On free ridership, and the State as superhero

Who needs a coercive state? People who are concerned about externalities and free riders, that's who! I create externalities when I make decisions and you have to bear the consequences. I become a free rider when you expend resources to create a benefit and I derive the benefit without contributing.

Both phenomena arise from the fact that the ideal of “private property” often fails to adequately describe our world: we affect each other more than we might like to admit. This market failure demonstrates the absurdity of thinking that people can live together without coercion.

Or does it? Still working on the externality issue. But evidence suggests that free ridership is not the deal-breaker I had thought. Pretty much all institutions operate in the face of them. I can’t really recall any endeavor in which I would honestly say that all participants received benefits in proportion to the burdens they bore.

Lo and behold, a new study focuses on the financing mechanisms of two forms of voluntary association: synagogues and churches. Synagogues typically charge an annual membership fee; churches typically request voluntary donations. As you might expect, there’s a larger disparity in levels of giving in churches than in synagogues. But as you might not expect, all else being equal, these two systems generate roughly equal amounts of revenue. In other words, begging is a perfectly viable business model, notwithstanding the fact that plenty of people will decline to contribute.
_________

Honestly, I’m having a problem accepting this. Free riders PISS ME OFF. They offend my sense of justice. I want to believe that we need a state to coerce these people into paying their fair share because I WANT TO COERCE THESE PEOPLE INTO PAYING THEIR FAIR SHARE. It’s not about the outcomes; it’s about the fairness.

I'm gradually coming to the view that I just need to get over it. But it’s hard. And that’s given me a new insight.

If I place less reliance of the coercive power of the state, I will experience injustice without hope of remedy. If I place greater reliance on the coercive power of the state, I will still experience injustice. I may even experience greater injustice. But at least I am able to cling to the abstract notion that there exists a coercive power in the universe – God, Superman, the state – that could and might remedy injustice.

And perhaps it is this hope – even if delusional – that dooms libertarianism. In this sense libertarianism becomes akin to atheism and existentialism: Embracing this view requires letting go of some comforting delusions. It’s a pretty bitter pill to swallow. I appreciate anew how difficult it may be to persuade any large number of people to swallow it.

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Free Rider

Are you upset that you are the beneficiary of Isaac Newton's contributions to mathematical physics, and yet you gave him nothing?

If I make my front yard beautiful, and you enjoy looking at it, do you feel that you owe me money or some other compensation?

For myself, I decide what it would be worth to me to (for example) have a boundary fence. I'll ask my adjoining neighbor what it is worth for her to have a boundary fence. If the sum of the two is sufficient to build it, I will go ahead with the project, even if my contribution is larger than the neighbor's. There could be some posturing during negotiations, of course, but ultimately I know how badly I want the fence and fully accept that she may value it differently.

On Newton, self-interest, and charity

Are you upset that you are the beneficiary of Isaac Newton's contributions to mathematical physics, and yet you gave him nothing?

Not so much, because I make it a point to compensate his estate by eating Fig Newtons whenever I get the chance. 

The problem with free riders is that they leave the world in a sub-optimal state because projects that are worth their cost may nevertheless go unperformed because there is no means to finance them. The “private property” model assumes that people can finance worthy projects by withholding their benefits from people who are unwilling to pay. If the financers of a project cannot withhold the project’s benefits from non-payer, then we can expect that fewer of these projects get financed. The world is poorer as a result.

Beware the fallacy of the Inevitability of the Actual. “How bad could free ridership be? It didn’t stop people from discovering penicillin [or whatever].” Perhaps not. But how much sooner would penicillin have been discovered if the discoverers had greater confidence of being able to capture all the benefits of their invention? How many more discoveries would we have had today?

(People tend to react more viscerally to the problem of externalities. “How dare you dump your trash on my lawn?” They feel that they’re entitled to something, and someone else is depriving them of it. Free ridership imposes a rather similar cost, but because we can’t see the consequences of all the opportunities that DON’T arise due to a breakdown of principles of private property, people don’t have the same reaction. It’s a “dog that didn’t bark” problem.)

