Tuesday, June 11, 2019

The Model Thinker #23 - Collective Action Models

Image result for traffic jam

Where situations involve a misalignment between self-interest and collective interest, we can use collective action models.

In a collective model, individuals can choose to free rise or contribute. If every individual contributes, the sum of payoffs is maximised. An individual who free rides, get to keep a higher pay-off for themselves but the collective suffers.

There are three models in this chapter :

a) Public Goods.

When it comes to public goods like paying for the environment or defence, contributions to the public good attain diminishing returns as more contributions are made but contribution to privates have a pay-off that varies linearly with contribution. This creates a gap as the socially optimal allocation to public goods becomes very large compared to the equilibrium allocation.

Society becomes worse off when folks act on their best interests and do not sustain public services.

To resolve the public goods issue, societies levy a tax and make it compulsory to sustain public good services to maximise the utility for everyone.

b) Congestion

The congestion model applies to use of parks and expressways. The pay-off of the use of the resource was found to decrease by the people who utilise it.

To deal with congestion, we can ration these resources, rotate access, run a ballot, levy a fee or enlarge capacity. Singapore is particularly good at dealing with congestion limiting access to folks with a COE and levying a fee to use roads in the CBD area every day. Fees than get channelled into public transport.

c) Renewable Resource Extraction

The third problem concerns systems like fishing. If you fish below a rate, fishes can survive to create the next generation of fishes. If you exceed a critical level when fishing, the population collapses and soon there will be no more fishes left to fish.

To deal with this problem, a monitoring body need to be setup to enforce fishing limits, monitor deviations and impose sanctions. Fishing limits should also be adjusted based on the amount of fishes left in the body of water.


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