American Economy Midterm

Preferences

Preferences are the desires or tastes of individuals that guide their choices. Rational choice theory assumes that individuals have well-defined preferences.

What is the relevance of decentralized mechanism?

It’s modeled by game theory because individuals have the free will to make decisions that they think will benefit them

What is the relevance of centralized mechanism?

It is modeled by the median voter because everyone is bound by the decision or preference of the median voter

3 key Features of equilibria

Nash Equilibrium:

• In a Nash equilibrium, each player chooses the best possible strategy given what the others are doing. No one can improve their outcome by changing their strategy as long as everyone else sticks to theirs.

  Uniqueness:

• If an equilibrium is unique, there is only one stable outcome where all players are satisfied. This means there is only one solution to the game that everyone agrees on.

• Example: In a two-person game where players decide how to split $100, if the only fair and acceptable outcome is a 50/50 split, that's the unique equilibrium.

3. Optimality:

• Optimality refers to the best possible outcome for all players, where resources are used efficiently, and no one can be made better off without making someone else worse off (similar to Pareto efficiency).

• Why it matters: It ensures that the equilibrium not only stabilizes but also produces the best possible outcome for everyone involved.

• Example: In a trade deal between two countries, if both nations gain the most benefit possible from the deal without harming each other’s interests, the agreement is both a Nash equilibrium and optimal.

Solutions to problematic equilibria

When there are problematic equilibria (like when players are stuck in a bad outcome), these tools can help:

• Communication: Players discuss and agree on a strategy, ensuring coordination to avoid bad outcomes.

• Signaling: One player sends a clear message or action to show their intentions, helping others trust their commitment.

• Monetary enforcement: Financial incentives (rewards or penalties) are used to make sure players stick to agreements and avoid cheating.

• Third-party enforcement: An external authority (like a court or union) enforces rules and agreements to ensure fairness and prevent defection.

What are the two main provisions of the Wagner Act?

• Most powerful, pro labor act in the US

• Two main provisions:

1. NLRB- national labor relations board- mediates relations between businesses and labor

• Established by the Wagner act

• 5 members- 2 dems, 2 reps, 1 representing President party

• Does things like determine who is an employee (ex: Columbia grad students)

2. Agency Shops and union shops  (informally known as closed shops)

• Agency shop: if a union exists at the workplace, a new hire automatically gets their union dues deducted, they don’t get to opt out. 

  • Solved free-rider problem- Designed to get rid of the free-rider problem 

• Union shops are where you actually join the union. You are a voting member of that union - required to join the union

what are the contributions of each labor sector?

1. services

2. industry

3. agriculture

3 main problems for collective action groups

• Free-Rider Problem:

  • People expect others to bear the costs of achieving a goal while benefiting without contributing.

  • Not an issue when all (n = k) must participate to achieve the goal, or when only a small number (k) is needed.

  • Solution: Monitoring and enforcement, within or outside the group, helps prevent free-riding.

• Multiple Goal Problem:

  • A group has several conflicting goals, and limited resources create competition.

  • Solution: Communication and third-party enforcement help coordinate and resolve conflicting equilibria.

• Conflicting Goal Problem:

  • Members prefer different outcomes but are still better off cooperating than not.

  • Solution: Third-party enforcement helps overcome communication difficulties due to differing preferences.

Types of Rent-Seeking

• lobbying

• campaign contributions

• use of economic power (strikes, boycotts)

• bribes

• delivering votes

Examples of political rents

• Tariffs- taxes on imported goods

• Subsidies- money towards specific industry

• Tax breaks

• Regulation exemptions

• Bailouts

• Labor regulations

• License- barrier to entry

Structure of Labor Sector- Three levels of organizations

• Economy-wide/Peak Associations

  • Ex: AFL-CIO- confederation of labor unions (other unions belong to it). Does not negotiate the labor contract. 

  • They mobilize labor, provide information and financial assistance, engage in lobbying and campaign contributions

  • Faces issues of multiple goals and conflicting goals

    • Big divisions so they have to manage different goals

• Industry wide Associations

  • Iron workers, Autoworkers of America

  • Might have collective bargaining but super rare

• Local level

  • Local chapters of unions

  • Collective bargaining occurs here at local chapters 

  • Also monitor enforcement/implementation of the contract (if management is not acting they want they are supposed to, happens here)

Why is closed shops (agency and union shops) important?

