Olson

In The Logic of Collective Action, University of Maryland Economics Professor Mancur Olson argues rational, self-interested individuals will not act to achieve their common or group interests, unless 1) the number of individuals in a group is quite small, or 2) there is coercion or some other incentive to force individuals to act in the common interest. In other words, even if all of the individuals in a large group are rational and self-interested, and would gain if they acted to achieve their common interest or objective, they will still not voluntarily act (or pay) to achieve the collective good. There is a surprising tendency for the “exploitation” of the great by the small -- the "free rider" problem (i.e. why pay for the collective good, if it's being provided by others and I don't have to pay?).

Themes

Applications to Strategy
 * Public good: service provided to a group in which a member who does not “pay” for the good or service can still “consume” (have the benefit of) it – national defense is a classic public good. If if folks don't pay taxes, they still get the benefits -- the "free rider."
 * Groups form because they can provide public/collective goods to members.
 * A small group is attractive because the individual investment in a public good (which the individual cannot provide for himself) is roughly equal to the benefit each individual receives from the public good.
 * This incentive breaks down as the group grows larger, because the organization that can provide a minimum acceptable level of public good becomes more expensive, while people (or smaller sub-groups) get smaller percentages of the public good for what they contribute toward it. Large groups therefore tend to provide a suboptimal level of public goods.
 * Where members in the group are unequal, there is a tendency for large members to provide large shares, but small members tend to provide less than their “fair share” because the amount of public good they get for free from larger members exceeds what they would get by paying their share.
 * Group members are often ambivalent about including new members because of the dual prospects of expanding the size/influence/resources of the group and having to carry free riders.
 * Large groups are “latent groups” where the potential for collective action must be “mobilized” through coercion or incentives.
 * Incentives must be selective (applied discriminately between those who join and those who don’t).
 * Social incentives (peer pressure, guilt, etc) in a large organization only work when the organization is federated into smaller groups where social forces are in play.
 * Failures of collective action can often be failure of incentives for collective action rather than failure of consensus on the “value” of the public good obtained.
 * National defense, as a public good in a large nation, will always be under-resourced—live with it.
 * Alliances will have free riders. This creates a fundamental tension between the “costs” of providing free security or restraining unilateral action versus the “public goods” of stability within the alliance or moral justification for policies supported by the alliance; (collision with Walzer, who argued that more small-nation involvement in Iraq containment would have provided a built-in restraint to U.S. unilateralism; here presented as a drawback in the tradeoff to gain shared moral justification).
 * It is difficult for alliance members—as NATO has attempted in the past—to “specialize” in specific military capabilities that are then integrated, because of the tendency to have one or more free riders failing to provide key capabilities. Countries that have specialized to some degree usually are free riding on the capabilities of a large member like the U.S.
 * Collective action possible in one situation may be impossible in an otherwise analogous situation where the incentive structure has changed—i.e., intervention in Rwanda vs. Bosnia.
 * Whole countries are unlikely to embrace fundamental changes that will result in public goods (democracy, human rights, etc.) unless those changes are selectively incentivized. Moreover, social incentives (convincing people that such changes are in their best interest) must be worked through small federated groups that already have a place in the society.

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--- Class 21 Detailed Notes (for reference, as needed) ---

Introduction

 ·   “The idea that groups tend to act in support of their group interests is supposed to follow logically from this widely accepted premise of rational, self-interested behavior… if the members of some group have a common interest or objective, and if they would all be better off it that objective were achieved, it has been thought to follow logically that the individuals in that group would, if they were rational and self-interested, act to achieve that objective.” (1)

 ·   “But it is not in fact true that the idea that groups will act in their self-interest follows logically from the premise of rational and self-interested behavior. It does not follow, because all of the individuals in a group would gain if they achieved their group objective, that they would act to achieve that objective, even if they were all rational and self-interested. Indeed, unless 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 their common interest, rational, self-interested individuals will not act to achieve their common or group interests.” (1 – 2)

