1. THE LOGIC OF ANARCHY AND GOVERNMENT Topic #3

2. Summary: Some Terms from K&J Many questions in the Study Guide point to examples of “social dilemmas.” –A social dilemma is a social situation in which individuals have an incentive to behave in ways that undermine the common interest of the group (an incentive to “defect” rather than “cooperate”) –A social dilemma involving just two people is commonly called a Prisoner’s dilemma (PD). DefectCooperate PD storyconfessstay silent Q1steal cropscultivate crops Q4no device/pollutebuy device Q6shirk/“free ride”work productively Split tab equallyorder $$$$$order $

3. K&J Terms (cont.) A public good is something that, if provided, benefits everyone (in a given group, area, etc.) regardless of whether they contributed its provsion. possible examples: canals, roads (Q2) better examples: flood control, clean air (Q4), national defense, mitigating climate change –With respect to public goods, individuals have an incentive to free ride (not pay their “fair share”) and thereby impose externalities on others. –The provision of a public good therefore presents a social dilemma. Such a dilemma is commonly called a collective action problem.

4. K&J Terms (cont.) In contrast to a social dilemma, in a social coordination problem: –everyone in group is better off if everyone makes the same choice, –e.g., which side of the road should we drive on? (Q3) More complex social coordination problems present mix conflicting preferences in with common preference, –e.g., a group of people all want to have dinner together but one person wants to go to a Mexican restaurant, another Italian, Chinese, etc. –e.g., NIMBY (“not in my back yard” problems). Agreements to resolve social coordination problems are self-enforcing, i.e., no one has an incentive to cheat. Agreements to resolve social dilemma problems are not self enforcing, i.e., people still have an incentive to cheat.

5. K&J Terms (cont.) Governments and legal/political institutions are set up to help resolve a society’s social coordination problems and social dilemmas and to provide public goods. Two common types of political/governmental institutions: –voting, e.g., three roommates deciding on thermostat setting Raises problem of conformity costs. –delegation: a principal delegates responsibilities to agent, e.g., student A asks student B to attend a class in A’s place; defendant hires a lawyer to plead his case; citizens elect a “delegate” to represent them in a legislature. Raises problem of agency loss.