• Solved the free rider problem

• Streamlined unionization process

  • Simplified process for workers to form unions 

• Curtailed management's response to unionization efforts- prohibited unfair labor practices

  • Workers could not be fired for participating in union activities

  • Replacements could be hired to keep business in operation- allowed employers to hire new workers while unions on strike

  • Lockouts were allowed for contract negotiation purposes but not to stop unionization

3 equilibria for games

• For Simple coordination, there is no uniqueness

• For B of S game, there is no uniqueness

• Prisoner’s dilemma is not optimal

agency shops

Agency Shops are workplaces where employees are not required to join the union, but they must still pay union dues or fees if the union represents them in collective bargaining. This ensures that all workers who benefit from the union’s negotiations contribute to the costs, even if they are not union members.

Key points:

• Workers aren't forced to join the union but must pay for union services.

• Helps prevent "free riders" who benefit from union negotiations without contributing financially.

• Common in unionized workplaces where unions negotiate on behalf of all employees.

union shops

Union Shops are workplaces where employees must join the union within a certain period after being hired in order to keep their jobs. This ensures that all workers are union members and contribute to the union's activities, such as collective bargaining.

Key Points:

• Employees must join the union after being hired.

• Aimed at strengthening the union by ensuring all workers are members.

• Often found in industries with strong union presence.

• In some regions, "right-to-work" laws make union shops illegal, allowing employees to work without joining a union.

Transitivity

Transitivity is a crucial property of preferences. It states that if an individual prefers X to Y and Y to Z , then they must prefer X to Z.

Criteria for Arrow's Theorem

1. Rational individuals = their preferences are transitive/ non cycling preferences
You can rank order

2. Universal admissibility - you have absolute freedom over ranked ordering your choices
You can rank order in ANY WAY YOU WANT

3. Pareto Optimality - if everyone in the room likes chocolate ice cream over strawberry ice cream, then the result better be chocolate ice cream
Eliminates randomness to make a decision

4. Independent of irrelevant alternatives: if you are deciding between stanford and berkeley, your preferences should not be weighed by what's going on in chicago

5. Nondictatorship - everyone's preferences matter the same

non-market examples of decentralized decision making

1. Collective Action

Definition: This occurs when individuals voluntarily coordinate their efforts to achieve a common goal, such as organizing a community event or tackling a shared problem (like environmental protection).

Example: People in a neighborhood may voluntarily come together to clean a public park. No one is forced to participate, but each individual weighs the benefits of a cleaner environment against the personal cost of time and effort.

Game Theory

- It provides a framework for analyzing situations where individuals or groups make strategic decisions, considering the potential actions and responses of others.

- Always look for: optimality, existence, uniqueness

Example:
Working with Co-workers: Consider a team of co-workers working on a project. Each team member has to decide how much effort to contribute. Game theory can help model the situation as a strategic interaction: each individual weighs the benefits of contributing against the personal cost (time, energy). If all team members act in their own best interest without coordination, they might contribute less (leading to suboptimal outcomes, known as the "free rider problem"). Game theory helps explain and possibly mitigate such inefficiencies in decentralized settings.

Prisoner's dilemma

two individuals who must each choose between cooperating or betraying the other without knowing what the other will do. Mutual cooperation would yield a better outcome for both, the fear of betrayal leads both individuals to betray, resulting in a worse outcome for both.
Solution is 3rd party enforcement
Cooperate and defect with other player, not police

B of S example

Basic Scenario: Imagine a couple deciding on where to go for an evening out. One partner prefers going to a football game, while the other prefers going to the opera. Both partners want to spend time together and would be worse off if they ended up at different places. However, they each have a clear preference for their favored activity.

Payoff Structure:
Coordinating: Both partners benefit from being together, but the individual payoffs differ based on which activity they choose. Example: If they both go to the football game, the person who prefers football is happier, while the other is less satisfied.If they both go to the opera, the opera lover is more satisfied than the football lover. If they fail to coordinate and go to different places, both end up with the worst payoff (since they're not spending time together).

Features of a Simple Coordination Game

1. Multiple Equilibria:
There are multiple possible outcomes (equilibria) that both players would be happy to settle on, and both outcomes are equally desirable or indifferent to them.

2. Indifference About Equilibrium:
Both players do not have a strong preference for one particular equilibrium over another. They simply want to coordinate successfully, and any of the available options will be acceptable.