In Newton’s case, a mechanism was created to partially rectify the problem of free ridership: The coercive power of the state taxed people to finance the University of Cambridge where Newton was employed. To the greatest extent possible, the society that would benefit from his contributions also paid for them.

However, there was another mechanism at play as well. A private citizen, recognizing the free rider problem, agreed to act charitably and endow a position at Cambridge to finance people who would produce works for the public good rather than the private good. Newton received the benefits of that endowment.

So we return to the initial quandary: Classical economic theory suggests that the free rider problem will inevitably result in a sub-optimal world. Classical economic theory suggests that we’re better off when we place reliance on the theory of private property.

Yet classical economic theory typically assumes that private property rights are enforced costlessly. The effort to capture benefits from free riders may outweigh the benefit of the policy.

And, more importantly for purposes of the current discussion, classical economic theory fails to account for the social benefits of charity. And this is the conceptual challenge: Can we trust that the benefits of people’s charitable impulses – endowing a chair for Isaac Newton, giving to a church, even beautifying a lawn – will offset the detrimental effects of free ridership?

And, to put it delicately, to what extent do people who advocate libertarianism model this kind of charity? When I think of the arch-typical libertarian, I tend to think of the hermit in a cave. Perhaps the better model is the Southern Baptist – a guy who tends to vote for a smaller governmental safety net, yet then spends personal resources maintaining a network of interpersonal ties that form a private safety net, knowing that he’s just as likely as the next guy to need it.

Your moral outrage and your

Your moral outrage and your economic arguments are two different things. Moral reactions do not always coincide with economic efficiency.

Answering your moral outrage - it's also usually immoral to force someone to pay for something they didn't agree to pay for. Exceptions include if they damage your property etc., but do not include if they benefit from the pleasure of viewing your property, benefit from the increase in property value from having a neighbor like you, etc. It is possible to create exceptions through homeowner associations, but these involve pre-existing agreements. You don't get to unilaterally manufacture new agreements out of the blue that say that your neighbors must compensate you for improving their property value.

That takes care of moral outrage.

On the question of efficiency - you simply have to look at all the costs and benefits of the realistic solutions to the problem of free riders. Sure, in theory the state can make free riders pay. But at what cost! The massive taxes that we pay - money which is largely just wasted or even used to make your life even more miserable, e.g. by funding liberty-reducing and economy-destroying state mischief - is just the tip of the iceberg of the cost of the state. We must consider the pointless destruction of the economy itself by means such as regulation, destruction which does is pure waste, not even benefiting the state as a tax would. We must also consider the periodic wars, which are easy to forget in times of peace. Sure, the state has done a fantastic PR job of making everyone afraid of statelessness, but I for one am not taking the state's word that the state is necessary to keep chaos and destruction at bay, especially considering the sheer horror and magnitude of the state's own violence. Do you really think that the economic benefit of making free riders pay is worth all that cost?

The damage done by the state is incalculable, but it is not unreasonable to think that the state reduces total wealth by at the very least 3/4 through a combination of taxation and other mischief, and over time, by impeding progress, the state reduces wealth compared to what it would have been by much more - maybe 9/10, maybe 19/20.

Do you think this is unrealistic? Just consider how much wealthier we are than we were 200 years ago. We are vastly wealthier, by orders of magnitude. So the pure possible ratio of a change in wealth is actually quite significant. It is not unimaginable to suppose that in a few more hundred years the average person will be hundreds or thousands of times wealthier than he is today. But now consider the following possibility: that but for the destructive state, we would be living in the technological 25th century today. If true - and I see no terribly good reason to doubt it - then the state is responsible for reducing our wealth - compared to what it would have been - by a factor of potentially thousands. The average American earns, say, tens of thousands a year. What will that be in 500 years? What could it have been today? Millions, potentially more. Gone. And why? So you can have the pleasure of capturing pennies from free riders.

Check me here

Would this be a fair summary of what you’ve said (and left unsaid)?

