STUDIES IN RATIONALITY AND SOCIAL CHANGE Jon Elster Editors: Jon Elter and Michael . McPherson orks THE CEMENT OF rr SOCIETY ‘Anos Terk A Study of Social Order Berard Wiliams son exsreR Explaining echnical change JON ELSTER & AANUND HYLLAND (EDS.) Foundations of social shoe theory Jon eLsteR (eD.) The multiple vif tastes 8, COLEMAN Individual interests and collective action ARTHUR sTINCHCOMBE Statifcation and organization Dieco GaMRETTA. Were they pushed or did they jump? MicHAkL TAYLOR. The passbiliy of cooperation JON ELSTER & RUNE SLAGSTAD (EDS.) Constutionalism and democracy ‘Cambridge University Press Cambridge New York Port Chester Melbourne Sydney‘bli yh Fe Syn of be Uae of Cobiee ‘ToePe Bon, Tmpipon Se, Canoe CBE RP {Der ak Sue, New Yo, NY 02, USA ‘DSamfe ont, Once, View, Ae dna 89 Fs oie 889 ep 190, 18, 192 bray of Cong Calin Picton Ds “Tae cement of seit: sty of sacl oner Jon Ele. Pca (ude oan ual hag) Eig» tener ae IBEN 021561, —1SBN 052157476 gee) Tate easing Sweden 2 Ratna expects (Gimme), 3 Sol ee 4. Sel toms 1 Tide Hoste 6 same ch Ly Calon bean Dass Ear 8 10- “Tocement sce: soc od = (Staelin cl hans) ISBN 0.2776 peck Contents Introduction: the two problems of socal order 1 Collective scion 2 Bargining 3 Social norms 4. Bargaining and coletve action 5. Collective ation and socal norms (6 Bargaining and socal noms ‘Conclusion: the cement of society page vi ” 50 132 186 aus 309Preface and acknowledgements ‘This book has a complicated genesis, For many years, have Been iter ‘sod inthe problem of collective action, Discussions with Brian Barry nd Rusell Hardin helped me to see roughly where the main problems were located, but I never seemed to get ther fll into Focus. Concaretly with this preoccupation, snd spud largely by pins from Amos Tversky and Fredrik Eagelstad, 1 became increasingly puzzled by the relation be tween ational choice and socal noms, discussed this problem with Pierre Bourdieu, and together we organized conference on the topic. Once asain, | seemed to make progress up toa point, and then confusion descended on me, Clearly, I was going aginst the grain “The catalyst for furter progress cme in 1985, when Nils Elander of the Swedish Couneil for Management and Work Life Issues (FA-Ridet) asked me fo write report on bargaining and collective action in the con text oftheir project on collective wage Bargaining in Sweden. I accepted in the belief, mistaken asi turned ou, that my earlier work on rational choice theory might help me explain the strategies, stratagems and out comes of collective bargining. It soom became clear that the complexity ofthese bargaining problems defies explicit modeling. My aaltcal si im any case, were not sufficient to reduce the moving, Buid process of collective bargaining to manageable proportions. Inthe Swedish system of. collective bargining, a6 Ir to explain in Chaps 4 and 6, eveything is up for arabs he identity ofthe actors, the eles ofthe game, the set of payoff, the range of acceptable arguments. The more 1 understood what ‘was going on, the lower I had 1 set my sight. The inital aim of exp ration was gratally transformed ito one of “hick” phenomenological description. Yet T came 1 se that ete was a set of problems that lent ‘hemsclis ideally to an exploration of the lation between individual and collective rationality, and between sefinterest and socal norms. Things ‘hat had been out of focus suddenly came together, ‘More o lest simultancously with this work I completed two other books ‘that complement the preset one, Each of them reflects an increasing disllusionment withthe power of reason, be it atthe level of sci actors or at the level ofthe social scientist who is observing them. In Solomonic dgemens | argue that rtional-choice theory yields indeterminate pre sergtions and predictions in more cases than most socal scientists and ‘ecision makers would like to thik. In Nuts and Bois forthe Socal Se- fences, writen for & more general audience, I argue tat the basic concept inthe social siences shouldbe tat of a mechanism ater than ofa theory Ty opinion, the socialsciences are light years away from the stage at ‘which it wll be possible to formulate genera-law-like regularities about human tehaviout, Instead, we should concentrate on specifying small and ‘medium-sized mechanisms for human action and interaction ~ plausible, frequently observed ways in which things happen. If this sounds vague (and it does, Ihave to eer the reader to the substance ofthe tree books for proof ofthe pudding, "The level of discussion may puzzle some readers. Himay be to technical for some and insufcienly rigorous for others. Matin Hekdegger is re pred to have dismissed an argument by saying, ‘Nicht te genug gef- Fast. On the other side ofthe Adaatic or the Channel, dismissal often takes the form of asserting, "Not clear enough w be wrong". Many of my arguments wll be dismissed on both counts. I can only hope that what is Tost in depth and clarity is parlly compensated by varity and divest Thave benefited greatly from comment received when presenting parts ‘ofthis materia the European Univesity Insitute (Florence) a the Ecole ‘Nommle Supérieure (Paris), at Gary Becker and James Colemsn’s Rational Choice Seminar atthe University of Chicago, atthe Philosophy Depart- ‘ment ofthe University of Califia at San Diogo and to the annual meet ing of the ‘September Group’ in London. 1am grateful to Jens Andvig, Kenneth Arrow, Lars Clmfors, G. A. Cohen, Michael Dennis, Nils EF vrander, Fredrik Engelsad, Aarund Hyland, John Padget, Philippe van Parijs, Adam Preeworski, Avet Robinstein and Michael Wallerstein for comets on ear dats of several chapters. Special thanks ae dv to Stephen Holes and Cass Sunstein for making detailed writen comments ‘on the whole manuscript to Karl Ove Moene for unfailing patience in teaching me the baie of noncooperative bargaining theory and to Aanund Hyland for doing bis best to heep me intellectually honest. Steve Lay: ‘mon’sskilfl and imaginative research assistance ha been invaluable, A final acknowledgement is owed to Thoms Scheling, whose work on bar ting and collective action serves a 4 model and inspiration forall who ‘worn this area. Introduction: the two problems of social order ae nt srt here aan oo tc Cac be wet jie a {arcane e pnt ar tote unc arena ea Wt ts pus sna eee a peas men cetaceuttssSgpon, satis ope oe Sain poescnqt ne. crue eplorerrey ‘pon Asp decom we tt clay naive pio a ye phonetic roc pcr try Ti don eon ion oe, apa tra dt sf cope ar Cae some mocap Te rk Fresno When of eon fury, a tale told by an idiot, signifying nothing’.* The second, disorder as Siccat cope tpehs Hatersnteae Sime ay, a hoe tg ‘rete pa, a ot Ss opm ews fa wc mt beers hi rey ama ee ‘onc, mn mara sy ld we Res a2 we ceMENr oF soctETY texminlogy. In Chale 3 age ht oa oes ensure rect cute egitim an in Chap 5 th coopera can ead Pact rer a ae topes amily te sok ma ket png of Oster B ven though se nays Coal alr te fot tly syd you and even prove a ti have pat i tone wherein Sssnda cl probe ben {eu ad the rh ccd so tele or tent for mon eae Seve writes ae suet athe sock mal may ea hac ‘mein technical ee of system wih characterized by thee struts that can have extemely disturbing i plications for the use of economerc forecasting procedures: a) Even though a time series is generate entirely determinsically its behavion is statistically very sila tht ofa system subject to severe random shocks; b) chaotic Gime series may proceed fr substantial intervals of time manifesting palterns of behavior which seem extremely orderly, ‘when attlly new pattern appears without warning, only to disappear just as unexpectedly) the presence and locaton of such abrupt rans tions are exfemely seme to parameter vale in the underlying model, appearing and disappearing with changes in he tir or higher decimal places, which ae beyond anything econometrics may beable aspire to discover am sue, wee ha hii he eon ok tte daca wea Themes ee wo ten eco hay hve pn mal ae eer amiye melts ache ee va ar mp roselare ee ‘etx ae nate, peso oe ey a nt ence aed toner ours wie sr Sine can te ten pity ws os a at cna el tend enn” Snes pe ae Matta sbt ch oom wht yw os hne sete eis iA, mt a un 3 INTRODUCTION: THE TWO PROBLEMS OF SOCIAL ORDER 3 Predict the outcome. Sometimes they have t90 much knowledge. Some {imes they fil to use the knowledge they have. And sometimes no amount ‘ot knowledge, however ingeniously used, can help them, Let me ilistrate {hese four cases, assuming throughout that people are rational. ka Chapter 31 discuss how nonrational behaviour may lend sabi and regularity 0 situations that would otherwise he in hopeless Hux (fen, people have seriously incomplete information about each others rationality, preferences and information, This need not be a destabilizing ement, The president ofthe United States docs aot know wheter the leaders ofthe Soviet Union would behave rationally in a eis ~ fr ex ample, whether they would refrain from exeeting a thea which, at that time, it would not be in their meres 0 camy out, He does not know the preferences of his Soviet counterpart. (Do they relly want world hege ‘mony’ Ordo they simply want o be let in peace in their own backer) And he does not know what their bits are concerning his rationality, ‘preferences and information. If, nevertheless, the balance of tertor has ‘been fly stable, i is probably because both partes have made worst ‘ase assumptions about cach other, acting on their knowledge sbout the ‘other party's objective capabilites rather than on any assumptions about ‘sbjetive states of mind. Thre is order and predictability i spite of un- ‘certainty and ignorance. (Undeed, more knowledge could make the sitas- to les table, as explained later) By contrat, East-West relations have not been known to be oadely in the second sense, tat of cooperative ‘behaviour. Although the superpowers hae avoided matual destiction, the greements on mutually bene] arms eduction ae recent and quit n= ted in scope. en, however, mutual ignorance is destabilizing. Consider for i stance, the cobweb cycle generated by people ating onthe sssumion that cure prices wil remain in fore inthe next period. I curent prices ‘exceed the equiva pice, prodicers will market an above-equltbaum ‘volume inthe next perio. thus forcing prices dow, Assuming that prices wil remain low, they will market litle i he third pei. forcing prices ‘Up again, and soon in eyele that may converge tothe eqilibiam or verge from it. Expectations are never fled and plans never realized, ‘The culprit hee isthe producers ignorance about consumers and about ‘ther producers. He does no know the fl demand schedule. Nor does he ‘now how other producers would react if they knew the sched, because ‘he doesnot know what they assume about each ther, Under thes circum4 THe ceMENT oF society \—— 1) —— to.) | | Ga (0. (3.0) stances, he might aswell assume that pics will emia constant, without being under the lusion that this is any kind of mathematical expectation” The status qu serves as 3 focal pot for bei formation, Like the worst: ‘ase hypothesis, assuming perpetuation of the stats qu is nether rational no ational Its a maxim for decision making under uncertainty which, {inthis case, happens to undermine self when adopted by many people simultaneously, ‘A surfeit of information canbe destabilizing if its beyond the process: ‘ng capacities of the agent or organization receiving it In acomplex world, this problem arses frequently and ean he quite important from a practical point of view, Theoretically, however thre not much 0 say about it It ‘smore interesting and surprising that apparel simple strategic stations «canbe indeterminate ifthe agents are fully informed about each other, yet scquiedeterminacy ifthe information falls shor of completeness. 1 sall istrate this case with an analysis of games ia extensive form, the pat tively rational outcomes of which are determined by the method of Back- ward induction. Sine this method isa the core ofthe moder approach tolerated games and bargaining, both of which ae discussed extensively in later chapters, any doubs about its validity wil have important reper Rather than define backward induction explicitly, 1 shal asta it by ‘means of an example. Consider the game between two pliers depicted in Fig. 1? There is common knowledge that both ar rational: both are 1a ‘ional, and know each oter tobe rational, and know each other to know each othe tobe rational, and soon. The nature ofthe game is also com ‘on knowledge ‘One player moves atime, begining with player. Ether e can move down and terminate the game, in which case be gets | and player I gets INTRODUCTION: THE TWO PROBLEMS OF SOCIAL ORDER 5 nothing, oF he can decide to continu the game othe second noe, leaving ‘he next move to T. She can similarly terminate the game, ensuring 2 for here and nothing for I, or contin the game to the third node. There, f has a choice between two ways of terminating the same. One ensures 310 himself and nothing tothe other, while the ther has the opposite pyofl It scems clear enough what will happen: I wil move down on bis fst play andthe game will end right there, To justify this conclusion, one ‘rationally invokes the principle of backward induction, reasoning fom ‘he last stage of the game back to the first A the beginning of the game. Teontemplates what he would do if he were at thelist node of the game twee. He would, obviously, move down rather than actos. Knowing that TH knows him tobe rational, I anticipates that athe second nade Il will play down, o get 2 raher than 0, which is what she would got if she played ‘across. But that anticipation forces I 10 move dowa inthe fst move, 10 ‘eI rather than 0, which is what he would gti he played across, ‘This reasoning seems comyelling. But harbours problem: why would 1 contemplate being at the third node? How could he ever fi hinselt there, if rational players would terminate the gue at the fist node? The issue tums on the use of counterfactual arguments: under what circum stances can we draw conclusions from premises known tobe false? T have argued elsewhere tat counterfactals are assrtable when the akitional premises used to draw conclusions fom the countrfatal antecedent are consistent with that antecedent self. We cannot, for instance, assert hat ‘nthe absence ofthe raoad, economic growth would have been much the same because the automobile would have been invented earl if that s- section rests ona theocy of technical change that would also allow us to predict the