constitutional economics. the prisoners' dilemma - the benefits of cooperation –mueller –...

Constitutional Economics


• The prisoners' dilemma - the benefits of cooperation– Mueller – Theft as a “prisoner’s dilemma”– Why should theft be illegal?

• If you are not using your car and I steal it, aren’t I putting a resource to a higher valued use?

• No. I would be substituting a high transactions cost process for allocating resources involving anti-theft devices, police, courts, prisons, etc., for a low transactions cost process called a “sale”.


• The prisoners' dilemma - the benefits of cooperation– Mueller – Theft as a

“prisoner’s dilemma”– Pm = payoff to me– Py = payoff to you

Work

YOU

Steal

Work Pm = 10

Py = 10

Pm = 6

Py = 12

ME

Steal Pm = 12

Py = 6

Pm = 5

Py = 5



“prisoner’s dilemma”– When we both work

we maximize our wealth (TW).

Work

YOU

Steal

Work Pm = 10

TW = 20

Py = 10

Pm = 6

TW = 18

Py = 12

ME

Steal Pm = 12

TW = 18

Py = 6

Pm = 5

Py = 5



“prisoner’s dilemma”– When we both work

we maximize our wealth (TW).

– This is “negative sum” symmetrical game

Work

YOU

Steal

Work Pm = 10

TW = 20

Py = 10

Pm = 6

TW = 18

Py = 12

ME

Steal Pm = 12

TW = 18

Py = 6

Pm = 5

Py = 5


• The prisoners' dilemma - the benefits of cooperation

• The “Nash Equilibrium” of a prisoners’ dilemma game is TW = 10

Work

YOU

Steal

Work Pm = 10

TW = 20

Py = 10

Pm = 6

TW = 18

Py = 12

ME

Steal Pm = 12

TW = 18

Py = 6

Pm = 5

TW = 10

Py = 5


• What we end up with is Hobbes’ “state of nature” where “everyman is at war with everyman, and life is nasty, brutish and short.”

Work

YOU

Steal

Work Pm = 10

TW = 20

Py = 10

Pm = 6

TW = 18

Py = 12

ME

Steal Pm = 12

TW = 18

Py = 6

Pm = 5

TW = 10

Py = 5


• So, is there a way out of Hobbes’ “state of nature”?

Work

YOU

Steal

Work Pm = 10

TW = 20

Py = 10

Pm = 6

TW = 18

Py = 12

ME

Steal Pm = 12

TW = 18

Py = 6

Pm = 5

TW = 10

Py = 5


• So, is there a way out of Hobbes’ “state of nature”?

• Sure, the usual route historically has been this way.

• Autocracy

Work

YOU

Steal

Work Pm = 10

TW = 20

Py = 10

Pm = 6

TW = 18

Py = 12

ME

Steal Pm = 12

TW = 18

Py = 6

Pm = 5

TW = 10

Py = 5


• “The good old rule,the simple plan,Let him take who has the power,Let him keep who can.”

William Wadsworth, “Rob Roy’s Grave”

Work

YOU

Steal

Work Pm = 10

TW = 20

Py = 10

Pm = 6

TW = 18

Py = 12

ME

Steal Pm = 12

TW = 18

Py = 6

Pm = 5

TW = 10

Py = 5


• Autocracy is more efficient than the “state of nature”

Work

YOU

Steal

Work Pm = 10

TW = 20

Py = 10

Pm = 6

TW = 18

Py = 12

ME

Steal Pm = 12

TW = 18

Py = 6

Pm = 5

TW = 10

Py = 5

?



• But these alternatives represent “tyranny”.

Work

YOU

Steal

Work Pm = 10

TW = 20

Py = 10

Pm = 6

TW = 18

Py = 12

ME

Steal Pm = 12

TW = 18

Py = 6

Pm = 5

TW = 10

Py = 5

?



• But these alternatives represent “tyranny”

• How do we get to here?.

Work

YOU

Steal

Work Pm = 10

TW = 20

Py = 10

Pm = 6

TW = 18

Py = 12

ME

Steal Pm = 12

TW = 18

Py = 6

Pm = 5

TW = 10

Py = 5



• Historically, we can’t (or, at least, we never have).

Work

YOU

Steal

Work Pm = 10

TW = 20

Py = 10

Pm = 6

TW = 18

Py = 12

ME

Steal Pm = 12

TW = 18

Py = 6

Pm = 5

TW = 10

Py = 5




• Revolution!! Off with their heads!!

Work

YOU

Steal

Work Pm = 10

TW = 20

Py = 10

Revolu-tion

Pm = 6

TW = 18

Py = 12

ME Riot, Mayhem

Coup de etat

Steal Pm = 12

TW = 18

Py = 6

Pm = 5

TW = 10

Py = 5




• Logically, how would we want to do it?

Work

YOU

Steal

Work Pm = 10

TW = 20

Py = 10

Pm = 6

TW = 18

Py = 12

ME

Steal Pm = 12

TW = 18

Py = 6

Pm = 5

TW = 10

Py = 5


• The way we get out of Hobbes’ “state of nature” is with a social contract



• A social contract defines a modus vivendi – the way we live.



• A social contract defines a modus vivendi – the way we live.

• A modus vivendi is an accommodation of divergent private values, e.g., religion, through some accepted common social value, e.g., tolerance of religious differences.


• The American colonial experiment was almost all about religious accommodation:– Pilgrim Puritans - New England


• The American colonial experiment was almost all about religious accommodation:– Pilgrim Puritans - New England– Catholics – Chesapeake


• The American colonial experiment was almost all about religious accommodation:– Pilgrim Puritans – New England– Catholics – Chesapeake – Quakers – Pennsylvania


• The American colonial experiment was almost all about religious accommodation:– Pilgrim Puritans – New England– Catholics – Chesapeake – Quakers – Pennsylvania– All dissenters from the Anglican Church

• Contrast this religious tolerance to Islam’s view of “Dhimmis”


• A key concept in Judeo – Christian – Islamic religions is property– “Thou shall not steal.” Etc.

• In Hobbes’ “state of nature” no man nor his property is safe

• To secure the right to property, individuals need civil liberties.


• John Rawls’ “A Theory of Justice” proposes an objective for framing a social contract or constitution.


• John Rawls’ “A Theory of Justice” proposes an objective for framing a social contract or constitution: the “Rawlsian Difference Principle.”

• Maximize the welfare of the least well off member of the community


• John Rawls’ “A Theory of Justice” also proposes a process for framing a social contract or constitution: the “veil of ignorance.”

• Behind of “veil of ignorance” decision makers choosing rules should not know whether they will be the least well off or most well off member of the community.




• Think of a game of poker.




• Think of a game of poker.• Rawls’ proposal is very “Madisonian”


• Rawls and numerous commentators believe that the Difference Principle makes a case for income equality.



• Does it really?



• Does it really?

• This would suggest a high degree of risk aversion and perceived lack of opportunity.



• Does it really?

• Would you rather be the poorest person if everyone is equally poor or if there are some wealthy people?



• Does it really?

• The existence of wealthy people suggests that there are opportunities for the poorest people to improve their situation.

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