I believe in property/autonomy. I expect to compensate others when I intrude upon their property/autonomy harmfully, but I don’t expect to be compensated when I intrude upon their property/autonomy beneficially. Expectations are what matters, not symmetry.

I don’t dispute the idea that free riders may undermine the opportunity for mutually-beneficial transactions. I believe as a factual matter that the cost of trying to control this matter would (and does) exceed its benefit.

I remain persuaded that free riders are not free (relative to a world of perfect property rights), and therefore it remains conceptually possible that the benefits of controlling free riders would be worth the cost.

In practice, I’m warming to the idea that it doesn’t.

Close enough.

Close enough.

Evidence of the benefits/costs of a state

I sense this is a bit off the main topic. Nevertheless --

To be sure, if states regularly make people poorer, I would expect those effects to compound over time. If states regularly make people richer, I'd expect to see that effect compound over time, too.

Some people live far from the control of central authorities – those who live in the arctic, in deserts, in mountains, and on the seas, for example. Do they demonstrate anything about the relative merits of living with or without a state?

Have we observed the acceleration of mechanisms of state control? Has this acceleration coincided with the decline of per-captial wealth or the growth of per-capital wealth?

Correlation is not causation, but it's what we've got so far.

Examples

We have at least two examples--Germany and Korea--where countries have been divided in half. One half is subjected to greater central control while the other half is subjected to lesser central control. More freedom equals more prosperity.

Some people live far from the

Some people live far from the control of central authorities – those who live in the arctic, in deserts, in mountains, and on the seas, for example. Do they demonstrate anything about the relative merits of living with or without a state?

High population density is hugely advantageous in sustaining an economy and driving progress. People living far from other people are depriving themselves of that advantage. I oppose population control measures for moral reasons but also because I believe that I am better off with more people in the world. Resource depletion? People are the ultimate resource. I don't think a state, especially an intrusive state, is a necessary companion of high population density, though admittedly the damn state so far seems to get around.

Correlation is not causation, but it's what we've got so far.

I think we have a pretty good causal understanding of e.g. the economic advantages of a free market where the government gets out of the way. The correlations you cite are plagued with major confounding factors.

And perhaps it is this hope –

And perhaps it is this hope – even if delusional – that dooms libertarianism.

Frankly, I don't think that we will arrive at a libertarian society by majority agreement. I think that individuals will develop better tools for protecting themselves against crimes such as government extortion and counterfeit. Then statists will have the increasingly difficult task of maintaining their social structure based on delusions.

it is a problem of scale.

I don't think there could be a libertarian society much larger than a large Church congregation. Protestant churches might be as close as one can come to a Libertarian society. There are all kinds of them, each one has slightly different rules, and there is easy to pull out of one and try another or whatever.

If the first American Revolution had not been overthrown by the Philly Convention the US would be a confederacy of 50 sovereign nations - a great libertarian experiment!

This is Why Objectivism is a Dead End

A libertarian society requires quite a bit of volunteerism in the face of free riders. As a corollary, spreading the Gospel of Ayn Rand is thus anti-libertarian. A libertarian society in which everyone acts in his rational self-interest would break down overnight.

Then again, governments run by self-interested players also breaks down, as anyone who has had to deal with Third World bureaucrats experiences. Objectivism just stinks generally. The good life requires a bit of altruism.

But we as individuals can choose as individuals where to be altruistic in some systems. For example, welfare benefits can be paid by whoever. On the other hand, mowing your yard, abstaining from theft, etc. are less fungible duties.

Thought Experiment

Propose a solution to the "Free Rider Problem" that does not involve using force against people innocent of any crime.

Kinda begs the question....

If I put on a performance of Cats, using all the words, songs, title and logo without paying anyone for them, I may be accused of theft and subject to sanction (probably civil, not criminal).

But if I recruit the original cast of Cats, make identical costumes, use identical makeup, ask them to perform the original choreography, and design my set in the original fashion, I won't be accused of theft on this account. Why? The state chooses to treat some creative acts as property and not others.

So, to a large extent, the concept of when a person is "innocent of any crime" kinda begs the question.