3. Coordination Problem:
The challenge in this game is to ensure that both players choose the same equilibrium to avoid miscoordination. If they fail to coordinate, they may end up with a suboptimal outcome.

Privileged Groups

Privileged groups are small groups they have an easier time coming over collective action issues. This is because they have a vested interest in the outcome and often have more resources to mobilize and enforce collective agreements.

Categories of expenditure

3 categories
Durable Goods- products that last 3+ years (appliances, furniture, cars)
Expensive so people who buy this are sensitive to interest rates
Durable goods are important because you have to finance them so it gives info about long term purchases and interest rates
Around 13% of all spending

Non-durable Goods- products that last under 3 years (clothing, books, food)
- Around 30% of all spending

Services- all other stuff (medical treatments, streaming services)
More disposable income → more spend it on services

Consumers spend the most on this
Consumers spend the most on services

US chamber of commerce

The U.S. Chamber of Commerce is the largest business-oriented lobbying organization in the United States, representing the interests of businesses of all sizes across the country.
- It plays a key role in shaping U.S. economic policy, advocating for legislation and regulations that are favorable to businesses


Lobbying efforts: The Chamber advocates for policies that promote a pro-business environment, such as lowering corporate taxes, reducing government regulations, expanding free trade, and improving infrastructure. It is one of the most influential lobbying groups in Washington, D.C., and regularly engages with lawmakers to influence legislative decisions.

AFL CIO

The AFL-CIO is a vital player in the political economy of the labor sector, advocating for workers' rights, collective bargaining, and pro-labor policies.

It was formed in 1955 from the merger of the AFL and the CIO, bringing together numerous labor unions representing various industries and workers.

Role and Influence of the AFL-CIO:

1. Advocacy for Workers' Rights

2. Collective Bargaining

3. Political Mobilization

4. Coalition Building

Principal agent model

The Principal-Agent Model is a way to understand how two parties work together when one party (the principal) hires another party (the agent) to do something for them.

Principal: This is the person or group that wants something done. For example, a business owner who wants to make a profit.

Agent: This is the person or group who does the work for the principal. For example, a manager hired by the business owner to run the company.

market examples of decentralized decision making

1. Price as an Allocation Tool

Markets are classic examples of decentralized decision-making, where prices serve as signals that guide individuals or firms in making voluntary decisions about production, consumption, and trade.

Example: In a free market, companies decide how much to produce based on the price of goods and the cost of production, while consumers decide how much to buy based on the price they are willing to pay.

optimality

optimality refers to a situation where a decision, outcome, or allocation is considered the best possible under given circumstances. It often involves maximizing benefits or utility while minimizing costs, and it can be applied to various contexts like individual choices, resource allocation, or group decisions.

Simple Coordination Game

both players or parties aim to coordinate their actions, and they are indifferent about which equilibrium they coordinate on.

Costs of collective action

Monitoring
Enforcement
Communication

Economic features of labor market

Per capita income, labor force participation rate, productivity, unemployment

Per capita income

Per capita income is a measure of the average income earned per person in a given area, such as a country, region, or city, in a specific time period. It is often used as an indicator of the economic well-being of a population.

unemployment

Unemployment refers to the situation where individuals who are capable of working, are actively seeking a job, but are unable to find employment. It is an important indicator of the health of an economy, often tracked to understand the labor market and economic activity.

collective bargaining

Unions negotiate contracts with employers on behalf of their members, covering wages, benefits, hours, and working conditions. This process is called collective bargaining and aims to reach agreements that improve members' working conditions.

Parts of the Principal Agent Model

Contracts:
Principals create contracts with agents to make sure the agent does what the principal wants. These contracts can include bonuses or other rewards for good performance.

Monitoring:
Principals might keep an eye on what the agent is doing to ensure they are working in the principal's best interest. This can include regular check-ins or reports.

Aligning Interests:
The goal is to make sure that the agent's goals match the principal's goals. For example, a company might offer bonuses to managers who meet specific performance targets to encourage them to work harder for the company's success.

ex.
Voters (principals) elect politicians (agents) to represent them. Voters want to make sure politicians act in their best interest.

Downsian Model

the Downsian Model shows that in elections, both voters and politicians behave in ways that maximize their chances of getting what they want. Politicians aim for the middle ground to win votes, leading to similar policies between competing candidates.

What is the criteria for good theories?

