Olson lays out his general theory in chapter 1, where he discusses individual rationality, selective incentives, and so on.
Three kinds of groups
1. Privileged groups (members of this group would gain more from a public good than it would cost them to provide it unilaterally); 2. Latent groups (any member of this group could withhold his contribution to the public good without causing a noticeable reduction in its supply); and 3. Intermediate groups (if any member of this group withholds his contribution, it will cause a noticeable decrease in supply of the good, or a noticeable rise in cost to other contributors).
Variables and hypotheses
Y = common goods provision; X = group size • As group size increases, provision of the common good becomes less optimal. You can only have optimal provision of the common good if the marginal costs are shared in "exactly the same proportion as the additional benefits" (30). If there is a PRIVILEGED group, the good will always be provided If there is an INTERMEDIATE group, the good might be provided. If there is only a LATENT group, the good won't be provided without coercion or selective incentives. Small stakeholders will tend to exploit big stakeholders (i.e. make them pay a larger share)
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Why large groups have problems
Large groups have problems providing common goods for three reasons: 1. each group member has a lower share of the benefits; 2. so it's less likely that anybody's benefits of helping provide the good exceed the costs; 3. and organizational costs rise with group size.
Exclusive vs inclusive goods
There are two kinds of common goods: exclusive and inclusive. With exclusive common goods, the supply is limited. Think of a cartel; each firm wants to increase output (to increase its profits), but if all firms do this, the profits disappear (as the price falls). The supply of profits is limited, so it is an exclusive good. With inclusive goods, however, supply...