FIGURE 3.2 Impact of Individual and Collective Incentives on a Public Good
Collective incentives
Public goods Individual incentives
Source: Authors.
Figure 3.2 illustrates the impact of the two sets of incentives (individual and collective) on the production of a public good or the maintenance of a common-pool resource. Individual incentives resulting from short-term self-interest tend to undermine development, whereas collective (or group) incentives to act together lead to a superior outcome. This mismatch (or misalignment) between individual and collective incentives is the central social dilemma that hampers efforts to act jointly for the common good. To allow for a better understanding of such a mismatch and its consequences on development, this chapter will introduce in greater detail the key concepts of public goods and social dilemmas and will present some of the factors that exacerbate or inhibit collective action problems.
What Are Public Goods? The term public goods refers to goods and services that simultaneously meet the following criteria: • T hey are nonrivalrous, meaning that one individual’s consumption of the good does not reduce the quantity or quality of that good or service for other participants in its consumption. • They are nonexcludable, meaning that individuals cannot be stopped from consuming the good, even if they pay nothing toward the cost of providing the good.
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Understanding Policy Change