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Moral hazard and free riding in collective action

Abstract

Most political and economic theorists point to moral hazard in teams as the main obstacle to lobbies’ collective action. In this paper, we address this important issue with a coalition-formation game. In the process of doing so, we characterize equilibrium lobby structures both in the absence and in the presence of moral hazard. Three notable results emerge from such an exercise: (1) an equilibrium lobby structure exists under both specifications of the model, (2) moral hazard in teams may raise large groups’ equilibrium lobby size, and (3) it may also raise the level of collective action of large groups with low organizational costs.

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Correspondence to Vincent Anesi.

Additional information

I wish to express my appreciation to Helmuth Cremer, Philippe De Donder, Kai A. Konrad, Michel Le Breton, Daniel Seidmann, Shlomo Weber, an associate editor of this journal and a referee for valuable comments and suggestions. I am also grateful to Paul Belleflamme, Francis Bloch, Robert Dur, Joan Esteban, Debraj Ray, and the audience at the CESifo Area Conference on Public Sector Economics 2006 and at the 15th Aix-Marseille SSIEIO for helpful discussions.

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Anesi, V. Moral hazard and free riding in collective action. Soc Choice Welf 32, 197 (2009). https://doi.org/10.1007/s00355-008-0318-8

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Keywords

  • Nash Equilibrium
  • Collective Action
  • Moral Hazard
  • Stability Function
  • Equilibrium Structure