Jun 01 2009

Prisoner’s Dilemma or Development’s Solution?

by at 3:52 pm under Uncategorized

As I read Douglass North’s examination of Institutions (and ambitious reinvention of classical economics) I kept thinking over the prisoner’s dilemma. North does as well throughout the book, often critically, because of its simplistic nature–specifically, the game’s one-time nature. He explains, “”If we shift from a once and for all game to a repeated game or an irerated game, the the possibility of a cooperative solution becomes more evident” (North 56). So why not create repeated “games” in development to encourage increases in efficiency?

http://gautlab.bio.uci.edu/images/prison.jpg

What if the current global institutions of development (IMF and World Bank specifically) matched developing countries up and had them fight it out for development dollars and private contracts. The citizens of the two opposing countries would see the direct effects of poor governance and aid dollars went to their neighbor and would demand better leadership. We could subvert the fallacies of the prisoner’s dilemma (the so-called “Pareto inferior solution”) by recreating its fictional components in the real world.

1. Time delay – North writes, “if there is an end of the game or people believe that the game might end, then indeed the discount rate may enter in to determining whether it is worthwhile to continue to cooperate.” Therefore, we must not set an end-date for this experiment. Competition for best governance will continue indefinitely, forcing leaders to either shape up or continue to build anger in their populace.

2. Enforcement – The problems of enforcement in the Third World are vast. Bribes can be bought so easily because of the lack of consequences from an enforcement agency (policy, courts, etc). However, bribes do not work when the enforcement agency is a multinational governing body, like the World Bank. Instead of placing money into the corrupt system and then fighting for efficiency, we will withhold money from even entering the system until benchmarks can be achieved that exceed a similar situation in the opposing country.

This idea, recreating the prisoner’s dilemma in a sort of “Survivor” style match between developing countries can, at first, seem like cruel entertainment for the Western World. I hesitated to even write about it in a blog entry. However, I came to several conclusions that allowed me to proceed. First, there will always be a greater demand than supply of aid money to the developing world. Withholding from some countries will result in more misery in the short term, but continuing the cycle of non-enforcable agreements leads to endless misery. Second, national rivalry has been the engine of innovation countless times in human history. When expressed as war, these “rivalries” have been tragic, but when violence is removed, the competition can be mutually beneficial. Perhaps the prisoner’s dilemma can free us all from corruption in development.

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