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Moral Hazard and Free Riding in Collective Action

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  • Vincent Anesi

    ()
    (University of Nottingham)

Abstract

Most political and economic theorists point to moral hazard in teams as the main obstacle to lobbies' collective action. In this paper, we address this important issue with a coalition-formation game. In the process of doing so, we characterize equilibrium lobby structures both in the absence and in the presence of moral hazard. Three notable results emerge from such an exercise: (i) an equilibrium lobby structure exists under both specications of the model, (ii) moral hazard in teams may raise large groups' equilibrium lobby size, and (iii) it may also raise the total contribution to lobbying of large groups with low organizational costs.

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Bibliographic Info

Paper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2007-04.

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Date of creation: Aug 2007
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Handle: RePEc:not:notcdx:2007-04

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Web page: http://www.nottingham.ac.uk/economics/cedex/
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Keywords: Collective action; Moral hazard in teams; Lobby formation; Free-rider problem;

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References

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  1. Keith Hartley & Todd Sandler, 2001. "Economics of Alliances: The Lessons for Collective Action," Journal of Economic Literature, American Economic Association, vol. 39(3), pages 869-896, September.
  2. Leonardo Felli & Antonio Merlo, . "Endogenous Lobbying," CARESS Working Papres 00-03, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  3. Espinosa Alejos, María Paz & Macho Stadler, Inés, 2000. "Endogenous Formation of Competing Partnership with Moral Hazard," DFAEII Working Papers 2002-34, University of the Basque Country - Department of Foundations of Economic Analysis II.
  4. Baik, Kyung Hwan & Lee, Sanghack, 2001. "Strategic Groups and Rent Dissipation," Economic Inquiry, Western Economic Association International, vol. 39(4), pages 672-84, October.
  5. Murdoch, James C. & Sandler, Todd & Vijverberg, Wim P. M., 2003. "The participation decision versus the level of participation in an environmental treaty: a spatial probit analysis," Journal of Public Economics, Elsevier, vol. 87(2), pages 337-362, February.
  6. Santiago Sánchez-Pagés, 2007. "Endogenous coalition formation in contests," Review of Economic Design, Springer, vol. 11(2), pages 139-163, September.
  7. John Duggan, . "Non-Cooperative Games Among Groups," Wallis Working Papers WP21, University of Rochester - Wallis Institute of Political Economy.
  8. Schneider, Friedrich & Pommerehne, Werner W, 1981. "Free Riding and Collective Action: An Experiment in Public Microeconomics," The Quarterly Journal of Economics, MIT Press, vol. 96(4), pages 689-704, November.
  9. repec:ags:afjare:141665 is not listed on IDEAS
  10. Saijo, Tatsuyoshi & Yamato, Takehiko, 1999. "A Voluntary Participation Game with a Non-excludable Public Good," Journal of Economic Theory, Elsevier, vol. 84(2), pages 227-242, February.
  11. Le Breton, Michel & Salanie, Francois, 2003. "Lobbying under political uncertainty," Journal of Public Economics, Elsevier, vol. 87(12), pages 2589-2610, December.
  12. Baik, Kyung Hwan & Shogren, Jason F, 1995. " Competitive-Share Group Formation in Rent-Seeking Contests," Public Choice, Springer, vol. 83(1-2), pages 113-26, April.
  13. Marick F. Masters & John T. Delaney, 1987. "Union political activities: A review of the empirical literature," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 40(3), pages 336-353, April.
  14. Pecorino, Paul, 2001. "Can by-product lobbying firms compete?," Journal of Public Economics, Elsevier, vol. 82(3), pages 377-397, December.
  15. Pecorino, Paul, 1998. "Is There a Free-Rider Problem in Lobbying? Endogenous Tariffs, Trigger Strategies, and the Number of Firms," American Economic Review, American Economic Association, vol. 88(3), pages 652-60, June.
  16. Francis Bloch & Santiago Sánchez-Pagés & Raphaël Soubeyran, 2006. "When does universal peace prevail? Secession and group formation in conflict," Economics of Governance, Springer, vol. 7(1), pages 3-29, 01.
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Citations

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Cited by:
  1. Zudenkova, Galina, 2012. "Lobbying as a Guard against Extremism," Working Papers 2072/184036, Universitat Rovira i Virgili, Department of Economics.
  2. David Rietzke & Brian Roberson, 2013. "The robustness of ‘enemy-of-my-enemy-is-my-friend’ alliances," Social Choice and Welfare, Springer, vol. 40(4), pages 937-956, April.
  3. Zudenkova, Galina, 2010. "Sincere Lobby Formation," MPRA Paper 28249, University Library of Munich, Germany.
  4. Joan Esteban & Esther Hauk, 2009. "Leadership in Collective Action," Working Papers 362, Barcelona Graduate School of Economics.

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