Thats a long way to walk just

Thats a long way to walk just to avoid the thought experiment laid out by Mark and a poor attempt at redirecting the discussion.

His question was simple. How would YOU solve the problem, if you did not have any coercive power?

Appologies

Didn't mean to duck the question, but I suspect the question was not directed at me. I'm not wed to the idea of avoiding coercion.

In short, I don't know of a mechanism for controlling this problem without resort to coercion. But, as I indicated above, that's just another way of saying that I don't know how to defend property/autonomy rights without resort to coercion.

It was your question.

It was your question. As far as I can figure it, only people who have no qualms about using force against innocents are willing to demand that "Free Riders" support their opinion of what is of value.

Fair enough

Again, sorry if I've been unclear. The very first line of the original post states,

Who needs a coercive state? People who are concerned about externalities and free riders, that's who!

That said, do you believe in using coercion in defense of autonomy/property rights? If so, who gets to decide what is or is not an autonomy/property right? Whoever gets to make that decision gets to decide who is or is not "innocent," and gets to wield force in support of his own opinion.

I have a grudging respect for people who strive to refrain from the use of coercion under any and all circumstances. I tend to regard the rest of us as living on the same slippery slope.

Who decides in a society of peers?

do you believe in using coercion in defense of autonomy/property rights? If so, who gets to decide what is or is not an autonomy/property right? Whoever gets to make that decision gets to decide who is or is not "innocent," and gets to wield force in support of his own opinion.

I believe in using force in defense of life, liberty ("autonomy"), and property. Coercion often has connotations of initiating force; I think it is only legitimate to retaliate with force sufficient to stop a criminal attack or to exact compensation for a criminal attack.

Ultimately, I get to decide what is my right and what I am willing to spend to defend it. I think this is a law of nature--each individual has the power to choose and to act independently.

Lest you think this makes me a loose cannon, let me assure you that I believe it is much, much cheaper for me to communicate with others and identify that which I believe to be my rights, then it is to act with force. If I do use force, I could err, or I could provoke someone much more powerful than I am, which could have grave consequences for me. I only use force if I think I can deal with the consequences, including convincing others that they can trust me not to use force arbitrarily against them--what you would call "demonstrating my innocence". I believe I am more likely to achieve my goals in life by producing for myself or for others (in trade or as gifts) than it is to try and steal that which others have produced.

I treat the Non-Aggression Principle not as a law of nature, but as a prescription for peaceful society. I choose to live by it so that I can cooperate with others while securing the resources I need to survive.

I treat the Non-Aggression

I treat the Non-Aggression Principle not as a law of nature, but as a prescription for peaceful society. I choose to live by it so that I can cooperate with others while securing the resources I need to survive.

Indeed. Although it may have its roots in the biological prerogative that informs us that killing our own species is inherently wrong, it is a mantle that is lifted to ones shoulder by choice.

I treat the Non-Aggression

I treat the Non-Aggression Principle not as a law of nature, but as a prescription for peaceful society. I choose to live by it so that I can cooperate with others while securing the resources I need to survive.

Indeed. Although it may have its roots in the biological prerogative that informs us that killing our own species is inherently wrong, it is a mantle that is lifted to ones shoulder by choice.

When you put down the pop-gun

When you put down the pop-gun we can start talking about solutions.

You are somebody.

Yes.

Free Ridership is not usually bad.

Amusingly enough, a great many private behaviors are made explicitly for the benefit of free riders. Private art museums are often made this way... a wealthy patron wishes to show his collections to the world, so he subsidizes the museum. Voila market free-ridership, but its hard to argue that his charity is a bad thing. The open source foundation is another example of "good" free ridership. They encourage free riders, because they wish to have users for their software.

Let us look at a more classical example, free ridership in the lighthouse market. The people making the lighthouses before the state took over that enterprise, did it precisely to save lives, of those who were free riding. They valued the lives of the sailors, and the commerce they brought, so they built the lighthouses. Free ridership in these free market examples don't seem bad at all.

