Collective-Action Problems and Institutional Systems

Abstract

A society’s prospects for development depend on its ability to resolve collective-action problems (CAPs). Resolution depends on underlying institutional contexts. Inequality permeates these interactions. This chapter introduces CAPs, institutions, institutional systems, social orders, and political settlements. CAPs arise when individuals, pursuing their own goals, generate undesirable outcomes for some group. First-order CAPs concern forms of free riding; second-order CAPs concern orchestrating the coordination and enforcement that render agreements to limit free riding credible. Discussion proceeds to distinguish informal and formal institutions (norms and rules) from organizations (structured groups of individuals that can take action). Institutional systems are complementary mixes of institutions and organizations, where the latter play critical roles in resolving second-order CAPs. Social orders are large-scale institutional systems. Political settlements are mutual understandings that limit organized violence by addressing broad allocations of authority and benefits.