Recursive collective action problems: the structure of procyclicality in financial and monetary markets, macroeconomies and formally similar contexts

Robert Hockett
Additional contact information
Robert Hockett: Cornell Law School

Journal of Financial Perspectives, 2015, vol. 3, issue 2, 113-128

Abstract: The hallmark of a collective action problem is its aggregating multiple individually rational decisions into a collectively irrational outcome. Arms races, “commons tragedies” and “prisoners’ dilemmas” are well-known, indeed well-worn examples. What seem to be less widely appreciated are two complementary propositions: first, that some collective action problems bear iterative, self-exacerbating structures that render them particularly destructive, and second, that some of the most formidable challenges faced by economies, societies and polities are iteratively self-worsening problems of precisely this sort. Financial markets, monetary systems and macroeconomies in particular are rife with them — as are other complex systems subject to group-mediated procyclicalities or “feedback” effects. I call the mentioned challenges “recursive collective action problems,” and show that a great many familiar regulatory and policy challenges — including asset price bubbles and busts, consumer price hyperinflations and debt deflations, “paradoxes of thrift” and “recessionary spirals” — constitute instances of this general phenomenon. I also hazard suggestions as to how best to address such challenges. Key to the effort is first to recognize their shared structure, second to recognize that collective action problems require coherent collective agency for their solution, and third to recognize that the collective agents in question must act to render no longer individually rational such decisions as aggregate into collectively irrational outcomes. I close with specific examples of what problem-solving strategies informed by the “three recognitions” will tend to look like. The implications for macroeconomic and “macroprudential” finance-regulatory policy in particular are manifold. If we but attend to the shared nature, structure and pervasiveness of recursive collective action problems, I conclude, we can recoup much in the way of wealth and well-being that is now needlessly lost.

Keywords: financial markets; monetary markets; regulations; policies (search for similar items in EconPapers)
JEL-codes: G10 (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:jofipe:0077

Access Statistics for this article

Journal of Financial Perspectives is currently edited by Ms Alina Stefan

More articles in Journal of Financial Perspectives from EY Global FS Institute 1 More London Place, London SE1 2AF, UK.
Bibliographic data for series maintained by Ms Alina Stefan ( this e-mail address is bad, please contact ).