Collective Action, Public Goods and Common-pool Resources (Session 4-6) Flashcards
(Sessions 4-6)
Private Goods
Production or consumption is private (e.g. a banana)
Public Goods
Production or consumption is a common collective (e.g democracy, national defense, general infrastructure)
- Samuelson (1954) enjoyment of an individual’s individual consumption leads to no subtraction from any other individual consumption of that good
Competitive Equilibrium
The rate at which each consumer wants to trade good 1 for good 2 equals the price of ratios between the two goods, which holds for every consumer in the economy
This will generally lead to an underprovision of the public good with respect to the socially efficient provision
The condition required for a socially efficient provision
A consumer MRS between a public and private good does not necessarily equal other consumers’ MRS between the two goods
The price (cost) of a marginal increase in the quantity produced of the pure public good, should not equal any consumer’s marginal willingness to pay for a little more of the public good.
Why do public goods pose problems for rational choice theory?
Because they involve trade-offs between some concepts we already saw:
- Individual utility maximization
- Strategic interaction
- Social outcomes
What type of situation causes a collective action problem to arise?
- A good is collectively produced
- The good is collectively consumed (non-excludable)
- Each individual contribution to the production of the good is small (not critical for production)
- Free riding
-Prisoners dilemma
Why does Free-Riding happen
- The good will likely be produced anyway
- The individual will be able to enjoy the good anyway
- This is utility maximization (cost minimization)
-This is a collective action problem, if nobody contributes, everyone is worse off, but everyone is better off free-riding unless everyone else does
Why does collective action not always work even if a majority favors a specific outcome?
Incentives to free-ride and the absence of a mechanism to ensure cooperation between individuals prevents them from achieving an outcome
To overcome this we have to
- Discourage free riding
- Facilitate coordination
Mancur Olson (1965) solution to free riding
1) Exclude free riders (Privatizing some collective consumption goods)
The problem with this is:
- Does not work for all public goods (think of clean air, collective security)
2) Provide exclusive private benefits as incentives to group members
3) Sanctions for free-riding & third party enforcement (e.g. compulsory voting - fine a citizen if they fail to show up to polls
An outcome or allocation of goods/ resources is Pareto optimal if
there is no other outcome/ allocation that
1) Is strictly preferred by at least one player (member of the group/ society)
2) Is at least as good for all the other players (members of the group/ society)
What are common pool resources?
- Common pool resources are good/ resources that
1) benefit groups of people but provide diminished benefits to everyone if each individual pursues her own self-interest - Like public goods, non-excludability is a defining characteristic of common-pool resources
-But unlike them, these goods are subject to crowding (rival consumption e.g if individual I consumers more of the common pool resource there is less left for j)
How does Garret Hardin (1968) use the expression “tragedy of the commons”
to illustrate the degradation of the environment to be expected when many individuals use a resource in common
Common-pool resources (CPR) two-fold problem is what?
1) Stock: commonly held resource; difficult or impossible to exclude actors from using this stock
2) Flows: Private consumption of the resource units; individual rationality leads to over-consumption
How do you solve common-pool resources (CPR) problems?
1) How to coordinate the production/ maintenance of the stock
2) How to apportion the flows among the users
