Lecture Notes from April 15th until Final Exam

Lecture 4/15/09 The Problem of Cooperation, External & Internal Enforcement Professor Gehlbach told a story of a contract signing in the woods. Each party sizes eachother up to understand who stands behind those on the other side. Maybe one side has the means or power to take advantage of the other party, i.e. lots of strong guys, guns, or some other thing that the other side doesn't have. If one side sees that they could take advantage of (defect, not cooperate, steal from) the other side without undergoing consequences, they will. However, if they see there is some sort of external enforcer (like a mob), the other side is going to cooperate. Prisoner's dilemma matrix game The mob plays the role of the external enforcer. They raise the cost of defecting (by breaking the other side's legs if they defect). If the cost of defecting is larger than the reward of defecting, one has an incentive to cooperate. Usually, simply having external enforcement (in this case, the mob) is enough to make there be an equilibrium, where both side cooperates and no one has 'broken knee caps.' All the mob has to do is show up and simply have the threat of doing so...and maybe punish a defector once in a while. Theory of The State/Country: we need to know that there is someone who will punsih defectors-this allows us to believe that we will cooperate with eachother. There needs to be an external enforcer. Lecture 4/20/09 Cooperation Through Repetition Ways of enforcing cooperation: Third party/External enforcers such as the court system or the mob. These parties play the role of punisher if one party defects. When defecting becomes unfavorable, equilibrium occurs and both parties cooperate. Both parties need to know that if either defects, unfavorable things will occur. Will internal enforcement work? Maybe. There needs to be an expectation that the relationship will continue, and then cooperation may be enforced through the relationship itself. I.e. if one party defects, the other party will end the relationship. If one party cheats the other, the relationship will end, which is a big dis-incentive in itself. If the game is played only once, the Nash Equilibrium is for both players to defect. However, if the game is played over and over again and expected to continue, the Nash Equilibrium changes because one must take into consideration the value payoffs not only from today but from tomorrow as well. The discount factor, or delta, captures the probability that tomorrow won't happen. The higher the discount factor, the more you value the future. Grimm Trigger Strategy: strategy for a repeated game (prisoner's dilemma). Cooperate until the opponent defects, then defect. For this game, the punishment of defecting lasts forever. (Much of these notes are equations and I don't know how to show them on the computer, sorry) Lecture 4/22/09 The Collective Action Problem, Collective action as a Prisoner's Dilemma, Collective Action as an assurance game. Participating in a political campaign has an opportunity cost. No one believes that their individual action influences the outcome of an election. So why would one participate in a political campaign if they will not make a difference? I.e. participating in the vote. The odds of affecting the outcome of the election are incredibly low, and often you will get the benefits of the outcome if you don't participate. This produces the Collective Action Problem. The CAP characterizes many forms of group activity. The outcome of collective action is available to everyone, whether they participated or not, therefore there is an incentive to let others do the work and a temptation to think, "my activity isn't going to make a difference, so why should I even participate?" However, most often this collective action problem is overcome. But why? Mancur Olson: The Logic of Collective Action (1965). "Collective action is a by-product of the provision of selective benefits." Or, the reason that people participate is for the extra bonus, the "free t-shirt" or the stigma of participating. (By-product theory). AARP: overcomes collective action by providing selective benefits that you can only recieve if you are a member who actively participates, thus making acting in the best interests of all of the members. An assurance game: everybody wants to cooperate and participate ONLY if everyone else does. Modified Prisoner's Dilemma Game. Lecture 4/27/09 We watched a movie the entire lecture. The movie was about political activists on the UW campus during the late 1960s. Lecture 5/4/09 Problem of the Commons The Final is at Russel Laboratories on Linden (across from Babcock). Monday May 11th @ 12:25 Cooperation and collective action: The problem of the commons. Common pool resources-a good that is rival but non-excludable. (rival: one person having it makes it less possible for others to have it. i.e. food. excludable: you can prevent others from using it. i.e. fencing off your property.) An example of a common pool resource: fish in international waters. The problem: many commonpool resources end up beign overused. It is a problem of cooperation: if everybody cooperated there would be no issue, but everyone has an incentive to defect (overuse the resource) regardless of what they expect others to do. 3 Solutions to Common Pool Problems 1. Some sort of external enforcement, someone who tells you how much you can consume and has the power to punish or enforce if the rules are not followed. 2. Privatization: each group/person/party gets its own particular area, private land is established as are property rights, giving people the incentive not to overuse and constructively use their resource. 3. Self governance: the community finds a way to self govern & set and apply their own rules. Examples: 1. Singapore: government as an external enforcer. If common pool resources are not taken care of or are misued, the government will fine the individual who is defecting. Incentive to cooperate. 2. Privatization: fencing in farmland. 3. Institutions that are self governed must: a. have clearly defined boundaries. b. congruence between rules and local conditions- there should be no incentive to defect. C. provide for collective choice arrangements. (The affected individuals must have a voice). Or else, people will say they had no voice in the matter and thus not participate/cooperate. D. Monitoring must be implimented by those affected. People must be accountable for their actions. E. there must be graduated sanctions for violating policy/laws. (Punishments start small and grow with each offense/defection). F. There must be a conflict/resolution mechanism- way to solve the conflicts. G. Those affected must have the right to manage and maintain the resource.