CHAPTER 5The Logic of Group Behavior In Business and Elsewhere Men journey together with a view to particular advantage and by way of providing some particular thing needed for the purpose of life, and similarly the political association seems to have come together originally. . . for the sake of the generaladvantage it brings. Aristotle1Unless the number of individuals in a group is quite small, or unless there is coercion, . . .rational, self-interested individuals will not act to achieve their common or group interest. In other words, even if all. . . would gain if, as a group, they acted to achieve their common interest or objective, they will still not voluntarily act to achieve that common or group interest. Mancur Olson2n earlier chapters, we introduced the usefulness of markets. However, as is evident inside firms, not all human interactions are through “markets.” People often act cooperatively in groups or, as the case may be, in “firms.” In this chapter our central purpose is to explore how and under what conditions people can organize their behavior into voluntary cooperative associations (groups and firms) in which all work together for the attainment of some common objective, say, greater environmental cleanliness, the development of a “club atmosphere,” or the maximization of firm profits. The focus of our attention is on the viability of groups like families, cliques, communes, clubs, unions, and professional associations and societies, as well as firms, in which individual participation is voluntary to cohere and pursue the common interests of the members. We consider two dominant and conflicting theories of group behavior. They are “the common interest theory” and “the economic theory” of group behavior. The former is based on the proposition that a group is an organic whole” identified by the “common interest” shared by its individual members. Its basic thesis is that all groups, even very large ones, are organized to pursue the common interest of the group members. Taking this theory one step further, it implies that if people share a common interest, they will organize themselves into a group and voluntarily pursue their shared interest. According to the economic theory of group behavior, the group is a collection of independently motivated individuals who organize voluntarily to pursue their common interest only in small groups, like families or clubs. In large groups the common interest 1Aristotle, Ethics, vol. 8, no. 9, p. 1160a. 2Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups(Cambridge, Mass.: Harvard University Press, 1971), p. 2 I
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