Collective Action and Exchange: A Game-Theoretic Approach to Contemporary Political Economy - Softcover

Ferguson, William

Softcover

ISBN 10: 0804770042 ISBN 13: 9780804770040

Verlag: Stanford Economics and Finance, 2013

Inhaltsangabe

In Collective Action and Exchange: A Game-Theoretic Approach to Contemporary Political Economy , author William D. Ferguson unifies a broad range of new developments in economic theory and closely related areas of study to present a comprehensive political economy text, aimed at advanced undergraduates in economics and graduate students in the social sciences.

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Über die Autorin bzw. den Autor

William D. Ferguson is the Gertrude B. Austin Professor of Economics at Grinnell College, where he teaches courses on labor economics, policy analysis, applied game theory, and political economy.

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COLLECTIVE ACTION AND EXCHANGE

A Game-Theoretic Approach to Contemporary Political Economy

By WILLIAM D. FERGUSON

Stanford University Press

Copyright © 2013 Board of Trustees of the Leland Stanford Junior University
All rights reserved.

ISBN: 978-0-8047-7004-0

Contents

Acknowledgments............................................................
xi
PART I PRELIMINARIES.......................................................
Introduction: A Farmer's Market............................................
3
Chapter 1 Collective-Action Problems and Innovative Theory.................
5
PART II FOUNDATIONS OF COLLECTIVE ACTION AND EXCHANGE......................
Chapter 2 The Basic Economics of Collective Action.........................
23
Chapter 3 Coordination, Enforcement, and Second-Order Collective-Action 
Problems...................................................................
43
Chapter 4 Seizing Advantage: Strategic Moves and Power in Exchange.........
65
Chapter 5 Basic Motivation: Rational Egoists and Reciprocal Players........
91
Chapter 6 Foundations of Motivation: Rationality and Social Preference.....
113
PART III INSTITUTIONS, INSTITUTIONAL SYSTEMS, AND NETWORKS.................
Chapter 7 Institutions, Organizations, and Institutional Systems...........
149
Chapter 8 Informal Institutions............................................
165
Chapter 9 Internal Resolution via Group Self-Organization..................
201
Chapter 10 Third-Party Enforcement, Formal Institutions, and Interactions 
with Self-Governance.......................................................
232
Chapter 11 Social Networks and Collective Action...........................
254
PART IV POLICY, GROWTH, AND DEVELOPMENT....................................
Chapter 12 Policy and Political Economy....................................
287
Appendix to Chapter 12.....................................................
323
Chapter 13 Knowledge, Collective Action, Institutions, Location, and 
Growth.....................................................................
327
Chapter 14 Conclusion......................................................
350
Notes......................................................................
357
References.................................................................
389
Index......................................................................
411

CHAPTER 1

COLLECTIVE-ACTION PROBLEMSAND INNOVATIVE THEORY

1.1. COLLECTIVE-ACTION PROBLEMS, POLITICAL ECONOMY,AND EXCHANGE

Collective-action problems (CAPs) arise from any deviation between unfettered pursuit ofindividual goals (typically, self-interest) and the perceived well-being of at least a portion ofsome group&mash;be it a nation, region, community, firm, or sports club. Because CAPs representthe archetypal dilemma of strategic interaction among purposeful agents, and becauseexchange underlies economic and social development, the relationships between collectiveaction and exchange serve as the unifying principle of this book. Collective-action problemsreveal the logic behind multiple market failures, notably those associated with publicgoods, externalities, common-pool resources, and problems of coordination and enforcement.Furthermore, market success depends on resolving CAPs, especially those related tocoordination and enforcement. Thus CAPs and the potential for their resolution lie at thefoundations of political economy.

There are two basic types of collective-action problems: first- and second-order CAPs.First-order CAPs signify free-rider problems that are associated with providing public goods,reducing the production of negative externalities, increasing the production of positive externalities,and limiting the use of common-pool resources to sustainable levels. We defineall of these terms broadly. For example, an institution is a public good, as is establishing asense of trust that facilitates exchange within a community. Second-order CAPs are problemsof orchestrating the coordination and /or enforcement needed to render agreementsfor resolving first-order CAPs credible. Indeed, coordination and enforcement are themselvestypes of public goods&mash;namely, public goods that lend credibility to agreements.

