Essays on the theory of collective action

Abstract

This thesis is composed of three essays on the theory of collective action in various economic settings. These essays conduct positive analyses of the factors behind successful provision of a public good, with particular focus on uncertainty and social learning. The first chapter considers the formation of a grassroots social movement and investigates the factors that determine whether the movement reaches the necessary size to achieve its common goal. The key aspect of the model is that while the number of active participants it takes for the movement to succeed is initially unknown, it becomes clearer as the movement keeps growing. I find that small changes in the environment, even seemingly detrimental ones, can trigger sudden and drastic jumps in the size of the movement. In particular, an increase in the personal cost of participation can lead to a greater number of participants. The second chapter considers a duopoly competition model where demand is affected by past prices. Consumers are willing to buy more of a good at a given price if that price is the result of a discount, and less if it is higher than past prices. This behaviour by the consumers leads to overpricing. Furthermore, if the prices become too high, sudden and very large discounts are observed. In the final chapter, I consider a dynamic game of volunteer’s dilemma: A public good which is enjoyed by everyone in a group is produced only if one of its members bears the cost of producing it. The value of the public good is uncertain and all members receive private signals about it. Members infer others’ signals by observing their actions. The focus of the analysis is the effect of group size on the provision probability of the public good. I find that this effect is not monotonic: The provision probability makes a discrete jump when population size reaches a threshold. Above this threshold, provision probability decreases with population. This suggests an optimal population size for maximizing provision.