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Attaining economic and political development requires resolving a set of collective-action problems (CAPs)—that is, problems that arise when individuals following their own inclinations and incentives generate undesirable outcomes for some group. There are two basic types. First-order CAPs involve externalities, common pool resources, public goods, excess conflict, and other market failures. Resolution entails forging agreements about sharing many associated costs and benefits. Implementing such agreements, however, requires creating functional and credible mechanisms for coordination and enforcement: it requires resolving a set of underlying second-order CAPs. Resolution usually involves creating institutions. Institutional creation, in turn, depends on achieving some form of political settlement—that is, a mutual understanding among powerful parties that they will utilize politics rather than violence to settle disputes. By establishing boundaries for violent conflict, political settlements address the most fundamental collective-action problem of development.
Long-term economic development requires managing a series of CAPs that inhibit the emergence of credible commitments by powerful parties—both private and public—that they will not seize the benefits from others’ investments in effort, knowledge, and physical capital. This paper presents a relatively simple game-theoretic model of micro-level exchange agreements—with attention to meso- and macro-level constraints from surrounding economic and political environments. Specifically, the model denotes a set of conditions that facilitate “ordered” (i.e., predictable) as opposed to “disordered” (not predictable) deals. A deal is an exchange agreement that need not have the attributes of a formal contract. The model’s macro-level parameters reflect the relevant a society’s type of political settlement. Its meso-level parameters reflect the relevant configuration of market power and a markets’ internal or external orientation. The model presents a conceptual foundation for evaluating and predicting the success or failure growth-oriented policies.
ABOUT THE SPEAKER:
Bill Ferguson, Gertrude B. Austin Professor of economics, received a B.A. (in History) from Grinnell College and an Economics Ph.D. from the University of Massachusetts. In 1976, he moved to Seattle, Washington where he worked for six years as a neighborhood community organizer on neighborhood and utility issues. After teaching as a visiting assistant professor at Williams College, he returned to Grinnell as an assistant professor of economics in the fall of 1989. He was promoted to associate professor in 1995 and to the rank of full professor in 2005.
His recent book, Collective Action and Exchange: A Game Theoretic Approach to Contemporary Political Economy was published by Stanford University Press in July, 2013 (http://www.sup.org/book.cgi?id=18537). The book applies cutting-edge of economic theory and game-theoretic modeling to argue that economic development requires prior resolution of collective-action problems—problems that arise when the pursuit of individual interests generates undesirable economic or political outcomes for society at large. Examples include pollution, crime, excessive inequality, the persistence of various forms of race or gender discrimination, financial instability, and regional economic stagnation.
Related publications on updating the economics curriculum and implicit bargaining power in employment relationships appear in the Journal of Economic Education, the Journal of Institutional and Theoretical Economics, and the Eastern Economic Journal anda game-theoretic analysis of the influence of social context and the transmission of the HIV virus (a joint paper with Trang Kieu Nguyen. Related working papers include “Collective Action, Inequality, and Development: Prelude to a Comprehensive Theoretical Framework,” and “Facing Uncertainty: the Role of Norms and Formal Institutions as Shared Mental Models.” Other working papers address game theory as an analytical foundation for social scientific inquiry; the political economy of collective-action, radical reform, and revolution. He is currently in the early stages for a second book on collective action, inequality, and development.
Professor Ferguson's teaching has ranged from institutional political economy, policy analysis, and game theory to labor economics, British economic policy (taught in London), statistics, and macroeconomic analysis. He was an early director and chair of the Grinnell-in-Washington program, for which he developed much of the curriculum. He has served as chair of the Policy Studies Concentration, which he helped to develop based on his work with Grinnell-in-Washington. He has twice been chair of the Social Studies Division at Grinnell and a member of the Faculty Executive Council and recently chaired the Economics Department. Courses taught 2012-2015 include Seminar in Political Economy (ECN 370), Applied Game Theory (ECN 338), Foundations of Policy Analysis (ECN/PST 220), Labor Economics (ECN 215), Introduction to Economics (ECN 111), and London as a Global Economic Centre Before and After the Financial Crisis.