This week (Infometrics link here), Matt Nolan discuss daylight savings, specifically discussing the way an economist would probably look at it – as a type of ‘co-ordination game’ where a government can help individuals co-ordinate actions.
He then goes on to discuss a prisoner’s dilemma that exists between government around global warming – implying that organisation that may help individuals co-ordinate in some place (daylight savings) may fail to co-ordinate themselves about broad action (such as global warming). Concluding he states:
Here we have concentrated on examples where government, and other institutions, can help individuals co-ordinate their actions – helping improve outcomes.
This is a great way to view, and understand, government policy. However, we always need to keep in mind that individuals are co-ordinating themselves, by making choices given the incentives they face. Prices, which are determined by the relative supply and demand of products, offer the main device for co-ordination in our society.
To understand the role of government, we need to think about how the use of prices, and co-ordination move generally, may fail – and in what ways government can sensibly recognise this and lend a hand.
The hard thing with global warming is that individual governments do not have an incentive to solve this problem, which was the original justification for the Kyoto Protocol. With that failing there is a genuinely concerning policy issue here, which the global community does not appear to be able or willing to face.