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Logic of Collective Action

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LOGIC OF COLLECTIVE ACTION
What are the common wages of labor depends every
where upon the contract usually made between those
two parties, whose interests are by no means the same.
The workmen desire to get as much, the masters to give
as little as possible. The former are disposed to combine
in order to raise, the latter in order to lower the wages
permitted under U.S. or applicable copyright law.
of labor.
It is not, however, difficult to foresee which of the
two parties must, upon all ordinary occasions, have the
advantage in the dispute, and force the other into a com-
pliance with their terms. The masters, being fewer in
number, can combine much more easily …. (Smith
[1776] 1976: 83–84)
One of public choice’s key insights is that outcomes in
political markets differ from those in ordinary markets, not
because the behavioral motivations of individuals are dif-
ferent in the two settings, but because of fundamental
differences in the institutional frameworks within which
rational actors pursue their self-interests. One implication
of this line of reasoning is that group action differs
markedly from individual action. Shared goals and joint
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responsibilities create indivisibilities that, we shall see,
represent the most distinctive feature — and the most
important barrier — to the mobilization of political influ-
ence in the interest-group society.
Private choices take place within the context of a system
of well-defined, well-enforced and transferable property
rights that generate price and profit signals to which indi-
viduals have powerful incentives to respond; public choices
take place within the context of ill-defined, contractually
unenforceable and non-tradable property rights that force
decision makers to act without the benefit of explicit mar-
ket indicators. Private choices are unilateral; public choices
are multilateral. Private choices entail consequences that
are for the most part borne by the decision maker himself;
the benefits and costs of public choices must be shared
with others. Individuals participate in private transactions
voluntarily; in politics, decisive factions access the coer-
cive powers of the state to compel the obedience of indeci-
sive factions. Private exchanges are positive-sum;
exchanges mediated by the public sector may be zero-sum
or, more frequently, negative-sum. Competitive markets
supply buyers and sellers with alternatives to which they
readily can turn; monopoly in the public sector provides
limited options among which the costs of switching tend to
be high.
In the private sector, decision makers make choices
without first obtaining the approval of others. Under open
market conditions, sellers decide independently of their
rivals what products to offer, which features to include, and
what prices to charge. Buyers likewise act on their own
accounts in deciding what products to purchase, which sell-
ers to patronize, and what prices to pay. Each seller strives
to maximize his profits by reference to firm-specific rev-
enue and cost functions, and each buyer strives to maxi-
mize his utility by consulting his income-constrained
personal preference orderings. Outcomes in ordinary mar-
kets, in short, emerge from the interactions of autonomous
economic agents seeking only their own private gains.
While decisions in the private sector are the result of
individual action, decisions in the public sector demand col-
lective action. Depending on the voting rules in place, a
democratic society cannot act without the concurrence of a
plurality, a majority, or a supermajority of the citizenry.
Collective action problems arise most frequently in the pro-
vision of pure and impure public goods — national defense,
highways, clean air, parks, and so on — which provide ben-
efits to a group of individuals, but which no one of them
has the independent capacity to finance (Azfar, 2001: 59).
Nevertheless, in modern western democracies the realm of
collective action has expanded far beyond the provision of
public goods to include pensions, health care, education, the
 LOGIC OF COLLECTIVE ACTION
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dole, and the many other ornaments of the dirigiste welfare
state. Global environmental treaties and military alliances
elevate collection action to the level of the nation-state.
The logic of collective action helps to identify the
groups that will tend to be successful politically. Prior to
1965, it was widely assumed that ‘groups of individuals
with common interests … act on behalf of their common
interests much as single individuals are often expected to
act on behalf of their personal interests’ (Olson, 1965: 1).
That monolithic view of group action, which ignored the
diversity of the interests of group members, was exploded
by Mancur Olson’s seminal contribution to the public
choice literature. Olson recognized that, unlike individual
action, group action requires the agreement of others.
Because each member of a group is a rational actor, his
personal interests will not coincide perfectly with those of
his fellows. The insight that not every group member will
necessarily gain the same benefits from — nor bear the
same costs of — collective action made possible a richer
analysis of the behavior of groups seeking to exploit
political processes for their own ends.
Olson’s logic suggests that the most effective collective
actors will be groups that are relatively small and composed
of individuals with relatively homogeneous interests. Small
group size raises the expected per capita return to group
membership, thereby giving its members greater personal
stakes in the group’s success. Suppose that collective action
promises a total benefit of $1,000,000 and that the members
of the group will share the benefit equally. It should be
obvious that the incentives to participate in collective action
will be stronger when 100 members will divide the benefits
than it would be in a group having 1,000,000 members. In
the first case, each member can anticipate a gain of $10,000
if the group is successful; the expected per capita gain in the
second case is only $1. Since no member of a group ration-
ally will invest more of his own resources in collective
permitted under U.S. or applicable copyright law.
action than he expects to gain, small groups will have com-
parative advantages as collective actors. Their members will
supply more effort on the group’s behalf, contributing more
time and money to achieving the group’s goals than other-
wise. Small groups also face lower costs of monitoring and
controlling free riding. Each group member has incentive to
collect his share of the group’s gains while avoiding his pro
rata costs of supporting the activities necessary to attain the
group’s objectives. Such free-riding behavior is easier to
detect, and sanctions against it (including expulsion from
the group) are easier to impose, when the group is small
than when it is large.
