Organizing Collective Action: Olson Revisited

We study how interest groups can organize to mitigate collective action problems in the presence of asymmetric information about the preferences of their members and limited contractual capacity. To this goal, we characterize and study the properties of the optimal coordination/communication mechanism for a group when members have continuous private information about their preferences for the public good, side payments are not possible, and successful achievement of the group interest requires costly participation of some fraction of its members. The optimal “honest and obedient” mechanism can be implemented with a minimal amount of communication via an indirect mechanism where members are required to send one of only two or three messages. The optimal organization does not fully overcome a group’s free-rider problem but does produce an order of magnitude improvement compared to unorganized groups and generates meaningful probabilities of success even for large groups. We pursue a number of additional questions, including: Under what conditions can we expect organized groups to form? How does this depend on the size of the group and the distribution of preferences? If there are multiple groups and their interests are competing, how does this affect the optimal mechanism and the probability of successful collective action?