In a rare defeat, I’ve put down Daniel Klein’s Knowledge and Co-ordination, although there is obviously an interesting argument in there trying to get out. But I just couldn’t follow the argument. Still, it sent me back to Thomas Schelling’s (1978) Micromotives and Macrobehaviour, which is one of the all-time classics – its economics both rigorous and humane, with no equations and clearly written.
Opening it at random, I found this:
“A good part of social organization – what we call society – consists of institutional arrangements to overcome these divergences between perceived individual interest and some larger collective bargain. Some of it is market-oriented – ownership, contracts, damage suits, patents and copyrights, promissory notes, rental agreements, and a variety of communications and information systems. Some have to do with government – taxes to cover public services, protection of persons, a weather bureau.. one way streets, laws against littering, wrecking crews to clear away that car in the southbound lane and policemen to wave us on in the northbound lane. More selective groupings – the union, the club, the neighbourhood – can organize incentive systems or regulations to try to help people do what individually they wouldn’t but collectively they may wish to do. Our morals can substitute for markets and regulations, in sometimes getting us to do from conscience the things that in the long run we might elect to do only if assured of reciprocation.”
In one paragraph, an illustration of the rich array of approaches to solving collective action problems, and thus the wide scope of collective action problems we face. It makes the ‘leave it to the market’ versus ‘the government must do something’ kind of argument that features in so much policy debate look completely facile.
The book also has my favourite-ever example of a simple, elegant, self-enforcing policy – the traffic signal. A few people will run red lights, but mostly they do not because it is in their own interest not to drive into the line of traffic with a green light. The role of policy is to coordinate everyone on the meaning of green and red, and the implementation will on the whole look after itself. All this and much more, including the introduction of ‘tipping points’ and the dynamics of racial segregation. A brilliant book.