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Solving Collective Action Problems

Roman Sheremeta, Ph.D.

Professor, Weatherhead School of Management

Case Western Reserve University

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Part 1: Collective Action Problems

Part 2: Factors Promoting Cooperation

Part 3: Three Types of Solutions

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Part 1: �Collective Action Problems

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Collective action�

Collective action refers to action taken together by a group of people whose goal is to increase their payoff and achieve a common objective.

A collective action problem (or social dilemma) is a scenario in which there is conflict between the individual interest and the group interest.

Each individual in the group faces a choice to either act selfishly or cooperate. In a collective action problem it is always in the individual’s best interest to act selfishly, regardless of what the other individuals do. However, if all individuals act selfishly, then they all get worse outcomes than if they all cooperate.
In other words, it is in the individual’s interest to act selfishly, but it is in the group’s interest to have everyone cooperate. This is the conflict between the individual interest and the group interest.

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Examples of collective action�

Examples of collective action:

Volunteering
Voting
Fishery
Water irrigation
Collective leadership
Etc.

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Prisoners’ dilemma�

Two suspects held in separate cells are charged with a major crime. However, there is not enough evidence. Both suspects are told the following policy:

If neither confesses (NC, NC) then both are convicted of a minor offense and sentenced to 1 month in jail.
If both confess (C, C) then both are sentenced to jail for 6 months.
If one confesses but the other does not (C, NC) (NC, C), then the confessor is released but the other is sentenced to jail for 9 months.

-1 , -1	-9 , 0
0 , -9	-6 , -6

Prisoner 1

Prisoner 2

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Prisoners’ Dilemma�

Collective action problem:

Both players are better off as a group if they choose (A, A). Then both would receive (4,4).
But each player has an incentive to choose B, resulting in (1,1).
Thus, the collective action problem: conflict between the individual interest and the group interest results in an inferior group outcome.

4 , 4	0 , 5
5 , 0	1 , 1

Player 1

Player 2

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Prisoners’ dilemma�

Experiment #1:

Prisoners’ dilemma game

Cooperation

Defection

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Public goods�

Public good is non-exclusive and non-rival.

Example: clean air, national defense.

Collective action problem:

If a firm reduces pollution (cleaning the air), it provides a nonpriced benefit to its neighbors, so it is a positive externality. But since clean air is non-exclusive and non-rival, people can free-ride by not paying for it.
So, it is very difficult for firms to profitably provide clean air. As a result, public goods tend to be under-supplied by markets, creating a deadweight loss.
Thus, the collective action problem: a scenario in which there is conflict between the individual interest and the group interest.

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Public goods�

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Public goods�

Experiment #2:

Public goods game

Cooperation

Defection

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Common goods�

Common good is non-exclusive but rival.

Example: open-access fishery.
Each fisher wants to catch a given fish before others so as to gain the property right to that fish, even if the fish are still young and small. So, this leads to overconsumption, creating a deadweight loss.

The tragedy of the commons:

Occurs when individual users, who have open access to a resource, act independently according to their own self-interest and, contrary to the common good of all users, cause depletion of the resource through their uncoordinated action.
Thus, the collective action problem.

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Part 2: �Factors Promoting Cooperation

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1. Other-regarding preferences�

Other-regarding preferences: the degree and nature of how people care about the well-being of others.

When you pay for food, do you leave a tip?

Living a tip is not legally required in the US.

There are many reasons why people leave a tip for a server they will never encounter again:

Altruism
Warm glow (enjoy giving)
Reciprocity
Fairness
Inequity aversion
Face-saving concerns

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The Dictator game�

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The Dictator game�

Baby lab

“Born good? Babies help unlock the origins of morality” (10:20-11:50)
https://www.youtube.com/watch?v=FRvVFW85IcU

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Models of other-regarding preferences�

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Models of other-regarding preferences�

Frans de Waal’s TED Talk:

“Two Monkeys Were Paid Unequally”
https://www.youtube.com/watch?v=meiU6TxysCg

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2. Strategic considerations�

Most collective action problems and social dilemmas involve repeated interactions.

Commonly used strategies (Bo and Fréchette, 2011):

Always defect (50-60%)
Always cooperate (5-10%)
Grim trigger (5-10%) – cooperate as long as the other player cooperates and then defect forever if the other player defects.
Tit-for-tat (30-40%) – replicate an opponent's previous action.

Robert Axelrod’s tournament:

Experts were invited to submit programs for a computer Prisoner’s Dilemma tournament, specifying the strategy to be used in the tournament.
The winner was? … Tit-for-tat.

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Tit-for-Tat�

Axelrod then circulated the results and again asked for submissions.

The winner was? … Tit-for-tat!

Why tit-for-tat is effective? (Axelrod, 1984)

(1) Not envious (it does not aim to beat its opponent).
(2) Nice (it begins with cooperation and it is never first to defect).
(3) Tough (it sends a message that it cannot be exploited).
(4) Forgiving (it reciprocates cooperation even after a history of defection).
(5) Simple

Strategies in repeated interactions, such as tit-for-tat, can explain cooperation in collective action problems.

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Tit-for-Tat�

Evolution of cooperation:

http://ncase.me/trust/

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Part 3: �Three Types of Solutions

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Types of solutions�

There are three major types of solutions to collective action problems:

Government regulation: A government can declare it against the law to act selfishly and require individuals to cooperate.
Private ownership: If someone owns a resource, then he or she can restrict access to it.
Self-organization: Groups of individuals can work together to foster cooperation.

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References�

Andreoni, J. (1989). Giving with impure altruism: Applications to charity and Ricardian equivalence. Journal of Political Economy, 97(6), 1447-1458.
Axelrod, R. (1984). The Evolution of Cooperation. Basic Books.
Bo, P.D., & Fréchette, G.R. (2011). The evolution of cooperation in infinitely repeated games: Experimental evidence. American Economic Review, 101, 411-429.
Bolton, G.E., & Ockenfels, A. (2000). ERC: A theory of equity, reciprocity, and competition. American Economic Review, 90(1), 166-193.
Charness, G., & Rabin, M. (2002). Understanding social preferences with simple tests. Quarterly Journal of Economics, 117(3), 817-869.
Fehr, E., & Schmidt, K. M. (1999). A theory of fairness, competition, and cooperation. Quarterly Journal of Economics, 114(3), 817-868.
Rabin, M. (1993). Incorporating fairness into game theory and economics. American Economic Review, 83(5), 1281-1302.
Ottoni-Wilhelm, M., Vesterlund, L., & Xie, H. (2017). Why do people give? Testing pure and impure altruism. American Economic Review, 107(11), 3617-33.