Continuation of our discussion

I wanted to add a few thoughts on what we discussed in class today:

Collective action problems, externalities, path dependence and free riding are closely related concepts. As analytic tools they can help us to understand the decision of whether to provide a good through the market or through the government. It also gives us an alternative way of understanding what people in a society do. Specifically, it gives us a way to explain why people may do something that does not seem to be in their interest, in other words, engage in behavior that does not seem rational.

What we want in science is a set of concepts and models that will explain a wide range of behavior and cover a wide range of situations.

Collective action problems. Suppose:

• Everyone agrees that the foreign car is better, but being the only person with a foreign car means that you can’t get your car repaired.
• Everyone agrees that waiting in line is a better system than just piling on but being the only person that waits in line for the bus in Kyrgyzstan means that you get on the bus last.
• Everyone agrees that Linux is a better operating system than Microsoft, but being the only guy to use Linux instead of Microsoft means you get no help from the help desk.
• Everyone agrees that having a strong central government is better than the system of having a bunch of warlords but being the only guy to pay the central government instead of the warlord gets you killed.

All of these situations are very different but they have in common the same structure. What we would do if we could act as one, as a group, is different from what we would do if we had to act individually, that is, be the first guy to act. What we seem to prefer as a group is different from we seem to prefer as individuals. The choice that makes us better off as a group makes us worse off as individuals. This is a collective action problem.

Collective action problems are a major reason we have government. Even if we all think we would be better off as a group paying taxes to have a national defense, we have an incentive as individuals not to pay taxes for national defense. Paying for a defense is a case where what makes the same people better off at the group level makes them worse off at the individual level.

National defense is a collective action problem because we get the benefit of a national defense just from being in the country, whether we have contributed to it or not. That is how collective action problems are related to another important concept in modern political science: public goods. They are non-excludable. You get the benefit of what the larger group is doing—paying for national defense in this case—whether you contribute or not. That is what gives you an incentive not to contribute, or free ride.

Now letting people act individually is just another way of saying leaving things to the market. If we let people decide whether to pay for national defense on their own the way we let them decide whether or not to pay for meals in restaurants we would end up with a lot less national defense than we would prefer as a group.

This is obvious in the case of national defense but it is partially the case in a lot of situations and goods where it is not nearly as obvious. Take the case of roads. Even if we paid through all roads with tolls so that people were able to ‘buy’ just as much roadway as they needed, we would have less roadway than we prefer as a group. This is because a lot of the benefit of roadway systems goes to people whether they are driving on the roads or not. All of the goods and services that come to me come to me partially by way of roads. To the extent there are people that don’t use the roads very much, under a toll road system they would be getting benefits that they don’t pay for. They are getting an externality (a positive externality in this case), a benefit from a transaction that they themselves are not a part of. Under such conditions we would expect less than the optimum amount of roads to be built, or, what economists call "underprovision."

That is why we see the government getting people to pay for things through taxes rather than through transactions in the market place. When there are benefits to third parties we often provide the goods through the government rather than through the market.

Notice how path dependence can come into this. Path dependence is when events in the past affect what choices we can make in the future. This is most interesting when what would make more sense today is somehow closed off by past events.

The Microsoft example is a good example of path dependence. If we were starting over today we would probably all be better off with a different operating system, say, Linux, but we don’t want to be the first to switch individually now that we are in a world where everyone else uses Microsoft’s operating system. An event in the past—the fact that Microsoft was used on IBM’s personal computers—has effected the choice we make today. In this case, the path dependent nature of technology adoption has set us up for a collective action problem. In this case, it is one that we have not solved.

So we can’t conclude from the fact that everyone in Afghanistan pays money to warlords instead of paying their taxes to the central government that they think warlords are better than having a central government anymore more than we can conclude from the fact that people pay money to Microsoft instead of using Linux (which is free) that they think Microsoft is a better operating system. In both cases they may be facing a collective action problem.

One last point. Notice how collective action comes in with the ancient republics and the problem of war. At the battle of Thermopylae, Xerxes had to use whips to get his men to fight. He needed an army behind his army to make it fight. Not so the Spartans. The ancient republics could solve the collective action problem of war—getting men to do what was in the interests of the group rather than what was in their individual best interests—through social solidarity, thinking of yourself as part of the group before thinking of oneself as an individual. This sense of doing what is in the group’s interest instead of your personal interest is the essence of what the founders meant by ‘republican virtue,’ and they thought it was far more important than voting procedures or individual freedom of conscience in the survival of the republic. They relied on social solidarity to solve collective action problems.

What do we rely on?