1. Basics Collective Action: 1) Solution - Combining preferences to determine a course of action that a sufficient number of participants find preferable to alternatives. 2) Implementation that ensures that everyone will share the costs and live up to the agreed course of action, which involves creating an expectation that everyone will follow through the action. Coordination: Collective action requires coordination. 1) Members’ preferences needed to be shared. Here, the problem is mutual ignorance of preferences. 2) Members’ contributions needed to be organized. The problem here is misalignment between a group’s goal and individuals’ private incentives. Often, individual members may be unwilling to contribute to the collective action. An incentive to ensure that individuals contribute their share is crucial for implementation. Coordination Difficulty: 1) increases with the number of participants. For this reason, as the size rises, the decision is typically delegated to a small group of professionals—politicians. Focal point: Actors often act based on their perception of other actors’ preferences. For example, Democrats voting in a primary want to vote for a candidate that is likely to win in the general election, so they look out for other people’s preferences. In so doing, a focal point is a prominent cue that directs participants how to pool their collective efforts. Social media often provide a focal point, revealing which collective actions are likely to succeed. Prisoner’s dilemma: A situation where the best outcome (Silence, Silence) cannot be reached because choosing the action that leads to a sub-optimal outcome is always better. In the below case, given the other’s action, Confession is better for both. Silence Confession Silence (-0.5, -0.5) (-5, 0) Confession (0, -5) (-3, -3) - E.g. The Social Security benefits are not sustainable, so either taxes need to be raised or benefits need to be cut. But neither Democrats nor Republicans suggest it proactively, because they believe that the other side will exploit the unpopular reform in the next election rather than taking co-responsibility for the change. Potential Solution: There needs to be a trust that both sides will choose an action that, though sub-optimal compared to the alternative, leads to the optimal outcome. 1. Make defections from the action leading to the optimal outcome very costly. - This is possible in repeated games. Politicians who renege on campaign promises risk losing credibility in the next election. - Central enforcement authority can also be a solution. When participants believe that the other side will abandon mutual obligation, they believe they also should abandon the obligation. But when a central enforcement authority exists to punish any breach, participants can be assured of compliance with the obligation. Free-rider Problem: A prisoner’s dilemma that affects large groups. Potential private contributors need to be individually induced to contribute - E.g. 1: In 2008 and 2012 elections, for Obama’s campaign, a larger group of operatives were less effective in getting the votes out than a smaller group, because the prospective voters felt that their contribution was not needed for Obama to win. - E.g. 2: Europe’s NATO contribution: When the collective undertaking benefit some participants much enough to make those participants willing to bear the bulk of the cost, other participants can be assured that their contributions won’t be necessary and withhold them. Tragedy of the Commons: Individuals can consume a public good without any cost, ruining the good. - Different from the free-rider problem in that the public good already exists. - Solution: Individuals’ use of the common good must be linked to their welfare. a) Regulations may place limits on the use of public good and penalize overuse. b) Privatization forces users to take care of the resource. Public good: Goods that everyone participates in supplying, through tax, for example, and that anyone can freely consume as much as they desire. Costs are born collectively and no one can be excluded from its benefits. Strictly speaking, a public good only grants public benefits without private benefits Collective good: Goods whose costs are collectively borne and confer both private and public benefits. Two costs of collective action 1) Transaction cost: Resources needed for collective undertakings - E.g. Administrative manpower needed to select who actually needs welfare payments. It might be better to loosen up requirements to overinclude because strenuous requirements will make the screening costly. - E.g. 2. Without institutional arrangements for collective action, aggregating individual preferences can take too much time and be difficult. - E.g. 3. Transaction costs may be set high to make collective actions difficult. For example, constitutional amendments. 2) Conformity cost: Cost incurred for an individual to comply with a collective action that they do not agree. - Tradeoff: There is usually a tradeoff between transaction and conformity costs. Institutions that minimize transaction cost may impose high conformity costs. A dictator can arbitrarily dictate a policy (low transaction cost) that most people do not prefer (high conformity cost). Conversely, a group can do only those things that everyone agrees with, raising transaction costs but lowering conformity costs. 2. The Constitution Background During the Revolutionary war of 1780-1782, the American army suffered from lack of coordination. The Confederate Congress needed a supermajority (nine out of thirteen) or unanimity in order to pass major legislations or constitutional amendments, respectively, nor did it have an executive apparatus. As such, supplying the American army with manpower and supplies depended on voluntary provision by the states. This lack of coordination led states to free-ride. After the war, the need for a united and more empowered central congress and government was acknowledged. - The founders were more interested in designing the governmental institution than individual liberties, as evinced by the fact that the Bill of Rights was added to the constitution as an amendment. Constitutional amendment: The amendment should not be too difficult so as to debilitate necessary changes, as the experience of the Confederate Congress proved, but it should not be too easy for the government to amend the constitution, bypassing the states. Small states