7 ms·

It would be interesting to build economic models of markets that take into account the capacity of large agents to make changes to the rules that govern the fun

• S4M 12y ago
  That's an excellent comment! I had some classes of economics (Msc level), but I have never heard of that. If you think in terms of game theory where the actors are the big companies, and have the choice between lobbying and not lobbying (let's say they have some money they can either invest in R&D, either in lobbying), you can see that the Nash equilibrium will push the actors into lobbying.
  • atlantic 12y ago
    Very often our discussions on these topics tend to dwell on the supposedly unethical behaviour of this or that corporate actor. Instead, maybe we should recognize that incentives to lobby (and sometimes, to cheat and bribe), are built into the system, and focus on changing the institutions so that such incentives are removed. And in this area, modelling could play a big role.
    • nitrogen 12y ago
      Since we're talking about a feedback loop, rather than a straight-line system with a start and an end, there is no "right" place to intervene; we have to adjust every entity in the feedback loop together. A lot of popular debates come down to people treating a feedback loop as a straight line, and picking different points on the loop as starting points. Some examples: nature vs. nurture, lobbying vs. corruption, chemistry vs. thoughts (e.g. in cases of depression).
• baddox 12y ago
  You might want to look into http://en.m.wikipedia.org/wiki/Public_choice http://en.m.wikipedia.org/wiki/Public_choice. I don't quite understand why you think that a model which shows that lobbying government leads to economic inefficiency would lead to skepticism in the wonders of a free-market society. It seems like quite the opposite should happen. Of course, in reality it's unlikely that anything would happen regardless of what the economic models showed. The fact that tariffs are inefficient has been widely accepted in pretty much every school economics for the last two centuries, but tariffs are still ubiquitous.
• deleted 12y ago
  [deleted]
• adventured 12y ago
  You're definitely right, the ability of either government or business agents to legislate away competition must be banished from the realm of the economy. If you don't do that, you won't keep a free market. However, lobbying is not a problem of the free market. It's a failure of establishment of one. If such models were studied, and one were actually trying to make a free market work, it would encourage a specific law that should have been installed with the separation of church and state: the separation of state and economy. It should exist for the same reason the church is separated from the state, they can do nothing but corrupt each other. Start with something along the lines of: 'the government may pass no law impeding free trade' and or 'the government shall have no power to regulate commerce' - and go from there. The interstate commerce act of 1887 was one of the first major anti-free market laws the US Government pushed through.
  • TeMPOraL 12y ago
    > Start with something along the lines of: 'the government may pass no law impeding free trade' I might be misunderstanding you by thinking you just said that the government should never regulate trade; to dispel my confusion could you please explain how your idea of state/economy separation will handle coordination problems? How will it avoid tragedy of commons, or other race-to-the-bottom kinds of situations?
    • icebraining 12y ago
      I'm not adventured, nor do I care to give my opinion on the issue, but two proposed solutions are: 1) Fixing the commons by eliminating them - grant property rights to the users which align their incentives with a longer-term health of the "thing" and allow markets to emerge. Free Market Environmentalism has a few examples of this working in the real world: http://www.amazon.com/Free-Market-Environmentalism-Terry-Anderson/dp/0312235038/ http://www.amazon.com/Free-Market-Environmentalism-Terry-And... 2) Allow local communities to form their own rules on how to manage their own resources, and monitor each other. Governing the Commons by Elinor Ostrom (winner of the "Nobel in Economics" by her life-long work on these issues) has empirical data of cases from Kenya to LA: http://www.amazon.com/Governing-Commons-Evolution-Institutions-Collective/dp/0521405998 http://www.amazon.com/Governing-Commons-Evolution-Institutio...
• TorKlingberg 12y ago
  What form of government would be less sensitive to lobbying by commercial special interests?
  • Zigurd 12y ago
    Demarchy, with short terms of office.
    • nitrogen 12y ago
      Wouldn't the offices of the demarchy accrete long-held staff positions and/or outside consultants to compensate for the office holders' inexperience? And wouldn't those staff members and consultants be vulnerable to lobbying? Even if we went straight to direct democracy (which I like in theory, as well as I like the idea of demarchy), the special interest with the biggest advertising budget would win. I wonder, could an elected technocracy (by which I mean different governments and representatives for different spheres of influence) solve this by limiting both the tyranny of the masses and the influence of any one corrupt official? Or would whatever process controls the final budget still have enough power to corrupt the system?