Collective-action problems matter for political economy not only because they representkey linkages between politics and market exchange, but also because they indicate thecore rationale for economic and social policy. Most policies seek to resolve or ameliorateCAPs (with varying degrees of success or failure). More fundamentally, the existence offirst-order CAPs signifies market or group failure, and successful exchange requires someprior resolution of second-order CAPs. In fact, resolution of second-order CAPs precedesreliable definition and enforcement of the property rights that underlie market exchange.Furthermore, such resolution facilitates the formation of institutional environments, aswell as the associated mutual understandings and trust that allow multiple forms of economic,political, and social exchange to occur at all. Resolution of collective-action problemsthus underlies all substantive economic, political, and social development.

1.2. ANALYTICAL APPROACHES TO COLLECTIVEACTION AND EXCHANGE

Much of the motivation for this book arises from relatively recent developments in gametheory, economics, and policy theory. These developments both expand and refocuspolitical-economic inquiry. They permit the formalization and modeling of principles thatpreviously had been too complex or considered too indeterminate&mash;and were thus relegatedto the sidelines of analysis until recently. Our summary of these developments servesthree purposes: it offers intellectual context, points to general methodology, and outlinesimportant concepts that will appear in the remainder of this text.

Our discussion now proceeds to thumbnail sketches of eight critical realms of newlyemerging theory: game theory, social network analysis, information economics, socialpreference theory, rationality theory, institutional and governance theory, policy theory,and spatial-location theory. This section concludes by merging these ideas into a unifiedconception of game-theoretic political economy that summarizes the book's coreassertions.

Game Theory

If CAPs represent the archetypal strategic dilemma for political economy, then game theoryoffers its methodological bedrock. Formally, game theory facilitates modeling strategic interactionamong two or more agents. Strategic interaction occurs whenever agents sharestrategic interdependence&mash;meaning that their actions affect outcomes for others and thatagents typically understand such interdependence. In an oligopoly, for instance, one firm'sproduction can affect the quantities produced and prices set by other firms. Similarly, a decisionby a contractor to hide mistakes can affect its client's profits. In political campaigns,one candidate's decision to advertise can alter prospects for opponents. Likewise, a decisionby one student to invite another to a high-school prom may affect the happiness ofwould-be partners. These types of strategic interaction permeate this book's game-theoreticdiscussion of collective action and exchange.

By contrast, the constrained-maximization approach of traditional economics and rationalchoice theory often fails to address strategic interaction. Herein lies a core distinctionbetween recent political-economy approaches to exchange and more conventionalapproaches based on pure competition and similar models. In pure competition, an agent'sdecisions focus only on self and environment. Firms and consumers individually choosetheir quantities produced or purchased&mash;and respond to such external variables as marketprices&mash;without reference to actions of other participants. Others' actions merely becomeindistinguishable elements of an environment (a field) that constrains individual activityand affects outcomes. Although the sum of others' actions can (as part of the field) influenceprices, no individual consumer or firm can have such impact. Given this lack of influence,agents can safely disregard others' strategies in their decision calculus.

Strategic interaction is more complicated and intricate than constrained maximizationbecause other parties matter. For example, an oligopolistic firm considers the expected behaviorof its (few) competitors before deciding on price or output&mash;while understandingthat its competitors share a similar strategic perspective. Such strategic interaction constitutesa game, not just an individual decision. Indeed, the constrained-maximization perspectiveof the traditional approach applies only to exceptional cases. Furthermore, even incompetitive markets, game theory can represent transactions that involve any type of commitment,such as a contract, or any private information&mash;such as knowing far more aboutone's qualities, motivation, or behavior than others do (Dixit, Skeath, and Reiley 2009, 19).Conditions of this sort are ubiquitous in complex economies. Even though market competitioncan undermine many possible strategies and force players to reveal information,economic choices remain profoundly strategic because outcomes depend on numerous interactionsamong participants.