A Theory of Groups and Organizations

The Purpose of Organizations

 ·   “Just as those who belong to an organization or a group can be presumed to have a common interest, so they obviously also have purely individual interests, different from those of the others in the organization or group.” (8)

Public Goods and Large Groups

 ·   “Though all the firms have a common interest in a higher price for the industry’s product, it is in the interest of each firm that the other firms pay the cost – in terms of the necessary reduction in output – needed to obtain a higher price.” (10)

 ·   “Just as it was not rational for a particular producer to restrict his output in order that there might be a higher price for the product of his industry, so it would not be rational for him to sacrifice his time and money to support a lobbying organization to obtain government assistance for the industry. In neither case would it be in the interest of the individual producer to assume any of the costs himself. A lobbying organization, or indeed a labor union or any other organization, working in the interest of a large group of firms or workers in some industry, would get no assistance from the rational, self-interested individuals in that industry.” (11)

 ·   “In a large organization, the loss on one dues payer will not noticeably increase the burden for any other one dues payer, and so a rational person would not believe that if he were to withdraw from an organization he would drive others to do so.” (12)

 ·   “If the state, with all of the emotional resources at its command, cannot finance its most basic and vital activities without resort to compulsion, it would seem that large private organizations might also have difficulty in getting the individuals in the groups whose interest they attempt to advance to make the necessary contributions voluntarily.” (13)

 ·   “The achievement of any common goal or the satisfaction of any common interest means that a public or collective good has been provided for that group.” (15)

 ·   “The provision of public or collective goods is the fundamental function of organizations generally.” (15)

 ·   “Just as a state cannot support itself by voluntary contributions, or by selling its basic services on the market, neither can other large organizations support themselves without providing some sanction, or some attraction distinct from the public good itself, that will lead individuals to help bear the burdens of maintaining the organization.” (16)

<p style="line-height: normal; margin: 0in 0in 0pt">The Traditional Theory of Groups

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   Traditional theory of group behavior – private groups and associations operate according to principles entirely different from those that govern the relationships among firms in the marketplace or between taxpayers and the state. Causal form – groups are ubiquitous due to human propensity to form and join associations. Formal variant – evolution of modern, industrial societies out of the ‘primitive’ societies that preceded them. (16 – 17)

<p style="line-height: normal; margin: 0in 0in 0pt">Small Groups

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “If there is some quantity of collective good that can be obtained at a cost sufficiently low in relation to its benefit that some one person in the relevant group would gain from providing that good all by himself, then there is some presumption that the collective good will be provided.” (22)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “The rate of gain to the group must exceed the rate of increase in cost by the same multiple that the group gain exceeds that gain to the individual concerned.” (24)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “Only when the elasticity of demand for the industry is less than or equal to the fraction of the industry’s output supplied by a particular form will that firm have any incentive to restrict its output. A firm that is deciding whether or not to restrict its output in order to bring about a higher price will measure the cost or loss of the foregone output against the gains it gets from the ‘collective good’ – the higher price. The elasticity of demand is a measure of this.” (26)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   Cournot solution – a firm will act to keep up the price of the product its industry sells only when the total cost of keeping up the price is not more than its share of the industry’s gain from the higher price. (26)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “There is a tendency in small groups toward a suboptimal provision of the collective good.” (28)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “Since the larger the number in the group, other things equal, the smaller the Fi’s [fraction, which equals Vi/Vg or individual value divided by group value] will be, the more individuals in the group, the more serious the suboptimality will be.” (28)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “There is a systematic tendency for ‘exploitation’ of the great by the small!” (29)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “The necessary conditions for the optimal provision of a collective good, through the voluntary and independent action of the members of a group, can, however, be stated very simply. The marginal cost of additional units of the collective good must be shared in exactly the same proportion as the additional benefit.” (30)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “If at any level of purchase of the collective good, the gain to the group exceeds the total cost by more than it exceeds the gain to any individual, then there is a presumption that the collective good will be provided, for then the gain to the individual exceeds the total cost of providing the collective good to the group.” (33)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “Even in the smallest groups, however, the collective good will not ordinarily be provided on an optimal scale.” (34)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “The larger the group, the farther it will fall short of providing an optimal amount of a collective good.” (35)

