Unit 5: Collective Action Problems and Collective Action Institution

Question 1

Models

Answer 1

Abstractions (simplifications) that help us to understand reality and help us predict future outcomes.

Question 2

Theory

Answer 2

System of ideas intended to explain phenomena (real world things) based on a shared body of principles (terms and concepts).

Question 3

Ethical Philosophy

Answer 3

Effort to define how society should function in terms of what is accepted as right or wrong behavior.

Question 4

Utilitarianism

Answer 4

Ethical philosophy that suggests that the morally right action is the action that produces the greatest level of happiness, meaning we should do the thing that results in the greatest amount of benefit for society.

Question 5

Collective Action Problems (Social Dilemmas)

Answer 5

Situations in which the rational self-interested behavior of individual decision makers leads to suboptimal outcomes in terms of total utility (total happiness and well being).

Question 6

Garrett Hardin

Answer 6

Wrote The Tragedy of The Commons in 1968, which noted that open access ‘common’ properties were doomed to tragedy because individuals had an incentive to over-exploit them.

Question 7

Externalities

Answer 7

Distinguished between Private benefits/costs of a production/consumption process and public benefits and costs. These costs are NOT considered by the key decision makers.

Question 8

Negative Externalities

Answer 8

Social costs, occurs when a decision causes costs to stakeholders (people/groups) other than those involved in making the decision. Do not factor into the decision for producing or consuming goods and services because neither the producer or the consumer experience the cost. When not addressed, we end up with more of something being produced and consumed than is efficient.

Question 9

Positive Externalities

Answer 9

Social benefits, when benefits in a production-consumption relationship are experienced by a third party.

Question 10

Free Riders

Answer 10

Experience positive externalities but don’t contribute to them. Usually experience social punishment.

Question 11

Types of negative externalities

Answer 11

Present day and future costs borne by 3rd parties

Question 12

Prisoner’s Dilemma

Answer 12

Demonstrates that people acting in their own self-interest act very differently when they can communicate and defend their own interests.
When communicate is cut off, people are incentivized (forced) to turn against one another resulting in a suboptimal outcome. When they can communicate they have an incentive to work collaboratively for the best possible outcome.

Question 13

Institutions (unit 5)

Answer 13

Alter incentives so that individuals shift from making behaviors that are ‘individually good & Collectively Bad’ to being ‘individually good & Collectively Good’.

Question 14

Institution components

Answer 14

Instruction (what is allowed and preferred) and incentive (motivation that influences behavior)

Question 15

Rules, laws, contracts etc…

Answer 15

Formal institutions and incentives that influence the behavior of group members.

Question 16

Norms

Answer 16

Informal institutions and incentives that influence the behavior of group members.

Question 17

Arthur Pigou

Answer 17

Wrote ‘Wealth and Welfare’ in 1912 to distinguish between Private benefits and costs of a production/consumption process and External benefits and costs.
These external costs are NOT considered by the key decision makers (the producers and consumers) of a production/consumption process
Named Social Benefits as Positive Externalities and Social Costs as Negative Externalities.