This text draws upon four broad types of game theory: classical, evolutionary, behavioral,and epistemic. In classical game theory, agents share some level of mutual awareness oftheir interdependence. Chosen actions reflect best-response strategies&mash;that is, action plansthat specify responses to every conceivable contingency&mash;most notably, envisioned combinationsof others' actions. Game outcomes reflect the conditions (or states of the world)that follow from a game's enacted combinations of strategies. Examples of game outcomesinclude the price of an item, the distribution of resources, and the election of a candidate.Each possible outcome generates payoffs to each involved player, where payoffs capture thenet utility gain (or subjective valuation) from that outcome. Utility returns may be eithermaterial (as in money) or social (as in status). Classical game theory thus mimics traditionaleconomic reasoning by utilizing best-response maximization; yet it embeds such responsesin strategic domains. Applications of these principles, moreover, extend beyond economicsto any strategic interaction.

Evolutionary game theory offers an alternative perspective&mash;one in which strategiesconsist of programmed or inherited "phenotypes." In social scientific applications, inheritancereflects prior education and other forms of cultural (rather than genetic) transmission.Individuals&mash;and, by extension, populations&mash;inherit behavioral orientations, strategies,or established practices in various combinations. Thus some individuals are naturally aggressiveand others are shy; some speak Chinese, others English. As in classical game theory,specific combinations of strategies operating within particular contexts generate outcomeswith payoffs, but evolutionary payoffs do not indicate players' utility, but instead show thefitness or reproductive viability of their employed strategies. Strategies that earn high fitnesspayoffs reproduce or transmit abundantly; low-payoff strategies (failed practices) fade awayover time. Evolutionary game theory thus facilitates modeling of learning processes andother forms of selective social adaptation.

Behavioral game theory uses experimentation in contexts guided by game-theoreticprecepts (e.g., prisoners' dilemma scenarios) to explore relationships between context,perceptions, and agents' actual behavior. Experimental findings may then be incorporatedinto the other three types of game-theoretic modeling&mash;for example, by informing representationsof payoffs. Finally, epistemic game theory focuses on the cognitive dimensions ofstrategic interactions. Using classical reasoning with emphasis on the extent and limits ofagents' prior knowledge and expectations, it illustrates how certain shared understandingscan guide or correlate strategic decisions among multiple players. Epistemic game theory isespecially useful for modeling the impact of institutions on strategic behavior.

In short, game theory offers an extraordinarily flexible and widely applicable set of modelingtechniques. Its use informs not only political science and economics but also biology,psychology, sociology, anthropology, business strategizing, and policymaking. In politicaleconomy, game theory enables us to model multiple intricate micro-level transactionswithin small groups, as well as macro-level patterns among nations or across populations.We may then specify the microfoundations of exchange as strategic social interactions thatarise within or among groups of purposeful agents, rather than as a mere summation ofindependent acts of maximization. In so doing, game theory fosters a truly social scientificmodeling framework for political economy. Agents' choices and even their preferences maydepend on and respond to anticipated activity or reactions from other parties&mash;all conditionedby social and institutional contexts. Even though game theory can incorporate suchsocial influences, it also posits individuals (or unified organizations, such as firms) as criticaldecision-making or response units as it models goal-oriented and adaptive behavior.Game theory thus retains the core efficient rigor of economic or rational-choice logic&mash;butvastly enhances its domain and profoundly alters its implications. Modeling multiple facetsof political economy becomes feasible.

Game-theoretic modeling permeates this book. As we shall see, the simple two-playerprisoners' dilemma illustrates the core idea of a collective-action problem, and the analysisbuilds from there. Our approach to game theory mixes intuitive logic with relativelyaccessible mathematics. We use models to illustrate specific assertions or perspectives onpolitical-economic interactions at multiple levels of analysis. Because it is never possibleto model everything at once, the choice of modeling technique (e.g., the relevant type ofgame) will depend upon our analytical purpose and its accompanying questions. Much ofthe discussion in this text thus complements game-theoretic modeling with descriptionsof problems, discussion of context, examples, intuitive arguments, relevant principles, andmore general theory.

