Institutions and the Free Rider: The Assurance Problem in Collective Action

Political and economic theory make extensive use of the one-period Prisoners' Dilemma (PD) to model public goods problems and collective action generally. While the PD provides important insights into the breakdown of social institutions, it gives no explanation of how or why institutions are developed in the first place. Recent work on repeated PDs has emphasized the role of expectations in this process. This paper presents a related approach: the Assurance Problem (AP). The AP suggests that interdependent choice creates incentives to establish and maintain institutions that coordinate expectations based on rules of fair-mindedness. With such coordinated expectations, voluntary contributions to public goods may be utility-maximizing strategies.