Neutrality Theorem and Collective Action Problem

Abstract

     This paper examines the meaning of neutrality theorem in the study of the logic of collective action and N-person Prisoners' Dilemma. Neutrality theorem implies perfect crowding-out. That is, if the government levies tax on contributors to finance more of the public good, then the government provision of public good will crowd out private contributions completely. And it can be shown that if the government collects some of the taxes from non-contributors, then the total supply of the public good will increase, but this policy is not Pareto-improving.
     These claims have three meanings in the study of the logic of collective action and N-person Prisoners' Dilemma. (1)Perfect crowding-out explains theoretically “the decline of voluntary cooperation” that Michael Taylor argued. That is, Taylor's argument can be shown without his assumption of preference changes in his own continuous strategy model.(2)These claims contradict earlier discussions in the theory of the state based on the logic of collective action or N-person Prisoners' Dilemma. Because these kinds of discussions assume the provision of public good by the state can correct the sub-optimality of voluntary contributions.(3)This argument sheds new light on “selective incentives”.