05 Jul 2013
Topics Populism


Despite being important, interesting, and widely-researched, there is as yet no accepted general theory of collective action. In an upcoming book, Assistant Professor Eduardo Araral, winner of the 2013 Elinor Ostrom Award on Collective Governance of the Commons, points to a promising direction the place of contracting cost in understanding the level of, and reasons for, cooperative action.

The standard top-down solution to collective action problems talks about an effective legal system that enforces contracts and regulations. The standard bottom-up solution is mutual trust. Araral, however, argues that a large number of cooperative actions are left unexplained by these two models. Instead, these actions are better understood as the bilateral efforts of parties who think that they can achieve mutual benefits if they can devise cost-effective contracting mechanisms. Hence, the world of rational egoists can make room for what appears to be unselfish acts, by looking at their beliefs about contracting costs. If contracting costs – cost of agreeing, monitoring, enforcement, and making credible commitments – are low, we will observe the emergence, survival, dominance and stability of a population of what are “conditional co-operators”. This is an “if-then”, rational, self-interested model – cooperation is therefore less likely if contracting costs are perceived to be high. This model is a 3G model of collective action, and hence one step forward towards a general theory.

First and Second Generation Models

The first-generation theories – Prisoner’s Dilemma, Public Goods Dilemma, and Tragedy of the Commons – have been helpful in modelling the fundamental structure of collective action problems. The models, however, make unrealistic assumptions – namely, that agents cannot communicate, and when they can, talk is cheap; formal and informal institutions or norms, such as reciprocity, are inconsequential; the rational egoist is the only type of agent, and self-interested agents can only act in the collective interest if there are few of them or if there is coercion or some other mechanism for eliciting cooperation. This is the “top down approach”. The second-generation of theories by Nobel laureate, Elinor Ostrom, posits that the extent of cooperation is a function of generalised trust, reputation and reciprocity. Unlike the first generation of models, Ostrom’s model assumes that talk is not cheap; that beliefs and norms evolve and play important roles in the development of reciprocity and hence cooperation, and that structural variables – group size and heterogeneity, face to face communication, freedom of entry and exit – matter for the development of trust, reputation, reciprocity and thereby cooperation. This is the kinder, gentler bottom-up approach.

Towards a Contractual Model of Collective Action

Araral argues that as a general theory of collective action, Ostrom’s model has several limitations.

First, the structural variables that Ostrom identifies as important to cooperation are, in fact contractual variables, that is, they affect the costs of agreeing, monitoring, enforcement, and of making credible commitments. For example, large heterogeneous groups affect the costs of agreeing, monitoring and making credible commitments.

Second, as noted, a large number of cooperative actions are better explained as the bilateral efforts of parties who think that they can achieve mutual benefits if they can devise cost-effective contracting mechanisms. For example, in developing countries with low levels of generalised trust and weak rule of law, parties still manage to cooperate by devising cost-effective mechanisms for contracting. Likewise, in countries with high generalised levels of trust and strong rule of law, parties to a transaction still require the expertise of lawyers, accountants, arbitrators etc. to devise mechanisms to solve commitment problems.

A contracting theory of collective action overcomes several limitations of the first and second-generation models. For instance, unlike Ostrom’s model, the contracting model accounts for the economics of cooperation since it is explicitly concerned with the cost effectiveness of governance mechanisms. A 3G theory will allow a more “general” appreciation, giving explanatory force to both bottom-up and top-down approaches.

Practical Implications: How to stop the Haze

As the haze returns to Singapore, Araral’s contractual model is instructive because it suggests that one long-term policy solution for the Indonesian government is to reduce contracting costs. To this end, Araral had suggested several approaches in a 2007 paper about the transnational haze.

First, Araral argued for the separation of the regulatory and development functions of Indonesian forestry ministry. This will reduce conflict of interest within the single ministry, which at the moment seeks both to enforce regulations, and ways to work around them to ensure economic development. A strong and independent forest regulatory agency, although prima facie increases the potential for conflict, would in fact work to minimise the costs of cooperation and enforcement.

Second, give incentives to farmers to stay and farm, rather than slash and burn. This requires large-scale investment programmes that include features such as:

  • Land tenure security for small farmers to encourage them to make long-term investments on their land instead of practising shifting cultivation;
  • Infrastructure and social services to stabilise settlement patterns and encourage farmers to settle; farmers should be linked to markets so that they have the incentive to invest in high-value crops instead of annual crops typical in shifting cultivation; and
  • Community-based reforestation, agroforestry and resource-access rights (titling and usufruct rights) in logged-over forests to reduce the incentives of farmers from burning these forests for shifting cultivation.

To be sure, collective action problems are likely to remain the key problems of organised societies. A general theory will not provide particular solutions, but it can give analytical tools and frames with which to regard and analyse such problems.

by Alisha Gill

Topics Populism