The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Olson, Mancur (1932–1998)

  • Joe A. Oppenheimer
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2588

Abstract

Mancur Olson was one of the small group of economists in the twentieth century who laid the foundation of rational choice theorizing about non-market behaviour. He demonstrated self-interested individuals have a great incentive to free ride rather than to contribute to the supply of a public good. He also showed how self-interested group behaviour explained why nations tend to stagnate after periods of growth. Utilizing the notion of profit seeking political entrepreneurs, he argued the benefits of democratic systems were to contain the extractive costs imposed by government and to extend the time horizons for property rights.

Keywords

Arrow, K Roving bandits Baumol. W Buchanan, J Collective action Constitutionalism Theory of democracy Dictatorship Downs, A Economic growth Free rider problem Interest groups Kleptocracy Non-market behaviour Non-market economics Olson, M Political entrepreneur Public goods Samuelson, P Social dilemmas Time horizon Tullock, G.: on constitutionalism Von Neumann, J Tragedy of the commons 

JEL Classification

B31 

Along with a handful of other economists of the twentieth century (Kenneth Arrow, James Buchanan, Anthony Downs, and John von Neumann), Mancur Olson laid the foundation for the adoption of rational choice theorizing about non-market behaviour in the social sciences. His work (1965) on the relationship between the rational choice of individuals and the performance of groups had a revolutionary impact on the fields of sociology and political science. In 1967 he left his first academic job at Princeton University to become Deputy Assistant Secretary of the US Department of Health, Education and Welfare. From there he went to the University of Maryland, where he held the position of Distinguished Professor of Economics, co-founded the University of Maryland’s Center for Collective Choice, and founded the Institute for Research on the Informal Sector (IRIS).

Mancur Olson was born in January 1932 to a Norwegian-American farming family in North Dakota’s Red River Valley. The valley contained some of the richest farmland in the state; the family grew mainly flax and did quite well. Neither his parents nor other members of that generation in the Olson family were educated beyond high school, but his father and his uncle were intellectually curious and questioning of society’s arrangements. Mancur grew up on the farm and, as the eldest of three sons, he was permitted to be party to the adults’ conversations about farming and social problems.

Throughout his life he recalled those early discussions regarding the shared interests of farmers in getting a fair price for their crops, the difficulties in their meeting other common concerns and the many references to the ability of the Scandinavian countries to overcome narrow interests to achieve both social justice and economic growth. He noted these as the part of his inheritance that motivated his life-long research interests in the problems of collective action, social justice and economic prosperity.

Mancur went to college at North Dakota State University on an Air Force Reserve Officer Training Corps (ROTC) scholarship. There he studied agricultural economics and had the good fortune to be mentored by Rainer Schickle (the father of the American composer, Peter Schickle). He won a Rhodes scholarship and went to Oxford, only to discover that Oxford dons could not imagine that a graduate (1954) from North Dakota’s Agricultural College could qualify for entry into their graduate programme of Philosophy, Politics and Economics. So, unlike most of the other Americans coming from more prestigious institutions, he was required to get a second BA from Oxford before going on for an M.Phil.

At Oxford he met his lifelong companion and wife, Allison, who was also getting her M.Phil. (in history). The Olsons left Oxford together for the environs of Boston, where Allison had a job at Smith College and Mancur was to get a Ph.D. at Harvard. Two barriers were created. First, Mancur’s chosen advisors, first Kenneth Galbraith and then also Otto Eckstein, left for Washington to work in the Kennedy administration. Further, Air Force officials discovered that Mancur had yet to do his service for his North Dakota Air Force ROTC contract, and they required him to leave Harvard to do military service. That service was performed between Rand, Brookings and the Air Force Academy for two years, after which he was able to finish his work again at Harvard under the tutelage of Thomas Schelling. During this time their family grew and eventually Allison and Mancur had four children: Elicka, born in 1963, a veterinarian; Severn, born in 1967, a civil servant; Sander, born in 1969, a journalist; and Garth, who died in infancy.

Olson’s major contribution to economics and to the social sciences more broadly was in the analysis of ‘non-market’ economics. He focused both on how individual non-market behaviour and political institutions (broadly understood) affected socio-political and economic outcomes. Many of his most important findings are encapsulated in his three major books The Logic of Collective Action (LCA) (1965), The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities (RD) (1982), and Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships (PP) (posthumous, 2001).

His first book, LCA, grew out of his dissertation, and focused on the non- Paretian outcomes one can expect from unorganized groups of individuals in their efforts to secure costly public goods (that is, goods where consumers cannot be excluded and consumption by one does not diminish consumption by another) such as air quality and peace. LCA built on the findings of William Baumol (1967) and Paul Samuelson (1954) who had shown that suboptimality was to be expected from rational self-interested behaviour regarding public goods. Olson expanded their arguments and generalized them by noting that the satisfying of virtually all shared interests is a form of public good, thereby selling the argument to the non-economist. The crux of the observation is simple: self-interested individuals have a great incentive to free ride rather than to contribute to the supply of a public good. Individuals will, after all, receive the good if others supply it. In LCA, Olson also tried to develop an argument that the size of the group was central to the analysis, but this was later shown to be erroneous (Frohlich and Oppenheimer 1970; Hardin 1982). The work spawned a paradigm shift in the study of group behaviour in both political science and sociology.