invention of the railroad. Similarly, we canna assert that I wil play down ifthe third nod is reached if that lim is based on an assump ion o 1's rationality which s inconsistent with that node Being reached. ‘The question, therefore can be restated as follows. Does thre exist set of assumptions about the payers which are stong enough 1a allow us to infer what the players would do at various nodes the game while also ‘weak enough co be consistent with these nodes being reached? Ihave at: ued tht the assompon of rationality and common knowledge i 10 song to satisfy the second requirement. ter assumptions may, in special eases, satisfy bh equitements.""6 THe ceMENT oF soctery } vy 1) 10.89) Here lam una) ta (3a) 1. Player I could assume that the Inter nodes have been reached a5 2 ‘result of mistakes (the “temblng hand” assomption). The third node might te reached, that is, if thee were some probability that a player might 8 it were, push the wrong button. If we consider a game similar tothe one in Fig 1, but extended to a hundred successive moves, this assumption becomes extremely imptavsible, because it would requir each player 10 make ily uncoeclated eros before arriving the final node, 2. A second asmption therefore, i thal the ees are corelate for ‘example, tat Ii rational. Fom the point of view of player I, asking himself how he might have reached the final mode, it makes more sense to sume that I always moves actos (the ‘automaton’ assumption and that, hes teached the final node by exploiting I's ieatonality 3, Player | might considera more elaborate possibilty, namely that is cither an irational automaton or atonal player who is deliberately pre- {ending to be ational in order to induce Io play across ater than down, In the game portrayed in Fig. 1 thi assumption has no purchase, but in the game depicted in Fig. 2 itcould provide a plausible explanation of why later nodes in he game te might be reached ‘To explain why he might find himself at the thin node, T may assign probably p10 I being an automaton who always moves aes and prob- bilty 1=p to I being a rational agent who fakes automatic behaviour in ‘he ear stages of the game in omer to induce [to move across 30 hat she can move down in ltr sages. “t We may weaken the assumption that the rationality of the players is commen knowledge." Inthe game portrayed in Fig. 1, we now assume fl that I believes that Is atonal, tht I believes hat 1s ational and that eleves that I believes hat 1s ational, When I contemplates being tthe hid node, he mast sk himself wheter this assumption i consistent INTRODUCTION: THE TWO PROBLEMS OF SocTAL ORDER 7 ‘withthe belie set. In partcular, could Ihave layed across at he second ‘ode? To answer this question, he must fist explain how she could make sense oat of Being athe second node. By vite ofthe stipulated beliet ‘struture, he cannot explain it by asiming that she belives him wo be rational, but he may assume that she believes him to believe her 1 be irational, for in that case she night reason that he has played aro atthe first node in the hope tat she might do so atthe sscond. Now. he knows that ifthe second node is reached, se wll in et play down, as he lives her to belive him to be rational and hence wil expect him play’ down at the third node. Accordingly, he plays dow atthe fst nde. The back- ‘ward induction argument works, bt only beease the players’ rationality ismor common knowledge. Ifthe players have less ital knowledge about ich othe, they can fom table Beliefs about each the'sbehaviowr ‘Assumptions | through & differ a follows. Assumption I stipulates that enertans certain subjective probability that I, while etiona, i all be, Assumytion 2 stipulates that I nteains a certain subjective probabil ity that I an rational automaton. Assumption 3 stipulates that if in fact, Is ratonal she will be aware of I's probability asessment and try ‘to exploit it to her advantage, ad that I knows that if is rational she will te awe of i and so on, Assumption 4 stipulates thatthe players are ‘atonal and nfl, bu that thee knowledge about each other's atio~ ‘ality, and knowledge sbott this knowledge and soon, has an upp iit ach assumption may, in special cases und ude special conitons,pro= ‘ie what we are looking or: theory which is stong enough o allow us to infer what rational players will doa the various noes and weak enough 1o be consistent with their being at those nodes. But noe of the assump tions seems to have the simplicity and generality that could suppor back ‘ward induction in more general context, AS a consequence, tat principle ‘seis more vulnerable than appears at fist glance. Tsaspoct thatthe last word on backward induction has mot been said In later chapters I shall, with some qualms, retain the principle, parly be- ‘cause Tam not sure my’ understanding ofthese matrs i sufclenly deep to allow me to discard it aogethe, and partly because the pincple may te behaviurally adoquate when agents ae less than perfectly rational." The fallacy i the backward induction argument, ke the fallacies in many ya cna aos sponta ey foci pe pceier counterfactual arguments, i + suble that it may not be perceived by ordinary agets going about ter business. The problem await further theoretical and empirical laifcation. recive failures may also aceur because people fil to make good use ‘of information which they have. Tis is iationality rather than indeter- ‘mina of rationality. nthe 1972 presdentil campaign, for estance, ‘on clestion eve a large group of the reporters following the McGovern ‘campaign sagely agreod that McGovern could not lose by more than 10 pins. These people were wire service reporters, network television ‘pores, ax! major newspaper and newsmagazine repos. They ke that al he major pols had McGovern tiling by 20 points. and they knew that in 24 years not single major poll had been wrong by more than 3%, However, they had seen wih their own eyes wildly enthusia- tic crows of tens of thousands of people acclaim McGovern. ‘Securities and fares markets slo atic excessive importance to cu. rent information a insufclent importance to information about the past ‘Aconvers fallacy ~ trying too hard 0 understand the pas can also lead to predictive failure. For any given set of events in the past, itis usually possible, by looking around for same time. to ind some ater event set {hat cola highly with. Ione requies eS per ent significance level, ‘twenty alempts wil on the average be suficiemt. The chances are, how ‘ever tht cotlaions obtained inthis way wl be spurious and useless for ‘recive purposes. “The price that investment analysts pay for overiting fs their long-run fire o pred any beter than market averages”! Finally, some situations are inerenly unpredictable. No matter how rch or how ite information the agents have, and no mater how inge- iwsly they use it, they wil not be able to predict what others will do. 1 sume that for prediction among and by rational gent tobe possible, the Predicted outcome must bean equilibrium, tht is, a state in which no ‘agent has an incentive to behave dtferenly. Failures of predictability may then cocur for three reasons: some stations have no equilibrium: some have multiple egiiria; and some have equiva which are too unstable to serve asthe bas for prediction, Te ist eategry i ot perhaps, more than a curiosunn,"” but he oer two are quite important, Natta (98) 9-116. Ang iD) Ratt 35. hw arse mn ps eae wen ne INTRODUCTION: THE TWO PROBLEMS OF SOCIAL ORDER 9 (Games with multiple exuilitria that have diferent winners and losers can be unfathomable. Consider a number of peasint families with plots turanged alongside cach other around a lake.* The peasants do not have enough cultivated land and would like to fll the tres on thei lot, but ‘now that deforestation may bring erosion. Specifically, erosion will occur ‘on any given plot (A in Fig. 3) i nd ony if tres are felled on that plot and onthe 180 adjoining ones (B and C), Here there are thre equilibria, in each of which wees remain standing on every third plot around the lake. (One equilibrium, in which wees ae felled onthe stared plots, i shown in Fig 3. Thor is no tacit coordination mechanism, however, by which one ofthe three equilria could emerge asthe predictable outcome Voting — discussed more extensively in Chapter $~ is anther situation ‘with multiple equilibria. The value of vetng to the individual depends on how many other people vote. If everybody else votes, the individ as no incentive to do so, since the chance of hs beng pivotal is negligible nobody else votes, he has strong incentive to dso, since he can decide the outcome by himsel. An equilbram has an intermediate number of voters, each of whom prefers voting 10 not voting but would prefer not ‘voting to voting if one additional person voted. If there aren voters ato- setber and m voles in equlibyum, the number of equilibria equals the ‘number of ways one can select m people from a set of Since m usually ‘small, elections with large electorates wil have very many equilibria nye ot mate Deel wae ain wit nei are ea ov ‘Stine in orm ean teenie es ig geen ha hse on itr dll tase ae 400, So10. THE CEMENT oF soctETY A very general weakness of rational expectation models in economies is ‘hat they ten to have multiple equilibria” Foran individual, the possi ity that there ae several predictions be might make, each of which would be selling, poses ao problem. He can simply make the peedition ‘whose outcome he prefers. group of individuals who know that if they all act on one set of expectation these wl come ou re, and if all at on another Set these, too, will e verified, are ina more dificult predicament Tn special eases they may be ale to coordinate their action. If one st of expectations yields an outcome prefered by everybody it wl be chosen, Also, asymmetries of power can stabilize the situation and ensue cor ination around a cooperative equlibrium. The peasants around the lke ‘might achive ordination through bargaining if some of them have other Plots not threatened by erosion. Becatse they can survive withou their lot by the lake, they can credibly announce that they are felling tres on thee land and thar others will ave to adjust ther setions.” But there i ro goneral mechanism for ensuring coordination when thre ae several sulibria wit diferent winners an losers. ‘Many games have no equirum in pure stages. Investment in re search and development isa pausible example The only equilibria such ames admit consist of mixed strategies, defined asa probability distribu ‘ion over a subset ofthe pure straeyies. Now, we do not often observe people using loteres to make decisions in non-2nosum interactions. nd for good reasons, It can be shown that in equilibria with mite strat ‘egies an individual can do no worse for himself ~ although by dfition ‘no better ~ hy using any ater probabilistic combination ofthe pure stt- es tat ene into his equilibrium stategy. as long as others tick to their ‘librium strategies. The tiniest ficker of uncertainty or ignorance could then induce a shift ois maximin strategy it will protect him if ehers 2 Tas pomp oc acoding 1 Salt Mabe hm ta ah shal gi oct onteed Caer2 su Sele (98 ack eh tengo cefont an hi pblen, Ysera ft Atm nie ie eye tine peeing on of sr pee span in he see of Rae (OAT Hames tease mach eet epay wees ulin aie me en te dss ai. ‘nt oa tr sh cans py a ‘deviate from equilibrium (as they will if they reason inthe same manner) fand it canna harm him i they do not. We might expect randomization {in zero-sum games n which the equim sateay i the maximin srt fey, But not i the vastly more important nog zero-sum games. But the ‘agent cannot confidently predict that others will switch 10 maximin, for ‘hen he could exploit that knowledge and choose the stratepy that was ‘optimal against the maximin behaviour of others. In that ease, however. he would have to contemplate the possibility that thers, being in the same situation, would sc sina, thas undoing the premises of his action. The situation i inherently and essentially unpredictable (Consider now disorder in the second Sense, as lack of cooperation, This fs the main topic of the present book. Numeous examples will be given ater, and various causes of cooperative failures wl be itingushed. Here mth some introductory and clasifcaor remarks, distinguishing among ve main varies of cooperation: externalities, helping, conventions joint ‘ventures and private ordering. ‘Some forms of cooperation tly oa the extemal create by individ ual action Here it makes sense o talk about individual acts of cooperation: leaning up liter, carling production (as part of a cael agreement), ‘voting, paying one's taxes, donating blood. People might ot want wo co- ‘operate in this sense unless they expect otbers 1 reciprocate, but recipro- «ition not equted fr cooperative behaviour wo beefetive. Each act of ‘cooperation brings small Benefit to everybody, inctaling the coperatr. “Although the dest benefits the conubutor ar 10 small to motivate him to act, given tha there are costs to cooperation itis eter forall fall, {orat leat some) cooperate than if nobody does. Uader universal cooper: ‘tion, each individual isthe target of many small contbution from ot fs, adding upto an amount in exces ofthe ost of his contribution. "Another category Vall epg Behaviour: assisting a neighbour with the harvest, Keeping a promis, telling th tah. On any given cecason, this ‘eed not benefit the operator a all Nor are the benefits diffsed over a large mimberof other people, Yet i al help others when they ean do so at Tite cost ro themselves, al re beter of than they would be if nobody ever elped anyone. As inthe fst ease, cooperation, if undertaken, ben SSS arenas pean a Sas ea am ee12 THE CEMENT oF society fits others whether or not they reciprocate But it might not be undertaken unless ters ae expected 1 return the favour” [A third category is that of convention equilibria. As mentioned eater, ‘in equlibeium no one can improve his outcome by unilaterally deviating from it. An additional feature of » convention equlitium is that no one ‘would want anyone else 10 deviate fom i eter. (Convention equilibria are also characterized by 4 srct preference for one's own acters ‘conformity fo the convention, whereas the ordinary equilibrium concept ‘requires only weak preference) The rule of erivingon the right side ofthe ‘oad generates a convention equilibrium So does the rule that governs the nigh life of Brooklyn wisegus: “Everybody who had gi fiend took her out on Friday night Nobody ook hs wife out on Friday night. The wives went out on Saurdy night. That way there were no acidens of ‘inning into somebody's wife when they were with their pil friends.» Ofer, conventions are equivalent: itis important to have one, but it does no mater which itis. Sometimes, however, one of severl possible ‘conventions is Pareto superior tothe oer. Although thee is no eonven- ‘on that designates the person who should rng up again if a telepbone cll ‘is aecidentaly interrupted, it would clearly be ufo to ave one. Ht could designate the person who made the callin the first plac or he person who received it. Of these, the fists clearly supere, since only the person who ‘made the ist call would always know which number ocall In other, more important cases, diferent conventions have different winners and losers. Legal systems ae usually of this kind. Everybody would rather have some law ~ virwally any ~ than ao law. Whatever the law is, and assuming that sanctions work propery, everbody would prefer 'o abide by the law and to have everyone else abide by i" But different _roups might have diferent preferences sto the substance of the law, The weak andthe strong, for instance, hae a common interest in laws protect: ing property. The weak prefer a regime that asus them of private prop- ‘ey in their own labour power and some property ight in extral objects 2 Sea opin 1979 er 98). 