Does conventional theory on collective action provide a solid foundation for understanding the causes of collection action in everyday life?
By Jmaine
One perspective on this question comes from E. Olstrom. In the article “Collective Action and Evolution of Social Norms,” Olstrom (2000) writes that there is a disharmony between what conventional theory predicts and what the actual behavior in everyday life reveals. Another perspective comes from J. Stiglitz. In the article “Private Uses of Public Interests: Incentives and Institutions,” Stiglitz (1998) argues that conventional theory does not help us understand how policies that would benefit all fail to make it into law. Stiglitz provides four key reasons why Pareto Improvements are not realized in the market economy.
Conventional economists offer a narrow view on the causes of collective action. One messenger of this school of thought is M. Olson. In the book, The Logic of Collective Action, Olson (1971) argues that individuals that are guided by self interest do not aspire to contribute to collective action, activities that would generate positive externalities. He writes that “if the number of individuals in a group is quite small, or unless there is coercion or some other special device to make individuals act in common interest, rational self interested individuals will not act to achieve their common interests.” One implication of this view is that it asserts that individuals will not work together and solve collective action challenges. What does this mean for public policy? It implies that policy must take the form of external encouragement, helping individuals meet their self interest.
Olstrom (2000) writes that there is a disharmony between what conventional theory predicts and what the actual behavior in everyday life reveals. She does this by summarizing core findings of studies on public good games. The first finding is that “subjects contribute between 40 and 60 percent of their endowments to public good in a one shot game as well as in the first round of finitely repeated games.” The second finding is that once the first round is played, the player’s level of contribution tends to fall, but does not reach zero. The fourth finding is that once players learn more about the game, they are more likely to cooperate with each other. The fifth finding is that interfacing with other players (i.e. setting strategy, punishing others) leads to an increase and sustained level of cooperation. Finally, the seventh finding is that “the rate of contribution to a public good is affected by various contextual factors including the framing of the situation and the rules used for assigning participants, increasing competition among them, allowing communication, authorizing sanctioning mechanisms.” With these findings, Olstrom comes to two conclusions. 1) Not all individuals are simply self interested. Some individuals are willing to act as anchors to spark collaboration to reach goals of collective action. 2) Olstrom finds and characterizes three types of human behavior: norm-using (findings 1-4, those who want conditional cooperation and those who are willing to punish); willing punishers (findings 5-6); and rational egoists. These form the basis of a broader view on the causes of collection action.
Olstrom then argues that evolutionary theory provides us with a more interesting approach to understanding the mechanisms that individuals rely on to reinforce collection action. Evolutionary theories allow us to model how numerous types of behavior live and thrive in the general population. The emergence of collective action generally starts with some individuals who initiate the process and the emergent group designs the rules and sets the property rights. The implication of this point of view is that evolutionary theories are better positioned to allow us to watch the endogenously driven ‘development and growth of social norms.’
The insights provided by Olstrom are supported by other economic research. In the article “The Micro-Empirics of Collective Action: The Case of Business Improvement Districts,” L. Brooks shows the full range of firm activity, from initiating to institutionalizing 32 business improvement districts in Los Angeles. In order to launch the BID, there are anchor firms that act in social ways to consolidate support from other firms and city government to create a district and generate positive externalities. In turn, they are restoring the vibrancy of downtown areas, boosting property values, and even reducing crime. This research confirms that numerous individuals and institutions are working together to solve collective action problems, without external public policy encouraging the action.
