Inefficiency and the Public Good
Olson (1965) noted that because the benefits of a public good are available
to all regardless of their personal contributions, it's hard to entice "rational
actors' to contribute to it's production unless there are more selective
incentives involved. Later (Olson, 1982) expands his theory to include the
organizational level. He notes that these "public" organizations
can provide benefits to their members in two ways. They can help members
operate more efficiently and effectively, expanding the total economic resources
of society and thus their share. Or they can help their members get a bigger
share of the existing economic resource base. Rational actors, Olson argues,
will choose the second option because the first suffers from the "public
But the problem is that the inefficiencies caused by the actions of the
organization toward their own interests are borne by society in general.
"In short, the structure of incentives operating in associations created
to advance the intersts of their membership penalizes efforts to increase
their overall productive efficiency and rewards attempts to use their power
and influence to secure special priveleges for themselves, even at the expense
of others. (Scott p. 336). Olson concludes that "the great majority
of special-interest groups redistribute income rather than create it, and
in ways that reduce social efficiency and output".
Societies tend to collect these "collective associations" and
they can start to stagnate the economy as each expends their energies to
grab a bigger piece of the pie rather than help make it bigger.