ZenPolitics

Sometimes you just get too caught up in other things to keep up on a good thing, so it is with a heavy heart that I have missed most of Cato Unbound’s August discussion on Anarchy. Now, to follow up with a blog post, I am responding to content that is ancient by web standards . . . six days.

I want to revisit the exchange being had by Peter Leeson and Dani Rodrik regarding the scale-up of self-enforcing agreements. The contention seems to be that an anarchic system relies on self-enforcing agreements, and that as you scale up such economies, self-enforcing agreements break down. Therefore, self-enforcing agreements (and efficient systems of anarchy in general) only operate effectively in a small scale that may be geographically limited or involve a specific group or community where individuals know one another. Specifically, one of the problems cited is signaling–essentially in a small or closed group it is possible to communicate to the others who is trustworthy and who is not, thus creating disincentive for people to try to circumvent the rules of fair trade and dealing. How can that work on a large scale?

This may be simplistic, but I am learning more and more to trust technologies within markets. Ebay’s user group is fairly large, and is not very contained geographically, yet Ebay seems to have instituted a private system of signaling that has scaled very nicely. It does not, and does not seek to, eliminate bad deals altogether, but by enabling an easy-to-use user ratings system, those that do not abide by the rules of fair trade and dealing are identified, and thus lose out on any portion of their market that choses not to engage in the more risky behavior of conducting transactions with a user having a less-than-optimal reputation. In Ebay’s system, the beauty of the scale-up is that a user who systematically engages in dishonest behavior is actually more visible, not less. Is it possible to game the system? Possibly, but Ebay has a major incentive to monitor the efficiency of the system itself and add technologies that continue to empower users to utilize the market to maximum effectiveness.

I’m not sure exactly what I am missing regarding signaling and scale-up, but wanted to throw out this example and see if I could get some feedback, perhaps from Leeson or Rodrik. If I am Leeson, I think there are ample examples with one one can defend oneself regarding scale-up and technology, even if one cannot figure out definitively how it would be accomplished (a definitive solution which would, even in our current regulated state, make one very rich indeed).

Overall, even when thinking about a Randian system, courts exist to help enforce private agreements, and I’m not 100% convinced in today’s world or modern warfare that a large territory such as The United States could effective defend itself without a government-run standing army (despite evidence that we utilize mercenary groups in Iraq and the Middle East). But this has been a fascinating topic to follow.