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The foundational work in collective action was Mancur Olson's 1971 book The Logic of Collective Action: Public Goods and the Theory of Groups.
The theory explores the market failures where individual consumer rationality and firms' profit-seeking do not lead to efficient provision of the public goods, i.e. where another level of provision would provide a higher utility at a lower cost.
Note, however, that the theory is not necessarely a challenge to the invisible hand principle of Adam Smith. It only limits the domain in which that principle applies: for purely private goods in ideal competitive market s, the pursuit of self-interest is still efficient.
Besides economics, the theory has found many applications in political science, sociology, anthropology and environmentalism.
Mancur Olson made the highly controversial claim that individual rational choice leads to situations where individuals with more resources, will carry a higher burden in the provision of the public good than poorer ones. Poorer individuals will usually have little choice but to opt for the free rider strategy, i.e. they will attempt to benefit from the public good without contributing to its provision. This also encourages the under-production (inefficient production) of the public good.
However, further theoretical analysis showed that this is not the case when individuals have widely-differing perceptions of the utility of the public good. Wikipedians, for example, put a higher value on WikipediaWikipedia is a multilingual " copyleft" encyclopedia designed to be read and edited by anyone. It is collaboratively edited and maintained by thousands of users via wiki software, and is hosted and supported by the non-profit Wikimedia Foundation. In addi than non-contributing visitors, while they may not be richer.
While public goods are often provided by governments, this is not always the case. Various institutional designs have been studied with the aim of reducing the collaborative failure. The best design for a given situation depends on the production costs, the utility function, and the collaborative effects, amongst other things. Here are only some examples:
A joint-product model analyzes the collaborative effect of joining a private good to a public good. For example, a tax deduction (private good) can be tied to a donation to a charity (public good).
It can be shown that the provision of the public good increases when tied to the private good, provided that the private good is provided by a monopoly (otherwise the private good would be provided by competitors without the link to the public good).
Some institutional design, e.g. intellectual property rights, can introduce an exclusion mechanism and turn a pure public good into an impure public good artificially.
If the costs of the exclusion mechanism are not higher than the gain from the collaboration, clubs can emerge. James M. BuchananFor the president of this name, see James Buchanan. James McGill Buchanan Jr. born October 3, 1919) is an economist most renowned for his work on Public Choice Theory, and who won the 1986 Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobe showed in his seminal paper that clubs can be an efficient alternative to government interventions.
It should be noted that a nation can be seen as a club, whose members are its citizens. Government would then be the manager of this club. This is further studied in the Theory of the State .