Stiglitz (1998) also argues that conventional theory does not provide a strong foundation for understanding collective action in everyday life. One major limitation of the conventional theory is that it “does not explain why policies that harm no one fail to be adopted.” To fill the gap, Stiglitz provides four key reasons why Pareto Improvements are not realized in the market economy: 1) Failure of government to fulfill commitments. One proposed policy would have strengthened the use of hydroelectricity in the country. The proposal took the form of a Pareto Improvement because the proposal was good for subsidized consumers, it was revenue generating for the budget, and made use of noncarbon alternatives for producing electricity. However, this proposal did not make it into law. 2) The formation of collaboratives and bargaining. One proposed policy that was backed by a collaborative would have strengthened the framework and standards for Superfund sites. The proposal passed the House. However, the collaborative broke up when new members of the Republican party arrived. With the arrival of new players, business leaders decamped because they thought they could get an even better deal. This sparked a stand still for reform. 3) Destructive competition. Zero sum games are an example: Senate minority leader using leverage to kill Superfund reform. 4) Uncertainty about consequences of changes. Overall, Pareto Improvements are not realized due to failure of government to fulfill commitments and dynamics with bargaining in the political arena.
Stiglitz appears to privilege the notion of Pareto Improvement but does not question that maybe this notion is not enough. Perhaps bringing about a Pareto optimal result may not be that socially satisfying (Reddy, 2012). Outcomes that are Pareto optimal don’t tell us whether mass starvation can occur. They don’t tell us whether or not there is a survival constraint: consumption of person can fall to zero. What if there is a catastrophic moral horror occurring as a result of market or government activity? Yet a Pareto Improvement is realized. Could this be a reason that collective action would reject that Pareto Improvement?
References
Olstrom, Elinor. 2000, Summer. “Collective Action and the Evolution of Social Norms.” Journal of Economic Perspectives. Volume 14. No 3. Pages 137-158.
Stiglitz, Joseph. 1998, Spring. “Private Uses of Public Interests: Incentives and Institutions.” Journal of Economic Perspectives. Vol. 12. No. 2. Pages 3-22.
Brooks, Leah and William C. Strange. 2011, July. “The Micro-Empirics of Collective Action: The Case of Business Improvement Districts.” Journal of Public Economics 95. Pages 1358-1372.
Reddy, Sanjay. 2012, Fall. Advanced Microeconomics 1 Lectures at New School for Social Research Department of Economics.
By Jmaine
One perspective on this question comes from E. Olstrom. In the article “Collective Action and Evolution of Social Norms,” Olstrom (2000) writes that there is a disharmony between what conventional theory predicts and what the actual behavior in everyday life reveals. Another perspective comes from J. Stiglitz. In the article “Private Uses of Public Interests: Incentives and Institutions,” Stiglitz (1998) argues that conventional theory does not help us understand how policies that would benefit all fail to make it into law. Stiglitz provides four key reasons why Pareto Improvements are not realized in the market economy.
Conventional economists offer a narrow view on the causes of collective action. One messenger of this school of thought is M. Olson. In the book, The Logic of Collective Action, Olson (1971) argues that individuals that are guided by self interest do not aspire to contribute to collective action, activities that would generate positive externalities. He writes that “if the number of individuals in a group is quite small, or unless there is coercion or some other special device to make individuals act in common interest, rational self interested individuals will not act to achieve their common interests.” One implication of this view is that it asserts that individuals will not work together and solve collective action challenges. What does this mean for public policy? It implies that policy must take the form of external encouragement, helping individuals meet their self interest.
Olstrom (2000) writes that there is a disharmony between what conventional theory predicts and what the actual behavior in everyday life reveals. She does this by summarizing core findings of studies on public good games. The first finding is that “subjects contribute between 40 and 60 percent of their endowments to public good in a one shot game as well as in the first round of finitely repeated games.” The second finding is that once the first round is played, the player’s level of contribution tends to fall, but does not reach zero. The fourth finding is that once players learn more about the game, they are more likely to cooperate with each other. The fifth finding is that interfacing with other players (i.e. setting strategy, punishing others) leads to an increase and sustained level of cooperation. Finally, the seventh finding is that “the rate of contribution to a public good is affected by various contextual factors including the framing of the situation and the rules used for assigning participants, increasing competition among them, allowing communication, authorizing sanctioning mechanisms.” With these findings, Olstrom comes to two conclusions. 1) Not all individuals are simply self interested. Some individuals are willing to act as anchors to spark collaboration to reach goals of collective action. 2) Olstrom finds and characterizes three types of human behavior: norm-using (findings 1-4, those who want conditional cooperation and those who are willing to punish); willing punishers (findings 5-6); and rational egoists. These form the basis of a broader view on the causes of collection action.
