Social Choice Session 10

Carmen Pasca and John Hey

Collective Action

• Plan for today:• I plan to discuss the sociological, poltical

science and economic concepts of collective action.

• We will study the work of different authors.• We will also study the theory of groups.• We try to see if one discipline provides all the

answers.

Sociological Approaches

• Tarde (1843-1904), the founder of social psychology, believed that social reality is made through the relationships of individuals in the society.

• Theories of collective behaviour (G. Tarde and Le Bon G.) suggest that behaviour is different when individuals act alone or in spontaneously- formed groups.

• Instead Durkheim believed that social reality requires ways of acting.

• Paradigm of collective action (Olson):• Individuals have no incentive to act for organisations that

provide public goods because they benefit anyway.• Organizations must also provide personal gratification.

Sociology

• Theories of new social movements: from the 1970s, emphasize the structural transformation of capitalist societies and the development of new social cleavages (A. Touraine) and the rise of post-materialist values (Inglehart: preference of individuals for larger causes).

• Alain Touraine thought:• The society is not conceived as a set of structures and

functions, but as the product of organised social action groups. The social actor is viewed as an individual subject to the search for meaning.

• From Machiavelli to Talcott Parsons, social utility outweighs the individual. Alain Touraine responds and explains that the idea of moral values must order social organisation.

Theory of Collective action and Theory of Groups: various approaches

• The Logic of Collective Action by Mancur Olson explains why some groups are able to have a larger influence on government policy than others.

• The book tries to explains economic policy decisions.

• You would expect that if a group of people have a common interest that they will naturally get together and fight for the common goal. Olson states, however, that this is generally not the case.

Olsen’s thoughts

• "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 behaviour.

• “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."

Economics

• The Economic Logic of Collective Action. • Proposed by Gary Becker in his book The Economic Approach to

Human Behavior (1976). • He is a Member of the Chicago School and won the Nobel Prize in

1992.• His objectives were to:• Explain human behaviour in non-economic situations, by examining

behaviour and hence individual choices and not those of groups (which is the approach used in, for example, Sociology).

• It is not a field of interest specific to economics, but his method, which is that of explaining behaviour as an individual choice based on rationality, taking into account the benefits and costs of individual action.

The Economic Approach

• Economists generally assume that individuals behave rationally, though what is meant by rationality can vary – but it is a central unifying concept in economics.

• “People can be selfish, altruistic, loyal, masochistic ... but they try their best to anticipate the uncertain consequences of their actions and to maximize their own welfare as they conceive it" (Becker, 1989) .

• Most, if not all, of the current work of the general theory of equilibrium (for example: Edgeworth, 1881; Arrow, 1951: Debreu, 1959; Arrow and Hahn, 1971) use the concept of rational behaviour.

The Economic Approach

• The point is this: although behaviour can in principle take many forms, it is reasonable to assume that most of the time it can be described as "rational”.

• The assumption of rational behaviour in pursuit of self- interest makes the analysis of individual behaviour much more feasible than less structured statements.

• It should be noted that this assumption is essential in obtaining several central results in traditional and modern economic theory. (The concept of Pareto optimality of competitive equilibrium for example.)

• It is one of the strengths, and perhaps weaknesses, of modern economics.

Rationality

• The term refers to rational actions designed to maximize its own goals, whatever they are.

• People may say you are "irrational", but even criminals are rational – in their own way, given their own preferences.

• The values of individuals are not necessarily physical.A rational individual can be concerned about and value others, family, children, society, the poor, the oppressed people in the world, etc.

• People have limited information regarding the implications of their actions: they often takes actions that seem appropriate at the time, but thereafter are regretted.

More on “rationality”

• If you act according to what seems best at the time (based on your limited information), you act rationally (even if you later regret your choice).

• Rational action does not mean you do not make mistakes.• Rationality, however, implies that you do not repeat the same

mistake: people learn from their mistakes.• Individual choices are determined by:

1) Tastes/preferences (subjective assessment of desirability of things)2) Opportunities and constraints (environment, technology, market, prices, income, etc.).

Implications of rationality assumption

• Explanation of observed phenomena (individual and collective choices) are necessarily based on changes in opportunities for individuals.

• Tastes and preferences are usually assumed constant.• Most economic models are based on the assumption of

rationality because it helps explain a number of situations. Also rationality ‘closes’ models and provides a complete description of behaviour.

• However there are some economic models which are based on other assumptions in order to predict and understand behaviour.

Bounded Rationality

• These other assumptions include “Satisficing“ and "Bounded Rationality“.

• These assumptions are particularly associated with Herbert Simon (1957, 1979) who suggested that individuals do not/cannot maximise some function but rather they are content with choosing from a range of alternatives that they consider.

• He argued that each person is characterised by a certain level of what he considers an adequate choice and does not try to improve beyond this level.

