In my economics course State, Law, and the Economy, the professor has assigned us a series of readings to better understand the course materials. I will write reflection articles on them and enhance my own thinking.
In the first three chapters of the book Collective Action by Hardin, he synthesized existing literature on two questions: First, what are the preconditions of forming an interest group? Second, once an interest group is formed, how to ensure that members do contribute to promote the wellbeing of the organization?
Regarding the first question, the answer is short and long. The short answer is: we form groups to achieve something that cannot be done by individuals out of their own interests. In a classical Prisoner’s dilemma situation, the pursuit of self-interest leads to an inferior outcome for both players. The same logic applies for a larger group of players. An organization is set up to promote a certain extent of cooperation for players to improve their payoffs. Also, there might be a subgroup (privileged group) which can still benefit if they were to provide the full costs to accomplish group benefits. A good example is big companies lobbying for tariffs out of their own interests while creating benefits for smaller companies in the same industry.
Another example is China’s household responsibility system reform in the late 1970s. The farmers who initiated the reform (locally) had to endure high political risks, but they were also eager to improve their own wellbeing and abandon the inefficient commune system. The close-knit nature of the local community means that if anyone betrayed, the rest of the village would never forgive him and he would for sure live a miserable life afterwards. Therefore the bystanders didn’t create any troubles.
I have found Hardin’s explanation on the second question enlightening. Apart from the fact that organizations can help improve individuals’ welfare, other factors also contribute to the organization once it is created. Mancur Olson put forward the by-product theory and suggests that sometimes organizations succeed in realizing certain goals simply by stimulating group-oriented behaviors. For instance, women’s liberation movements benefited a lot from the women’s leagues which were originally created for social life. The existence of an organization provides the convenience to coordinate and to gather power to fight for members’ rights.
Another intriguing question is about whether group size affects the formation of an organization (or, whether a group is latent or not). There’s dispute on this issue. Some suggest that as the number of individual increases, an individual is more reluctant to pay for the common good. But if there is increasing returns to scale, a coalition can still be formed and led by some “big” players (those who will gain significantly from collective action).