wanted state-based vote, while nationalists wanted citizenry’s votes to determine amendments. -> The compromise was to initiate the amendment by either the two-thirds vote of both houses of Congress or wo thirds of the states, which is enacted when three-fourths or heir states accept the amendment. Constitution’s Substantive Issues: - Foreign policy: Only the federal government can regulate foreign trade and policy, eliminating race to the bottom as states tried to attract foreign trade to themselves. Only the federal government can maintain military. - Interstate commerce: Created the common market, barring a state’s discrimination against citizens of another state. Slavery: While the northerners mostly banned slavery, southerners could not. They compromised by including clauses that prohibit regulation of slave trade until 1808 and obligate states to return fugitive slaves to their owners. Ratification: Nine or more states ratifying the constitution would put it into effect among the ratifying states. Each state would decide the issue not through state legislatures, but through special conventions in each state. - Small farmers: Small farmers’ delegates often controlled state legislatures, which printed cheap money to whittle their debts, overturned court decisions unfavorable to farmers, and provided subsidies and reliefs. They were unwilling to give up their power to the national government, which might have a different interest. - Federalist v. Anti-federalist: Federalists appropriated the label “Federalist” for themselves, even though they were advocating for greater power to the federal government, rather than a division of power between the states and the federal government. Anti-federalists argued that smaller communities are better at democracies. They also raised concerns about the powerful central government infringing upon citizens’ rights. In response, Madison proposed to introduce the Bill of Rights as an amendment, which was ratified in 1791. -> Crucially the constitution dictated that the federal government’s authority derives from the consent of the governed and not the states, legitimating it vis-à-vis the states. The Federalist Papers: - Federalist No. 10 (social design): Madison identified factions as the gravest problem of any state. Factions can be eliminated by 1) despotism or 2) conformism, neither of which is compatible with liberty. So, factions must be allowed but regulated. He argues that once there are diverse competing interests, no single faction will be able to dominate the others and implement the tyranny of the majority. Thus, a larger republic is better, since it provides for diverse interests that are inconducive to the majority tyranny. - Federalist No. 51 (institutional design): By introducing mechanisms of checks and balances between the two houses of the Congress and between the Congress and the executive, the constitution ensures that no majority can rule tyrannically. Of course, this is probably not Madison’s real position: in his Virginia Plan, Madison vouched for the popularly elected House’s strong power, restrained only by the diversity of its factions (Federalist No. 10). - Virginia Plan: Popularly elected House, which would elect members of the Senate from a list supplied by state legislatures, and the members of the executive and judiciary. Tools for balancing: - Command (decision on how others should act that cannot be disobeyed) - Veto - Agenda-setting power - Voting rules - Delegation (Principal-agent problem) 3. Federalism Confederation: Voters elect state and local governments, which in turn elect the central government on their behalf. Federation: Voters elect state/local government and central government independently. - The nation’s constitution protects different levels of government from encroachment by the other units. Each level has some leverage over the other. - In the American context, local governments are creations of state governments, without any independent constitutional standing. Unitary system: Voters elect the central government, which elects state and local governments in turn on their behalf. 2 visions of federalism: The U.S. has a shared federalism. The national government grew its influence over the years along with the development of modern problems. Modern problems, such as pollution, macroeconomy, or internet, cannot be dealt with by a single state. Also, the Seventeenth Amendment of 1913 provided that Senators be elected directly, rather than by state legislatures, which were often susceptible to bribe by Senators and resulted in a deadlock that left the state without representation for an extended period. 1. Dual federalism: The demarcation between federal and state governments’ authorities is sharply defined, with each holding exclusive jurisdictions. 2. Shared federalism: Though federal and state governments hold some mutually exclusive jurisdictions, they share authority over certain areas and need to cooperate. In the U.S., this shared authority includes: tax, borrowing money, charter banks and corporations, eminent domain, enforcement of law, judiciary. Important Constitutional Provisions 1. The supremacy clause: Stipulated that when both the federal and state governments are acting constitutionally, the federal government holds supremacy. “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all the Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” 2. The Power of Congress: The Constitution endowed the Congress with a list of enumerated powers to address issues requiring a national response. In the elastic clause, the Constitution authorizes the Congress to “make all Laws which shall be necessary and proper for carrying into Execution the forgoing Powers.” While the enumerated powers were meant to restrict the Congress’ power, along with the elastic clause, they facilitated expansion of the power of Congress. For example, anti-discrimination in public accommodations or regulation of handguns are justified by an appeal to the interstate commerce clause. 3. Tenth Amendment: “The Powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” But the Tenth Amendment is weak in face of the elastic clause. Process of nationalization 1. Industrialization, urbanization, and national transportation and communication systems: States alone were unable to regulate sprawling institutions and practices that extended across state borders, which required the national government’s intervention.
