits (or costs) of outcome are nonrival and flow to all members of the group
Decisions & costs need to be incurred by individuals
Individual preferences need to aggregate into a single decision/outcome
Collective Action Problem: Examples I
Collective Action Problem: Examples II
Collective Action Costs I
Groups may share a common interest
But composed of individuals with their own preferences
- Individuals bear the personal cost of contributing
- Individuals gain a small share of the benefits of group action
Additionally, transaction costs/ bargaining to get a group to agree on decision
Collective Action Costs II
Very hard for group action with concentrated costs and dispersed benefits
Easy for group action with concentrated benefits and dispersed costs
- Remember this idea once we start explaining public policy!
Implications: Size and Homogeneity
- Smaller and more homogenous groups face lower collective action costs of organizing than larger and more heterogeneous groups
Implications: Selective Incentives
Groups often need "selective incentives" to reward contribution and to punish free riding in groups
Positive and negative incentives