Small groups also have lower decision-making costs, an
advantage reinforced by homogeneity of members’ inter-
ests. Group heterogeneity creates differences of opinion
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361
that make it more difficult to reach agreement on common
courses of action, and creates opportunities for the mem-
bership’s majority to take advantage of the minority (what
Buchanan and Tullock, 1962, call the external costs of col-
lective decision making). Voluntary association, voting-
with-the feet (Tiebout, 1956; Hirschman, 1970), and the
ability to clone groups as demand warrants means that
diversity of tastes and preferences amongst individuals will
tend to promote diversity amongst groups rather than diver-
sity of group membership. People will tend to associate
with others who are like-minded in the sense of assigning
similar values to the benefits they anticipate from
collective action. There is thus much common ground
between Olson’s logic and the economic theory of clubs
(Buchanan, 1965; Cornes and Sandler, [1986] 1996;
Anderson et al., 2001).
Groups engaged in political action frequently were
organized initially for some other purpose. Recognizing that
many of the costs of group formation are start-up costs,
Olson proposed a ‘byproduct theory’ of collective action.
Once a group has been organized for any reason — individ-
uals with common interests on some issue have been iden-
tified and contacted, a membership list has been compiled,
dues have been paid, the association’s officers have been
elected, and office space has been leased — the cost of redi-
recting the group’s efforts to the political arena is relatively
low. Political action becomes a byproduct of the organiza-
tion because start-up costs have already been borne in
the process forming the association for some other (non-
political) purpose. Indeed, for whatever reason organization
is undertaken, lobbying for special-interest legislation
becomes a relatively low-cost byproduct of being organized.
Workers, for example, may organize to bargain collectively
with employers and then find it relatively easy to open an
office in the national capital to advocate higher minimum
wages. (As a matter of fact, Olson devoted an entire chapter
to the collective action problems of labor unions; see
Sandler, 1992: 113–114, for a succinct summary.) A business
firm is another example of an organization whose resources
can be redeployed at low cost for political lobbying pur-
poses, such as seeking the enactment of protectionist trade
policies or ‘right-to-work’ laws. Lawyers may agree collec-
tively to a code of ethics to address such matters as attorney-
client privilege and then proceed to adopt provisions in their
organization’s code that, by banning advertising, for exam-
ple, restrict competition among lawyers and raise their fees.
The National Collegiate Athletic Association (NCAA)
organizes to control violence and reduce player injuries in
college sports, and then lobbies for exemption from the
antitrust laws in order to capture rents from student-athletes.
Industry trade associations, agricultural cooperatives, private
 362 LOGIC OF COLLECTIVE ACTION
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charitable trusts, groups of individuals afflicted by the same
disease, and organizations of retired people are a few of the
many groups that, once formed, are well-positioned to act
politically.
A key point of contention in the literature is whether
individuals can be motivated to join such organizations in
the absence of coercion (e.g., laws mandating ‘closed
shops’) and, moreover, to supply the funds necessary to
finance the group’s political activities. Lobbying is, after
all, itself a public good and free riding consequently will
plague its provision. It is Olson’s attentiveness to the ‘pub-
licness’ of shared political goals and, hence, the formidable
barriers effective factions must overcome, that distin-
guishes his logic of collective action from the efficiency
theories of pressure-group politics put forward by Becker
(1983, 1985) and Wittman (1989, 1995).
Olson advanced a theory of ‘selective incentives’ to
address the free-riding problem that disadvantages collec-
tive action relative to individual action. According to that
theory, an association provides a private good or service to
its members that cannot be purchased competitively else-
where. By tying this good or service to membership and
monopolistically pricing it above cost, the association can
raise money to underwrite its lobbying activities. The
Sierra Club, among the most venerable organizations of
American ‘greens’, sells calendars to its members, for
instance. Membership in the American Association of
Retired Persons (AARP) provides access to a group life-
insurance policy and to discounts on prescription drugs and
travel packages. The members of BUND, the German affil-
iate of Friends of the Earth International, get to purchase
automobile insurance at favorable rates because, as the
organization’s publicity materials state, ‘we know that
you … will drive especially responsibly and environmen-
tally friendly’. The NCAA supplies member schools with a
schedule of regular-season games and post-season
permitted under U.S. or applicable copyright law.
tournaments.
