Political Leadership and Collective Goods

by Norman Frohlich, Joe A. Oppenheimer

Overview

Using the assumptions of rationality and self-interest common to economic analysis, Professors Frohlich, Oppenheimer, and Young develop a profit-making theory of political behavior as it pertains to the supply of collective goods—defense, law and order, clean air, highways.

Originally published in 1971.

The Princeton Legacy Library uses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These editions preserve the original texts of these important books while presenting them in durable paperback and hardcover editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.

Product Details

ISBN-13:	9780691620572
Publisher:	Princeton University Press
Publication date:	03/08/2015
Series:	Princeton Legacy Library , #1298
Pages:	180
Product dimensions:	5.90(w) x 9.00(h) x 1.50(d)

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Political Leadership and Collective Goods

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By Norman Frohlich, Joe A. Oppenheimer, Oran R. Young

PRINCETON UNIVERSITY PRESS

Copyright © 1971 Princeton University Press
All rights reserved.
ISBN: 978-0-691-07538-9

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CHAPTER 1

Noncompetitive Politics

A number of theorists have attempted to analyze political phenomena in terms of the concept of collective goods. The work of these theorists can be divided into two principal streams. The first focuses on difficulties that occur when individuals attempt to supply themselves with a collective good. This stream, which encompasses the majority of existing analyses of collective goods, concentrates on difficulties arising from the free-rider problem and tendencies for the supply of the goods to be extremely suboptimal. The second stream emphasizes the introduction of the concept of entrepreneurship to augment the explanatory power of the original models to handle cases in which large groups apparently do receive meaningful amounts of collective goods.

We begin this chapter with a brief account of these two streams of analysis, together with a discussion of their shortcomings as the basis of a consistent explanation of the supply of collective goods. This will set the stage for our effort to construct an alternative model to explain political phenomena in terms of the activities of entrepreneurs who act to supply collective goods.

The Problems Inherent in the Supply of Collective Goods

Let us assume that the resources required to supply a given collective good (Xi) exist, that the members of the social structure, as a group, value the good more than the cost of supplying it, but that each member values any additional unit of the good less than the previous unit (i.e., the members experience declining marginal utility with respect to the supply of the good). Assume also that the individual members of the group behave in a rational and self-interested manner. In such situations, the question of how the collective good can be supplied is not a trivial one. To the extent that the good is collective in nature, it is possible for individuals to receive it even if they do not contribute toward its supply. Consequently, individuals acting in a self-interested fashion will experience incentives to withhold their own contributions, hoping that the efforts of others will be sufficient to provide the good to the whole group. And under certain circumstances, these responses described in this discussion as free-rider tendencies) can jeopardize the supply of the collective good altogether.

Interactions Among Consumers

The first stream of analysis concentrates on interactions among prospective consumers of any given collective good. The theorists who have contributed to this stream make a key distinction between large groups and small groups at the outset, and they emphasize the problems of supplying collective goods to large groups. Their analysis leads them to conclude that the provision of collective goods to large groups is a major political problem. Specifically, their argument leads to the conclusion that some groups of individuals who value a collective good more than the cost of providing it will not, in fact, be able to supply it to themselves in any meaningful amount.

To illustrate this analysis in greater detail, let us summarize the argument of Mancur Olson, whose formulation is probably the best known and most powerful in this stream of analysis. Olson argues that two fundamentally different situations are possible in large groups. First, one or more members of the group may value the good more than the cost of supplying it. Here Olson argues that there is a presumption that some of the good will be supplied, at least over a period of time. Second, no individual member of the group may value the good more than the cost of supply. In this case, Olson concludes that the good will ordinarily not be supplied in the absence of indirect incentives. Let us briefly sketch the arguments underlying these conclusions.

Consider first the case in which one or more members of the group, as individuals, value the good more than the cost of supply. Simply stated, Olson's argument here is that the whole group will eventually receive some of the good because the individual who values it more than the cost of supply will realize that the other members of the group regard contributions on their part as unnecessary and act to maximize his own utility by purchasing the good. That is, any individual who values the good more than the cost of supply will act to maximize his own utility with respect to the good, thereby supplying some of it to the group as a whole, as soon as he realizes that he cannot rely on the contributions of others to achieve this result.

When a collective good is supplied through this procedure to a large group, however, the level of supply will be distinctly suboptimal from the perspective of the group as a whole. This follows directly from the collective nature of the good. If one member of the group purchases some of the good because he is able to maximize his personal utility by doing so, every other member of the group will receive these units at no cost. Given this free access to the units of the good purchased by the first individual, others (who are assumed to experience declining marginal utility with respect to the good) will have a reduced incentive to purchase additional units of the good. This means that as those who place the highest value on the good buy additional units, the other members of the group will remain free riders. Sooner or later the cost of purchasing an additional unit of the good will outweigh the utility accruing to any member of the group from such a purchase. At this point, no more units of the good will be purchased, and those who placed a relatively low value on the original units will enjoy those units provided by their more zealous neighbors.

