Tuesday, December 08, 2009

A parable 

Suppose a man has a drinking problem. He decides to repent of his evil ways and, to make the commitment more binding, tells all his friends to come to his home at some appointed time. At that time he announces "I will not drink any more at all, and to prove it I will now have Dr. Smith implant this device in my arm. If I should take a drink, this implant will assure that I get very sick for 24 hours, with no lasting effects."

The man's friends divide in two groups. One thinks it laudable that the man is using a commitment device to assume he doesn't drink any more. The other group says "this is an extreme and inflexible tool that takes decision-making power out of your hands."

You say, "but that's the point. I need the power taken out of my hands because I'm helpless to prevent myself of drinking without some enforcement mechanism."

Your friend says "but you had the ability to do this before and you didn't."

"I know. That's why I'm starting now, before the bar opens again."

For more, see Barry Weingast's 1990 review of Margaret Levi's Of Rule and Revenue. Countries that did constrain the state's revenue collection abilities fared better than those that did not, he argues. Note that the graph at top is in real 2000 dollars.

Labels: ,