<p style="line-height: normal; margin: 0in 0in 0pt">“Exclusive” and “Inclusive” Groups

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “Whereas firms in a market lament any increase in competition, associations that supply collective goods in nonmarket situations almost always welcome new members. Indeed, such organizations sometimes attempt to make membership compulsory.” (37)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “Because of the fixed and thus limited amount of the benefit that can be derived from the ‘collective good’ – the higher price – in the market situation, which leads the members of a market group to attempt to reduce the size of their group, this sort of collective good will here be called an ‘exclusive collective good.’ Because the supply of collective goods in nonmarket situations, by contrast, automatically expands when the group expands, this sorts of public good should be called an ‘inclusive collective good.’” (38)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “Whether a group behaves exclusively or inclusively, therefore, depends upon the nature of the objective the group seeks, not on any characteristic of the membership.” (39)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “An inclusive collective good is by definition such that the benefit a noncooperator receives is not matched by corresponding losses to those who do cooperate.” (40)

<p style="line-height: normal; margin: 0in 0in 0pt">A Taxonomy of Groups

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “The standard for determining whether a group will have the capacity to act without coercion or outside inducements, in its group interest is the same for market and nonmarket groups: it depends on whether the individual actions of any one or more members in a group are noticeable to any other individuals in the group.” (45)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “The smallest type of group… may get along without any group agreement or organization.” (46)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “In any group larger than this, on the other hand, no collective good can be obtained without some group agreement, cooperation, or organization. In the intermediate or oligopoly-sized group… there must be at least tacit coordination or organization. Moreover, the larger a group is, the more agreement and organization it will need. The larger the group, the greater the number that will usually have to be included in the group agreement or organization.” (46)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “Where there is no pre-existing organization of a group, and when the direct resources costs of a collective good it wants are more than any single individual could profitably bear, additional costs must be incurred to obtain an agreement about how the burden will be shared and to coordinate or organize the effort to obtain the collective good.” (47)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “However immense the benefits of a collective good, the higher the absolute total costs of getting any amount of that good, the less likely it is that even a minimal amount of that good could be obtained without coercion or separate, outside incentives.

<p style="line-height: normal; margin: 0in 0in 0pt"> ·   “Only a separate and ‘selective’ incentive will stimulate a rational individual in a latent group to act in a group-oriented way.” (51)

<p style="line-height: normal; margin: 0in 0in 0pt">Group Size and Group Behavior

<p style="line-height: normal; margin: 0in 0in 0pt">The Coherence and Effectiveness of Small Groups

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “It does not follow that, because the small group has historically been more effective, the very large group can prevent failure by copying its methods.” (57)

<p style="line-height: normal; margin: 0in 0in 0pt">Problems of the Traditional Theories

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “For the small, privileged group can expect that its collective needs will probably be met one way or another, and the fairly small (or intermediate) group has a fair chance that voluntary action will solve its collective problems, but the large, latent group cannot act in accordance with it common interests so long as the members of the group are free to further their individual interests.” (58)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “If voluntary, rational action cannot enable a large, latent group to organize for action to achieve its collective goals, even with perfect consensus, the a fortiori [with more reason, fan an even stronger reason] this conclusions should hold in the real world, where consensus is usually incomplete and often altogether absent.” (60)

<p style="line-height: normal; margin: 0in 0in 0pt">Social Incentives and Rational Behavior

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “For social status and social acceptance are individual, noncollective goods.” (61)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “Social pressure and social incentives operate only in groups of smaller size, in the groups so small that the members can have face-to-face contact with one another.” (62)

<p style="line-height: normal; text-indent: -0.25in; margin: 0in 0in 0pt 0.5in; mso-add-space: auto; mso-list: l0 level1 lfo1"> ·   “Large or latent groups will not organize for coordinated action merely because, as a group, they have a reason for doing so, though this could be true of smaller groups.” (65)