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Under What Conditions are Decentralized Solutions to Collective Action Problems Likely?

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Type: Conference Paper
Author: Maier-Rigaud, Frank
Conference: Constituting the Commons: Crafting Sustainable Commons in the New Millennium, the Eighth Biennial Conference of the International Association for the Study of Common Property
Location: Bloomington, Indiana, USA
Conf. Date: May 31-June 4
Date: 2000
URI: https://hdl.handle.net/10535/2251
Sector: Theory
Region:
Subject(s): IASC
common pool resources--theory
collective action--economics
collective action--theory
scarcity
decentralization--theory
incentives
Abstract: "The paper outlines conditions under which decentralized approaches are likely to succeed in solving collective action problems. Criteria that render successful decentralized collective action more likely have mainly been developed in the Common Pool Resource (CPR) and International Relations (IR) literature. The paper proposes an additional macro condition that categorizes a majority of successful collective action situations. "Collective action problems arise because non-excludable goods are treated as non-rival longer than is desirable. This can either be the case because physical restrictions become binding too late or because they do not exist at all. For example, even though there are no physical constraints to air pollution--the amount of smoke emissions is unlimited--air is analyzed as a rival good. To analyze air as a CPR already implies that limits to pollution exist and should be imposed. "There are two possibilities for introducing this notion of man-made scarcity. Scarcity is not always reflected in the market. In the case of air pollution, scarcity is not endogenous since markets do not a priori recognize the rival nature of 'clean' air. In the case of groundwater basins, this is different. Water is recognized by markets as a precious (rival) good. "Based on Freiburg School Constitutional Economics, the paper analyses collective action problems with respect to their consistency with market institutions. Economic activity takes place within an institutional framework that defines the parameters of competition. A CPR problem is defined as a pure collective action problem, if scarcity is reflected in the market. A CPR problem is called an impure collective action problem, if the market does not reflect scarcity and treats the good as non-rival. Pure collective action problems arise within and remain consistent with the market system. The impure case has constitutional character in the sense that it is a priori inconsistent with economic incentives as generated by the market system and requires changes in the market institutions to implement otherwise non-existent scarcity. "Successful cooperation--independent of scale and scope--among actors involved in a collective action problem is more likely if the structure of the problem is consistent with the market order. A collective action problem is consistent with the underlying economic order (market system), if economic incentives to solve the problem exist. If that is the case, potential benefits, arising through cooperation, are of monetary nature. This is the case in the California water basin CPR, where successful collective action was 'honored' by the market through lower water cost as opposed to the case where building and maintaining water storage facilities would have become necessary. If gains of successful collective action are not pecuniary, this implies that the activity is not consistent with market incentives and therefore requires a change in the 'rules of the game.' "From that perspective changes in the market order are systematically different from changes in other institutional structures that are modified to solve CPR problems. This difference is due to the invisible hand property of the price mechanism i.e. the particular information processing and allocation capabilities of competitive market institutions. A collective action problem that is consistent with the market system can rely on economic incentives as a powerful motivational tool and on the price mechanism to indicate relative valuations. Pure collective action problems are about achieving cooperation in the design of institutions that increase economic efficiency and can be implemented effectively. "In addition to the sometimes substantial problems actors have to overcome in the pure case, the impure collective action case adds the difficulty of defining and implementing scarcity. In pure collective action problems the goal of profit maximization is sufficient because the market system guarantees that profit maximizing behavior is congruent with general welfare maximization. In impure collective action problems, some of the most important allocative questions have to be answered outside the realm of market coordination because scarcity is not recognized in the system which means that profit maximization does not imply general welfare maximization in that case. "As a result, collective action problems of the pure type are systematically more amenable to decentralized problem solving, whereas impure collective action problems are less likely to be successful candidates for decentralized collective action."

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