However, when we are forced to pay against our will AND there are free riders... Then it feels unfair; then it makes us unhappy. So, the problem isn't free ridership, but is the nature of the collective action problem. If we see it as us doing something for someone else, we see the free ridership as the entire point. If we see it as them not doing something for us that we feel we deserve or that we are forced to do ourselves, then free ridership feels unfair.

From the above, it seems that the state actually worsens the real "problem" behind free ridership.

I think this misses the point.

What is the problem with free ridership? Consider three scenarios.

1. The philanthropist sets up a lighthouse at her own expense. Presumably she does so precisely because she wants people to use it. The utility she derives from the expected good the lighthouse will do is sufficient compensation to her. Free rider problem: none.

2. People in a seaport are concerned about the loss of life and commerce resulting from shipwrecks. They determine that if they put up a lighthouse, they could tax the ships that dock at their harbor and recover the cost of the lighthouse. Sure, a few ships will use the lighthouse for navigation yet dock at the harbor next door, thereby deriving benefit yet evading bearing any of the cost of providing the benefit. But the number of vessels that will pay the tax will be sufficient to make the lighthouse deal work. Free rider problem: manageable.

3. Same scenario as Scenario 2, but in this case the seaport concludes that the size of the neighboring ports are sufficiently large, making the substitute opportunities sufficiently attractive, that any tax would simply drive vessels away to the neighboring ports. Thus, even though every party would prefer to live in a world wherein there is a lighthouse and a tax rather than a world in which there is no lighthouse and no tax, nevertheless there is no mechanism by which to achieve the desired state. Thus, no lighthouse is built. Ships continue to sink; commerce continues to be impeded. On the up side, no one feels that free riders are taking advantage of them! Yet this is precisely the scenario that illustrates how free riders sabotage us all -- including themselves.

When I catch someone trying to steal from me, I feel pissed off. I guess you could say that this is an irrational feeling; after all, what harm have I ever suffered from someone merely trying to steal from me but getting caught? Of course, I’m not pissed off over that scenario. I’m pissed off over the fact that some people try to steal from me and succeed; the person I catch is merely emblematic of the person I don’t catch. Similarly, I feel pissed off when I observe Scenario 2 above – not because Scenario 2 is so terrible, but because it’s emblematic of Scenario 3, a situation that is hard to observe, yet truly costly.

Epistemology Again

Your scenarios need to take into account that which is not seen. It is flawed to consider the outcome of a world with lighthouses as compared to one without, unless you also consider what would have been created with the stone, wood, lamps, architectural or artisan skills, and private savings had the holders of these resources not been either forced or subsidized with extorted funds to undertake a project which they would not have chosen to do absent force. In the moment in which they were rooted they decided their best course of action, and they were not convinced that building a lighthouse was their optimal choice. Now, you are looking back at the results of what we know to be their sub-optimal actions and comparing this to a world where those resources simply didn't exist.

Please consider how to make your argument that the world is better for the use of coercion without comparing it to imagined counterfactuals. If comparing the actual world to counterfactuals is allowed, anyone can imagine alternative situations that trump yours. Instead, I believe it is more epistemologically honest to examine the time when the decision is made--realizing that the future must be unknown--and allow the actors to choose their favorite course without being threatened into accepting a less-favored alternative.

Missing a different point

I don't know how to conduct of discussion of policy without "imagined counterfactuals" -- that is, considerations of what might happen if we do things differently. If you're concerned about imaginary counterfactuals, ask Constant_ to identify an actual nation that strikes him as more agreeable than the oppressive US of A.

That said, I don't even see how this criticism applies to this discussion. Until I read Constant_'s post, I really haven't understood this discussion of lighthouses to be factual at all. Rather, I've understood the lighthouse references as a stand-in for the idea of public goods in general.

To summarize: Under many standard assumptions we can expect voluntary transactions to achieve an optimal allocation of goods and services. But these assumptions include the idea that each person exercises monopoly control over his property and can enforce prohibitions on trespass -- that is, the power to exclude those who fail to acquire permission from the owner from benefitting from using the property. Because the owner of a "public good" cannot exclude people from using the property without his consent, he lacks an incentive to create or maintain the public good; we experience "market failure."

