State Intervention in Collective Action

Abstract

Chapter 2 develops a theory of state intervention in collective action. It argues that as unorganized people create negative externalities, officials increasingly have an incentive to encourage people who organize self-regulating organizations. When officials intervene with cash, licenses, and access to the bureaucracy, they lower the barriers that kept people from organizing on their own. Once informal workers take these incentives and start organizations, officials can bargain over regulation and enforcement with representatives instead of a mass of individuals. The theory builds on contributions from Olson (1965), Ostrom (1990), and Holland (2017). The theory is formalized in a game theoretic model to show that officials and informal workers are strategically linked. The chapter uses the model to demonstrate the exact conditions under which we can expect informal workers’ organizations as a result of officials’ encouragement. The model produces multiple equilibria that reflect the different levels of organization that we observe in informal sectors around the world. The equilibrium conditions generate clear expectations for the patterns that we should see in the empirical chapters if the theory is correct.