RISE AND DECLINE OF NATIONS CP. 2 AND 3

M.OLSON

Presentation by Positive Political Theory

Margarita Lakova Prof. F. Zucchini

EPS 2013

THE LOGIC Outgrowth of The Logic of Collective Action

Paradox in the behavior of groups

If there is only voluntary and rational individual behavior, then for the most part neither government nor lobbies or cartels will exist

governments are supported by compulsory taxation

organizations exist due to selective incentives: positive selective incentive negative selective incentive

SOCIAL SELECTIVE INCENTIVES

powerful and inexpensive

limited by social heterogeneity of the group if a collective action is to occur, there would be

extra costs of accommodating and compromising the different views

political entrepreneurs who attempt to organize collective action are more likely to succeed if they strive to organize relatively homogeneous groups (with similar social status, tastes, ect.)

WHY IS LOBBYING EFFECTIVE?

limited knowledge of public affairs

the information and calculation about collective goods is also a collective good

when the costs of individual contributions to collective action are small, the individual has little incentive to exercise intuition or decide on whether to contribute or not

COLLECTIVE ACTION CAN OCCUR WITHOUT SELECTIVE INCENTIVE

Under what circumstances? the group that benefit from a collective action is

sufficiently small the cost-benefit ratio for the group is sufficiently

favorable bargaining costs are negligible

The possibility of individual contribution to a collective action diminishes as the size of the group that gains from it grows

CONCLUSIONS

those groups that have access to selective incentives will be more likely to obtain collective goods

small group and federations of small groups have a greater likelihood to engage in collective actions than larger ones

THE IMPLICATIONS

these implications tell us what we should expect in certain types of societies and historical conditions if the theory from The Logic chapter is correct

“microeconomic theory” of individual firms, consumers and industries shall be used

“Schumpeterian” insight into innovation and entrepreneurship

IMPLICATION №1:

There will be no countries that attain symmetrical organization of all groups with a common interest and thereby attain optimal outcomes through comprehensive bargaining.

IMPLICATION №2:

Stable societies with unchanged boundaries tend to accumulate more collusions and organizations for collective action over time.

IMPLICATION №3:

Members of “small” groups have disproportionate organizational power for collective action, and this disproportion diminishes but does not disappear over time in stable societies.

IMPLICATION №4: an organization can in principle serve its

members by: making the pie the society produces larger, so

that its members would get larger slices even with the same shares as before

obtaining larger shares or slices of the social pie for its members (self-interest)

On balance, special-interest organizations and

collusions: reduce efficiency aggregate income in the societies in which

they operate make political life more divisive

IMPLICATION №5: the efficiency of firms and industries can be

influenced by whether or not the relevant institutions for collective action are encompassing (inclusive) in relation to them

encompassing organizations and institutions are less likely to have an incentive to act in antisocial way (this does not mean there should always be preferred)

the idea of encompassing organizations and institutions is not necessarily always a guide for reform, but it is essential to a complete understanding of many important organizations and institutions

IMPLICATION №5:

Encompassing organizations have some incentive:

to make the society in which they operate

more prosperous

to redistribute income to their members with as less excess burden as possible

to cease such redistribution unless the amount redistributed is substantial in relation to the social cost of redistribution

IMPLICATION №6:

Special-interest organizations tend to make

decisions more slowly than the individuals or firms of which they are constituted.

This is due to the fact they must use :

consensual bargaining

constitutional procedure

IMPLICATION №6:

the combination of slow decision-making and multiple decisions usually leads to a crowded agenda

the conflict of interest over the sharing of costs tend to force the majority of cartels and lobbies to seek to fix prices or wages, rather than the quantity that can be sold (easier to detect cheating)

IMPLICATION №6:

Distributional coalitions:

make decisions more slowly than the individuals and firms of which they are comprised

tend to have crowded agendas and bargaining tables

more often fix prices than quantities

IMPLICATION №7:

The author assumes:

an absence of special-interest groups not perfect competition not a static market free entry no barrier to imitation

The last two assumptions eliminate monopoly profits

and insures no one on the market stays lethargic or

inefficient.

IMPLICATION №7: There are two main counter arguments against free

entry:

the amount of capital needed to enter the industries in which there are giant companies is so great that they feel protected.

But this overlooks the desire for profits of othergiant firms.

in some small and medium-sized countries, especially less developed ones, is said that there are only a few firms with the resources to enter certain industries, but entry is then not likely

But this argument depends on tariffs and restrictions on foreign firms

IMPLICATION №7:

There still might be supernormal rates of profits for some firms even with free entry

What is this due to?

Mainly innovations, discoveries of new technologies

lower-cost methods of production, ect.

Economic growth and progress(Schumpeterian analysis of innovation and

entrepreneurship)

IMPLICATION №7:

What may slow down the adaptation of innovation and new technologies?

slow-decision making, crowded agendas and bargaining tables of distributional coalitions

special-interest groups by reducing the rate at which resources are reallocated from one activity or industry to another

IMPLICATION №7:

Distributional coalitions slow down a society’s capacity to adopt new technologies and to reallocate resources in response to changing conditions, and thereby reduce the rate of economic growth.

IMPLICATION №8:

Distributional coalitions, once big enough to succeed, are exclusive and seek to limit the diversity of incomes and values of their membership.

IMPLICATION №9:

To achieve their objectives, distributional coalitions must use:

their lobbing power to influence governmental policy

their collusive power to influence the market

Lobbying increases the complexity of regulation and the scope of the government, and collusion and organizational activity in markets increase the extent of bargaining, this is what the author refers to as complex understandings

IMPLICATION №9:

The growth of coalitions and the complexity of understandings alter a new pattern of incentives and the direction of evolution in society:

the incentive to produce diminishes

the incentive to seek a larger share of what is produced increases

the reward for pleasing those to whom we sell declines

while the reward for evading and exploiting regulations, politics and bureaucracy becomes greater

:

IMPLICATION №9:

The accumulation of distributional coalitions

increases :

the complexity of regulation

the role of government

the complexity of understanding

changes the direction of social evolution

.

THANK YOU FOR YOUR ATTENTION !