1. Falsifiability- theory has to be testable. Vague theories fail, need to be precise

2. High Explanatory Power
- How much of dependent is explained by causal mechanisms
- Need to see empirical evidence

3. High explanatory range/generalizability
- For how many classes of phenomena does your theory hold

4. High predictive power
- Can predict future outcomes

5.Parsimony- simplicity
- Prefer simple explanation to more complex (prefer less variables if possible)

Rational Choice

explains how individuals make decisions based on their preferences, beliefs, and the information available to them.

Unit of Analysis - Individual

The unit of analysis in rational choice theory is the individual. The theory examines how individual preferences and beliefs influence decision-making processes.

Cycling Preference - Non-Transitivity

Non-transitive preferences occur when preferences do not adhere to the transitive property. Cycling can complicate decision-making and is often viewed as a challenge to rational choice theory.

Maximization

The central idea of rational choice is that individuals seek to maximize their utility, which is a measure of satisfaction or benefit derived from their choices.

Arrow's Impossibility Theorem

highlights the difficulties in creating a fair and consistent group decision-making process. It essentially states that no voting system can convert individual preferences into a collective decision while simultaneously satisfying a set of seemingly reasonable conditions.

Cycling

a situation where collective preferences do not follow a clear, consistent order. This often occurs when group decisions are made by majority rule, and it leads to preference cycles (i.e., no clear winner can be determined).

Centralized decision making

A single authority (such as a government, company, or organization) makes decisions for the entire group. This central body has the power to enforce the decisions made, and all members must follow the rules and outcomes determined by that authority.

Example of Centralized Mechanisms:

1. The State/Government:

In a democratic government, the elected officials make decisions about taxes, public services, and laws that everyone must follow.

2. Labor Unions

If the union leadership decides to strike, all union members are typically expected to participate, even if they personally disagree. Similarly, members must abide by the terms of any negotiated contract.

decentralized decision making

systems or processes where decision-making and actions are distributed among individuals or smaller groups, rather than being directed by a central authority.

B of S game

is a coordination game where two players (often with different preferences) must make a decision together. While both are better off if they coordinate, each player has a preferred outcome that differs from the other player's preference.

Why does third party enforcement matter?

helps create a stable environment where economic activities can flourish, especially when there is potential for cheating, non-cooperation, or opportunistic behavior.

In many economic scenarios, individuals or firms face prisoner's dilemma-type situations where the best outcome for all is cooperation, but without enforcement, each party has an incentive to defect. Third-party enforcement ensures that agreements are upheld, allowing parties to achieve mutually beneficial outcomes.

Example:
In international trade agreements, countries might be tempted to cheat by imposing tariffs or other barriers after a deal is signed. The presence of a third-party enforcer like the World Trade Organization (WTO) ensures that countries stick to the agreement, preventing trade wars and ensuring cooperation.

Prisoner's dilemma in a federalist system (Right to work laws
Competition with states)

In this scenario, the states are the players in a prisoner's dilemma. Each state faces a choice:

Cooperate: Do not adopt Right-to-Work laws, maintaining stronger labor protections and union influence, which typically leads to higher wages and better worker benefits but could be seen as less attractive to some businesses.

Compete: Adopt Right-to-Work laws, weakening union power and reducing labor costs, which could attract businesses looking for cheaper labor.

Examples:
Southern and Midwestern States: Many states in the U.S. South and Midwest have adopted Right-to-Work laws to make their business environments more competitive and to attract manufacturers and other industries. This has put pressure on other states to follow suit, or risk losing businesses.

Interstate Competition: States like Texas and Alabama have successfully attracted companies from more unionized states like California and New York by promoting a low-cost, business-friendly environment that includes Right-to-Work laws. This competition forces high-union states to reconsider their labor laws or risk losing economic activity.

Collective Action

group of individuals pursuing some common interest/objective where there is some cost to that pursuit

By-product Theory

Olson introduced the by-product theory to explain how large groups can form and successfully mobilize. According to this theory, large groups may only be able to come together when selective incentives (rewards provided only to members) are offered.


Organizations can provide selective incentives that motivate individuals to join and actively participate, thus addressing the free-rider problem. For instance, labor unions may offer benefits like better wages or job security exclusively to paying members, incentivizing participation and discouraging free-riding.

Consumers

Consumers spend most on services

3 categories
Durable Goods- products that last 3+ years (appliances, furniture, cars)

Non-durable Goods- products that last under 3 years (clothing, books, food)


Services- all other stuff (medical treatments, streaming services)

Why are durable important?

