Politics is the process through which individuals and groups reach collective agreements. Success at politics typically involves bargaining and compromise, as there is often substantial disagreement over the goals of collective action. Individuals and groups can usually benefit from collective undertakings. National defense, public order, civil liberties, and public parks are all examples of public goods provided by governments that would be difficult to provide through private activity.

In order to achieve collective action, however, individuals have to overcome several challenges. These include coordination problems, where agreement must be reached on what to do and how to do it. In situations where individuals agree on the benefits of a collective undertaking, prisoner’s dilemmas can still lead to the pursuit of private gain at the expense of the collective good. Politics is rife with forms of prisoner’s dilemmas including the free-rider and tragedy of the commons problems.

Proper institutional design can help individuals and groups overcome these challenges. Often, simple agreement over the rules and procedures for reaching and enforcing collective agreements can mitigate conflict. Constitutions and governments provide rules for how these collective agreements will be reached and then enforced. These may contain mechanisms, such as agenda control, veto power, and supermajority rules, to help solve problems and reduce certain costs associated with collective action.

The costs of collective action include both transaction costs&emdash;the time, effort, and resources needed to reach collective decisions&emdash;and conformity costs&emdash;the extent to which collective decisions require individuals to do things they wish to avoid. Institutional design generally involves a trade-off between transaction and conformity costs. Enabling government to decide and act quickly, for example, often entails imposing substantial conformity costs.

Modern democracies blend majority rule and delegation to form representative government. Politicians’ desire for reelection helps limit delegation problems such as agency loss. The American separation of powers system differs from parliamentary governments used by other nations primarily in the high transaction costs of its decision-making processes. The American Constitution’s Framers chose this system to minimize conformity costs.