what is collective action?

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What is Collective Action?. Whenever individuals act together they engage in collective action. In conventional economic theory, all necessary collective action to produce the goods and services required for a good society can be organized spontaneously through a “market economy”. - PowerPoint PPT Presentation

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  • What is Collective Action?Whenever individuals act together they engage in collective action. In conventional economic theory, all necessary collective action to produce the goods and services required for a good society can be organized spontaneously through a market economy.

    But in fact this conventional theory is inadequate:i) For the market to work, a number of institutions and organizations have to exist in advance, and these require prior collective action. These include things like a state to enforce rules, rules and institutions that ensure that individual actions add to social welfare.ii) Even when a market is working, there are market failures that require ex post collective action to resolve

  • Theories of collective action address a number of related questions i) When is it in the interest of individuals to act collectively and when is it not? ii) Why do individuals often fail to act collectively even when they would collectively gain by doing so? iii) When does collective action by some group of individuals result in social benefit and when does it result in benefit for the group at the expense of society?

  • i) When is it in the interest of individuals to act collectively and when is it not? If individuals refuse to contribute or participate in collective action when it is against their interest, then this is not a failure of collective action. However, we have to be careful in defining when something is against an individuals interest. For example, if an individual is taxed, it may appear that the individual is made worse off, but if the tax is used to provide a collective or public good, then the individual may be better off as a result. In conventional economic theory if individuals are free to decide, they always act rationally. If it was in their own interest to act collectively, they would do so.

  • ii) Why do individuals often fail to act collectively even when they may gain? Collective action theory has identified a series of problems:i) Coordination problems (There are socially desirable outcomes which all individuals would prefer but they miss either because of multiple equilibria, or assurance problems)

    ii) Free-rider problems (Attempts to get benefits without contributing to the collective action)iii) Distributive Conflicts (Collective action breaks down into open conflict because there are multiple equilibria with different distributions of benefits)v) Deeper problems for the Chicken Game include the Distribution of Power that determines how long it takes to resolve Conflictsvi) Leadership Problems affect all types of collective action (Failures to persuade, but does not explain where good leadership comes from)iv) Deeper problems for the prisoners dilemma include the transaction costs of enforcement, the absence of trust, high discount rates

  • iii) When does collective action by some group result in social benefit?Some individuals have no prospect of gaining from the collective action but it is still good for society. Some types of distributive conflict are like this, if one group has no prospect of winning. However, if society still gains it should be possible to compensate losers so this is a failure of the political system (which is a collective action failure at some level).Collective Action good for everyone. Environmental protection, provision of public goods etc. Failure of collective action can be due to free-rider problems, distributive conflicts etc.Failure of collective action good for society. Examples: value-reducing rent-seeking, the creation of cartels, monopolies, corruption, environmental depletion by big business or criminals.Perverse behaviour by individuals. Not the subject of economic theory. Alchoholism, gambling etc.

  • Conventional Economic Theory and Collective action Conventional economics has a bias towards the study of individual action rather than collective action because for a long time free market economists assumed that any collective action would be against the public interest. Thus conventional economics was primarily concerned with the lower left hand box in our diagram above, where the failure of collective action is socially desirable.Thus collective action is normally seen as part of rent-seeking theory: small groups engage in collective action to capture rents that enrich them at the expense of society (monopolies, transfers, extortion)But there is a contradiction in conventional theory: to stop collective action by small groups requires collective action by bigger groups (the whole of society). So all collective action cannot be bad!

  • How Social Efficiency is Achieved in Conventional Economic Theory 1 The achievement of Pareto efficiency in a single market: Buyers and sellers achieve the equilibrium price and quantity: this also achieves Pareto efficiency and maximizes net social benefit. If we simply concentrate on Pareto efficiency, we are implicitly making a number of value judgements: a) Individualism: Only the welfare of individuals is of relevance. The welfare of groups, classes, firms, nations etc is notb) Non-Paternalism: The preferences of individuals are sacrosanct, even if they desire the consumption of goods which are harmful for themselves. c) No one's welfare can be reduced whatever the gains to others. This is another way of saying that distribution does not matter. A pareto improvement can occur through a very rich man becoming richer as long as no one gets poorer. Equally, the improvement of very poor people is ruled out if even one very rich person suffers slightly.

  • An Alternative Conception of Social Welfare Net Social Benefit: Weaker conception of social welfare that maintains a) and b) but drops c) to allow interpersonal comparisons and to reach an assessment of social welfare that takes into account gains and losses of different individuals.

    This is the basis of cost-benefit analysis, and is the underlying concept in any assessment of the costs and benefits of collective action.

    Net social benefit is increased if the gain of gainers is more than the loss of losers.

  • How Social Efficiency is Achieved in Conventional Economic Theory 2The First Theorem of Welfare Economics: A perfectly competitive market economy will reach a general equilibrium (all markets will clear) and when this happens, we will achieve Pareto efficiency.Implication: Any other form of collective action is not necessary: self-seeking individuals in a competitive market will collectively achieve Pareto efficiency by acting as individualsLimitations: i) Markets are not natural: they have to be set up and regulated and this requires prior collective action ii) There are many market failures that need to be corrected through subsequent collective action iii) When states intervene to correct market failures this may cause further problems of state/government failures that require collective action to reduce.All of these are collective action problems.

  • Market failuresMarket failures describe situations where self-seeking behaviour by individuals does not result in the best allocation of resources. Externalities: Actions of one individual have a direct effect on the cost or utility of another individual. Too much or too little of a good or service may be provided and as a result net social benefit is not maximized.The collective action problem here is to devise solutions that maximize net social benefit.Public Goods: When a good is non-rival and non-excludable, not enough of it will be provided because of a free-rider problem.

    This is directly a collective action problem.

  • Government/State FailuresGovernment failure is defined as the loss of welfare due to the activity of states acting inappropriately, or due to the inactivity of states when they fail to act to correct market failure (Krueger 1990). With no state action: State Failure = Market Failure.With state action: State Failure = 0 if state intervention totally removed market failure. ButState Failure can be much more than Market Failure if state intervention makes matters worse.

  • Causes of / Contributors to State Failure 1.i) Fundamental Constraints: Information. The Insights of Hayek. States do not have information about individual costs and benefits to make the right decisions about the allocation of resources. However Hayek is too extreme: clearly there are conditions under which states have better information than markets, and in other situations markets perform better than states.So the real question for improving state performance in organizing collective action is how to improve the information capacity of the state. Both institutions and politics can affect this capacity Issues: Democracy vs. Authoritarianism. It is argued that democracy improves the information available to the state. But this is only true in an ideal democracy. Many real world democracies may only increase the access to power of special interest groups, powerful factions and client groups.Centralization vs. Decentralization. It is argued that decentralization improves the information available to the state. But similar issues arise hereMoreover, information can work both ways: it can help parties negotiate win-win solutions more easily, but it can also enable all relative and absolute losers to block change more effectively

  • Causes of / Contributors to State Failure 2ii) Institutional and bureaucratic Capacity: States may lack the capacity in terms of the quality of its personnel or the design of its institutional structure to carry out necessary functions or provide the desired services. Issues. Improving Bureaucratic Capacity and Quality. Improving training and incentives of bureaucrats: higher salaries, better internal monitoring and promotions linked to performance, etc. This is a variant of the knowledge/learning fai

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