6.2: M Tal (988; oe, ga) 2 imacunc eat meal Ss ec ome ei, sf ce ig, eager ay cl os eg 2 Aaah So ht hk hat ew siding teaver pry 4a femal degli tans Tew ened i ms ays ‘incl act th wet nce nap 8 hn cal INTRODUCTION: THE TWO PROBLEMS OF SOCIAL ORDER 13, ‘over a regime that gives them only the former right, ba they also prefer ‘hat minimal eegime over the absence of any regime. The strong prefer the minimal regime, which facilitates the accumulation of wealth, over the more inclusive regime, but they prefer the later over a lawless ste of nature. Fr the purposes of accumulating wealth socal democracy is more efficient than slavery, even though unfetered capitis i even better, Unlike the weak, however, the strong would survive in he state of nature, Hence they can impose the minimal regime, since they cancel heat to withdraw to the sate of nature [A funher category of cooperation is tht of joint ventures, in which physical collaboration between the paris is required to pradue a cop. ‘ratve surples. In these cases, unilateral action has liealy no impact on the outcome. A paradigm example isthe division of labour, a in Adam ‘Smith's pi factory. The collective of worker produce more together than ‘hey could do separately, but only on the condition that all make their contribution. If one man is missing, the productivity ofall theaters falls to zero. Conversely, an esta man makes no difference to the cup. In ‘more general proton funetions thee ae no suet complementaries, ‘bu i emis trv that poriive marginal product ofa given factor re (quires a non-zero level ofeach ofthe the factors of proton ‘A wonderful example of division of labour asa joint veature is given by Garrison Keilor in Lake Wobegon Days, in which he describes Fag Day in his mythical town. Herman, the erganiaer ofthe parade, bought ‘8 quiity of blue, red and white caps and distributed them tothe towns- people so that they would march through the streets a5 Living Flag, hile he stood onthe roof ofthe Central Building 1 take a photograph Right after the war, people were happy to comply, but Inter they had Second though: (One cause of resentment was the fact that none of them go to see the Flag they were i; the picture in the paper was black and white, Only Herman and Mr. Hanson got 1o see the real Flag, and some boys t00| short to be needed down below. Peope wanted a chance to go up the roof and witness the spectacle for themselves. “How can you go up tere if you're supposed tobe down here” Her rman sd “You £0 up there 1o look, you go nothing to lok at. st it enough to know that you're doing your pat?” (On Flag Day, 1949, just as Herman said, "Tha it Hold i now!"Md THE CEMENT oF socLETY cone of the reds made a break for it~ dashed up four hts of stairs 10 the roof and leaned over and fi long look, Even with the bole he let tehind, it as a magnificent sight. The Living Flag filled the stet below. A perfect Flag! Te red so brilliant! He coulda’t take his eyes ‘fF it. “Get down here! We need a picture!” Herman yelled up 0 him. "How does it look?” people yelled up to im. “Unbelievable! I can't eseibe i, he si So then everyone had 1 have look. °No!" Herman ssid, but they took a vote and it was unanimous, One by on, mermbers of the Living Flag went up to the roof and admired it. It was marvelous! I brought tears othe eye, it made one eet on this great country and on Lake ‘Wobegon’s place ini all. One wanted 10 standup there al afternoon and jest dink i in. So, athe fst hour passed, and only forty of the five hundred had been to the tp, the ehers wt more and more estes. -Hury up! Quit davding? You've seen i! Get down here and give someone ese a chance!” Herman seat people up in groups of fur, and ten fen, but afer two hours, the Living Fag became the Siting Flag and then began to erode, 36 the members who had had a fook thought shout heading home 1 supper. which infuriated the ones wito ha. Ten more minutes!” Hemman cred, but ten minutes became tventy and thin, and people stuck off andthe Fla that remained forthe las viewer was a Flag sho through by cannon fie In 1950, the Sons of Kute took over Flag Day. Herman gave them the boxes of cap. Since then, the Kruts have achieved several ood Flags, though most years the atendance was poor. You neod atleast, ‘our hundred to make a good one. Some years the Knutes made a no look’ rule, other years they held lotery- One year they experimented with large mizor held by two men over the ede ofthe roof, but when people leaned back and lokes up, the ag disappeared, of couse. In joint ventures the paris agree on physical collaboration. Private orderings oer mutually beneficial agreement that donot depend on phy ‘cal collaboration, bu only oa te voluntary transfer of rights fr the pu ose of creating «surplus. Bilateral exchange isa simple example. AS in the case of joit ventures, private ordering has no place for unateralco- ‘operation; ined, the very notion loses is meaning. Private orderings are InTRODUCTION: THE TWO PROBLEMS OF SOCIAL ORDER 15 ‘often the prelude to joint venture: before the worker mixes his labour power withthe capital equipment, there 6 contact ransering some of the eights over the labour power fo the owner ofthe equipment ‘Very roughly speaking, collective action theory (Chapter 1) deals with the fst two kinds of cooperation, while bargaining theory (Chaper 2) deals wih the last thre. Collective action theey denies the fre-ider problem asthe main obstacle to cooperation. Bargaining theory suggests thatthe main problem is failure to agree on the division ofthe benefits {om cooperation. Tiss, however to speak very roughly. A main argu- ment of the book i that collective action failures often occur because bargaining breaks down, Often, it woul be absurd 10 ask everybody 10 contribute equally toa public good. Some need it more than eters. or an beter afford to contbite, The size oftheir contbutions wil then be the ‘opicof bargaining, Sometimes itis poaless or even harm if everyone makes a contrition, Who shall contribute and who shall be allowed 10 take a fee ride will hen be atopic of bargaining. In ether ease the col lective action wll not get off the grou ithe potential contributors filo {agre, This common ground between collective ation theory and bargain ing theory is explored in Chaper 4. In discussing these problems, I employ two main conceptual tools The frst is ratonal-choce theory, which Ihave discussed extensively els ‘whore. [wll nt conser it explicitly hec, excep as a backdrop to the discussion of the other tool: the seory af social norms. Uhave come 10 believe that social norms povide an important kindof motivation for ae- tion that is imeducble to rationality or indeed to any other frm of opti ‘mizing mechanism. My exposition and defence ofthis View are given in ‘Chapter 3. In Chapters § and 6 I reconsider collective ston and bargain- ing from the atonal vantage point of the theory of social norms. The nal chapter offers some furter considerations and a tentative conclusion, ‘The reasoning is, s Iai, mainly inductive. Iely heavily on examples ‘oillostrate and lsh ou the more asta peopostons, which otherwise risk aking onthe kindof ilo their own which haunts te socal seiences like a nightmare Asa result ofthis inductive satay, the exposition may at places scom eather loosely integrated. In John Marquand’s Melville Goodin, U.S.A, someone remarks abou the tile character that his stories ‘an around on the Noor like rabbits. I would not be suprised if some16 rie ceMENT oF socieTY readers thought the same abou his book. Ihave eed, though to ensure some coherence by sing collective wage bargaining a te main vehicle fof the argument, This problem is examined in some deta in altemate chapters (2, 4 and 6). As explained in the preface, the isue of coletve ‘bargaining is actually what I began to study. When t tured out o be too Aliicul, I switched tothe caer task of constructing a framework within which it could be discussed. Asa esl, wage bargaining and wage fr Imation no longer have the status of explananda, but, more modest, that of ilaseations. 1. Collective action Introduction ‘The problem of collective action, also refered a the problem of free ding or the problem of voluniary provision of public gods, is deep and Pervasive. The ational self-interest of individuals may lead them to behave in ways that are collectively dsastous. To ge out of this predicament people may abdicate thee power tothe state, Hobbes's Leviathan, They ‘may also, however, achieve cooperation by decentralized, uncoeced means ‘Tis isthe mai opi ofthe present chapter. Decentralized solutions are ‘more fundamental than centralized ones, since compliance with ental ictives is itself collie ation problem, In ths chapter, I state the structure ofthe collective ation problem and discuss how people might tational want to cooperate rater than take free ride on others. The analysis is incomplete, since nonrational mosives also enter powerfull into the decision to cooperate, These ae discussed in Chap 5. ‘To motivate the discussion, I begin with «few examples ofcllectve action problems. The formation of a trade union oa peice cartel i col lective action problem for he poten member all bent il join, but each benefits more by abstaining. Nonmembers can benefit fom wage Increases negotiated by the union. Defector fom a care can comer the smarket. Voting present a problem of elective action in several respects, Those who vote mainly to eect a given candidate face the problem that unless most of the candidate's supporters vote be will lose, whereas any single vote makes literally no difference except n the unlikely even that itis pivotal Those who vote minly to express their sepport of the dem locratc system face siilar problem, although they a Teast know that "Thee a xeon tise. Scnetines pole ate oan we in ‘tis ty oe ra crc iri cr oni es wT cence18 THe cement oF soctery their vote wil not be iterally wasted Cleaning up the environment and staining fom pollting it af clasical olletive action problems, as ae ptcipation in community work, support of museums ae public radio sta- tion, adherence to a revoluionary movement, honesty among oxpayers ‘oramong public officials and voluntary donations of blood. The charctr- istic feature of al these cases stat any’ individual contribution generates small beoeits for many people and large costs for one person ~ namely the contributor. ARough the sum of te benefits typically exceeds the ‘costs so that there isa collective interest in te conebution, the costs ‘ppically exceed the Benefit othe contributor. so that there i no individual inerst nits being made ‘All ofthese standard examples involve interaction among physical in- Givduals atone point in time More complex cases involve legal rather than physical agents ~ for example, tae unions, corporations or states, ‘While each ofthese may represent the successful overcoming ofa colec- tive action problem among the members, thei interaction may eause ew [pblems. Sometimes it might have been beter for al ifthe orginal probs lems had been left unsolved. In Chapter 4 some cases of this kind are considered in greater detail, Also, we may define collective action prob- Jems that involve agents living at cifferen times. The problem of saving, for instance, may to some extent be seen a an intergeneration coletive tion problem: its beter fr ll generations ial ave something for their Successors than i noe do, ba foreach generation i is tempting Hive ‘off the capital handed down fo it by the past without comtbutng anything to the future, Most of the discussion here willbe directed towards the ‘andar examples, but I shal also consider more complex. cass. "The impact of collective action on wage determination illustrates these completes. In the ist pace, employees face a collective action problem ‘when facing the employer. Other things being equal, they do beter when ‘rzanized, but each worker can do even beter by staying on the sdeins.? Ii they succed in organizing themselves, however, other things may not remain the sume. In particular, employers may be provoked to create for nal organizations to protect their collective interests, Is ot obvious that the collective of workers facing a collective of employers will do beter than individual worker facing individual employers in a competitive mat- et. In the second pce, the workers face a temporal problem. If on each COLLECTIVE ACTION 19 ‘occasion they extract the maximum frm the employers the fim may in vest Tess and dhere willbe less to extract inthe future. succession of myopic trade union Ieadersips may cause the workers at all times to do ‘wore for themselves than they would have had the leaders been more farsighted. Inthe third place, the proliferation of unions may lal 0 higher ‘order collective action problems. Any given union, for istanee, need not take account of the inflsonar impact of high wage clams since is mem: ‘ers spend but a sal par of thei income oa the products oftheir fm or indosty, bt all unions may be hue when all et inthis way. In Chapter 4 "consider these problems a some lent. ‘efore turning to the standard collective action