9th August, 2020
Leviathans as solutions to Collective Action Problems
A commonly proposed solution to Collective Action Problems is to have Leviathans like the Government or State which control and regulate the Public Goods.
If we import Hardin's original problem from Tragedy of the commons to this context, the central agency should:
- accurately determine capacity of the common pool resource
- unambiguously assign this capacity (with Fairness)
- monitor the herders
- unfailingly sanction defectors
If it does this, it can transform the game to generate an optimally efficient equilibrium for the herders.
Problems with this approach
The flaws this model suffers are related to the Flaws of Central Planning
- Building good institutions has a cost. Who covers the cost of governance? If the herders pay, will that be an optimal outcome?
- Accuracy and completeness of information, monitoring capability and sanctioning reliability will always be less than 100% in implementation.
- Assuming a situation where the central authority has complete information about the carrying capacity but not about the action of the herders, there is a chance that the central agencies punishes defectors with probability y and (erroneously) punishes the cooperative action with probability x. If this x & y are low enough, the herders will be pushed into a (Defect, Defect) equilibrium which will be worse than the original problem because of penalties.