1. Institutional Analysis Lecture 6: Collective Action

2. Theory of Collective Action u All group behavior is the sum of individual actions. u But rational individual behavior can lead to collectively irrational outcomes. u So groups must motivate their members (provide incentives) to achieve their goals. ò This is the basis of effective interest group action.

3. Definition of Public Goods Excludable Non-Excludable RivalNon-Rival Cars Haircuts Education Public Park Macy’s Day Parade National Defense Tariffs, Quotas Oil Pools below >1 country Migratory Resources Concerts Information Scientific Discoveries Public Goods u Must be non-rival and non-excludable to qualify

4. The Problem of Public Goods u All individuals in a group benefit from having the good supplied. u But once it is supplied, cannot prevent others from using it. u Each individual would rather have others pay the costs, and take the benefits themselves. è Many public goods are not supplied, even though their total utility exceeds their cost.

5. Free Rider Problem u Definition: –An individual “free rides” if they pay less than their true marginal value derived from the public good. u Example: –Public Television –Highway Construction

6. Example: Tragedy of the Commons

7. The Prisoners’ Dilemma u Substantive problem  Cooperation is valuable... ... but it is hard to achieve. u What makes cooperation valuable? –Greater social benefits (aggregate payoffs) when it occurs than when it doesn’t occur. u What makes cooperation hard to achieve? –The incentive to free-ride, defect, not cooperate, not contribute... ò Concepts: dominant strategy, equilibrium

8. Example: Prisoners’ Dilemma CooperateDefect Cooperate Defect Prisoner 1 Prisoner 2 (-1, -1) (0, -10) (-10, 0) (-5, -5) (1’s payoff, 2’s payoff) Interpretation of payoffs: 0 = Temptation -1 = Reward -5 = Punishment -10 = Sucker Condition: T > R > P > S The dominant strategy is for both players to defect, so individually rational behavior produces a socially suboptimal outcome.

9. Prisoners’ Dilemma Illustrated

10. Ways Around the Dilemma u The players themselves –Internal moral rules, codes of conduct, norms… –Communication –Repetition F if the probability of continuation is “sufficiently high” then cooperation becomes an equilibrium u External solutions F Privately agreed upon 3rd party monitoring F Contract law & its enforcement by courts F International organizations (e.g., GATT, WTO) u These are all extensions of -- not covered within -- the one-shot PD considered above.

11. Distributive Politics & Collective Action Problems u All legislators like district-specific benefits F Acting alone this can not be achieved as a majority is need to enact legislation u One way to get everyone to go along is logroll F Enact bills that have something for all districts F Can go back to district and claim credit u Assumption F Voters care only about the benefits they receive and not the overall costs of the legislative package

12. Collective Dilemma & Logrolling u True everyone would be better off with the logroll –All 435 members get a little something and split the costs u But just as with the Divide the Dollar Game it is tempting to cut 1 legislator out of the bargain u But given this logic, another district would be cut out… –Until the logroll falls apart

13. Committee Solve the Distributive Problem u Bidding Mechanism F Self Selection F Committees are Homogeneous High Demanders u Seniority System F Committees are stable over time u Jurisdictional System F Gatekeeping Powers F Closed Rules F Conference committees