It is clear, however, that the value of an additional unit of a collective good to the group as a whole is not the same as its value to the individual member who purchases it. On the contrary, the value of an additional unit of a collective good to the group is the sum of the values placed on that unit by the individuals who will receive it in the event that it is supplied. And in large groups, this aggregate value will usually be far greater than the value placed on the good by any individual member. Consequently, whenever the cost of purchasing the next unit of a collective good is borne by a single individual (who weighs only his private costs and benefits), the outcome will be far from optimal from the perspective of the group as a whole. In fact, when the group is very large, the good may be so suboptimally supplied that the situation is virtually equivalent to the nonsupply of the good.

Now consider the second case in which no individual member of the group values the good more than the cost of supply. Here Olson concludes that the prospects for supplying the collective good to a large group, in the absence of indirect incentives, are even worse. Thus, he argues that each individual in such a group will feel that a contribution from him will be of negligible importance in securing the collective benefit. That is, each member will feel personally inefficacious because he concludes that the impact of a donation from him will be insignificant and because he sees no way of coordinating his decisions with those of the other members of the group. Accordingly, all the members of the group will decide that it is irrational for them to contribute to the supply of the collective good, and the group will fail to supply itself with the good.

In both cases, therefore, Olson reaches the conclusion that large groups will fail to supply themselves with meaningful amounts of valued collective goods in the absence of indirect incentives. Given this analysis of the collective-goods problem, Olson and others have attempted to identify mechanisms through which meaningful amounts of collective goods can still be supplied to large groups. Specifically, they argue that the dilemma can be resolved by the introduction of indirect procedures such as the collection of resources through a coercive mechanism or the use of private-good incentives. But these constructs are not sufficient to form the basis of a consistent explanation of the supply of collective goods to large groups. For example, what is to prevent an individual who has collected resources through coercion or through positive, private-good incentives from absconding with the resources without supplying the collective good or using the resources for some purpose other than the provision of the collective good? Afterall, any mechanism designed to insure that the resources collected were actually applied toward the supply of the good would be a costly collective good itself, benefiting the same individuals who were scheduled to receive the original collective good. Similarly, why should individuals pay more than a market price for private goods if they are unwilling to make voluntary contributions toward the supply of the collective good? These inadequacies leave the developers of the first stream of analysis of the collective-goods problem without a sufficient explanation of the provision of meaningful amounts of collective goods to large groups.

The Concept of Entrepreneurship

The basic structure of these arguments concerning the supply of collective goods has been supplemented by the work of another group of analysts. These scholars have been attracted to the collective-goods problem by various empirical situations in which collective goods are apparently supplied to large groups as well as by the abstract models associated with the first stream of analysis. In essence, this second stream has introduced the notion of a supplier of collective goods. That is, these analysts posit the existence of an entrepreneur who makes a profit of one kind or another from the activities involved in supplying collective goods to a large group. Wagner, for example, attempts to demonstrate that mechanisms other than the activities of interest groups can account for the achievement of collective benefits by emphasizing the role of political entrepreneurs in democratic political processes. Such entrepreneurs, he argues, supply collective benefits in exchange for some "political profit." Salisbury concentrates initially on role of the entrepreneur in establishing and maintaining interest groups, and he goes on to suggest that the concept of political entrepreneurship could be extended to explain a variety of phenomena associated with political leadership more broadly construed. And Breton and Breton refer to the role of "social entrepreneurs" who provide social movements to groups of individuals who find that their income is declining relative to their expectations.

Each of these analysts has attempted to sketch in an alternative explanation for the supply of positively valued collective goods by introducing the concept of entrepreneurship. In each case, however, this work is based on an ambiguity: it is not clear that there is any incentive or motivation for the individual members of a group to make contributions toward the supply of any given collective benefit. On the contrary, there often appears to be an implicit assumption to the effect that individuals will feel such a great sense of personal inefficacy concerning the supply of the collective benefits that they will not be willing to make any contributions to an entrepreneur to facilitate the supply of the good. Consequently, the entrepreneur is sometimes depicted as a quasi-economic entrepreneur who sells access to sets of benefits on an individualistic basis at a price. And at other times, he seems to be a provider of genuine collective goods who obtains a profit in some unspecified fashion from contributions made by the members of the group. But so long as the assumption of individual inefficacy holds, there is no way of linking the supply of collective goods and the achievement of a profit by an entrepreneur. Unless the individual feels that a contribution on his part to an entrepreneur will make a difference with respect to the supply of the collective good, he will have no incentive to make such a contribution, and the entrepreneur will be deprived of his source of profits.

