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GWU / Business / BADM 1004 / What is the collective action problem?

What is the collective action problem?

What is the collective action problem?


School: George Washington University
Department: Business
Course: Age of Globlization
Professor: Liesl riddle
Term: Winter 2016
Cost: 50
Name: Final Class Notes
Description: These notes encompass notes from lectures for the second half of the semester.
Uploaded: 12/13/2016
13 Pages 11 Views 16 Unlocks

Global warming and global policy  

What is the collective action problem?

∙ What does political science tell us?

o Politicians want to win/stay in office and voters are imperfectly  informed  

o What needs to be true to deal with major externalities  

 Clarity of responsibility  

 Long time horizons  

 Low levels of partisan learning  

o These three things help overcome the “collective action  problem”  

∙ Collective action problem  

o Policy costs are often concentrated on a few people  

o Benefits are spread out over millions of people  

 In the case of global warming, billions of people, most of  whom are either non-citizens or as-yet-unborn  Don't forget about the age old question of physiological drive to consume food

o So the transaction costs of political mobilization are lower for the  few than for the many; their voices will be louder  

What are the long time horizons?

o Free rider problem  

 Imagine a collective house with dishes to be washed  

 For international problems, governments can free-ride on  the actions of others  

∙ Clarity of responsibility  

o Really easy to assign credit or blame to a politician for fixing a  problem  

o Difficult to assign blame or credit when  

 Lots of governments (or countries) involved  

 Policies and outcomes are complicated  

 Lag between policy and outcomes  

o Politicians want policies give them credit for positives and avoid  blame for negatives  

∙ Long time horizons  

o Elections every 2, 4 and 6 years leads politicians to think about  policies that will have short-term impacts  

What is partisan learning?

o Most policies are enacted by politicians with short-time horizons  o We do see governments acting for the long term  

∙ Partisan learning  

o Psychological research has shown individuals search for  information consistent with what they already believe  

o Research on Hurricane Katrina  

 Democrats blamed the Republicans  Don't forget about the age old question of psych 210

 Republicans blamed the Democrats  

o But remember  the GOP did lose the ’06 election and Katrina  was a part of that  

 This is a growing problem but not a barrier

 Skilled politicians can reframe and co-opt issues, turning  “Democratic” positions into “Republican” ones and vice versa  

∙ Politicians’ dream policies  

o Impose zero costs on supporters  

o Makes special interests (campaign contributors) happy  o Has an immediate impact  

o Politicians can take credit for it  

∙ If a policy matches these four characteristics, then it is easy to make it  happen  

o If not, then you need to devise strategies to convince politicians  to come around  

∙ The Bad News  

o Global Warming  

 Requires lots of different politicians to act (Clarity of  


∙ This is exponentially worse by the fact that multiple  

countries are involved  

 Benefits of action are decades into the future. Costs are  now. (Time Horizons) Don't forget about the age old question of bzzagent facebook

 Complexity of the issue makes it easy to make it partisan  (Partisan learning)

o And global warming is a global problem, making everything  worse!

 Doesn’t affect everyone  

∙ The Clean Power Plan  

o The EPA sets emissions goals for 47 states  

 Vermont has no coal  

 Alaska, Hawaii, Puerto Rico and Guam are still being sorted out  Don't forget about the age old question of uo constant

o EPA calculated the amount of CO2/MWh generated in each state  o Sets amount of reduction by 2030

 Increasing efficiency of coal fleet by 2.1% to 4.3%  

 Running NG plants at 75% utilization  

 Raising renewable and nuclear share to 28% of electricity  generated  

∙ No allowance for energy efficiency  

o In other words, the EPA will set a target for each state  ∙ States can do what they want to meet the goals  

o They can implement cap-and-trade or join an existing system  o They can build nuclear power plants  

o They can ramp up RPS requirements  

o They can go all-in on conservation  

o They can do nothing

∙ If they do nothing, the feds will step in  

o EPA has not settled on a final rule but it will involve a cap-and trade system  

∙ What’s cap-and-trade?