One way to cope with this problem is to provide the public good, but then to tax the people who are likely to benefit from the public good. Yes, taxation might result in a sub-optimal allocation.
("[C]onsider what would have been created with the stone, wood, lamps, architectural or artisan skills...."). But lack of taxation might result in sub-optimal allocation as well. So the argument is indeterminite. The main point is to promote humility on the part of anyone who would claim that one outcome must be better than the other.

Sorry, I was too long-winded

Please define "optimal".

Optimal

For purposes of this discussion, optimal means that if all parties would prefer a world with a lighthouse, even if it results in an increase of taxes/docking fees of $X, then a lighthouse gets built and maintained, and taxes/docking fees increase by no more than $X.

Suboptimal means that no lighthouse is built and maintained, or that lighthouse construction and maintenance causes taxes/docking fees increase by more than $X.

Then, if I understand

Then, if I understand correctly, when at least one party is coerced into funding a lighthouse--and thus demonstrably does not prefer it--building a lighthouse is not an optimal solution.

But then, I'm confused because you say that it is suboptimal if no lighthouse is built.

And who chooses $X? Is it known before the project is undertaken, or made up after the fact?

It sounds like he means

It sounds like he means Pareto optimal. Not a very useful criterion, because hardly anything can be compared by that criterion - as you have pointed out in this case.

An alternative is kaldor hicks, which is like utilitarianism with the important difference that interpersonal utility comparisons are replaced by hypothetical cash transfers. I find it appealing, though I don't make a religion of it.

Kaldor-Hicks

Okay, will try to learn something about Kaldor-Hicks in anticipation. I expect it will still have the problems of

  1. some people have a higher station in society and get to decide what others should be satisfied with, and
  2. the ruling class of people get to imagine what sort of future they want and declare that it is preferable to alternate worlds that might have transpired if they didn't get their way (and aren't we lucky to have them whip us into shape?).

But let me read before I get ahead of myself...

Unpacking a little

Oh, now I see, Constant. You think nobody.really's phrase "all parties would prefer" is some sort of aggregation function that has all the meat of interpersonal utility hidden inside. My function was the simplest degenerate case (and I think the only one compatible with individualism) of "TRUE if all agree voluntarily, FALSE if any disagree".

Oh no no no, I wasn't

Oh no no no, I wasn't offering Kaldor Hicks as an interpretaion of nobody.really, I was offering Pareto as an interpretation. I was offering Kaldor Hicks as an alternative - though, as I said, not one that make a religion of.

Pareto optimality really does have something like the each-individual-has-absolute-veto-power aspect that you describe (false if a single person disagrees; in the case of Pareto, it is false if a single person prefers the alternative).

The problem with Pareto is that most pairs of alternatives are incomparable by Pareto optimality. If you have two alternatives which are seriously being considered, almost always at least one person will prefer the second alternative to the first, and at least one person will prefer the first to the second, so neither alternative is more Pareto optimal than the other. So Pareto comparisons are almost always useless, I think.

This works both ways. If we start with a totalitarian society and consider a libertarian society, at least one person is going to be seriously put out by the move, namely, the dictator. So, if we put the question to the North Koreans, "would you like to shed your totalitarian system and replace it with a free market system", then the dictator will disagree, and as you say, "FALSE if any disagree" - which is too bad for liberty.

In the end I don't like any of the known criteria of efficiency. I don't accept the verdict "FALSE if the dictator objects", because, f*ck him.

I skipped a few steps

I didn't think that you suggested he was using Kaldor-Hicks. After reading the wiki articles on Kaldor-Hicks and Pareto, I realized that he meant something different by "all parties prefer". I had a mental image of merchants, land-holders, bankers, and artisans meeting in groups or singly and shaking hands on separate transactions to achieve their goals. If a carpenter's wife was ill, he might be desperate for money and underbid his competitors in an attempt to gain steady work. I think someone who is thinking of Pareto or Kaldor-Hicks optimization has a mental image where everybody is represented by a fixed curve. Every node of the model is willing to pay one coin for one loaf of bread each morning, or two coins for five loaves. Throw it all in an algorithm, minimize loss, and there's your answer. What people will "agree" to can be determined in advance.

