Group Formation II: Interest groups

The Free Rider Problem One person’s contribution to the collective good is small Collective good will be provided regardless of person’s contribution The person can receive the benefits without contributing Private incentive is to “free ride” on contributions of others CONTRIBUTION is valuable to the individual. Would privately prefer NOT to pay the costs, and have the good provided anyway.

Consequences for group formation Groups will form when: “Group” is small enough that one person’s participation is noticed/meaningful Benefits of joining are larger than costs Example: Group’s activities produce private, excludable goods (not public goods)

So why so many groups? Entrepreneurs Selective Incentives

Overcoming free rider problems Selective incentives: A selective incentive applies selectively to individuals depending on whether or not they contribute to the provision of the collective good. They “privatize” public goods. Material

Examples of Material benefits Information Direct help/services Discounts Goodies (the hand-cranked emergency radio!)

Overcoming free rider problems Selective incentives: A selective incentive applies selectively to individuals depending on whether or not they contribute to the provision of the collective good. They “privatize” public goods. Material Social/ “Solidary” Purposive/Expressive

Evidence: Why do people really join groups? Personal examples? Other Evidence

Is Olson right? Does the free rider problem bias the group environment in favor of small, narrow interests?

Evidence Some groups do arise because of disturbances (not all) Group universe overrepresents small, narrow, homogeneous, wealthy interests (but not all) Entrepreneurs are important! Material incentives don’t generate enough membership/donations to maintain most citizen groups Patrons are important!