In RD, Olson built on LCA (and also the 1962 work of Buchanan and Tullock, who argued that one could evaluate constitutional rules by the externalities imposed upon losing subsets of the population by the extraction of resources for redistribution to the winners). In RD Olson argued that narrow-interested lobbying groups, designed to extract rewards from the general population via governmental action, clung to stable political systems much like barnacles to a ship’s hull. Such extractive interests were shown to be more harmful the narrower the interests they represented. Newer political systems, built on cataclysmic changes in a society, were likely to be relatively free of such encumbrances and hence would lead to less wasteful extraction. Therefore, their economies would be more likely to exhibit substantial and sustained growth than would those associated with more established, stable political systems. He expanded the analysis (1990) to consider the comparative efficiency of the Scandinavian political systems’ foundation on a coalition of a very few, very broad political interests. These welfare states were contrasted with welfare states in other industrialized countries built on a patchwork quilt of narrow, coalesced social-interest groups.

Coupled with Downs’s 1957 work An Economic Theory of Democracy, LCA also sparked a reconsideration of political leaders as entrepreneurs (Salisbury 1969; Frohlich et al. 1971) as a way of solving the collective action problem. In the 1990s Olson himself began to mine the profit motive as a tool to understand the motivational characteristics of political leaders, and to reconsider the social gains from democracy. By assuming politics was necessarily based on coercive taxes, he considered the evolution of political systems as a hypothetical history from roving bandits to stationary bandits and then to kleptocratic political leaders constrained by the rules of succession and, more generally, competition. Roving bandits would take what they could. Stationary bandits, who controlled an area (for example, ‘war lords’ and mafiosi) would find it worth their while to ensure the prosperity of the population they exploited. Rules of succession, such as those that underlie monarchies, were shown to change the time horizon for maximizing the extractive behaviour of the kleptocrat, thereby giving incentives to investments that had longer time horizons. Using the finding that narrower interests impose greater costs on society than wider ones, Olson (1993) and McGuire and Olson (1996) showed the general gain from democratic (majoritarian) systems to be the decrease in imposed external costs by the winning kleptocrats, as well as the extension of the time horizons for property rights. His last book, PP, built upon his kleptocratic entrepreneurial arguments and their relation to the time horizon of politicians. Long-term property and other rights were seen to be a key to the development of more complex financial markets that underlie modern economic development.

Olson’s heritage is extraordinarily wide: the general interest in ‘social dilemmas’ grew directly out of his work via the translation of LCA into the language of n person game theory. His sure-handed encouragement of young scholars interested in non-market economics helped foster the multidisciplinary adoption of rational choice theoretic tools in the social sciences in general.

See Also

Selected Works

  • 1965. The logic of collective action. Cambridge, MA: Harvard University Press.

  • 1982. The rise and decline of nations: Economic growth, stagflation, and social rigidities. New Haven: Yale University Press.

  • 1990. How bright are the northern lights? Some questions about Sweden. Lund: Institute of Economic Research, Lund University.

  • 1993. Dictatorship, democracy, and development. American Political Science Review 87, 567–76.

  • 1996. (With M. McGuire.) The economics of autocracy and majority rule: The invisible hand and the use of force. Journal of Economic Literature 34, 72–96.

  • 2001. Power and prosperity: Outgrowing communist and capitalist dictatorships. New York: Basic Books.

Bibliography

  1. Baumol, W. 1967. Welfare economics and the theory of the state, 2nd ed. Cambridge, MA: Harvard University Press.Google Scholar
  2. Buchanan, J., and G. Tullock. 1962. The calculus of consent. Ann Arbor: University of Michigan Press.CrossRefGoogle Scholar
  3. Downs, A. 1957. An economic theory of democracy. New York: Harper and Row.Google Scholar
  4. Frohlich, N., and J. Oppenheimer. 1970. I get by with a little help from my friends. World Politics 23: 104–121.CrossRefGoogle Scholar
  5. Frohlich, N., J. Oppenheimer, and O. Young. 1971. Political leadership and the supply of collective goods. Princeton: Princeton University Press.Google Scholar
  6. Hardin, R. 1982. Collective action. Baltimore: Johns Hopkins University Press.Google Scholar
  7. Salisbury, R. 1969. An exchange theory of interest groups. Midwest Journal of Political Science 13: 1–32.CrossRefGoogle Scholar
  8. Samuelson, P. 1954. The pure theory of public expenditure. Review of Economics and Statistics 36: 387–389.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Joe A. Oppenheimer
    • 1
  1. 1.