Reconsidering the Problem

The concept of entrepreneurship, therefore, is not adequate to account for the supply of genuine collective goods unless there is some way to generate resources for the supply of these goods. Moreover, we have shown that contributions for the supply of collective goods on the part of rational, self-interested individuals cannot be explained solely by reference to the notions of coercive mechanisms and private-good incentives. Accordingly, insofar as collective goods are supplied to large groups in meaningful amounts, there must be some reason for individuals to contribute toward the supply of the collective goods themselves. That is, at least some members of the group must estimate that contributions on their part can make a worthwhile difference in facilitating the supply of the collective goods.

Whenever the supply of a collective good is at stake, the efficacy of a contribution by any given member of the group will be a function of the behavior of the others with respect to their contributions. This follows from the collective nature of the good. But the behavior of each of the others will be influenced, in turn, by his expectations concerning the behavior of a subgroup composed of all the members of the group other than himself and including the first individual. Consequently, each member of the group will find that his sense of personal efficacy (or inefficacy) concerning contributions for the supply of the collective good will be predicated upon expectations regarding the behavior of others, and problems associated with the phenomenon of reflexive reasoning or strategic interaction can be expected to occur. In this context, it seems necessary to allow for a variety of possible patterns of expectations on the part of each member of the group concerning the coordination of his actions with the actions of the other members. When all the members of the group feel inefficacious with respect to their own contributions, expect the others to feel the same way, and do not expect that a donation on their part would change the feelings of the others, the problems described by Olson and others arise in their severest form. When other patterns of expectations predominate, on the other hand, rational individuals may conclude that it is worthwhile to contribute toward the supply of the collective good.

Nevertheless, such contributions are likely to remain very limited unless some mechanism is established to allow the members of the group to share the marginal costs of purchasing units of the good. With the introduction of a marginal-cost-sharing arrangement, however, it is possible to imagine situations in which individuals who feel efficacious would be willing to contribute amounts up to the value they place on the units of the good at stake. Thus, in large groups in which no one values the collective good more than the cost of supply, it becomes possible for the members to pool their resources so that the good can be supplied through a central agency. Moreover, the possibility of marginal cost sharing means that extreme suboptimality need not occur in groups in which one or more individuals value the good more than the cost of supply. That is, additional units of the good can be supplied through the pooling of resources either from the outset or, in any case, after individuals have stopped purchasing units of the good in their private capacity.

To appreciate fully the combined impact of personal feelings of efficacy and the possibility of introducing marginal-cost-sharing arrangements, consider the situation of the individual member of the group in terms of his expected-utility calculations. An individual may feel that a contribution on his part toward the supply of the collective good is worthwhile because his contribution affects the probability that the good will be supplied and/or because it affects the quantity of the good supplied. In deciding on his own contribution (if any), each individual must estimate what others will contribute, taking into account the fact that their decisions will be influenced, in turn, by estimates of the probable behavior of a subgroup of which he is a member. Under the circumstances, the individual member will contribute whenever he expects others to make contributions toward the provision of the good which, when combined with his own contribution, will leave him better off than if he had decided not to contribute. Note that situations of this kind will generate strategic interaction since the decisions of the members of the group will be reciprocally contingent upon each other. Accordingly, it is to be expected that the members of the group will experience some difficulty deciding whether to contribute toward the supply of the collective good, and there may be room for bargaining while the members are in the process of making their decisions. Nevertheless, at the time he makes his final decision concerning his contributions, each individual must plug some estimates of the probable behavior of the other members of the group into his expected-utility calculations.

(Continues...)

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Excerpted from Political Leadership and Collective Goods by Norman Frohlich, Joe A. Oppenheimer, Oran R. Young. Copyright © 1971 Princeton University Press. Excerpted by permission of PRINCETON UNIVERSITY PRESS.
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Table of Contents

• Frontmatter, pg. i
• Foreword, pg. vii
• Preface, pg. xi
• Contents, pg. xv
• Introduction, pg. 1
• CHAPTER ONE. Noncompetitive Politics, pg. 12
• CHAPTER TWO. The Consequences of Noncompetitive Politics, pg. 45
• CHAPTER THREE. Competitive Politics, pg. 66
• CHAPTER FOUR. Some Consequences of Political Competition, pg. 100
• CHAPTER FIVE. Strategic Interaction, pg. 122
• CHAPTER SIX. Conclusion, pg. 133
• APPENDIX 1. The Size of Groups, pg. 145
• APPENDIX 2. Table of Symbols, pg. 151
• APPENDIX 3. Table of Equations, pg. 155
• Index, pg. 159