Coordination
The prisoner's dilemma indicates that if people act on
the basis of self-interest and there are no restrictions on
their behavior, the results will not be in the interests of
the group. The welfare of the group requires that some way
be found to coordinate behavior and eliminate the conflicts
involved in prisoner-dilemma situations. Large groups have
found two basic solutions, and both rely on changing
incentives, not goals.
One way involves establishing private-property rights and
allowing markets to develop. Ownership encourages
decision-makers to consider all the costs and benefits of
their decision. The overgrazing
problem in the discussion of the commons can illustrate
this solution. If each of the herders has to confine his
cows to his own plot of land, he will not be able to shift
the costs of his overgrazing to others. As a result, he has
an incentive to limit the size of his herd and the problem
disappears.
The second and more direct way is to have a strong
central authority that regulates people's behavior and
punishes deviations. Hunting regulations illustrate this
method. Wild ducks are owned by no one. As a result, the
problem of the commons should apply, and ducks should be
hunted to extinction. They are not because governments set
limits on when and where ducks may be hunted, and on how
many ducks each hunter may kill. To the individual hunter
these restrictions may seem as irritating limitations on his
freedom, but without them, hunters as a group would be much
worse off.
The use of central authority as a way of coordinating
behavior is widespread. It is the method that allows large
business firms to exist. The boss coordinates his
subordinates, directing them to actions that are in the
interest of the all those who make up the firm. This
solution was used in a more extreme form in the socialist
economies of Eastern Europe and Asia. These economies were
designed as if they were one giant firm. The bulk of
economic decisions, such as what to produce and how to
produce it, was made by government bureaucracies.
Which method, the market or central direction, is better?
Evidence suggests that sometimes the first is and sometimes
the second is. There are costs to using either method and,
as a result, no country totally relies on either. One of the
important political changes of the 1980s was the
acknowledgment by the leadership of the Soviet Union and of
China that their reliance on central coordination and their
suppression of market forces had been excessive. From
these experiences has
come a new respect for the capabilities of market
coordination.
Copyright
Robert Schenk
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