How Do Institutions Address Collective-Action Problems? Bridging and Bonding in Institutional Design

Collective-action problems affect the structure of stakeholder networks differently in policy settings (Berardo and Scholz 2010). However, interactions in policy settings do not usually occur in an institutional vacuum; instead, they are guided and constrained by agreed-on rules. Therefore, to better understand behavior in these settings, it is important to understand the parameters that guide and constrain it. Combining arguments from game theory and social network analysis, this paper focuses on how the nature of collective-action problems affect the design of formal institutional arrangements. The cases are two institutional arrangements for the provision of high-quality drinking water, in New York City and in Boston. The design of these arrangements is measured through Networks of Prescribed Interactions (NPIs), capturing patterns of interactions mandated by formal rules. NPI structures in each case are then compared analyzing their structural measures and applying exponential random graph models (ERGMs). By comparing these NPIs, the paper assesses the effects of collective-action problems on the design of formal institutional arrangements. Results show that cooperation problems are associated with designs prescribing redundant interactions that create a balanced distribution of responsibilities among the key actors to the agreement.