o Coal plants dump out a lot of nasty NOX and SOX We also discuss several other topics like a category of people who have unequal access to positions of power, prestige, and wealth in a society and who tend to be targets of prejudice and discrimination.
If you want to learn more check out laws2301

o US and Canadian authorities impose a limit on the amount of  NOX and SOX that all coal plants in North America can dump out  (the cap)

o Some companies get a slice of free permits  

 The US and Canadian government auction the rest off  

o The coal plants can then trade the permits among themselves   If you have a coal plant and you can’t reduce NOX output,  you have to dive into the market and buy permits  

 If you have a coal plant and find it really cheap to clean  your exhaust, you can sell the permits you don’t need (the  trade)

War, Terrorism and Transnational Crime  

∙ September 26, 1983  Stanislav Petrov  

o Lt. Colonel, Soviet Air Defense Forces  

o Prevented the Soviet Union from entering an accidental nuclear  war  

∙ Conflict on four levels  

o Interstate war  

o Internationalized civil war  

 When militaries from other countries participate in  

someone else’s civil war  

o Terrorism  

o Organized crime  

∙ The decline of war  a lot less organized violence today than any other  time in previous human history  

o Although war is still happening, the violence (deaths in war) is  declining  

∙ Colonial war ended because the European empires collapsed  o Rise of nationalism  

o American and Soviet pressure  

o Racism mean that extending citizenship was not an option   France tried it in Algeria (too late) and Africa (too  


∙ What about interstate war?

o First, two caveats about “battle deaths”  

 Weapons have become more accurate  

 Medical and protective technology has become more  


o Upshot: wars could be just as intense as ever but kill fewer  people  

∙ Interstate war has declined

o Nuclear weapons  raised the costs of two countries going  against each other too high  

o Few political leaders (or the people whom elect them) act as  though they believe this  

 The Non-Proliferation Treaty  

∙ Signed in 1968

∙ Countries promise to give up nuclear weapons in  

return for aid with nuclear power  

∙ Verified by International Atomic Energy Agency  

∙ India, Israel and Pakistan have never signed and  

have nuclear weapons  

o North Korea withdrew in 2003  

∙ Accidental nuclear war  goes back to Stanislav Petrov  o January 25, 1995  

 Norwegian research rocket launched  

 Olenegorsk radar identifies it as a US Trident SLBM  

 Full nuclear alert ordered  

o September 3, 2013

 10:16  a Russian radar picks up two “ballistic objects” in  the Mediterranean  

∙ Since 1999  Russian military doctrine has called for the use of nuclear weapons should the country begin to lose a conventional conflict with  another nuclear-armed state  

∙ The Iranian debate  

o Keep Iran from going nuclear  

 Other countries will need to go nuclear in response  

∙ Joint Comprehensive Plan of Action  

o Iran will have to discontinue their nuclear programs  

o There will be inspection  

o If, at any time, that any evidence came out that Iran went  against anything in the deal  Sanctions will instantaneously  snap back to what it was before  

∙ Hypotheses  

o War became too expensive because countries traded more   Unlikely  rising trade didn’t stop World War I from  


∙ It hasn’t stopped Russia and Ukraine from going to  

war this year  

 People inside countries trade a lot with each other  has  not stopped civil wars from happening

o War became unfashionable because democracies don’t go to war with each other and there are now more democracies  

 Democracies have gone to war in the past and democracy  has not only become widespread  

o Nuclear weapons made Great Power war too destructive   Does not explain the decline in non-Great Power war  

o Most of fighting in 1945-91 was effects of Cold War  

o Break-up of the European empires in 1945-68 and the Soviet  Empire in 1989-91 left the world with lots of small countries   Can’t go to war with each other

o United Nations has been a great boon to humanity  

 UN has made civil wars less violent  

o American empire has been a great boon to humanity  

 Explains a lot about decline of war since US has allies and  agreements to support certain countries  

