Common goods, Matrix Games and Institutional Solutions

Abstract

The provision of common goods poses collective action problems, which may imply that the actors do not provide the good on a voluntary basis. The collective action problem associated with common goods has traditionally been identified as the prisoner's dilemma. However, the analysis of common goods needs to look more closely at the characteristics of the goods and of the social context of their provision. Different characteristics lead to different collective action problems and thus require different institutional responses. If the strategic constellations in common good provision are represented as matrix games, clear implications for institutional responses to certain collective action problems are revealed. This approach will be demonstrated for the case of regulatory competition for environmental standards. A number of factors which characterize the situation are varied — the heterogeneity of preferences for environmental regulation of the countries concerned; the heterogeneity of their market shares; the type of standards used; and the prevailing trade regime. Different combinations of these conditions lead to different collective action problems and, thus, to different outcomes of regulatory competition. In some cases a `race to the top' of environmental regulation can be expected; in other cases a `race to the bottom' will occur; finally, there are cases where no convergence of regulation will take place at all.