October 4, 2012Olson, “Theory of Groups and Organizations”Groups and Group InterestWhy don’t individuals work toward group achievements?Formal vs. informal groups —usually face the same difficultiesProducers of the same good sometimes agree to one price (cartel, oligopoly)There is a theory that says we instinctively join groups bc we want to work together to achieve goalsIndividual Interest vs. Group InterestTragedy of the commons! Individual interests are at odds with the collective interestIn cartels or oligopolies, each business involved has the incentive to cheatProblem with group outcomes is that they are non-excludable bc they are public goods for the members in that groupGroup achievement  public good (non-excludable)Consequence of public good = free-rider problemWhy pay if you can get it for free?The group’s achievement will lead to personal benefits for ALL members of the group bc the benefits are non-excludableOften time, defection is undetectedIf all members free-ride, then the group will not achieve its goalThere is a threshold where that will no longer be possibleDealing with Free Riders1) Coercion— can be formal (jail) or social pressure/norms2) Selective incentives (i.e. honor chords if you actively participate in the honor society, scholarship for the most involved member)Can be positive or negative3) Group sizeSmaller = better at achieving group outcomeCoercion and selective incentives are less necessaryDefection is easy to identify bc individual contributions weigh more heavily toward group outcomePerceptible interdependence: whether the contribution or lack or contribution of any one individual in the group will have a perceptible effect on the burden or benefit of any other individual(s) in the groupMay be willing to pay total cost bc personal benefit from group might outweigh individual costSmall can exploit the great (heavy individual contributor)Inclusive vs. Exclusive GoodsInclusive goods: the benefit a non-cooperator receives is not matched by corresponding losses to those who do cooperate.Exclusive goods: one non-participant can take all the benefits brought about by the action of the collusive forms for himselfAll-or-none participation  participation is requiredAn individual can attempt to be a holdout, and demand a greater share of the gain in return for his (indispensable) supportBargaining power  Much more bargaining is likely where 100% participation is required than when some smaller percentage can undertake group-oriented activityMore sensitive to the actions of other membersCooperation is Difficult in Large Groups1) The larger the group, the smaller the fraction of the total group benefit any person acting in the group interest receives, and the less adequate the reward for any group-oriented action, and the farther the group falls short of getting an optimal supply of the collective good2) Since 1 is true, the less the likelihood than any small subset of the group, much less any single individual, will gain enough from getting the collective good to bear the burden of providing even a small amount of it3) the larger the number of members in the group, the higher the organization costs, and thus, the higher the hurdle than must be jumped before any of the collective good at all can be obtainedPrivileged vs. Intermediate vs. Latent GroupsPrivileged group: each of its members, or at least some of them, has an incentive to see that the collective good is provided, even if he has to bear the full burden of providing it himselfPresumption that the collective good will be obtained, and it may be obtained without any group organization or coordination whatsoeverIntermediate group: no single member gets a share of the benefit sufficient to give him an incentive to provide the good himself, but which does not have so many members that no one member will notice whether any other member is or is not helping to provide the collective goodThe good may or may not be obtained, but no collective good may ever be obtained without some group coordination or organizationLatent group: if one member does or does not help provide the collective good, no other one member will be significantly affected and therefore none has any reason to reactNo incentive to obtain a collective goodMobilized latent group: a latent group has been led to act in a group interest (either through coercion or selective incentives)October 9, 2012Bates: Intro & Chapters 1,2, 5Puzzle: African Agricultural PolicyDecline in agricultural production in AfricaInterested in economic development: agriculture  manufacturingDecreased agricultural policies are a result of bad political interferenceAfrica = large agricultural resource sector, yet we see increased food imports  specific policies are to blamePolitical incentives not aligned with economic incentivesWhy have economic policies failed in Africa?Global forces majorAfrican countries are new economic powers = inexperiencedCultural/ideological factorsTribal traditions, anti-imperialism sentimentsEconomically rational, but politically naïveKnow what they are supposed to achieve, but do not know the appropriate policiesRational economic actors responding to domestic pressuresWhat Groups? What Do They Want?1) PoliticiansDesire: re-election/maintain office! Also desire economic development2) FarmersSmall farmers/peasantsLarge scale farmersDesire: profit from farming, high prices for crops3) Bureaucracies/Marketing BoardsMonopsony: single buyerSet prices different than world prices to remain competitiveStabilize prices if world prices are lowSell at lower prices when world prices are highEspecially if a country has one or two cash cropsDesire: Maintain control of access to resources, maximize budgets, job stability4) IndustrialistsNon-agricultural businesses, domestic and/or foreignDesire: subsidies, price manipulation (exchange rate), cheap labor5) Urban workersDesire: low food costs, increased productionPolicy Tools to Satisfy GroupsCash crops (government has a lot of control), foodMarketing boards: transfer money from farmers to other groupsState supposed to store the money (i.e. to pay off debts, stabilize economies), but instead give it to 1) industrialists, 2) urban workers (subsidize things like healthcare, education), 3) bureaucrats (often leads to corruption bc in charge of setting prices and managing the largest industry)Peasant ResponseGovernment wants to provide low food costs to prevent militant action