  • baddox 12y ago
    The hypothetical futarchy is designed to improve this issue. http://hanson.gmu.edu/futarchy.html http://hanson.gmu.edu/futarchy.html
  • seanflyon 12y ago
    Any government in which it is more difficult to pass laws benefiting special interests.
• sharemywin 12y ago
  It would also be interesting to see a model where these agents are allowed to combine to form monopolies and cartels. To see how fast it happens.
  • randyrand 12y ago
    Milton has an interesting (and rather convincing) argument on free-market monopolies. https://www.youtube.com/watch?v=tdLBzfFGFQU https://www.youtube.com/watch?v=tdLBzfFGFQU
• randyrand 12y ago
  You bring up good points, but just so you know free-markets by definition are no longer free after legislation. I.e. economists would have a much less rosy view of the wonders of the free-market should be economists would have a much less rosy view of the wonders of NON-free-markets Or am I misunderstanding you?
  • dredmorbius 12y ago
    Given that you're misunderstanding free markets and reality, I'd say it's quite likely you're misunderstanding the post you're replying to as well, yes.
• dredmorbius 12y ago
  The view of economists (excepting the fringe laissez-faire and Libertarian / Austrian school) is and largely always has recognized the limited applicability of markets, and of the relationship between wealth and power: Adam Smith, Wealth of Nations: "Wealth, as Mr Hobbes says, is power." Later: The exclusive privileges of corporations, statutes of apprenticeship, and all those laws which restrain in particular employments, the competition to a smaller number than might otherwise go into them, have the same tendency, though in a less degree. They are a sort of enlarged monopolies, and may frequently, for ages together, and in whole classes of employments, keep up the market price of particular commodities above the natural price, and maintain both the wages of the labour and the profits of the stock employed about them somewhat above their natural rate. On bargaining power between labour and capital ("masters"): The masters, being fewer in number [than labour], can combine much more easily: and the law, besides, authorises, or at least does not prohibit, their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work, but many against combining to raise it. ... We rarely hear, it has been said, of the combinations of masters, though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and everywhere in a sort of tacit, but constant and uniform, combination, not to raise the wages of labour above their actual rate. To violate this combination is everywhere a most unpopular action, and a sort of reproach to a master among his neighbours and equals. We seldom, indeed, hear of this combination, because it is the usual, and, one may say, the natural state of things, which nobody ever hears of. Masters, too, sometimes enter into particular combinations to sink the wages of labour even below this rate. These are always conducted with the utmost silence and secrecy till the moment of execution; and when the workmen yield, as they sometimes do without resistance, though severely felt by them, they are never heard of by other people. Such combinations, however, are frequently resisted by a contrary defensive combination of the workmen, who sometimes, too, without any provocation of this kind, combine, of their own accord, to raise the price of their labour. Their usual pretences are, sometimes the high price of provisions, sometimes the great profit which their masters make by their work. But whether their combinations be offensive or defensive, they are always abundantly heard of. In order to bring the point to a speedy decision, they have always recourse to the loudest clamour, and sometimes to the most shocking violence and outrage. They are desperate, and act with the folly and extravagance of desperate men, who must either starve, or frighten their masters into an immediate compliance with their demands. The masters, upon these occasions, are just as clamorous upon the other side, and never cease to call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against the combination of servants, labourers, and journeymen. The workmen, accordingly, very seldom derive any advantage from the violence of those tumultuous combinations, which, partly from the interposition of the civil magistrate, partly from the superior steadiness of the masters, partly from the necessity which the greater part of the workmen are under of submitting for the sake of present subsistence, generally end in nothing but the punishment or ruin of the ringleaders. There are many more examples in Wealth of Nations: http://www.gutenberg.org/files/3300/3300-h/3300-h.htm http://www.gutenberg.org/files/3300/3300-h/3300-h.htm As for modern economics and markets, there's Coase (eponymous theorem on market extermalties), Olson ("Logic of Collective Action"), and Akerlof ("The Market for Lemons") and a whole slew of other market failures: http://en.wikipedia.org/wiki/Market_failure http://en.wikipedia.org/wiki/Market_failure