Social Network Analysis

Social network analysis offers a related modeling approach that focuses on connectionsamong multiple agents. Social networks are configurations of relationships or communicationpathways that, somehow, connect people. Virtually all economic, political, and socialexchanges operate within social networks. Organizations are networks. A CEO, for instance,occupies a specific position within a complex corporate network. Political parties are networks,as are social clubs. Markets rely on, arise from, and sometimes embody networks ofexchange among various buyers and sellers. Families and communities are networks. Networkanalysis encompasses all such entities. It allows specification and examination of thepathways that transmit information, ideas, influence, goods, services, and the like amongspecific groupings or vast populations of agents. Network analysis facilitates analyzing theorigins and development of such pathways, the associated patterns of transmission amongagents, possible micro- or macro-level impacts of such transmissions, and how the positioningof agents within networks affects the content or influence of their transmissions.Social network analysis thus provides another method for investigating how social contextshapes the evolution, operation, and impact of social, political, and economic exchange.

Information Economics

Information economics explicitly addresses implications of costly, incomplete, and asymmetricinformation on economic behavior. According to Joseph Stiglitz (2002), informationeconomics alters the prevailing paradigm for economic theory. Not only does asymmetricinformation introduce a new set of strategic variables, it implies that contracts and otherforms of agreement may not be fully enforceable. Second-order CAPs follow. The ensuingenforcement problems, in turn, indicate that labor and capital markets routinely fail toclear. Furthermore, such markets face unavoidable (though often manageable) efficiencylosses&mash;as well as exercises of power within exchange relationships. A political dimensionof exchange thus emerges.

The game-theoretic distinction between imperfect and incomplete information speaksto the importance of information economics. Imperfect information connotes an equallydistributed lack of knowledge regarding states of the environment or an equally sharedinability to observe the actions of others. Such imperfect information underlies traditionalrisk analysis. Although agents may not know the exact values of certain variables, they doknow the underlying probability distributions and can therefore maximize on the basis ofexpected values. Incomplete information poses more difficult problems. It connotes any informationasymmetry among participants concerning conditions in their environment orany lack of knowledge among them concerning the characteristics, motivations (payoffs),or strategies available to other participants in their strategic interactions.

Information economics stresses that asymmetry permits strategic manipulation of information.In this regard, the concept of adverse selection (Akerlof 1970) reflects the intuitivenotion that, prior to signing a contract or conducting exchange, sellers usually know moreabout the quality of exchangeable goods or services than do buyers. Such asymmetry canlead to no exchange (a complete market failure) if buyers lack confidence in quality, sellerslack confidence in marketability, or both. Inefficient exchanges of lower-than-expectedquality are also possible. More fundamentally, adverse selection implies imperfect definitionor understanding of the de facto property rights to be exchanged because rights relatedto quality are unclear.

Similarly, principal-agent models indicate problems of post-contractual asymmetric information(moral hazard problems). In these models, a principal contracts with an agentto perform certain services. Because providing service is costly to the agent, their interestsdiffer. Additionally, the principal cannot fully observe or verify the agent's actions. Theprincipal then faces an enforcement problem because the agent has an incentive to provideless effort, diligence, or information than specified by the contract. Resolution requires devotingresources to instituting an internal enforcement mechanism&mash;that is, one that operateswithin the exchange process itself. For example, bosses may fire employees who appearto perform less diligently than expected when they were hired. The related literature onmechanism design addresses how social mechanisms that specify incentives may or maynot elicit accurate information and rule-abiding behavior. When such mechanisms successfullyalign the incentives of principals and agents, they can mitigate underlying conflicts,enhancing prospects for resolving their information-based second-order CAPs.

(Continues...)

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Details zur Ausgabe

• Verlag: Stanford Economics and Finance
• Erscheinungsdatum: 2013
• Sprache: Englisch
• ISBN 10: 0804770042
• ISBN 13: 9780804770040
• Einband: Tapa blanda
• Anzahl der Seiten: 448
• Kontakt zum Hersteller: Nicht verfügbar
• Verantwortliche Person: Nicht verfügbar