Olstrom then argues that evolutionary theory provides us with a more interesting approach to understanding the mechanisms that individuals rely on to reinforce collection action. Evolutionary theories allow us to model how numerous types of behavior live and thrive in the general population. The emergence of collective action generally starts with some individuals who initiate the process and the emergent group designs the rules and sets the property rights. The implication of this point of view is that evolutionary theories are better positioned to allow us to watch the endogenously driven ‘development and growth of social norms.’
The insights provided by Olstrom are supported by other economic research. In the article “The Micro-Empirics of Collective Action: The Case of Business Improvement Districts,” L. Brooks shows the full range of firm activity, from initiating to institutionalizing 32 business improvement districts in Los Angeles. In order to launch the BID, there are anchor firms that act in social ways to consolidate support from other firms and city government to create a district and generate positive externalities. In turn, they are restoring the vibrancy of downtown areas, boosting property values, and even reducing crime. This research confirms that numerous individuals and institutions are working together to solve collective action problems, without external public policy encouraging the action.
Stiglitz (1998) also argues that conventional theory does not provide a strong foundation for understanding collective action in everyday life. One major limitation of the conventional theory is that it “does not explain why policies that harm no one fail to be adopted.” To fill the gap, Stiglitz provides four key reasons why Pareto Improvements are not realized in the market economy: 1) Failure of government to fulfill commitments. One proposed policy would have strengthened the use of hydroelectricity in the country. The proposal took the form of a Pareto Improvement because the proposal was good for subsidized consumers, it was revenue generating for the budget, and made use of noncarbon alternatives for producing electricity. However, this proposal did not make it into law. 2) The formation of collaboratives and bargaining. One proposed policy that was backed by a collaborative would have strengthened the framework and standards for Superfund sites. The proposal passed the House. However, the collaborative broke up when new members of the Republican party arrived. With the arrival of new players, business leaders decamped because they thought they could get an even better deal. This sparked a stand still for reform. 3) Destructive competition. Zero sum games are an example: Senate minority leader using leverage to kill Superfund reform. 4) Uncertainty about consequences of changes. Overall, Pareto Improvements are not realized due to failure of government to fulfill commitments and dynamics with bargaining in the political arena.
Stiglitz appears to privilege the notion of Pareto Improvement but does not question that maybe this notion is not enough. Perhaps bringing about a Pareto optimal result may not be that socially satisfying (Reddy, 2012). Outcomes that are Pareto optimal don’t tell us whether mass starvation can occur. They don’t tell us whether or not there is a survival constraint: consumption of person can fall to zero. What if there is a catastrophic moral horror occurring as a result of market or government activity? Yet a Pareto Improvement is realized. Could this be a reason that collective action would reject that Pareto Improvement?
References
Olstrom, Elinor. 2000, Summer. “Collective Action and the Evolution of Social Norms.” Journal of Economic Perspectives. Volume 14. No 3. Pages 137-158.
Stiglitz, Joseph. 1998, Spring. “Private Uses of Public Interests: Incentives and Institutions.” Journal of Economic Perspectives. Vol. 12. No. 2. Pages 3-22.
Brooks, Leah and William C. Strange. 2011, July. “The Micro-Empirics of Collective Action: The Case of Business Improvement Districts.” Journal of Public Economics 95. Pages 1358-1372.
Reddy, Sanjay. 2012, Fall. Advanced Microeconomics 1 Lectures at New School for Social Research Department of Economics.
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