Saturday, September 03, 2005

Why I am not an anarcho-capitalist

Because this is utterly ridiculous:
If [the government] misestimate[s] the storm, or make bad decisions, everyone suffers. But if there were many competing private police agencies, if one went rogue, you’d still have the others to protect you. You’d have a diversity of opinions about disaster management, a diversity of strategies, you’d be able to see what worked and learn from it, you’d be able to pick the protection firm whose strategy you liked the best.
So what are the incentives for private New Orleans police forces in a catastrophic event? Certainly not to compete to see who can prevent ensuing chaos the best. They have as much revenue as they are going to get since no one in the city really has any wealth left or any income to speak of. Thus, they minimize costs. The easiest way to do that is to leave the city and default on whatever contracts they had with individuals. Sure you could sue them in some private court of law but it's unclear who would be willing to enforce that decision. I guess we could call this an example of "perfect complete* information libertarianism." The market failure here is a basic principal-agent problem, which essentially boils down to moral hazard (post-contractual asymmetries of information.) If you think that all markets have perfect complete* information all of the time then libertarianism or anarcho-capitalism is pretty attractive. But that's false.

*Well, both I suppose. I used to know the difference but I can't seem to find a good definition of either. But "complete" is the more applicable here. Though perfect information implies complete information.

UPDATE: Really, this is the second update. I did a little more poking around and discovered some definitions from Rasmusen's game theory text (which I actually don't like very much, but even Mas-Collel didn't give a good definition.)

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