problem, shall conser ‘an important nonstandard ase, further éiscussedin Chapters 3 and 5. This isthe intertemporal, intrapersonal collective action problem hat underlies ‘eral cass of weakness of wil. Sometimes poople voluntarily do things that will be bad for them inthe long run, like smoking, drinking or over- ‘ating. Or they abstain from doing tings that wil be good fo them inthe Jong ru, like saving or exercising. Whats preferred al any given time has bd effects when done a al times. The analogy to the standard collective problem shoud be clear. In general, weakness of will means to act against one's beter judge ment, ort do what one believes that, ll things considered, one shoul not do, The phenomenon, in other wor, is characterized by these fea- tures, (a) There is judgement that X is good. (b) There is judgement that Ys good. (6) There i a judgement that, al things considered X is eter than ¥, (@) There isthe fact that ¥ is chosen. A central issue in recent pilorophy hasbeen to Formulate a comet description of this phe- ‘nomenon and o find its causa conditions of possiblity, OF the contending sccounts, [believe tat Donald Davidson's analysis comes closest 0 gt ting it ight He argues thst in weakwilled bohaviour the peoper causal connections between the agents desires and belief onthe One handy and his action, om the other, break down. The desires do not cause the Beha ‘our qua reasons fo it, uti some other way, qua sheer psychic turbu: lence. When the weaker reason wins ou, it because i sin one sense the stonger, not qua reson bat qua emotional excitement o¢ maivational fore. ‘Weakness of will ths defined is purely formal conception and has20. tHe cement oF soctery ‘no substantive implications about the kinds of motives that might be in- volved. In some contents X could be a longterm gain and Y a shorter ‘benefit, while in ther situations the converse could be tre. Also, time oe aot be involved at ll X could be the benefit tomy neighbour and ¥ some gain to myself or vice versa, Behaviour guided by socal norms can ‘be form of weakness of wll. Even when I know thatthe total benoit ‘ters ofan et of cooperation is smaller than the costs myself, 2 norm ‘of faimess might, against my better jdgement, compel me to perform it My norm-geerated passion for revenge might get the beter of me, aginst, my own better judgement. I return to this problem in Chapters 3 and 5, Here, however, I focus on the special but important case in which Y i short term and X is long-term benefit [Noe fst that preference for the present ove the Future is wether a saficieet nor @necesay condition for weakness of wil, The non necessity follows from what was jut sa. The nonslfciency is also obvious. A person who lives totaly inthe present displays no weakness of wil since there is no confict of interest and hence no possiblity for the stronger reason to lose oul. And even when there sa conflict, the person may well think chat the short-term gin is tobe prefered, all things considered. The fact hat know that but not when [shall ie makes i rational o weigh the present somewhat heavier than the future, fa fac, even when the future i ‘scouted more heavily than whats justified bythe consideration of mor: tality tables, weakness of will need not be involved. To-see tis consider Fig. 1.1 Inthese diagrams, a person has the choice betwoen an erly, small reward A and larger, delayed reward B* The choice hasta be mae a the time when A becomes availabe. The curves represent the present value ofA and at various times before thei becom ing availabe. The moe distant the future ime at which they become avail ble, the loner is their preset value. At any given time, the peron’s preference between these options is derived fom a comprison oftheir resent vals at that dine: he prefers the opinion withthe largest present ‘ale. Exponentially declining time preferences, asin Fig. 1.1.A, have the followin imporant property If atone point in ime the person prefers the (presen value of the) ease, small reward 10 the (present value ofthe) larger, delayed reward, then he des so at all points in time. For reasons that Shall make clear ina moment, Ike this to imply that he peter COLLECTIVE Action 21 i Pet for the smaller reward is his all-hings-considre judgement. There is & conic of values, since the person also fels the atrcton of the larger reward, but e decides that on balance he would eather have the smaller he presen valu of future rewards decines faster tha exponentially, asin Fig, 1.1.B, we have a ease of weakness of wil, represented by the ‘cross-over point between the curves, Wellin advance ofthe time of choice, the person prefers the large, delayed reward, but when the moment of ‘choice approaches he comes to prefer the earlier one. Ii reasonable to ‘ssume that what he thinks ahead of time represents his elect al things ‘considered judgement, and tht he simply loses his head when the temp- tation ofthe shor-term reward becomes imminent. George Ainslie, on whose work I draw heavily her, argues that in human behaviour none Ponenta time preferences are the rule rather than the exception. * The cases that concer me here have (vo important addtional features. Fist, the choice i nt beeen one small erly reward and one large de layed reward, IF we reflect om eases like smoking or jogging it clea that ‘on each occasion the choice is between one erly reward and many later rewards. IFT skip jogging one moming, Ihave the immediate benefit of22 THe cement oF sociery " oj" ter staying in bed. By jogging, | make myself ligily better of at many later times. The (discounted) sum of al the smal later rewards can, however be repesened as one lrg later reward, 1 hich the above reasoning hen applies. Second, the choices in question arse over and over again, Each toring Ihave to decide wheter to stay in be fr an extra lf hour oF to Jogging insteed. There is, in other words, an extended sequence of ‘hoices, cach of which hasan extended sequence of consequences. "The diagrams in Fig. 1.2 represent the consequences of yilling to temptation (VN) and of not doing so (MM). Here the utility measured on the seta! scale i instantaneous uty, excluding pleasures of aticipa- tion and memory * The ‘pride uility profile MM serves merely as a reference point, and hence can be drain as 2 horizontal ine without loss + toe ater dics of ese penamen dernier, se Ses eae 9) oer 9), coutnerve action 23, of generality. The profile NN has a downward slope for two reasons. In ‘akition to the negative extemalites that are my main concern bere, the ‘benefits of most noxious activides decrease with repetion.” The digas cover a certain span of time, which may be seen as roughly coterminous with an adult ite weakness of will wre stritly analogous wo the interpersonal colletive ‘action problem, I shoul be wore off tall tims if always, 8y, smoked then i T never id so. The asymmetry of time and the fnitude of human lite destroy this analogy, however. In a group of individuals, each can impose negative externalities om everyone else. Ina succession of “elves, ‘eater selves cannot be hurt by the later ones. (Remember that Iam ex- ‘ging pleasures and pins derive fom anticipation, jut asin the similar analysis of interpersonal collective action problem I shall exclude alrisic pleasures.) When I start smoking, am, fora while, beter of than if Thad rover begun. Beyond the pont where the pleasure of cient smoking is sacl offset by the cumulative damage done to my body by earlier smok- ing, am conssteatly worse off under the NV profile than under the MS profile ‘What sould I do? What will Jo? If my only options are always smok- ing and never stoking, I should compare the area ander the curves MM nd NV in Figs. 1.2.A and 1.2.B and choose the profile that encloses the largest area. In ig. 1.2.A 1 should never smoke; in Fig. 1.2.81 should always smoke, But this always-or-aever framing of the problem is not adequate. I could, for instance, start smoking 50 lat in life that Lam lays beter off by smoking than I would have heen by not smoking, This casei illustrated in Fig. 1.2.C. More to the point, a5 we shall ee in (Chapter 3, {could try 10 Limit my smoking to, say, five cigaretes 2 day, ‘geting the exquisite pleasure from a rare eigarete without causing sb Sania damage to my health. Whatever its shape, there must be some temporal profil of smoking nd not smoking that maxims lieine uti ity, Keping other things constant, Assuming | know what that profile vill choose i? I'L am subject to weakness of will, [will nt. Instead, 1 Wil yield to tempration on each accason, thereby making myself worse ‘off at (almost) all times than T would have been had I abstned or chosen the optimal profileDefining collective action A collective ation problem can be stated as an person noncooperative ‘game, This means, crocilly, tht the players make their choices indepen- ently of one another. There are no esleral mechanisms fr enforcing ‘commitments or promises. I ill not always assume that the choices are independent inthe sense of being made simultaneously, For yome colle tive aeton problems, hike ving, this isa natural assumption to make, For ‘ters, such a Building a mass movement, its crcl that contributions an be made at diferent times, since the efficacy of a contbution and hence ite motivating power may depend on the number of contributions ale made. Even im sequential coices, however, decisions about whether Sand when to join are somtimes made simultaneously atthe outset. Sve ‘cessive actions may reflec simultaneous decisions ‘Convenient simplifying assumptions (to be questioned late) ae the fo towing, Each agent has the choice between wo statezes, which wil be refered to as Cooperation and Defecion, (Randomized strategies are not Allowed.) Asa result oftheir choice, a certain outcome is produced. Us ally we may think ofthe outcome asthe amount of a cerain public ood thats made available o,if tis indivisible, the probity thai will be made available, The agents are assumed tobe identical and interchange able, This implies, fst, hall hat mates forthe outcome isthe number ‘of coopera, no tei specific idenity o thee place in the social ste? tnd, second, that they have the same preferences over the outcomes. ‘sume, in other words, tha the independent variable is dichotomous — Cooperate or Defect ~ and that the dependent variable is comtinuows function ofthe umber of agents who cooperate Ic is often assumed that iscontinaous public goods, o ‘step god’, offer special analytical prob- Jems.” Many ofthese evaporate, however, once itis see that the proba bility ofthe sep good being provided often varies continuously withthe number of eooperators. Ths #2 group of citizens fae the collective a * i at ate pie sina = abi excep 9 ht orp va es Stench mesa eee ee od Feenstra tect seen a Soest pop a soo enone ‘Sic anion ray ke nem este The ain wl ow fess ‘Seer ceie wichiesney td we owe han a hepa COLLECTIVE ACTION 25 tion problem of lobying to prevent their local school from being closed, ich contribution 1 a campuiga can make a (small diference to the like Iihood ofthat outcome, even though the goose isan indivisible one." ‘Although te assumption of dichotomous independent variable ~ the ecsion to cooperate ~ is convenient for many purposes, i is often un realistic, Ofte, the problem facing the actor is not whether 0 contribute, ‘but how mach to cartnibete, Even when te choice ite i dichotomous, the problem facing the observer is often not whether the individ wil contribute, but how likely is that he will do so. Explaining tax evasion ilustrates the fist pont. Explaining voting behaviour Ulustates the sec- ‘ond. Both problems are discussed in Chapter 5. “To define the collective action problem. I shall consider ony the direct benefits an agent derives fom his consumption of the public good. These se what I shal call “selfish, ovteome-orened benefits” To explain sue- ‘cessful collective ation we may have 10 take account of lager set of tenes, which I postpone for ater discussion, begin witha survey of various ways of defining a collective action problem: 1. We may define t very broadly, as any binary choice station in Which ts bete for al if some make ne choice the cooperative choice than if al make the other choice, although beter foreach 10 make the tater” 2, We may define it more narrowly, a an m-person Prisoner's Dilemma {in which i s beter forall fall cooperate than if nobody does 50, yet better for each not to do so 3. We may define it even more narowly, as an m-person Prisoners Dilemma in which is Bes for all all cooperate, yet beter fo each not dose In Chaper 5 1 consider some implications of the fist, broader tion, In this chapter, I minly use the second definition. First, however, [shall briefly discuss how even the broadest defisiton might be futher relaxed. ‘4 One might weaken the condition that there exists level of (possibly univers) cooperation that makes everybady beter off. A an example, consider comuption, further discussed in the concluding chapter. Although26 tHe CEMENT oF sociETY ssacsty without compton is, in an obvious sense, Better than 2 scity in which everybody i corrupt, itis usualy false tha everybody would be tester off under the former regime. Powerful individuals benefit so much from corruption that they would on the whole, lose from is abolition Truc, the socal poet would increase, bu their share of it would decline se dramaicaly that they would be let with les. Is somewhat mislead. Ing, therefore, to represent the struggle aginst corruption asa coletive fection problem inthe standard sense of the tem. One might rex the ‘etniion by reuiring that almost everybody be beter off under the opt ‘mal level of coopention than under universal rorcooperain, or even iit ‘oneself to rquiing that average wily be higher.” Buti the later case wwe have moved very far away fom collective ation a traitonaly con ‘vived, In particule, the contrast between individual and collective ratio- rulity disappears. 