Author & Context American economist and social scientist, 1932-1998. Major contributions to institutional economics and the role of collectiveaction, public goods, private property, taxation, and contract rights in economic development.
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 a common interest, rational, self-interested individuals will not act to achieve their common or group interests. In other words, even if all of the individuals in a large group are rational and self-interested, and would gain if they acted to achieve their common interest or objective, they will still not voluntarily act to achieve that common or group inertest. In small groups, the sharing of the costs of efforts to achieve a common goal often results in a tendency of exploitation of the great by the small.
- Public good: service provided to a group in which a member who does not “pay” for the good or service can still “consume” (have the benefit of) it – national defense is a classic public good. Free rider.
- Groups form because they can provide public goods to members.
- A small group is attractive because the individual investment in a public good (which the individual cannot provide for himself) is roughly equal to the benefit each individual receives from the public good.
- This incentive breaks down as the group grows larger, because the organization that can provide a minimum acceptable level of public good becomes more expensive, while people (or smaller sub-groups) get smaller percentages of the public good for what they contribute toward it. Large groups therefore tend to provide a suboptimal level of public goods.
- Where members in the group are unequal, there is a tendency for large members to provide large shares, but small members tend to provide less than their “fair share” because the amount of public good they get for free from larger members exceeds what they would get by paying their share.
- Group members are often ambivalent about including new members because of the dual prospects of expanding the size/influence/resources of the group and having to carry free riders.
- Large groups are “latent groups” where the potential for collective action must be “mobilized” through coercion or incentives.
- Incentives must be selective (applied discriminately between those who join and those who don’t).
- Social incentives in a large organization only work when the organization is federated into smaller groups where social forces are in play.
- Failures of collective action can often be failure of incentives for collective action rather than failure of consensus on the “value” of the public good obtained.
Applications to Strategy
- National defense, as a public good in a large nation, will always be under-resourced—live with it.
- Alliances will have free riders. This creates a fundamental tension between the “costs” of providing free security or restraining unilateral action versus the “public goods” of stability within the alliance or moral justification for policies supported by the alliance; (collision with Walzer, who argued that more small-nation involvement in Iraq containment would have provided a built-in restraint to U.S. unilateralism; here presented as a drawback in the tradeoff to gain shared moral justification).
- It is difficult for alliance members—as NATO has attempted in the past—to “specialize” in specific military capabilities that are then integrated, because of the tendency to have one or more free riders failing to provide key capabilities. Countries that have specialized to some degree usually are free riding on the capabilities of a large member like the U.S.
- Collective action possible in one situation may be impossible in an otherwise analogous situation where the incentive structure has changed—i.e., intervention in Rwanda vs. Bosnia.
- Whole countries are unlikely to embrace fundamental changes that will result in public goods (democracy, human rights, etc.) unless those changes are selectively incentivized. Moreover, social incentives (convincing people that such changes are in their best interest) must be worked through small federated groups that already have a place in the society.