Collective Action, Inequality, and Development: Outline for a Theoretical Framework

Economic and political inequality permeate development processes, and the trajectory of such processes fundamentally depends on evolving capacities to resolve fundamental collective-action problems (CAPs). CAPs arise when the pursuit of individual self-interest generates undesirable outcomes for some group. CAPs occur at two basic levels: first-order CAPs involve multiple manifestations of free-riding, insufficient knowledge, and social conflict related to the provision of public goods, promotion of positive externalities, reduction of negative externalities, and limiting use of common resources—all broadly defined (e.g., institutions are a type of public good).  Resolution of first-order CAPs requires negotiating or specifying some form of agreement on sharing associated costs and benefits.  Second-order CAPs involve arranging the requisite coordination and enforcement for rendering agreements to resolve first-order CAPs credible, and hence implementable. 

Various forms of political and economic inequality both create CAPs and influence a society’s capacities for resolving them. Inequities in access to power, knowledge, resources, and economic opportunity create CAPs of unequal opportunity and unequal distribution, along with social conflicts that shape a society’s ability to develop both economically and politically. This paper merges several perspectives on these relationships into a proposed theoretical framework—a foundational set of categories and causal propositions—that can, in turn, spawn a wide variety of more specific theoretical models and attendant hypotheses.

The paper opens with background concepts including the following: elaboration on both types of CAPs, with attention to the role of organizations in enforcement; distinctions between institutions (rules of the game), organizations (a type of actor), and institutional systems (stable and self-reinforcing combinations of both); categories of institutions (formal vs. informal; economic vs. political); and the concept of punctuated equilibria as it applies to institutions and institutional systems.

Discussion proceeds to three related assertions: First, the properties of non-rival knowledge (notably the complementarity between new and existing knowledge), skill complementarities, ensuing increasing returns, and often complementary processes of social imitation jointly create an extraordinarily uneven locational distribution of production that is characterized by the simultaneous presence of clusters of innovation and poverty traps. Ensuing inequalities of capacity, production, and income foster CAPs related to unequal access and distributional strife that, in turn, influence (or distort) development processes.

Second, because economic institutions influence the distribution of output and because agents care about their income, the distribution of power influences the design of economic institutions. Unequal distributions of political power thus shape the formation and maintenance of economic institutions, ensuing prospects for sustainable economic growth, and the distribution of productive capacity, output, and income. This paper examines this proposition by specifying distinct sources of power, distinguishing between de facto (on the ground) and de jure (institutionalized) power, and by addressing the potential role for rent-sharing agreements among powerful organizations to constrain their use of violence (or other forms of anti-social behavior), along with the attendant potential for such agreements to be institutionalized (or not).