Institutional Analysis

1. Institutional Analysis Lecture 6: Collective Action

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

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

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

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

6. Example: Tragedy of the Commons

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

8. Example: Prisoners’ Dilemma Prisoner 2 Cooperate Defect Interpretation of payoffs: 0 = Temptation -1 = Reward -5 = Punishment -10 = Sucker Condition: T > R > P > S (-1, -1) (-10, 0) Cooperate Prisoner 1 (0, -10) (-5, -5) Defect (1’s payoff, 2’s payoff) 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 • The players themselves • Internal moral rules, codes of conduct, norms… • Communication • Repetition • if the probability of continuation is “sufficiently high” then cooperation becomes an equilibrium • External solutions • Privately agreed upon 3rd party monitoring • Contract law & its enforcement by courts • International organizations (e.g., GATT, WTO) • These are all extensions of -- not covered within -- the one-shot PD considered above.

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

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

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