Edited by William F. Shughart II and Laura Razzolini
Chapter 3: The logic of collective action
Omar Azfar* 1 Introduction Before Mancur Olson wrote The Logic of Collective Action (1965), it was widely assumed by sociologists and economists that group action and individual action are analytically similar. The central point of The Logic is that this is a non-trivial and often false assumption. Olson argued that individual rationality does not imply collective rationality, and that this is especially true of large groups. A collective action problem arises when a group of individuals desires a public good – such as clean air, protective tariffs, law and order, or defense – and no one individual has the means of providing it. The provision of the good thus requires aggregating the contributions of several individuals. The central problem is that each individual would like to contribute a suboptimal amount because the beneﬁts of his expenditure will be shared by all. Olson argues that, while small groups can sometimes organize collective action by informal arrangements and peer pressure, large groups typically need formal institutions and selective incentives to organize and act collectively.1 There is today perhaps a greater appreciation than ever before of the importance of collective action. Not only do traditionally analysed public goods and externalities, such as infrastructure and atmospheric pollution, continue to be important, we now appreciate more deeply that there are public goods underlying all market activities. Good governance, which is essentially a public good, is now considered the key to a successful market economy.2 (In a typically eloquent moment, Mancur Olson coined the phrase ‘market-augmenting government’...
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