What Did Economists Do? Euvoluntary, Voluntary, and Coercive Institutions for Collective Action

[Author Affiliation]William F Shughart II, * Department of Economics and Finance, Jon M. Huntsman School of Business, Utah State University, 3565 Old Main Hill, Logan, UT 84322-3565, USA; E-mail: william.shughart@usu.edu ; corresponding authorDiana W Thomas, [dagger] Department of Economics and Finance, Jon M. Huntsman School of Business, Utah State University, 3565 Old Main Hill, Logan, UT 84322-3565, USA; E-mail: diana.thomas@usu.edu[Acknowledgment]Prepared for presentation at a session honoring the late James Buchanan during the 83rd annual meeting of the Southern Economic Association in Tampa, FL. We thank Damon Cann, Peter Leeson, Randy Simmons, Michael Thomas, and Ryan Yonk for helpful comments, as well as Dwight Lee and J. R. Clark for organizing the panel comprised of some of the association's living past presidents and for inviting us to participate.1. IntroductionHow is the "free rider" problem to be handled? ... [T]here may be cases where the expected benefits from [collective action] are not sufficiently high to warrant the emergence of some voluntary cooperative arrangement. And, in addition, the known or predicted presence of free riders may inhibit the cooperation of individuals who would otherwise contribute. In such situations, voluntary cooperation may never produce an "efficient" outcome, for the individual members of the group. Hence, the "market," even in its most extended sense, may be said to "fail." What recourse is left to the individual in this case? It is surely that of transferring, again voluntarily, at least at some ultimate constitutional level, activities of ... [that] sort to the community as a collective unit, with decisions delegated to specifically designated rules for making choices, and these decisions coercively enforced once they are made. (Buchanan 1964, p. 220; emphasis added)In his November 1963 Presidential Address to the Southern Economic Association, Nobel laureate James Buchanan asked the audience to consider two rather blunt questions (1964, p. 213): "What are economists doing? What 'should' they be doing?" Buchanan's own somewhat disdainful answer to the first question was that, owing to economists' narrow preoccupation with problems involving the "optimal" allocation of scarce means among alternative or competing ends, economics was well on its way to becoming a not very interesting branch of applied mathematics. Echoing Friedrich von Hayek (1945, p. 520), Buchanan (1964, p. 216) remarked that once a behavioral objective function and the constraints on it have been specified, the model's solution is predetermined, and the problem reduces to one of rote computation.Buchanan (1964) answered the second question by saying that he wanted economists "to concentrate on 'exchange' rather than on 'choice'" (p. 217), thereby reorienting themselves toward an "elementary and basic approach that ... places 'the theory of markets' and not the 'theory of resource allocation' at center stage" (p. 214). Given that Buchanan delivered his Presidential Address soon after the publication of The Calculus of Consent (Buchanan and Tullock 1962), he closed the passage we have chosen as our epigraph by writing that, "in the most general sense (perhaps too general for most of you to accept), the approach to economics that I am advancing extends to cover the emergence of a political constitution" (Buchanan 1964, p. 220). More than a half century later, Buchanan's recommended approach to economics is no longer "too general" for most of us to accept.Buchanan's work takes the process of institutional evolution seriously. In the Address, he gives the example of a program for mosquito control, which requires the draining of a local swamp. Because "no single citizen in the community has sufficient incentive to finance the full costs of this essentially indivisible operation," markets, in the orthodox definition of the term, fail (Buchanan 1964, p. …