COLLECTIVE ACTION MODEL. PART 1: EQUILIBRIUM, JUSTICE, EFFICIENCY

Elena Skarzhinskaya

Vladimir Tsurikov

The model proposed in the article proposes optimization decisions and describes a hybrid form of agents’ economic organization. For an expected income, a strictly (upward) convex function is considered, dependending upon the amount of investment (effort) put in by each agent. The model demonstrates how independent agents achieve a balanced but not an efficient outcome, free rider problem, as well as the dependence of aggregate income upon the principle of its distribution among agents and upon each agent’s individual characteristics. A multitude of Pareto-effective states is created at the higher levels of investment. The possibility of increasing gain is indivisibly connected with coordinating agents’ actions. We consider various methods of coordinating investments carried out by the agents. It is further shown that in the case where coordination is based on the agents’ mutual trust, a preliminary agreement among agents as to the fair distribution of expected aggregate income (proportionate to the costs incurred) is required in order to achieve a Pareto-effective outcome. Coordination based on the potential of violence, or such that is achieved with the vindictive damages (sanctions), leads to transactional costs associated with information search and the process of penalization. We show that coordination allows increasing the aggregate gain relative to the equilibrium point levels; yet the presence of coordination costs or the absence of trust render the optimum gains unattainable.