1 will ot, therefore, adopt this wlrabroad definition. [Average uty will nevertheless play an imporant role inthe ress ‘We may not, inthis connection, thatthe presently discussed definition i the appropriate one fr the intapersoral collective action probe, '5, Nest, we could eax the condition tat noncooperation be a dominant individual strategy. This condition would not be appropriate, oe insane, ‘when ony operators benefited from cooperation, Consider two probleme created by public transportation. The choice between taking the bus and ‘ving one's own car ea standard collective ation situation, due 1 ex teralies of congestion. The choice beween taking the tan and diving to work on an uncongested highway could crate a diferent problem. If ‘everyone took the train, fares woul fall so much that nobody would want to drive to work I few ook the tin the hh fares would induce private tiv. Nove, however, that as more and more people switched to the train, car drivers would not gan anything since by assumption the road ‘was uncongested even when everybody was driving. Its beter for all if all take the ai than f none do, but Beyond cen point ts no eter foreach w dive “Te conto that noncouperaion be dominant is also inappropriate when ‘one of more of the actors would be willing to provide the good! single handedly. A shipowaer with many sips might benet so much fom a a Bhi am iy i ti wie fo ston il coutective ction 27 lighthouse that it would pay him to construe it without any contribution fiom others, who could then fre ride on his effort. Tete might even be {wo shipowners each of whom would he willing to build the lighthouse if ‘he other did no. Although remains tue thar it is beter for al if some ‘cooperate than if none do 38 nl wncandtionlly beter for each not 1 cooperate 6. Filly, there can be cllectve ston problems even if nobody is rade worse off by defection." A Hungarian coffee shop bens to offer high-qualiy coffe to castomers who are willing o pay it xtra, As the shop has limited quot of eofee beans, each customer who pays the bigh price crates an externality forthe customers who pay the oficial pie ‘The official cups of coffee being increasingly ilsted, more and more cus: tomers are willing to pay the premium. Yet a8 more and mote do so, the ‘quality ofblack-market coffee approaches th ntl quality of he ordinary coffee. In the end, everybody pay the higher price for coffee of onkinary ‘quali. [¢ would appear, therfore, tht everybody has lost, in a standard person Prisoners Dilemma. The twist to the try is that because of cognitive dissonance reduction, nobody experiences any subjective loss. Since they are paying more for the coffee, it must be beter, they tell ‘themselves, than it used to be, Although there are limits to how fa pereep- ‘ions can deviate from reality fr the purposes of justifying pas effor or expense,” this case might wel be within the range of psychologically {easile adjustments. The Prisoners Dilemma yieis a Pareto improve- ‘ment the shopkeeper gains more and the eustomers ae happy. ‘The technology of collective action ‘To make it easier to understand the collie ation problem I shall se, ‘ere and in ltr chapters, the convenient diagrammatic representation in ‘toduced by Thomas Schelling." Figure 13 indicates how in a group of ‘r+ individual th uty payot to a given individual varies 8 fuetion ‘of bis own behaviour and that of te others, The behaviour of others is indicated along the horizontal axis, which measures the numberof co0p ‘ralos. Ifthe individual s a cooperator, his utility, measured along the eNom oo Kees (SH, Anon 1980. 81-428 THE CEMENT oF soctery vertical axis, is indicated along the lines in the diagrams. IF he is 2 oncoopeair, his utility i measured along the L lines. We see thatthe Z ad R lines intersect the vertical aes inthe ord which defines the od ‘ary (wo-person) Prisoner's Dilemma: the most highly prefered outcome is unlteral noncooperaton (ie ring), the next best is universal coop- ration, the third best universal noncooperatio, while the worst outcome is unilateral cooperation (being exploited). Asin the two-person eas, non cooperation is # dominant strategy, since the Z line is everywhere above the R line ‘As we shal ee, there is in general no reason why the L and curves must be pall, or even straight lines, or even (sce Chapter 5) moncon ically increasing lines. Figure 1.4 shows two cases in which the Land R Fuetions are nonparle tag ines ‘We can now define mo threshold levels for collective ation, repre sented by points A and B inthe dagrams. Point A isthe teshold fr sef- sustaining cooperation: if there are atleast A cooperates, each of them wil do at east as well for himself as i the sate of universal noncoope tion. The noncooperators wil of couse, do even beter. Point B is the threshold for Pareto improvements If thre ae fewer han 8 eoopersors, universal cooperation will improve the outcome for everybody ~ coupe toes and noncooperators. With move than B cooperates, the noacoopers- ‘oe will be beter off fee riding than they would be under universal co- operation. All lates tothe right of B are Pareto-optimal. “To each threshold we may associate particular kind of stability and couteerive action 29 uw wo Fei instability. Imagine that a subset ofthe group has agreed to cooperate, but that they turn out not to be self-susttining, Even if they are bound to ach other with he strongest bonds of loyalty, they wil perceive that co- ‘operation is pointes - i i essentially dssipsted among the noncooper tors ~ and disband. Imagine next that there ae ewer than cooperates. The noncooperatos might then perceive the atraction of universal oop craton in 8 way that they would not if the numberof coopeators grew beyond 8. Conversely, cooperation may be stable to the right of A and ‘oncooperaton stable othe right of In Fig, 14.1, whore isto the Felt of B, we fist have a region where both cooperation and noncoopeation a unstbl, followed by a region with sable cooperation and unstable noncooperation, followed by a region in which both are sable. In Fig. T.4ll the intermediate region has unstable cooperation and stable non cooperation. Here the tem ‘stability snot wed ina technical and precise Sease, but only to suggest cena dynamic possiblities. Whether these will be realized depends on futher motivational considerations, extensively dissed belo "More complicated structures are shown in diagrams D and Ein Fig. 1.5 {from Schelling). For the time being I will not question the assumption thatthe Land R curves are constrained to be moaotoeically increasing. ‘hats, hat an additional act of cooperation always makes & poskive con- tsbuton 1 the public god in question. We rust, however, ask wat under the various shapes ofthe curves iustatedin diagrams A through30 we ceMeNT oF sociETY Ein Fig. 1.5 For this purpose, we may bepin by noting that he Z curves indicate the per capita benefit (r expected benefit ifthe dependent var ale isa probability) of the public good created by the collective action “This benefits received by cooperators and noncooperators lke. The no sooperators receive this Benefit in it ent, without any cost wo be sub tracted. The coopertors, by contrat, receive it net ofthe costs of e09p ‘erating, These costs, therefore, are equal tothe distance between the Land eure. The Schelling diagrams, while extremely useful, are also somewhat iisleadng, in suggesting tha the Z and A curves are the fundamental couLective Action 3 aspects of the situation. A more accurate procedure would be to derive these curves from the more basic technology of collective action repre sented by cost and benefit function.» The cost ofa contribution to collec: tive action may be an increasing, a constant oa decreasing function of the number of cooperates. Similarly, an additional contribution towards the public god creates an addtional per capita benefit which may increase or ‘decrease wih the nmber of contributions already mae ieteasng costs can aise in cases of congestion. When many people join ealingsin campaigns to support public television, the ine Becomes busy andthe waiting ime to ge through increases. Also ifthe public gow! im question is w poblic bad for other peopl, they might want to make cooperation more cosy asthe number of cooperates ses to the point here ter activities become dangerous. One could imagine the pice in ‘am authoritarian regime tolerating @ few isolated dissenters, but eracking ‘down hard on them when they began amounting to an orgnized oppo ion. Constant costs ae illustrated by abstention fom tering: the cost me of nt throwing my cigaete onthe sidewalk Joes not depend on what “others do, Decreasing costs can derive fom the sategy of swamping the appetite of predators’ * When a given police force has to spread itself ‘mote thialy over an increasing numberof revolutionaries, dhe cost 0 each othe later goes down 2 Wie must distinguish beeen two senses of cots of cotton’. Fi, ‘here are the cost to dhe cota, second, heres the sum tao costs created by an aditinal contributor. If the cost of contbution are no onsan, an ational contributor can increase the costs for everyone else ~ or decrease them. nthe selfishly individual calculus the later possibility is ielevant, but for moral purposes it might be import, In lier discus * Hr ty pion ver, Mare an en (1985, Te rehome sper nit ee oe pron cn Sys en ee ed oy ep pt teh ly ann fon pea tp ithe ot fsb ‘mnt mn ae my) ohh a se ly nt ltl si thy ol i oh pe32 THE CEMENT oF soctErY sions ¥asully, bt not invariably, assime that costs ae constant 0 that these two definitions give the same result. In this connection a word souk lko be sid about opportunity cost of contributions to collective action. [Even when a person, by making a cootibution, makes others beter off than i he had done nothing ot in the lit if he had not existed, it could happen tat he would have benefited them even more by doing something ‘se Instead of joining the protest march he could have stayed in his café ‘nd comforted the tired marchers by sling them hot chocolate. By joining the march, heads to the costs of eters Tacreasing marginal benefits canbe illest by the cleaning of liner from a beach: the last bot that is removed makes a greater aesthetic Aifference than the penuitimate one. AS second example consider the ‘eatin of community cet: ‘Hours and dlls have tobe spent buying {he land and materials and building the stroctae before the ast few hours ‘of painting i and furnishing t produce big pays in having a place «0 ‘meet Decreasing marginal benefits ate frequen. "A simple substantive cxample 3 be calling city hall abou a pothole ina midle-class urban area the ist person who takes the time teal makes the probability 4 thatthe hoe willbe fixed, the second raises i107, the third 1 8 he fourth to 85, theft 0 88, and 0 on. In general the Benefit Function ‘can be expected toe Shaped, with marginal benefit ist ising and hen ‘decreasing. The benefits may even become negative ~ acts of cooperation may actualy harm oters or deprive them of beefs which the cooperators ‘would otherwise have provided. Examples are given in Chapter 5. “The most frequent type of collective action problem is probably that in which costs are constant and benefits fist ise slowly. then more rapidly {nd then more slowly agin.» The nt beneis ~ and average benefits per ‘sroup member ~ first decline, thn ise and then decline again, Figure 1.6 ‘shows gros foal Benefits, ttl costs apd nt total benefits of cooperation {sa function ofthe number of cooperates, Total (and average) nt benefits le maximized when the marginal benefit ofan extra ct of cooperation is ‘salt the (constant) marginal ost, that is, where a parallel the cost line is tangential to the gros benefit curve "The dot lines in Fig, 1.5 also represent average net benefit to all group members ~ cooperate and noncooperatrs as function ofthe hnumber of cooperstors By denition, thee are constrained to be overall coLLective action 33 Increasing: they begin at the point of universal noncooperation and end at the point of universal cooperation. Unlike the Land R curves, the average- benefit curves need not be monotonically increasing, but can contin de lining setches. The diagrams show cases in which a small umber of coopernoesacually reduce the average Benefit to Below the level of uni- ‘eral noncooperation and cass in which the lst peopl to join the collee- tive action have a similarly negative impact, These phenomena arise be ‘ane the costs 1 the cooperator are 50 high that they nt only offic the ‘benefit the coopeator himself (his is always the casein collective ationSM TWE CEMENT oF SoctETY problems), but even exced the sum ttl hens generated by his cont bution. Isolated acts of potest for example are often very cosy to the indivi and have lit impact on the probability thatthe relevant public good ~ be ita wage increase oF feadom of speech ~ willbe provided. “They may be pointless not only from a Selshy rational point of view, but ven frm the ulitarian point of view whichis guided by total or average ‘benefit. AST said, we shall also find cases in which the La curves ‘themselves have detiing steches, either with few cooperates or with eaby univers cooperation, “This concludes my statement of the clletive ston problem. 