Tax policy colloquium, week 4: John Roemer's "A theory of cooperation in games with an application to market socialism"

Yesterday we were pleased to have John Roemer as our speaker, discussing this paper and his related forthcoming book: How We Cooperate: A Theory of Kantian Optimization. The basic thesis is intellectually important, and likely to get some attention from economists, as well as from philosophers who are willing to look over the walls of their silo, so I will discuss it in general terms here, before turning to the tax aspect that caused it to be a good fit for us in the Tax Policy Colloquium (where, of course, each week can be totally different from the ones before and after).

Prisoner's dilemmas are pervasive in public policy. One gets them whenever there are positive or negative externalities that no institutions (be they Coasean markets or Pigovian taxes and subsidies) adequately address.

Pollution and over-fishing are among the classic examples. E.g., if I want to drive my car a lot, run the heat and AC to the max, etc, but everyone's doing this causes catastrophic global warming, then, from a selfish standpoint, the best thing would be if everyone BUT me curtailed their activities suitably. But, given my individually trivial contribution to the overall problem, I'm best off defecting whether or not everyone else is cooperating, absent sanctions or other ways of internalizing to me the marginal cost of my causing carbon release.

With selfish players, a one-shot prisoner's dilemma has a simple Nash answer: everyone defects, so everyone loses relative to the case where everyone cooperated. While there may be real world mitigating solutions, such as repeat play with sanctions from the other players, wouldn't it be nice if people were willing to cooperate voluntarily, despite the selfish unilateral incentive to defect?

John answers: Not only would it be nice, but we do in fact frequently cooperate! So the Nashian view of people as always selfishly pursuing just their own welfare is inaccurate. Indeed, evolution has yielded in us a species that is unusually, and among the great apes uniquely, inclined towards cooperating with each other under suitable conditions (such as where we feel solidarity and trust towards fellow group members).

While sanctions for defection may plan an important role in preserving cooperative non-Nash equilbria, they're not the only reason we cooperate. Nor is altruism the main reason, as it tends to be limited to a much smaller core group (such as immediate family) than the set of people with whom one is willing to cooperate.

John also finds it largely unhelpful to posit exotic preferences, such as a "warm glow" achieved subjectively by cooperating, as the explanation for the behavior. It seems to him both too hand-tailored (like Ptolemaic epicycles to reconcile celestial movements to data) and backwards, in the sense that I don't cooperate to get a warm glow, even if I in fact get one from cooperating. I cooperate because I believe it's right to do so.

While I see his point here, I think the "warm glow" framing is intellectually helpful for a particular reason. Even if I cooperate because I think it's right to do so, and that this differs from eating chocolate because I think it tastes good, real-world cooperators are likely to be trading off their desire to cooperate against other things they care about. Suppose I recycle because I think it's right to do so, not because the city might find out and fine me if I don't. I still would likely start recycling a lot less if, say, it took several hours a week.

John says that those who cooperate, rather than defect, in prisoner's dilemmas are generally being Kantians, as I'll discuss shortly. But while the paper we discussed yesterday doesn't discuss Kantianism that's limited by one's trading it off against selfish preferences, it does discuss conditional Kantians - that is, those whose willingness to beuave cooperatively depends on how prevalent they believe cooperative behavior is in the relevant population. (See Figure 1, at page 33 of the paper, for a visual depiction of an equilibrium at which the % actually cooperating equals the % that are willing to cooperate at that level of cooperation.)

I gather that philosophers have questioned this set-up, saying you aren't actually a Kantian if you're being conditional about it. While this is true as a matter of definition, once one has defined Kantians as they choose to, it is intellectually unhelpful, and would appear to be an instance of narrow-minded and retrograde siloing (an inclination that I've encountered from other disciplines, in my project on literature and high-end inequality).

Returning to prisoner's dilemmas, a Kantian who faces one may ask: What is the decision that would be best if ALL of us made it? With the classic PD structure, the answer (of course) is Cooperate, don't defect. So the Kantian does what would be best if all did it, simply because this is the right thing to do, and not based on any actual presumed effect of one's own decision on what others will decide. So the Kantian (for example) recycles - and, I would think, also considers following a code with respect to carbon emissions that, if universalized, would properly curtail global warming and other adverse climate change.

But how does one identify the proper Kantian course of action? In a simple prisoner's dilemma set-up, it's obvious, since there are just two choices, Cooperate and Defect. Maybe one should think of recycling that way. As to global carbon abatement, it's not as clear, not to mention that the motivation to cooperate (even assuming one can determine how) will be weaker if one is among John's conditional Kantians.

John notes that many people do in fact recycle, beyond the point that sanctions and conventional incentives would seem to be inducing. There may also be a bit of Kantian behavior around carbon abatement. For example, while I am sure I do not do nearly enough in that regard, or as much as I would do if I were responding via standard incentives to a global carbon tax that had been set at an appropriate level, it is something I have in mind, and that induces me to disfavor what I feel is overly wasteful behavior. So yes, I am, upon a reflection, somewhat of a Kantian, albeit a conditional one both in John's sense of being influenced by what I think others are doing, and my sense of trading off my preference for doing what is right in the Kantian sense against more selfish considerations.

In calling my own behavior Kantian, however imperfectly so, I am agreeing with John about the underlying psychology. Whether or not the categorical imperative is exactly the right formulation, the underlying sentiment of fairness does appear to me (from self-reflection) to have something to do with symmetry and consistency between what people do for themselves and expect from others. And in my case, but I suspect for many other people as well, a lot of it is driven by notions of reciprocity. I neither want to be a sucker, who cooperates when everyone else is defecting, nor a jerk, who defects when everyone else is cooperating. This gives psychological appeal to conditional Kantianism. And it's not just me, if tit-for-tat sentiments, embracing both the good and the bad, are more generally intuitive.

But what does all this have to do with tax? I'll address that in a separate post.