Olson’s byproduct theory was originally dismissed by
George Stigler (1974), who argued that there is no good
reason for assuming that interest groups will have monop-
oly power over the provision of particular private goods to
their members. How, then, could they generate monopoly
rents to finance their lobbying activities? One answer over-
looked by Stigler is that many interest groups creatively
use their tax-exempt status under section 501(c)(3) of the
Internal Revenue Code to reallocate monies raised for
legitimate organizational activities to support their political
agendas (Bennett and DiLorenzo, 1998). The basic point,
however, is that Olson’s hypothesis about the use of selective
incentives is testable; it simply cannot be dismissed as a the-
oretical curiosity. It is entirely plausible, for example, to argue
that the demand for Sierra Club calendars is downward
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sloping and that the Sierra Club therefore has sufficient
monopoly power in the calendar market to finance many of
its lobbying activities with the associated rents. Moreover,
the point goes well beyond the trivial example of calendars
to such selective benefits as group insurance policies, a
variety of member discounts, and, in some cases, such as
the American Medical Association, the right to practice
one’s profession.
Mulvey (1994) investigated the use of selective incen-
tives by the AARP, and found that they are directly related
to association membership, which is a proxy for interest-
group clout. She also found support for the fungibility of
organizational funding as between tax-exempt activities
and (non-exempt) political lobbying. This limited evidence
suggests that Olson’s byproduct theory of interest-group
formation may be more empirically relevant than com-
monly assumed, but additional research along these lines is
nevertheless needed.
Public choice economists know very little about the
dynamics of interest-group formation (but see Wagner,
1966, who suggests that political entrepreneurs play cre-
ative roles in this regard). No matter their origins, the logic
of collective action nevertheless suggests that small, cohe-
sive factions will tend to dominate the democratic political
process. Because such groups are in position to supply
votes, campaign contributions, and other forms of support
to politicians and policy makers, these officials will
respond favorably to their demands. The mass of voter-
taxpayers is everywhere at a disadvantage in the competition
for wealth transfers that characterizes interest-group poli-
tics. Just as it is not worth spending more than $1 to gain
$1, it is not worth spending more than $1 to avoid having
$1 expropriated for transfer to a politically more effective
group. Owing to their large numbers, their lack of organi-
zation, and their inability to articulate a coherent political
agenda, the polity as a whole predictably will be vulnera-
ble to a ‘tyranny of the minority’. It is thanks to Mancur
Olson that we now understand why this plain fact of
democratic politics seems so obvious.
WILLIAM F. SHUGHART II
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Shughart II and L. Razzolini (eds.) The Elgar Companion to
Public Choice. Cheltenham, UK and Northampton, MA,
USA: Edward Elgar, pp. 59–82.
 THE LOGIC OF LIBERTY
Copyright © 2004. Springer Science & Business Media. All rights reserved. May not be reproduced in any form without permission from the publisher, except fair uses
Becker, G.S. (1983). “A theory of competition among pressure
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THE LOGIC OF LIBERTY
1. Introduction
In 1970, Amartya Sen launched an extensive debate on
the relationship between individual liberty and the Pareto
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363
principle in his famous article on the “Impossibility of a
Paretian Liberal” (Sen, 1970). In this article, Sen claimed
to prove that a principle reflecting liberal values even in a
very mild form cannot be combined with the weak Pareto
principle, given an unrestricted domain. “If we do believe
in these other conditions, then the society cannot permit
even minimal liberalism” (Sen, 1970, 157); and “While the
Pareto criterion has been thought to be an expression of
individual liberty, it appears that in choices involving more
than two alternatives it can have consequences that are, in
fact, deeply illiberal” (ibid.).
For the most part, scholars who have engaged Sen unsuc-
cessfully in this debate have done so in terms of Sen’s
own definitions of liberalism and of the Pareto principle
(see, however, Peacock and Rowley, 1972 and Rowley and
Peacock, 1975, for exceptions). In this paper, we return to the
debate to place the key concepts under close scrutiny and to
suggest that the Sen paradox does not exist once the concepts
are more carefully defined and more thoroughly evaluated.
2. The Nature of the Sen Paradox
Sen (1970) sets out the following conditions for social
choice (the following are direct quotes):
CONDITION U (Unrestricted Domain): Every logically
possible set of individual orderings is included in the
domain of the collective choice rule.
CONDITION P (Weak Pareto): If every individual
prefers any alternative x to another alternative y, then
society must prefer x to y.
CONDITION L (Liberalism): For each individual i
there is at least once pair of alternatives, say (x, y), such
that if this individual prefers x to y, then society should pre-
fer x to y, and if this individual prefers y to x, then society
should prefer y to x.
Sen’s intention is to permit each individual the freedom
to determine at least one social choice, “having his own
walls pink rather than white, other things remaining the
same for him and the rest of society” (Sen, 1970, 153).
On the basis of these three conditions, Sen (1970)
argues that the following impossibility theorem holds:
Theorem I: There is no social decision function that can
simultaneously satisfy Conditions U, P, and L.
Sen (1970) then weakens the condition of liberalism to
allow the condition of liberalism only to a proper subset of
individuals:
CONDITION L* (Minimal Liberalism): There are at
least two individuals such that for each of them there is at
least one pair of alternatives over which he is decisive, that
is, there is a pair of x, y, such that if he prefers x (respec-
tively y) to y (respectively x), then society should prefer y
(respectively y) to y (respectively x).