1 now ‘disuse possible solutions to the problem, by which {mean possible expla ration of he fat that sucessful collective action sometimes does occu. They ae not or only marginally, recipes for engineering collective action. Rational cooperation ‘Any explanation must rest onan analysis ofthe belies and motivations of indvidal agents. The explanandum, propery stated, is individual partic ‘pation i collective ation, that i, individual choice of the cooperative father than the noncooperative strategy One must emphatically not ry to cxpltin succesful collective ation i terms of the benefit brings to the ‘6p. Eventhough by assumption it is beter fr al ill cooperate than i nome do itis also tue by assumption that it seven ete For the in ‘ial ~ a least in terms of the restcted set of benefits we have been cussing so fr — to abstin from cooperating. Hence ‘group rationality” {sof no aa in explaining collective ation, These gestures in the diction of methodological individualism will have to sufice forthe present pur poses.” eal focus on the analysis of individual motivations, whereas belies il be relegated to second plac. The importance of bli forte expla- nation of collective ation is twofold. Fst each potential cooperator must have some ides of the technology of collective action ~ the Benefits and ‘costs of contributing at various levels of cooperation. Second, he must form an estimate of what that levels ikly tobe ~ an estimate, thats, of the expected numberof ater cooperators. Each of these bli is heaily shrouded in uncertainty and subject to cognitive and motivational biases ee Phin om a 2M Toe (8 an fi coutecrive aerion 35 ‘To the extent that people have any idea of the technology of collective action, it probably amounts to no more than an estimate othe difeence between universal cooperation and universal noncooperation, a well as & ‘notion that individual cooperation i pointless a or closet citer extreme To the extent that potential contributors area ll influenced by the ex pected numberof other contributors, their belies may be parametric or strategic. Votes, fr instance, may assume that wnt wil be the same asim the last elation. Or they may expect trn-out to be low Hf one candidate is predicied to be a certain winner, Either belief may also be shaped by wshfl thinking: a worker may have excesively optimistic Be= Tits about the wage concessios that a united collective may wrest from the employers or about the numberof eter workers that ae likey to join ‘im i the strike, {wil no offer a general account of bli formation, but toch onthe issue when necessary 1 shal propos a iypology of indvidal motivations that rests on & num ber of heuristic distinctions. First, I dstingush between ftionaliy and social norms as motives for cooperating. I need ot spell out at length what mean by raonality, but ony indicate that I use & minimalist notion of rationality, a8 consistent, future-rinte and instrumentally efficient be haviour. Second, I distinguish etweea selish and nonselsh motivations, Within the former we may further distinguish between outcome-criened and proceserented motivations, Within the later, I ditingush between positive and negative orentations towards others ~ between altruis, on the one hand, and envy and spite, on the other. The min categories are Set out in Fig. 17.2 Inthoory, there might also bea category for rtiona, nonselfsh, process-oriented motivations, based on altruism of envy. A person might jin collective acti wo promote of obstruct the process ben- efits of other people. These phenomena may occur, bu probably 09 infre- «quently to merit separate consideration, ‘With one exception, the fist member ofeach dichotomy has certain ‘methodological primacy over the second. (a) We have learned from Don sna aig tesco tw cl farting ae oc tha gol abugh thy ta) mt cae aout he a goa of Simin Toc pn tly ty So36 TWe CEMENT oF soctETY MOTIVATION RATIONALITY SOCIAL NORMS seurich NONSELFISH /\ / OUTCOME PROCESS ALTRUISM ENVY & SPITE ld Davzon that local iationsiy an be imputed only ona broad back ‘round of rationality.” eis logically consistent to imagine tht everyone always sets rationally, bat not shat everyone always at rationally. (b) ‘Similar, is possible to imagine a world in which everyone always ats ‘exclisivelyforhis own sesh benefits, whereas a wodd in which everyone always at exclusively forthe sake of thers isan incoherent notion. The second-order vals of altruism and morality are parasitic onthe exsince ‘of some fis-oder benefits; or instance, the second-order pleasure from ving presupposes an expected fistonler pleasure of the recipient. (c) Later I also argue tat process values are, in a somewhat diferent sense, parse on outcome vales. (2) By cons, altruism and envy are on 8 at, neither haying logical primacy over the other ‘The primicy of sesh and outcome-ciented motivations isa purely ‘methodological one, with no implications forthe empirical frequency of the various types of motivation. * It might conceivably be the case, for instance, that almost ll individuals in a given society go thir happiness from contemplating the irsorder pleasures ofa singe individual in their dst (and the higher onde leases thus generated). Als, the process beneisof action might be much larger than the outeome benefits and in 21 Th ana espn maton ear tbe a mening noon faugne 1 poop of dda mn oom nh dion atacand, lesb elcome me diane. Townson pot up map sabes ‘ing, wrap irbiscmater ong When ten ma a te. er feats op as Nene wo ty Io eo sack cae he eccle ‘yi een pom en me ang CoLLEctive action 37 that sense ‘more important’ hough the later are ‘more important inthe sense of being logially peimary ‘Hence when trying to explain individual patcpation in calletive ae sion, one should begin withthe logically most simple type of motivation: ‘ational, selfish, outsome-orentd behaviour, If this roves insuifcient 1 capi he phenomena we observe, we must induce moe complex ype, ‘ingly or in combination. In his chapter I consider only rational mots. tons, based om seiterestor altruism The discussion of nonrational r0- ives is postponed until Chapters 3 and 5. In Chapter 5 1 also adress the ‘portant and neglected iss of mixed mesivations, by which I mean cases in which succesfl collective action i made possible by the interaction of individuals who participate for very diferent reasons. The discussion of ‘envy is postponed until Chaper6 and, especialy, the concluding chap. ‘Rational, selfish, outcome-orented motivation 11 might seem as if individuals with this type of msivtion would never cooperate, since by assumption they would have defection as dominant strategy, In the collective ation lerature, however, there ar several at tempts to argue that under certain conditions these individuals might find ‘cooperation oben thine. Some of hese stems amount to changing the nature of the decision problem, whereas others agus more sub that ‘even in the nidltrted Prisoners Dilemma, cooperation might emerge ‘8 being in the longtemn intrest of the agents. [shall discuss these in Tr his classic discussion ofthe problem, Mancur Olson argued that cot lective eton might come about in two ways. Either one of the agents ‘would havea sulclenly large intrest inthe public good to provide it ‘Single handedly, even though he would then be exploited by the others. Or some suet ofthe agents might be able to free or induce the others 19 ‘cooperste, by providing them with negative or postive selective incen- tives, These are incentives which are contingent up the behaviour ofthe ‘agent, unlike the public good, whichis avaiable to eveyone if tis pro- ‘ied atl. Negative incetives or punishments are linked to noncope. ive behaviour, whereas postive incentives or rewards are linked to eo ‘opentive choices, n ride union formation, negative incentives hae varied fom social ostracim tothe use of violence agaitstsrkebreakers or un38 THE CEMENT oF SoctETY : \ a aw organized workers.” More receily, unions have been able to demand “collective bargaining fe" from nonmembers who benefit from negotiated swage increase, thus effectively eliminating the freider opin." Posi- tive incentives can take the form of favourable insurance schemes available ‘only 10 union members, pension plans, access to union leisure centers and the ke. "The use of selective incentives could have stong oe weak effets, by Which mean that it could make cooperation citer a dominant strategy or more weakly, an euilirim strategy. Consider ig 1.8.1 ‘A small negative incentive ora small postive incentive would have the effect of shifting the Land R curves toward each oer, 0 that universal cooperation would now be prefered to unilateral defection, but universal detection would remain prefered to unilateral cooperation. Hence univer sal cooperation would, in addition to universal defection, become anew ‘autem pont. We can well imagine that nearly stages of unioniza tion the costs of coperation imposed onthe worker by his employer were larger than the punishment for noncooperation imposed on him by his fel- chen 86) fe an act fhe Chisels ht ogy emp he Commun ene of ese seve aes ning Peso the mene "<5 con to Chor), Popkin (198) aaeney esis he we of pose a “Tata nal eto gr cupeton eame 3 oin t couinerive action 39 low workers, whereas with growing unionization the reverse inequality holds. Figure 18.1 illstates the converse possibility, Here, smal selec tive incentives might induce afew cooperators hut cease tobe efficacious ‘when dominated by the steply rising costs of cooperation. I rural evolu ‘ionaries try to recruit the peasantry by’selective incentives, they may sue ceed intially but son discover thatthe authorities are able to impose far higher costs on cooperation. In the presence of selective incetives Fig. 1.8.1 has one all cooperative and one all-defectngequiiam.” Figure 1.8.1 has neither Both have a ‘umber of mixed equilibria, in each of which the numberof cooperates is defined by the intersection between and R’orbetween and R: Note that in Fig. 1.8.1 the partly cooperative equilibrium indace by punishment (the itersection between Land) s worse oral than universal unpun- ‘shed noncooperation. The mixed equilibria are unstable in Fig. 1.8.1, but stable in Fig. 1.811 Lets characterize cooperation a individually acces sible its io the interest ofan indivi in a noncooperative sae to ake the frst tp towards i and as ndvidally stable if isnot nay individ- uals terest to tke the fist step abay from i. In Fig. 1.811 pata co- ‘operation is individually accessible and individually stable, In Fig. 1.8.1 {ull cooperation is individually stable but ot individually accessible. To setthere ona purely voluntary basis. individuals must be able to saticipate that others will cooperate. To do so, something like eommon knowledge about ther situation is required ~ a condition that i rarely sated in Social life. Inthe collective action problem without selective incentives, coordination is of couse nether individually stable nor individually acces sible Consider corruption inthe light ofthese distinction. There i srking ‘vaney inthe extent of eomruption in diferent counts. I some itis ‘most absent neers it is ampant and in intermediate cases it is frequent ‘bt not crippling so. To explain the variation, economists typically Took for differences in opporturities, institutions and inceativestretues, while sociologists are likely to search for diferences in norms, vales and tra tons. The intermedia cases peovide perhaps the strongest argument for te sociological explanation: people in a given society fae the same inst tations but may have different values. The preceding discussion suggests third possiblity: people may bave similar values, within and across so40 THE CEMENT oF soctErY ees, and similar insittinalstructres and yet, for accidental reasons, end up in different equilibria." The intermediate cases provide a valuable methodologies! lesson: even when people face identical external opports- nites, we should no infer hat ciferences in behaviour must retect dter- ‘nt preferences, Frequency dependent ura are quite possible.” 1 hall have more to sy about corupion in the concing chapter. The choice between rewards and punishments as selective incentives depends on the technology ofthe collective action. IF iis important to have ner universal participation (ue. if he average-heneit curve does ot flaten ut before almost everbody has joined) reliance on rewards «can be very cosy since they stally have tobe puid cut. Thee is ithe point in collective action ifthe gain are wiped ut by the cost of inducing people to participate. t may then be moe efficent to rely on punishment Which works manly by detenence and only secondarily by acta amin istration, Punishment i cheaper than reward, because anticipation replaces implementation ® Conversely, when ther ate large benefits fom he fist, ‘contributions and then rapidly decreasing marginal benefits, reliance on rewards may be more attractive ~ its technialy and morally posible to withhold them from some of the woul-be cooperatrs. A dilemma can arise if withholding imposible. One might then have c induce universal pustcpation by punishing noncooperstors, even if the optimal number of ‘cooperates i a sbstatlly smaller subse “The provision of selective incentives cannot be the general solution to the collective action problem. To assume that there isa central authority olferng incentives often requies another collecive aeton probes o have ‘been solved already, Before anion ean fore or induce workers o jin, it rust have overcome a fe-rder problem in the ist place, To assume tha ie ne tee aca memes SEE one ten ne cee re a te SES ie Soracsvetsacetie Sales e eet Scsneeunscwtianrhcennese Seas aE rel reece mc Sige eee cre tars ote Eee oes the incentives are offered ina decentralized way, by mutual monitoring, ives rset 2 second onerfe-rider problem *! Why, for insance, should {rational sefsh worker ostracize or otherwise punish those who do not Join the union? Whats int for bim? Trac, i may be beter for all members ‘fall punish nonmembers than if ne do. but foreach member it may be ‘ven ttter to remain passive. Pyishment almost invariably is costly to the punisher, while the benefits from punishment are diffusely dstibated ‘overall members. Is, in fet, «public good. To provide it, one woukd need secondonde selective incentives, which Would, however, run ino & third-order feeder problem. We shall encounter a similar problem in (Chapter 3, when discussing the enforcement of sia noms. “Those objections tothe sletive-incentve argument. while important are not always decisive. Ifthe technology of providing incentives differs Suffice from the technology of the original problem, decentralized ‘monitoring can be slishy rational. Consider, for instance, a small work rs” coopertive based on equal revenue sharing. The workers face a col lective ation prablem in which the cooperative option iso work hard and the noncooperative one isto shirk. The second-order problem created by ‘mutual monitoring involves nich smaller feerider gain, i there sone tall ‘Some activites allow individual to work and to observe one anoth fers performance simultancously. for example, so tat output and monitor ing are joint products“ If monitoring is costes forthe worker, it will have a postive et valve since i lays offers some benefits (Ln ofthe productivity increase cased by his monitoring). Alo, the workers might eiberaely organize the work process so sto minimize te cost of mon- {tring Finally, minimal sleuis oe weak socal norms, although insufi- ‘lent to solve the fstonder fre-rider problem, might Solve the second ‘order problem ifthe costs of cooperation ar substantally smaller at this level as they tend be. “There canbe litle doubt about the importance of selective incentives in collestive action, In particular, social disapproval of noncooperaos is fen i ant pesisis (70) Se s (98) wih e oing * Reh ce cr, alm 79 7. ete ie theme ble) § Mi 1976) p. 79, chen a name rom a Feehan ‘hy enh fb wage yen cme en pts Spe ms rhe ig bmg Them ac42 THe cemenr oF soctery invoked to explain low levels of defection. What is more controversial is wheter the expression of disapproval, when it eccus, is always and ‘everywhere a seltshly ational ation. As just argued, i may sometimes beso, Fargue in Chapter 3 that ned no always be So, More generally, {hove who provide