∙ Ukranians wanted peace  

∙ Globalization is not the reason  

∙ Nuclear weapons explain relatively little  

∙ Democracy, the United Nations and changing norms explain more, but  give little certainty  

∙ American power explains a lot  

∙ Evidence is not clear  

Without theory, there are no predictions  

∙ Internationalized Civil War  

o Civil war is a war between factions within a state  

 Can range in intensity  

o An internationalized civil war is a civil war where a foreign  country or countries actively fights on one (or both) sides of the  civil war  

o Internationalized civil wars can resemble colonial conflicts or  interstate wars and they can happen even when few people want to fight  

∙ The Ukranian example  

o Conflict turned into a civil war despite little Ukrainian desire for  war  

o Russian involvement makes it look a lot like an interstate war  o The response by the West (which would not have happened  before 1939) means that the Russian economy took a hit

o Geography means that Europeans have to worry  

∙ Why have civil wars become less bloody?

o Economics and demography

 Richer countries are less likely to experience prolonged  civil war  avobe $2700 per capita, the incidence of civil  

war declines  

 Older countries are less likely to experience civil war  

∙ For every one-point rise in the population share 15-

24, the likelihood of war rises 4%  

 Note that Yugoslavia was rich and old when it fell into civil  war

 Probabilities are not certainties  

o Politics  

 Democratic countries are less likely to experience civil war  and there are more democracies than ever  

 Outsiders provide less support than during the Cold War   The UN  with armed peacekeepers on the ground, the  chance of a civil war restarting drops by 80%  

 But there are a lot of floundering missions  

 Lots of places where peacekeepers do not venture (like  Syria)  

∙ Moreover, democracies fail  

∙ Terrorism  

o Premeditated, politically motivated violence perpetrated against  noncombatant targets by subnational groups or clandestine  agents  

o Tactic, not an ideology  

o Use of terrorism as a tactic appears to be rational in pursuit of  concrete goals  

o Outside of active war zones, there is no discernable trend in  terror incidents  

o Terrorism has remarkably little economic impact  

 US financial markets recovered within 30 days of 9-11

 Small fall than other wars  

 Less impact than natural disasters  

o Only prolonged campaigns have had major economic effects  ∙ Takeaways  

o Law enforcement appears capable of handling most international terrorism  

 It is a predictable risk for business, like natural disasters  o There is a small risk when hostile groups have a foreign haven  o Big risk is a subset of nuclear war  


∙ What happened in Mexico  

o President Calderón’s crackdown

 15% jump in executions when PAN mayors elected

 63% jump in narcotics  

 Effect is much bigger in countries along trafficking routes  ∙ Two kinds of fighting  

o Secure drug “plazas”  

 “Tolling” other cartel movements is profitable  

 “Halcones” need to be recruited  other guy’s eliminated   Local police need to be bought off  

 Involves a lot of killing  

o Capture other markets  

 Moving narcotics o the US is not as profitable  

 Gangs go into other businesses  

∙ Extortion, kidnapping, narcomenudeo, oil theft

∙ Market for Stolen Oil  

o Value chain  

o Produces gas  

o Pumps gas to collection stations  

o Pipelines then transport the gas and condensate from the  collection stations to transfer and delivery systems  

o After collection, they transport the condensate by pipeline or  tanker truck to storage facility  

o Condensate goes by pipeline to gas processing center or tanker  truck to refinery

∙ Why hasn’t any of this crossed the US border?

o US officials are corrupt  

 100 arrests and over 130 state and federal cases  

 2000 officials under investigation  

o Rule of Law  

 In Tamaulipas, the state disbanded the police in 2011  ∙ In Texas, not so much  

 Cops will pull them over and then let them go  

∙ The US does not care  

o Mexico does not either, at least not about drugs  

∙ Interstate war has declined but not disappeared  

o Poses a risk for business  

o Challenge for citizens to preserve our gains  

∙ Civil wars are less violent but still depressingly common  o They have a way of involving other states  

o Much of the decline in violence has been due to international  action  

∙ Terrorism is not a serious threat (except in civil wars)  o War with the Islamic State is not about the threat of terrorism   About regional security and revenge  

o Nuclear terrorism would change everything

∙ Transnational crime is a major scourge  won’t spread to countries with the rule of law  

