The micro-empirics of collective action: The case of business improvement districts

This paper carries out a micro-level analysis of collective goods provision by focusing on the formation of Business Improvement Districts (BIDs). The paper's theoretical and empirical analysis is unusually complete in that it considers the entire process of collective action, including participation in initial organization, voting, and ultimate impact on property values. BID benefits are shown to be highly uneven, and BID formation is not a Pareto improvement. Furthermore, large “anchor participants” benefit disproportionately, and are crucial for the viability of the institution, consistent with Olson (1965). These results, while demonstrated in a particular setting, apply to collective action more generally. Whenever a market failure leaves room for a collective response, the presence of anchor participants encourages collective action, and the action – even though in a sense voluntary – has uneven benefits.

► This paper carries out a micro-level analysis of collective goods provision.
► It focuses on the formation of Business Improvement Districts (BIDs).
► The analysis considers participation in BID organization, voting, and property value effects.
► BID benefits are shown to be highly uneven, and BID formation is not a Pareto improvement.
► Large “anchor participants” benefit disproportionately, and are crucial for BID viability.