Wealth Indicator

Consumer Spending Patterns

Long-Term Investment

The durable goods sector is often where significant technological innovation occurs.

How is size of production sector usually measured?

a. Contribution to Gross Domestic Product (GDP)

b. Employment

c. Output Capacity and Productivity
The output capacity (the total volume of goods and services produced) and productivity (output per worker) are essential measures of the production sector's efficiency and growth potential.

What does the service sector do?

The hallmark of the service sector is that it delivers intangible products, meaning services cannot be physically touched, unlike goods produced in manufacturing. Examples include healthcare, education, legal advice, financial services, and hospitality.

Advantages and disadvantages of business sector policies

Businesses often pursue policy or political influence to shape regulations, laws, and policies in ways that benefit their interests.

Advantages:

Amplified Influence:
Stronger voice: When businesses collaborate, they can exert more significant influence on policymakers, particularly when lobbying as part of a large coalition or industry group (e.g., National Association of Manufacturers).

Disadvantages:

Free-Rider Problem:
Some businesses may free-ride on the collective efforts of others, benefiting from favorable policy changes without contributing to the lobbying efforts themselves. This is particularly problematic in large groups where accountability is more difficult to enforce (as theorized by Mancur Olson).

Conflicting Interests

labor force participation rate

The labor force participation rate is a measure of the active portion of an economy's labor force. It represents the percentage of the working-age population (typically individuals aged 16 and older) that is either employed or actively looking for work. This rate is an important indicator of the labor market's health and provides insights into the availability of workers for production.

productivity

Productivity in economics refers to the efficiency with which goods and services are produced, typically measured as the output per unit of input. It is a critical indicator of economic performance, as higher productivity means more can be produced with the same or fewer resources, leading to economic growth, higher living standards, and increased profitability.

Reasons of government intervention in labor market

1. Protection of Workers' Rights
Labor Laws: Governments enact laws to protect workers from exploitation, discrimination, and unsafe working conditions (e.g., minimum wage laws, anti-discrimination laws, and occupational safety regulations).

2. Reducing Unemployment
Job Creation Programs: Governments may invest in public works or stimulus programs to create jobs during economic downturns.
Unemployment Benefits: Providing financial assistance to unemployed individuals helps stabilize the economy by maintaining consumer spending.

Unions

A union, or labor union, is an organization of workers who come together to collectively negotiate their rights and working conditions with their employers.

Wagner Act

The Wagner Act of 1935 (National Labor Relations Act) strengthened workers' rights to organize and engage in collective bargaining, leading to significant growth in union membership during the mid-20th century.

Key Aspects of the Wagner Act:

Rights of Workers:
The Act guarantees employees the right to form, join, or assist labor organizations.
It protects the right to engage in collective bargaining through representatives of their choosing.

Establishment of the National Labor Relations Board (NLRB):
The Wagner Act created the NLRB, an independent federal agency tasked with enforcing the provisions of the Act.
The NLRB oversees union elections and investigates unfair labor practices.

Response to Economic Conditions:

The Wagner Act was enacted during the Great Depression, a time of significant economic hardship and high unemployment. By empowering workers and strengthening unions, the Act aimed to promote economic stability and improve workers' living conditions.

Taft-Hartley

generally considered anti-union or at least restrictive toward unions

Right to Work Laws:
States can create laws (called "right-to-work" laws) that mean workers don't have to join a union or pay union dues if they don't want to. This has made it harder for unions to collect funds and support.


The Taft-Hartley Act was created in response to concerns about the power of labor unions after World War II. Many lawmakers and business leaders believed that unions had become too powerful and were sometimes engaging in harmful practices.

As a result, the Act's provisions tend to limit union power and influence, making it more challenging for unions to advocate for workers' rights effectively.

Informal close shops

In informal close shops, employers often prefer to hire only workers who are part of a specific union. This means that being a union member is effectively a condition for employment, even if not formally mandated.

right to work shops

In right-to-work shops, workers cannot be compelled to join a union or pay union dues as a condition of their employment. Membership in the union is entirely voluntary.

Since workers in right-to-work states are not required to pay dues, unions may experience a decline in funding. This can limit their ability to negotiate effectively and provide services to members.

Advantages:

Attracting Businesses:
States with right-to-work laws often attract businesses looking to minimize labor costs and avoid union-related expenses, potentially leading to more job opportunities and economic growth.