∙ US Aid, 2011

o Colonial war ended because the European empires collapsed  o Rise of nationalism  

o American and soviet pressure  

o Racism meant that extending citizenship was not an option  o Great power war declined because Germany and Japan were  occupied by

 France and Britain allied to the US  

∙ The decline of war  

o Trade makes war less likely  

o Democracies don’t fight other democracies  

o Nuclear weapons make countries afraid to go to war  

o The world now has many smaller countries that can’t fight each  other  

o The Cold War made civil wars much worse, and now the Cold War is over  

o The UN keeps the peace (mostly)

o The US keeps the peace (mostly)

Global Financial Crisis

∙ Types of Crises  

o Banking  

o Exchange Rate  

o Government external debt  

o Current Account  

o Sovereign Debt  

o Confidence/fear/panic

∙ How did US crash cause stress to the whole world  

o Confidence linkage  NY to London to Hong Kong to Sydney to  etc.

 Every financial city is linked  

 After NY crashed  took 72 hours to spread everywhere   When Us crashed, we stop buying goods  

∙ Emerging market exports fell significantly  

∙ How could Fed allow this bubble to occur?  

o Since 2001 recession  interest rates were kept low by Fed for 6  years  

 Lack of supervision and more money for consumers  

o Since interest rates were low, banks had to innovate new  financial instruments to get more money  

 Greed caused the crash  

o People got into housing  prices went up, mortgages went up

 2006  demand for homes went down and people lost a lot  of money  

o Predatory lending  banks gave loans to people they knew  wouldn’t be able to pay back  

 Government didn’t surprise people who did this  

o Toxic assets  mixing junk bonds (low rating)  

 AAA bonds so you can’t tell good from bad  

Inequality  Superstars, Ships and Robots

∙ Gini Coefficient  

o Measure of inequality  

∙ Decline of inequality (1920s-1950s)  

o Due to destruction of capital income  

 Losses in depression  

 War destruction  

 Progressive taxation to finance  

 Post war bankruptcies and inflation  

o In response to Depression  Government

began redistribution wealth through welfare for first time

∙ Superstars  

o “Winner take all” markets  

 Little benefit for coming in second  

 Luck plays a large part on the outcome  

o Athletes and artists are not driving the increase in inequality   Finance and management account for 70% of the increase  ∙ Robots  

o Tech substitutions for labor (computing power for human  cognition)

 Pushing out low-skilled, low salary jobs  

∙ Ships  

o Low wage competition from China and elsewhere  

o Import competition kills jobs but  

 Cheaper imported goods means more money to spend on  domestic services  creates jobs  

∙ Taxes drove a big wedge into the incomes of the wealthy o Taxes rose substantially  

∙ Better Education  

o Use technology  

 Low cost replication of best teacher, content and methods   Data gathering creates feedback for continuous  


o Give vocational schools and colleges “skin in the game”   Tie tuition to future earning  equity vs. debt

 Forgivable loans

o Invest more  

 Higher teacher salaries to attract the best and brightest   Continuous teacher training  

 More school hours, long school years, more after school,  preschool

∙ Better entrepreneurship  

o Boost entrepreneurship  

o Reduce regulation and certification  

o Reduce employment taxes  

 Subsidize jobs  

o Teach entrepreneurship not just in MBA programs  everywhere  o Nurture platforms, templates and new ways to organize work  o New Grand Challenge for Entrepreneurs, Engineers and  Economists  

 Invent complements, not substitutes for labor  

∙ Educational attainments are already high in America  

o American adults went from 8.5 years of schooling to 13.2  now  we are stagnated  

o Hard to get everyone to 17.9 years by 2064

∙ Inequality = incentives  

o Zero inequality is not an option  


∙ Representative government selected through periodic elections  ∙ Universal civil and political rights  