• Other authors have suggested other variations on the mechanisms of individual choice under the general framework of “Bounded Rationality”.

Bounded Rationality

• The proponents of Bounded Rationality posit that individual decisions are not made within a framework of overall maximisation (of utility), but rather as a series of specific (satisficing) choices, not fully integrated with each other and selected from imperfect information and reflection limited.

Resource Allocation

• The economic approach is essentially private/individual, and operates through markets and involves decentralized decisions made by individuals and businesses and using price as the rationing device.

• The political approach is essentially Public and operates through the Government or the State, and involves Centralized decisions made by elected officials / bureaucrats and using Power as the rationing device.

• Which leads us to the following question:• What should the role of each be in the allocation of

resources?

• Classical vision of the cooperation problem:• Adam Smith's invisible hand.• Adam Smith and the Liberals championed the individualistic

approach.• The well-being of the state is satisfied by the promotion of

the well-being of individuals.• Without the need for coercion or of central planning (the

visible hand of the state), individuals, through self-interest, increase their individual welfare - and collectively - through the establishment of voluntary markets.

The Classical Economic View

Adam Smith again

• Groups and collective actions that increase the welfare of individuals will be automatically formed.

• This leads to a justification of laissez-faire.• Smith assumed that people will realise that cooperation and

exchanges are beneficial to them.• However, this is not necessarily the case.• For example, in the Prisoner’s Dilemma individual self-interest

can lead to a solution bad for both instead of to a solution that is better for both. Indeed the Prisoner’s Dilemma is an obvious refutation of Smith’s ideas.

Political Science

• Michael Taylor (1980) The Evolution of Cooperation• Perceives the state as an institution able to solve the problem

of cooperation.• Seeks to enforce trade on the market (that is property rights).• Institution needed to yield the optimal collective choice.

Two main situations:Small Groups / Exchanges / repeat Perfect informationcooperation easier and more likely

• Large Groups / Trade Non-repeated / Imperfect information• Cooperation in public goods is difficult:

Example: infrastructure, defence.• He argues for the necessity of the State.

Theory of collective action

• Mancur Olson (1965) The Logic of Collective Action• According to Olson, government intervention is not

always necessary.• In some cases, for certain types of goods and

services, groups can solve the problem of "free-rider“ in various ways without state intervention:

• Theory of "by-products" (selective incentives).• Collective actions have characteristics similar to

those of public goods.

Back to Public Goods

• Non-rivalry: once produced, all individuals can benefit from the public good (collective action) without reducing the benefits afforded to other individuals.

• Non-exclusivity: once produced, it is difficult to exclude an individual who has not contributed to the financing of public good (in the organization).

• Mancur Olson continued....• Rational individuals often have no incentive to participate in

collective action but rather to let others act for them.• Example: Politics; public goods; tax evasion• Example: Business / Organizations; teamwork; unions.

A Model

• C: The cost of participating in a group.• Vi: Gross profit groups from participation of individual i.

• Ai: Net income for the individual to participate i.• Ai = Vi - C Ai = Vi - C • If Σ(Vi - Ci) > 0, where the sum is over all i from1 to n.

→ advantageous to form a group• If Ai < 0 for all i = 1,., n

→ The group is latent• If Ai > 0 for all i = 1,..., n

→ The group is preferred if an individual has an interest in obtaining the public good for the group.

Types of Group

• An intermediate group lies between these two extremes.• Privileged group.• Feature: exploitation of the large by the small.

Example: NATOThe United States and Germany bear a greater financial burden (as a proportion of GDP) than other countries.

• Latent group.• A latent group is difficult to organize because the individual

benefits are too low relative to costs.• Example: Consumers of milk vs. milk quotas (ex milk

producers).

Solutions for latent groups

• Solutions for organization of latent groups:• Incentives "selective“ (by-product)• When the group can not exclude free riders of benefits

related to public welfare, additional private benefits can be added (or coercion).Example: unions, political parties.

• Extra-rational behavior of individuals.• Even if the personal contribution of an individual will not

contribute significantly to further the common cause, individual perceptions and personal beliefs may drive people to participate (example: pleasure associated with participation; voting in an election).

Political Entrepreneurs

• Some individuals believe that their participation in a collective cause can help career advancement. The individual derives a private benefit, therefore, most important of his participation as the sole collective good product.

• The theory of "by-product" explains the organization of latent groups through the provision of private benefits (selective) to individuals to encourage their participation in the group.

Conclusions

• Economists, Sociologists and Political Scientists all have something to contribute.

• Economists believe that in certain contexts the rational pursuit of self-interest can spur collective action, or possibly boundedly rational behaviour.

• Sociologists introduce social elements.• Political Scientists introduce further elements

yielding utility to the decision-makers.• No one discipline provides all the answers.