Notes and Fragments: Roving bandits as tragic commons
In this “Notes and Fragments” series I will briefly discuss some ideas that I might write about in more detail in the future. This is Part I.
On Olson’s stationary bandit theory, a world of roving bandits is bad because no one has an incentive to produce or invest beyond subsistence level. A profit-maximizing bandit will therefore monopolize force in his domain, provide security, property rights, and public goods, thereby giving his subjects the incentive to produce and in doing so maximizing his income from tax receipts.
Olson is basically saying that if you view people like cattle, a world of roving bandits is an open-access commons, where resources (subjects) are wasted because no one can benefit from taking care of them. As a roving bandit, if I don’t plunder this village, someone else will; hence I plunder and we end up in the tragedy of the commons. Establishing a stationary bandit means privatizing the commons, where there is a residual claimant who can capture the benefits of using the resources efficiently (given a low discount rate). Hence, the stationary bandit theory is a special case of the tragedy of the commons.