∙ Rule of law  

∙ Democracy’s spread is recent

o In 1942  only nine democracies  

o Some democracies weren’t fully democratic until the 1960s o Latin America has proven remarkably fertile ground for  democracy considering its history  

o European Union has done a lot to cement democracy after the  fall of the Iron Curtain  

∙ What does political science tell us about democracy?  

o Assumes that  politicians want to win/stay in office and voters  are imperfectly informed  

o Voters generally vote on simple metrics  

o What needs to be true for “good” policies  

 Clarity of responsibility  

 Long time horizons  

 Low levels of partisan learning  

∙ Clarity of responsibility  

o Politicians want policies that give them credit for positives   Avoid blame for negatives

o Difficult to assign blame when  

 Policies and outcomes are complicated  

 Lag between policy and outcomes  

 Decision-making process is complicated  

∙ Time Horizons  

o Elections every 2, 4, or 6 years leads politicians to think about  policies that will have short-term impacts  

o Most policies are enacted by politicians with short-term horizons  o Do see governments acting for the long term  

 Democracy seems to deal well with this problem  

∙ Partisan learning  

o Psychological research shown individuals search for information  consistent with what they already believe  

o Research on Hurricane Katrina  

 Democrats blamed Republicans  

 Republicans blamed Democrats  

o GOP did lose the ‘06 election and Katrina was a part of that   Problem but not a barrier  

 Skilled politicians can reframe and co-opt issues  

∙ Turning “Democratic” positions into “Republican”  


∙ Democratic failure modes  

o Sclerosis from too many veto points  

 Weak “clarity of responsibility”  

o Problems of presidentialism  

o Cost of campaigning  

 Oligarchy masked as democracy  

∙ Polarization  necessary for sclerosis  

o Not a rise in extremism but a rise in consistency  

o Would be not important were partisanship not rising  o Angry people more likely to vote  

∙ Parties are moving apart  

o Cost of elections makes it worse  

o Big donors are even more polarized than the average person ∙ US constitution  

o Multiple “veto points”  

 House  

 Senate  

 Presidential veto  

o Diffuse responsibility  voters cannot tell whether the president  or Congress is responsible  

 Less than half of voters know who controls Congress  o Staggered elections  very different electorates  

o Divided government  gridlock

∙ Democracy on immigration  

o Senate passed a reform bill  Speaker Boehner refused to bring it up for vote in the House  

 Majority of the GOP must vote yes to bring bill to the floor  o President moving it himself  

 Declaring that the parents of American residents or citizens will not be deported  

 President will issue work permits to 4,470,000 people  o It’s legal, but it’s still a stretch

∙ What is the EU?

o Common economic space  requires centralized rule making  o Has a legislature to make the rules and judiciary to define them  o Does not have an executive  

 National bureaucracies carry out EU directives  

∙ How does the EU enforce its laws?  

o Member states have to write EU directives into domestic law   Government that violated a directive would also be  

violating its own law  

o Moral suasion  more effective when there were fewer members  ∙ EU law is only as good as the member states’ rule of law  o Rule of law varies wildly  

∙ European Parliament also gets a veto  

o Parliament has very little legitimacy  

∙ EU has no executive to pick up the slack  

o European states gave up their authority over most business and  environmental regulation and currencies  

o Remain responsible for pension, health and defense spending   Need to be able to borrow  

o When crisis hits, action devolves to unelected actors  crisis of  confidence  

 Inability to handle crises  

∙ Some of the problem masks deep differences in opinion  o Answers will involve giving others a chance to run things  ∙ Other problems stem from very old institutions  

o Money is speech in the US  

o Very little clarity of responsibility in either the US or the EU  ∙ EU is not a federal government  

o Not just an international organization either  

∙ Why did European government submit themselves to the EU?  o Functionalism  

 Each stage of integration caused more problems  could  only be solved by more integration

o History

 European countries never wanted to go to war with each  other again  

 Integration was seen as the only way to do that

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