Individual Welfare and the Group Size Paradox

Abstract

How does an increase in group size affect individual welfare in the presence of Olson’s group size paradox? Under the standard approaches to modeling the group size paradox, individual welfare will decrease as the size of the group increases. However, this may not be true if we apply the group size paradox to politics. In particular, if a smaller group attempts to extract a fixed transfer from a larger group, welfare of individuals in the larger group is monotonically increasing in the size of their group under a standard contest success function. Even though the probability of the transfer taking place is monotonically increasing in the size of the group, the expected transfer per member shrinks because there are more members to share the burden of paying the transfer. A similar result is obtained if the transfer is modeled as a fixed entitlement to be received by each member of the smaller group. By contrast, if the transfer imposes a fixed cost per member of the larger group, there is a restoration of the result that individual welfare in the larger group is monotonically decreasing in its own group size.

Keywords: Collective Action, Group Size Paradox, Lobbying

JEL Classification: D72, H41, D78