THEORY OF COLLECTIVE ACTION: RULES TRANSFORMATION

Abstract

The authors examine the mathematical modeling of methods for the coordination of collective action in the self-organization and self-governance mode. It is assumed that members of the collective create aggregate income whose value grows, as each member invests more effort. The goal pursued by each member of the collective is to maximize personal gains. As we established in the first part of the study, the lack of universal interpersonal trust prevents members of a uniform (unstructured) collective from overcoming a non-effective, Nash equilibrium outcome. Alternative options for structuring the collective were considered, such as creating small groups (coalitions) of agents sharing mutual trust within each group. The strategy of such coalition, aimed at maximizing coalitional gains rather than personal, leads to greater investment of effort by each coalition member, which in turn produces greater aggregate gains for the entire collective. We have shown that in order to secure stability of a coalition structure, first, stimuli for each coalition member are needed such that imply redistribution of quasi-rent to their benefit, and second, control must be exercised on the efforts of the agents. As models demonstrate, members of the collective left outside coalitions or forming small coalitions with a low share taken together (in aggregate) gains, have weaker stimuli for investment. The potential of increasing such stimuli and thereby increasing aggregate gains may be furnished by another, stronger hierarchic-shaped structure – provided transactional costs are sufficiently low. In order to realize this potential, entitlements to residual income must be concentrated in the hands of a single largest coalition or a number of largest coalitions, while banning all other members of the collective from receiving such income. The income of each agent is defined by the terms of the stimulating contract. We have proposed a general design of such a stimulating contract, creating all prerequisites for achieving equilibrium outcome, with Pareto-dominates equilibrium outcomes for other collective structuring options.