selective incentives for people who would join only for selfishly rational motives acsd not themselves be guided solely by this Collective action problems can alo be tansformed if contributions are ‘made conditional upon each other. ** The “money:back’ metho stipulates that promises to contribute wil be enforced only if a sulicient number of ‘ters promise t do the same. The advantage of this metbod, which is ‘requcnly used in fund-raising campaigns, is that nobody risks being taken advantage of. Some might, however, succesfully fre-ide on oer. BY contat, the “aishare’ method stipulates that if sufcienty many coop- ‘rate, oters have to do soo. This eliminates the possibilty of fee ding but not the risk of being taken advantage of. American unionization rales provide an example. Workers ina plant decide by majority vote whether ‘hey want tbe represented by a union. Ifthe decision is positive, even ‘hose who voted aguinst unionization are compelled by lw to pay rion dues * I snot clear under what conditions sich transformations of the 2zame will induce collective action They are in any case vulnerable 19 the objection ase eter against selective incentives as a general solution to calletve ation: they presuppose the presence of a centralized agent with coercive authority ‘A more itrigung proposal is hat cooperation could be selfishly rational ‘ven whe the pays remain thot ofthe Prisoner's Dilemma, Although ‘Te eampe nr pa, eae te con othe woke of wig oan senile be many mgt Aster camp spect fos ae ‘a decison Seloet sho wh covet fo spree ile {mm Tic dvcpen eo e wats ded eye whinge terse pars cel dee Om coms he ore Sve “Tremaine cnn ese ‘nt ctr aces sit ante wand he t,he orn So? (Binley rem ets wp couteenive action 43 tere have been atempts 10 demonstrate this even for the one-shot Pris: ‘nee Dilemma, most arguments est om the diference between one-shot ‘games and repeated games. Initively, the idea is simple. Whea te same people interact over and over agai, they may choose to cooperate out of fear ofealiaton, hope of reciprocation or both “There is an important distinction betwoon the itl repeated Prisoner's Dilemma and the open-end, indefinitely repested one. As mentioned in ‘the Introduction, iis not quite clear what rationality demands of ws inthe finitely repeated game, Pending a resolution ofthe problem of backward indoction, we should be hesitant about accepting the nearly unanimously held view** that defection is the rational strategy in such games. Most actual stations are, however, open-ended. The same people meet over and over apuin, without predetermined terminal date" Inthe indefinitely iterated two-person Prisoners Dilemma, which has been studied in some fora poi ase Be ee ‘en ees te we one as Ta ese sb ete 7 for fen of hte te Roe 858) and Ded (1985, 2 Sse cpcaythe esining ty y Mei (1967), mig he ene ee son sg he Now on Ch sr op coutterive action 47 the individual © his own welfare, Alewism, om his conception, denotes a purely psychological incination, not a moral atiude.® I may just find myself deriving pleasure from other people's pleasure even when there is 10 obligation o indeed ao ozeasion to act forthe sake of proming their Pleasure. To be sure, for altruism to have much bite, must imply that there are Some occasions on which I would increase someone else's ist ‘order please ater than my own. But there is no need Wo assume that ‘such behaviour lays drives from fling of moral obligation. Altruism need not be anything more lofty than the converse of spite ~ take please rot only whea tings go badly Tor X, but also wha they go well with ¥. Formally the most natural way to model asm i san externality in ‘he utiy fonction, so that my’ tty depends boon my consumption and on that of oser people. Sipe moves represen the ality Lune tion ofthe alist agen as a weighted sum ofthe consumption of the various members ofthe group. himself included. Here the weights may Aiffer across individuals. In paiculr, he consumption of most ther peo ple may be assigned zero weigh, with postive weights being reserved for the agent himself and his lose associates, To this one may object, how eve, that uty cannot be assumed 1o bea linear futetion of consumption, ‘The ast can be expected io experince decreasing marginal lity fom lather people's consumption a8 well a from his own. To overcome this iiculty tis matural to assure that what mates forthe slkwist agent is a weighed sum of his own and oter people's ality rather than consump tion. To overcome the apparent circularity ofthis denon, we may ds tingush betwen exclusive and inctsive uty: the ist refers to the Bis- ner pleasures of doing and consuming, while he latter also takes account ofthe higher-order pleasures derived from other people's pleasure. The sel abet ltrs es te en ma ey iam: a8 dns fom psp asm On hin vem. gn cent weighs ‘mrp’ wer So ake sta os ec al eo a tence ty Ws 97) ae ha empl eens Hees Ince wl perry rancor opal hin, wish i st ater o's we pen ne ena go rp sung dene on ho oer pee: Fer etc eck PSceMasr hc a Marvel (8D48 The CEMENT oF sociETY ‘acusve uty funtion ofthe ales agent can then be defined as weighted sam of exclusive uy functions.” Ualtaranism tells an agent to cooperate if and only if his contbution ill bring about an increase in the average benefit. For most prcticl pu Poses, this means that he should cooperate if and ony fhe expects 0 be ‘on an increasing stretch inthe doted ines ofthe diagrams of Fig. 1.5. ln Fig. 1.5.Ac the average-tenefit curve is monotonically increasing, so that, 4 uilitarian would have cooperation as a dominant stategy. In the other ‘cases in Fig. 1.5, the choice of stategy depends on expectations about ‘ther people's behaviour, a topic further pursued in Chapter 5. To Be on ‘an increasing szetch means to case, by one's contribution, the production ‘ofan ational amount ofthe public god such thatthe toa gin in wel fare excoeds the private cous of cootributing. In principle, however, the utilitarian should be concerned not only about the det o¢ fist onde wel fare pins he causes but also aboot the indirect, second-order gains he «uses tobe eased by other people. Even when his contribution taken by ‘sc has a negative impact on the average net benefit may make it work ‘while for other witaran to contmbute, Under conditions of increasing bepefis or decreasing costs the gains he causes to be caused may well ‘exceed the firstorder losses, in which ase he ought to cooperate. I, how ‘ever, there ae decreasing cass to coopertio, he may not see why he, father than some ther wlan, should st the so0%ball ling, ‘Uniitarianism has a peculiar feature whichis espensiblefor some of its rious implications forthe problem of collective action. This isthe sit ‘alitrianism of the welfare calcul, in which each is to count for one ‘and pobody fo more than one. In particular, the agent isto count his own ‘tains and loses exactly on a par with those of other people. Hence i the ‘oss 0 hi of cooperating exceed te total benefits fom his contbaton, be should aot make it. Uttrtanism snot an ater regarding doctrine: it is selfand-other regarding. Sometimes ths makes good sense, but it can © sre gene, ne ald spe at epee lie ly con te ara agent sown eee ity snl yo een a Sime ote ane sit mete mi bes gh Wem nt 3 Inte ep wages by Tape St pp. 8-1, Under enone amg. fh bose mf he tse ene ty cmv ae et Shown by Bese ("ep 90m a. Aun Has pl conan at {Reve cnn weigh ih incest mer pope ean Sonimchiomrerm ante my, te sek ger ne way od coutnerive action 49 also encourage self.indulgenc, sl deception and the like.®* For most people, acting morally i always strenuous, anditis easy to exaggerate the costs to oneself of cooperating. Knowing this, autltarian who issu ‘ently rational o know his own propeasitis fr inatioalbekaviou might tbe well advised to discount these costs in the alcus, He would then cooperate if and only if he expected to increase the gros Benes fom ‘cooperation, that f and only if he expected o be on rising part ofthe [Land R curves. Although Ihave assumed these to be monotonically in creasing, Chapter 5 discusses some cases in which they ae not ‘The weatmeat of aluis pales tht of selective incentives, For the lust, the weighted sum of wilty increments which is consibution ge rates for others a selective reward With neat production functions, this reward is independent ofthe level of contibution, and he reasoning ‘sed on Fig. 1.8 applies directly. With nonlinear production futons, the size ofthe reward depends onthe number ofcontbutrs. ‘This chaper has een no more than an introduction to the problem of collective ation, Several racial aspects remain tobe discussed. The as ‘sumption thatthe ators are homogeneous and interchangeable, while use {al for expositionalpurpses, is clearly unrealistic. In Chapter 4 I consider ‘he complexities that rise when the interests and sources ofthe agents Aiffer. Also, the survey of motivations behind cooperation hasbeen de rately limited to rational outeome-oriented motives, After a general ds cussion of social norms in Chapter 3, | dncus their relevance to collective action in Chapter 3, There also consier how various kinds of mivtions «an come together and build pon each other o produce colletive action, ‘There is no privileged moxivaton for cooperative behaviour across all si tations. Nor for any given situation, can we expect to find one type of| tivation o prove the main explanation of successful elective ation, | shall argue that mixed motivations ae essential for cooperation. Certain motivations ct as eaalyts for others, while he later act = multipictors forthe former. <3. tengo ees ran changeit ind Bas nl er ‘ig wy of wran aie vee a sma ston ok ite neo apes tion ae abcd ‘Spec. how cabs so pions2. Bargaining Introduction Bargaining occurs when thre ae several cooperative arrangements and the parties have conflicting preferences over them. By a cooperative at rangement I mean any outcome (a) that i better for everybody than the sate of anarchy, (bin which there are no exphters, defined as noncoop- rats whose cooperation would cos them less than it would benefit them ‘and others, and (cin which nosy ends up being exploited thats, 8 8 ‘ooperator whose cooperation costs him more than it benefits himself and ‘thers. By anarchy I mean, fllowing the typology of cooperation set out in the tnodution, the absence of any ofthe following: actions with po itive externalities” heping, convention equilibrium, 2 feasible joint ven ture ora private ordering, ‘The patics are assed, that is, to have a common interest in ariving ‘a some agreement but a conflict of ineest over which agreement that is tobe. The central problem of barginin,in theory and practice is thatthe very plurality of cooperative arrangements may prevent any of them from coming about. Bargaining difers fom the narrowly defined cllective a tion problem, in which thei tpiclly a unique cooperative arrangement that in which eversoudy participates equally. 1 also differs fom cases in which there are several cooperative arrangements, ut no confit of inet- {t iher because all ae different among the arrangements or becuse ‘one of them is beter for everybody than the eters. ‘argaining must be distinguished from attempts to reach agreement by rational dscwsion. One way of characterizing the liter is as bargaining ‘in which strategic misepresenation and eter forms of jockeying for po ‘ston afe ot allowed. Although this may capture part of the idea of a "ram ey Papin wen, 7 BARGAINING ST tional discussion it gives too much weight wo the bargaining power ofthe ties. In rational discussion, the cay hing opposed o count she "power ‘ofthe beter argument’ including argument that ar radically dissociated from the bargaining power of th putes. Arguments from Bend the “veil of ignorance’ stipulate, for example, that ceraia actual features of the Paties are ielevant be it their wealth mertcratic theories), wealth and Sills (Ronald Dworkin) or wealth, skill and preferences (Rawls) Ba ‘ining, by contrat, takes account of al actual features ofthe paris. This is why, fr instance, no bargaining process however untainted by strategic ‘mens, woul lave the severely hanispped wit anything Since they make no contribution tothe nt social product, they have no bargaining ‘power, Similarly the interests of future generations cannot be represented ina process of bargaining Ic follows that justice cannot be based on bar- ‘ining if oe believes, as do, tha any theory of justices constrained by an inition that he handicappea and the future generations should not be left to their own devices, In this chapter I discuss mainly a narrow range of bargaining probems, those, namely that rs i joint ventures and private orderings. Baga ing problems tsising out of exernaies ae postponed atl Chipter 4, As 4 paradigm case of a joint venture I se cooperation between labour and ‘apt in production. pving rise to negotiations over the division of gains from cooperation. AS «paradigm case of private ordering I use bargaining ‘over financial custody and financial setement inthe afermath af evorce.? ‘These examples are convenient in tht they involve two puis only, ‘ince theories of bargaining have been developed msinly with the two person case in mind. Although they can be extended to the general Personas, thisextensionisoftenarticial.n-Person bargaining theory rests ‘on the assumption that cooperation is either total oe toullyabset. More precisely, the only coalition that can form i the gran coalition involving all agents. agreeing to coordinate tei actions for mutual beset. If that Coalition des ot frm, no cooperation occurs. Sometimes his conexption |s empirically adequate and the general conclusions of two-person theory 5. He could say eel. tht since I's desie for Rolls Royce was much stonger than his own desire fra bieele, I must accept p <5: “Take itor lave i, To be sre, ths involves interpersonal ‘comparison of ulities, but not avery dificult one since the prizes ae so ferent, assuming that | and I are reasonably simular persons.” From normative point of view i i also arbitrary tat I should get 50 percent chance of avery valuable object and Ia $0 percent chance of a much less 2 The fng das op Kt 985) and Rath 5 2 Foran put ha erence cpr ty ae nt ay pol bat ‘ini ce Ben (980, % neti et nating apenas as sine ne hm fey cam esc oer Wout nano EEA 1 Se rage py a nam ebe ce s ‘tteing sone cmesoal coctp I however, iy many Sms 8 06 FESR sor erat pa go BARGAINING 63 Valuable one. Suey. in the absence of further information about then the reasonable solution would be to choose p and q 3 a 1 equalize ex ected monetary reward ~ not to equalize the chances of geting two very ferent rewards. When we throw away information not only about the Dhysieal nature ofthe problem, but also about interpersonal tity infor: ‘maton, we lose a essential aspect ofthe barainng proces. Infact, our ‘nitions about the bargaining problem between the rich man ad the poor ‘man probably derive as much rom interpersonal comparisons of wily as from the fact tht the poor man’s marginal ult decreases more rapa “Toa poor man an extra dllar simply means much more than it does to te rich, who his, therefore, auch est lose fo bargin i tack * ‘Alvin Roth and bis collaborators conducted extensive behaviour std ies ofthe invariance condition ® They found that with different prizes the ‘outcome of bargaining was nota fifty allocation ofthe chances. On average, the outcomes favoured the party with a smaller prize. They did ot find, nowever, tha the outcomes clustered around the allocation that ‘would give equal expected monetary value. Rater the distribution was bimodal and tended to “luster around two Tol points: the ual prob- bility agreement and the “equal expected value™ agreement that gives ‘ach bargainr the same expected value" This nding suggests that to have an equal division of something is more important than the nature of ‘the dividendum. This dea, which is also supported by studies from non baresining contexts” is explored ia Chap 6 Symmery is intended to capture the ide that when the partes have the same bargining power, the outcome should in some sense reflect that ‘ality, Given invariance, “bagsning power cannot here refer to abso- lute levels of utility. Khas to be undertod in terms of features which remain invariant under positive linear ansformation. If we think again in terms of an underlying monetary bargain, one such feature could be the rate of dctease ofthe marginal wtiity of money. The notion of bargaining power is discussed sepuraely later. 