Disadvantages:

Free-Rider Problem:
Non-union workers may benefit from union negotiations without contributing financially, which can create tensions among employees and weaken the union's bargaining power.

Political economy of the labor sector

The political economy of the labor sector examines the interplay between politics, economics, and labor relations.

Rent-Seeking

Rent-seeking occurs when entities (such as businesses, lobbyists, or individuals) attempt to gain financial advantage without contributing to productivity. This is often achieved through means such as lobbying for favorable regulations, subsidies, or tariffs.

Examples of Rent-Seeking

Lobbying for Subsidies:
A company might lobby the government for subsidies to support its operations, diverting taxpayer money to its business rather than creating new products or jobs.
Regulatory Barriers:
Established firms may lobby for regulations that create barriers to entry for potential competitors, ensuring their market dominance without improving their products or services.
Tariffs and Trade Restrictions:
Industries may push for tariffs on foreign goods to protect their market share rather than improving their competitiveness, effectively shifting the burden onto consumers.

Olson model

Olson argues that smaller, more organized groups are more likely to successfully achieve collective action compared to larger, diffuse groups. In small groups, individuals can more easily monitor each other and ensure that everyone contributes.


The Olson Model explains why individuals often struggle to work together for common goals, particularly when public goods are involved.

Understanding the dynamics of collective action can help organizations develop strategies to motivate participation, such as offering incentives or creating smaller, focused groups.

Equilibrium outcomes of principle agent model

The equilibrium is achieved when the agent's interests align with the principal's goals through incentives, monitoring, and trust, resulting in effective performance and decision-making.

1. Alignment of Interests:
The principal (e.g., an employer) and the agent (e.g., an employee) achieve an equilibrium when the agent's incentives are aligned with the principal's goals. This often occurs through contracts that include performance-based rewards, such as bonuses or promotions.

2. Monitoring and Reporting:
Effective monitoring systems (e.g., regular reports, performance evaluations) help ensure that the agent acts in the principal's best interest. The equilibrium is reached when the monitoring is sufficient to reduce the risk of moral hazard (the agent acting in their own interest rather than the principal's).

3. Effort Level:
The equilibrium outcome is a certain level of effort from the agent, determined by the incentives offered. If the incentives are strong enough, the agent is likely to exert effort that maximizes the principal's outcomes, thus achieving a mutually beneficial situation.

4. Information Disclosure:
Equilibrium may also depend on the agent providing accurate information to the principal. An equilibrium is reached when the principal can trust the information received, allowing for better decision-making.

5. Incentive Compatibility:
The equilibrium is achieved when the agent's chosen actions are consistent with the principal's expectations and the agent's own interests, creating a stable environment for both parties.

Equilibrium outcomes of Olson model

The equilibrium is reached when a group successfully organizes collective action to provide public goods, often facilitated by selective incentives and effective monitoring, while addressing the challenges posed by free-riding.

1. Collective Action:
In the Olson Model, equilibrium occurs when a group successfully organizes to achieve a common goal (e.g., providing a public good). This is often facilitated by selective incentives that encourage participation.

2. Free-Rider Problem Resolution:
The equilibrium is reached when the free-rider problem is mitigated, often through the formation of small, cohesive groups where monitoring and incentives can effectively ensure participation. In larger groups, the equilibrium may not be achieved due to widespread free-riding.

3. Privileged Groups:
Equilibrium outcomes are more likely in privileged groups, where the ability to achieve collective action is higher. These groups can enforce contributions and mobilize effectively, reaching an outcome that benefits their members.

4. By-Product Theory:
When larger groups are formed as a by-product of selective incentives, the equilibrium is achieved when enough members see a personal benefit from contributing, thus enabling the group to function effectively.

5. Public Goods Provision:
The equilibrium outcome in the Olson Model involves the successful provision of public goods, achieved when enough individuals contribute to overcome the collective action problems. If too many people choose to free-ride, the equilibrium may not be reached, resulting in under-provision of the public good.

median voter theorem

The theorem posits that in a majority-rule voting system, the preferences of the median voter (the voter whose preferences are in the middle of the distribution) will dominate the outcome of elections. Essentially, the policy that the median voter prefers is the one that will be implemented.

Free rider problem

The free rider problem arises when some individuals can enjoy the benefits of a good or service without having to pay for it, relying instead on others to bear the cost.

Interest groups

Organized groups of citizens one of whose goals is to advocate for a certain policy
- Larger groups are less organized
- Have to start w individual as unit of analysis