2 ule of ce at 0 ng erin et i wy athe = The tude of pt wal he bow Ato outs evene abut ths tlie a of pala Be binge mete eon een nt64 1H CEMENT oF society Independence of irelevant alternatives inpies, in tems of Fig. 21, that when the feasible set is restricted fom OPABTO to OQABTO. the soliton should remain at A since this point remain feasible. One might want to object this condition. I would apear hu the bargaining sent ‘of lis weakened when the part ofthe feasible set which is most favourable 'o him is eliminated. Hence if outcomes reflect bargaining strength, I shoul fare worse inthe smaller bargaining problem than in he larger. At the very last, he should not be able to improve his poston when the odds change agtnst him. To capture this intuiion Ehud Kalai and Meir Smorodinsky have proposed an slerative condition, tobe substituted for ‘the Nash independence condition.» This axiom of monotonicity, ike the independence condition, is stated asa comparison betwen two bargaining problems. It says tha if, fr every utility level ha player I may demand, ‘he maximum feasible uit level fr player ITs alas a large i the second game asin the fst, then the tity level assigned to player I according to the soliton should not be less in the second game than inthe frst. Or, more bre, o oe should suffer frm he feasible set expanding in his favour Kalai and Smordinsky proved tat this condition, together with Pareto ‘optimality invariance and symmetry, implies the following solution con- cept. The uty gains should be proportional tothe maximum feasible tins which the partes could achiev. In Fig. 2.1 the (nonfeasible) com bition of the maximal feasible gains forthe problem OPABTO is repre- sented bythe point. The solution oocurs atthe intersection Between the Pareto frontier PABT andthe line from R to the disagreement point d In this case, the Nash solution and the Kalai-Smorodinsky solution happen ‘o coincide. I, however, we esti he feasible set to OQABTO the Nash solution remains at A while the Kalai-Smorodinsky solution is moved 10 2 This solution concept is arguably more plausible than that of Nash, both ‘on behavioural and on normative grounds. “Inttions about “bargaining power” and “Yaiess" might include the potion that if could win a ot ‘na bargaining situation, he or se is “cated” to moe than if he o she could only, in the best of eicumstances, win ile’. Although the ex > Thani fuse ps ae conned by the deen point, What an gt sngeei e arb Sagcncspf meee te ne sancainine 65 (9 unity ott Co ‘perimental evidence is ambiguous" one would expect wage bargaining, for instance, o be sensitive to the maximal feasible gan. Higher unem Ployment benefits, which nereas he worker reservation wage and ence reduce the maximal feasible profit, should strengthen the barzainins power ‘ofthe workers. Under the Kalti“Smorodinsky soliton this wil always happen. In the cooperative Nash model, it may or may not happen. (We shal ltr se that in noncooperative models it essentially never happens.) ‘Thus in Fig. 23, define 5 as the set spanned by (0,0). (0, 7). (6,4) and (7, 0) and compare the two bargaining games with disagreement points 4 = (0, O)and d’ = (1 0). We may thik of the second game as defied boy an increase im the reservation wage for the workers (player 1). We ‘observe that under the Kalai-Smorodinsky solution, the outcome i hited 2 tt econ, Nees Ove 178) fund ha te Neh sco es ‘eter pir tm te Kal Sere sto Sod Ro ny Mala 197) ie ‘Spt ftir nw, Eoweve a sn Sey ste Ct (1971) The mae post Neuere Owen emits jt mane pee re IRs tot wend semi ony Ne66 re cemenr oF society laze) ‘ Teo) in fvour ofthe workers, whereas undet Nas it can easly be shown to be the same in oth cases, namely (6,4). ‘Normatively, the monotonicity axiom seems more plausible than the independence axiom. It would seem perverse to accept a solton concept which ened tat one person could ge less as result ofthe feasible set expanding in is favour. Figure 24 (from Kalai-Smoraisky) shows ow this might happen, There are «vo games, both with disagreement point (0. Ovand spanned by ((, 0), (0,4) (3,3) and (4,0) and (0, 0), 0, 4). (4, 2.8) and (4,0), respectively. The Kalai~Smorodinsky slutions are ound a the intersections between the diagonal andthe bargaining fron tiers (3, 3) in the smaller gare an (4013, 40/13) in the Lrg, The Nash solutions are atthe corners in both games. Inthe second game II i more highly favoured han in the fist game, and yet under Nash he ends up wth les in the second I we try 10 assess the two conditions from an analytical point of view. to determine which, if any. would be respected by rational players, inti ‘ion can easily lead us astray. Both conditions have analogues inthe theory of individual choice, where they are plausible and perfectly consistent with ‘each oer, Here the independence condition says that csices should not ‘change when the feasible set contacts (0 exclude an item tht was not those in the first place I the menu offer beef, chicken and salmon and coupuvha heteaiestkepead ation nanoatntne 67 the customer has chosen chicken he should nt, baring special circum stances, itch to beet pon hearing thatthe restaurant is out of salmon, ‘The monotonicity condition for individu choice simply says that less is never prefered 10 more. Baring special cases, this contion also seems innocent and compelling ‘When we go from one-person choice to two-person bargaining, how- ‘ever, the conditions are fa from compelling. This spatially elected in the fact that they cannot be satisfied simultaneously. given the other Nash ‘nioms, but since those axioms themselves ae far from unquestionable we should na place 10 mach weight onthe inconsistency, One shoud jas be ‘wary in general of thinking tat the constants onthe outcome of individ tal choice cary over to the outcome of bargaining.” The conditions must be justified diet as conditions on bargaining, not by analogy from in- dividual choice * Both the independence condition and the monotonicity conditions are stated in terms of a comparison between two bargaining situations. There is mo eason for these 10 involve the same persons, or the same bargaining ‘objets, Al hat matrsis that the feasible wilt ses and the disagreement Points ae related in certain ways, Yet the conditions shuld also apply to the special ease when the same individeals are bargaining under different ‘ircumstanes, When interpreted inthis way, Nash's independence con Aton spears implausible, Consider, for instance, wage bargaining under full employment, before ad after protectionist measures have ben passed forthe industry in question. Michael Wallerstein has shown” that close relative of the Kalai-Smoroinsky solution ensures ha both workers abd ‘management benefit when protectionism is itrodoced ina station of fll ‘employment, The workers get higher wages, the management higher prof hich ny me» pot tomy wl wkd th aion en 98 ow at ‘Sia tw ug ecu ypoae sa ay sope aue Seite canoe de et em "Suet tbo i fee moe fe Bees tat ey fe ‘ea very popes 8 nt so om wh he ance aor ‘Sich Een poy neo ae wt ee ol see oy he mpeg, mcr ane on68 THe cement oF soctery its. Under the Nash solution, however, the workers do not Renei at all fiom the larger earning power of their in. By cons, in a situation of ‘unemployment workers do benef from protetionism under bth solution concepts. Hence Wallerssin concludes, "Unions, according tothe Nash solution, are ful-weather ales in protectionist coalitions. While the Nash solution, like any bargaining solution, species that both partes benefit from cooperating. doesnot sways imply that bth partis gain from an increase in the gins from cooperation Itiively, this makes no sense. Surely, the workers Would insist ona share inthe increased earings made posible by protectionism.” Ifthe Nash solution predits otherwise, this {0es only f show hoo implausible iis “This observation can be generalized, All varieties of formal bargaining theory, wea applied to wage negotiations, imply thatthe primary hing to ‘be expluned is the wage level, Wage increases, by cont are secondary = to be derived by subtracting one wage lve fom another. Thee i no analytical ference beeen wage difleences and wage increases. K makes to difference whether (S, d) and (Sd are two bargaining games that take place on two diferent panes or two games that ake place between the same management and the same anion in two successive yeas. In actual wage bargaining, of course, these (wo cass difer vastly since the workers remember what they go ast time. The baseline for bargaining i ven not only by what they Would get in tbe absence of any cooperation, but also by what they got in the previous round of negotiations. IFS, > and (Sd?) took place on two different plants, the outcome might con ‘eivably be the sme even though the fist occured in a nonprotectonst fd the scond ina protectionist context. Its nor conceivable, however, that «ion would accept an unchanged wage when the frm suddenly tenet from protectionist measures. One cannot assume that wae i creases can simply be derived from wage levels. Sometimes 1 separate ‘lytical apparatus may be needed to explain wage increases. I return to these maters in Chapter 6 Noncooperative bargaining theory ‘Usually, we think of competition and barpaining as intensely interactive and confictalproceses, involving winners and losers, fllures as well as The mt pecs 4 pn fncing fhe Co-ed. Wh tet "Tm inte Fre Engen or fein ns it on me. eaRcaINin 6 successes. Mainstream economic theory has taken the bite out of both, representing them by the equirium features of thee outomes rather than by ther internal dynamics, Reactions tothe asepic and sanitired notion of competition have come mainly from the Austan school of economics. ‘including contemporary followers of Joseph Schumpeter By and large, the mainstream remains unaffected by the erticism. Although the objec- ‘ions ae often welling, thei target is well and alive, protected by the fact that you cannot beat something with nothing, Where the allratve writers ‘ride themselves onthe realism of thei model, the mainsteam economist Sees oaly a hoe assumptions i stark contrast the simplicity and power ‘of equilibrium theory." Altempls to dsanitize bargaining theory have proved more sucessful, but only afer several false tas. The featres of bargaining that must be incorporate ino dynamic model with raion players include the fol- lowing. Fit, bargaining is proces that ean be broken down ito suc cessive offers and counterffers. A bargining solution must be defined as the outcome of a process of bargaining or, more subly, a driven by the ntcpation ofthis process, which need not actualy take place. Second, bargaining is cosy. For one thing, players who eare more about the pres cnt than the future always suffer froma delay. A ifty-Fity split of a dollar berween you and me tomorow is wort less to cach of us than the same 102 ~ 03 ~ Or Buttle an she co ey acing hfe ese real om ot ee Noe that te ee of heats italy ke te conf tar Comer nest ore an fi sig ob 2 dr, with con fanned ft that py ae Sound tps by arte same forth paris he ny Couture Oeste me ae opt or ten the ae fine pe Bs new of ha oBe mae m2 new peri. ter ‘ord tefl an afr nays ect dl hich mae Tay not bee ne ppt of etn tet dest Te fm makes the fe Then ocr esas sown nF. 27. 2 Mi cree mgt ct epee epg ie 1 ne, Bt Beem BARGAINING 73, i 4 Considered from 1 = 0, the discounted valle of what the firm and the ‘worker will have to divide at = 2842. Leu look sil fom the point ‘off = O) atthe subgame that begins ar = 2, Suppose that M cess the ‘maximum the fm can get in any perfect equilibrium ofthis subgame, We lo not know what this maximum is, except that ti determined by the feasible set and by the bargaining power (explained late) ofthe parties. In this ease, the only source of asymmetrical bargsining power derives from the fat thatthe fem moves fit. Discounted 0 = Othe value of ‘his maximum isd? M. Consider now, sl from the point of view of ©, what the worker shuld do at = 1. He doesnot have to offer the firm more than =, because the firm eat credibly bold out for moe the firm rejects the offer, it has to go into a new perio, in which it can agstatmost d= M, ACT = I the total valve of the dividend ed. Ts {he worker gets atleast d ~ dM. Consider now the offer made by the finn inthe ist period. Any offer it makes hast eave the worker with at least d = d?

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  Rating: 3.5 out of 5 stars

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