Of course, even my image is a model inside my head. It represents an environment where each actor respects the property rights of the other. I do this to isolate it as a thought experiment in contrast to a more realistic model including intimidation, deceit, and error. My humble exercise is to show that a world of individuals of equal station is possible, and to let others decide whether this would be preferable to a world divided into rulers and ruled. F*ck the dictator.

Optimality and coercion

Then, if I understand correctly, when at least one party is coerced into funding a lighthouse--and thus demonstrably does not prefer it--building a lighthouse is not an optimal solution.

That’s a point of view. I’d prefer not to pay taxes. I guess you could conclude that I prefer to live in a world with no police, streets, national defense, public health, etc. I’d also prefer not to pay a mortgage or a grocery bill. I guess you could conclude that I prefer to live in a world without shelter or food. You’d be wrong, if that matters. But knock yourself out.

I sense that the idea of public goods really conflicts badly with your world view. This is the nature of public goods: You can consume them without paying for them. Thus, the fact that people choose not to pay for a public good is not a very good measure of their value of the public good.

Again, here’s the scenario: Everyone knows that once a lighthouse is built, everyone will be able to enjoy its benefits whether or not they pay for it. Moreover, everyone who pays knows that she will be placed at a competitive disadvantage to everyone who does not pay, even though the people who do not pay will derive the same benefit as the people who do pay. Finally, everyone knows that either 1) the ocean is too vast to identify all potential beneficiaries of the lighthouse and enter into a contractual arrangement, or 2) the transaction burdens of doing so are too great.

Forget Kaldor-Hicks optimality; we can go pure Parato optimal here. Assume 100% of the people in the world want to see the lighthouse built. And 100% of the people in the world know that they cannot trust the other 99.9999% of the people in the world to pay their fair share – absent some enforcement mechanism. As a captain, I WANT there to be a lighthouse, and I WANT there to be an unavoidable tax – not to coerce MY participation, but to ensure that my competitors don’t gain an unfair advantage over me. This is the same motivation that prompts people to enter into contracts: people are willing to be coerced if, in exchange, they get the assurance of binding the OTHER parties to the contract.

Yes, contracts are pleasant because all the relevant parties get to give their assent first. That’s a nice safeguard against coercion that exceeds its benefit. But with a contract, people generally don’t get the benefits unless they sign the deal. That’s not true of public goods. So the assumptions you make about contracts simply do not apply to public goods.

In short, taxation can reflect an effort to emulate, as closely as the world of public goods allows, a contractual arrangement. Sure, taxation will reflect this arrangement imperfectly. But so will a lack of taxation.

I humbly suggest that it’s time to retire the idea that “coercion = suboptimal.” Yes, coercive practices warrant scrutiny, require judgment. But mantras really can’t substitute for judgment forever.

Agreed

Agreed, we're not really bridging the gap here. Somehow, you can make the jump past problems of interpersonal utility comparisons without recognizing the inherent problem of one person substituting his judgment for another person's.

If ten people want a lighthouse, they should put deposits in an escrow account. Perhaps they should also find someone willing to wager some completion insurance. Once the lighthouse is built, who cares if another twenty people benefit from it? It doesn't diminish the value the original parties received from their investment. Do I owe money to cute puppies and pretty girls that I see?

The only people who make business plans contingent on finding people to force into accepting the arrangement after the fact are gangsters. They can come up with as shoddy a plan as they can get away with as long as they have the muscle to intimidate their "customers".

Maybe one of us can think of a better way to explain our position to the other over time...

Who cares...?

Once the lighthouse is built, who cares if another twenty people benefit from it? It doesn't diminish the value the original parties received from their investment.

Two shipping companies are issuing stock. They ship identical routes with identical cargo for identical revenues. But one company pays smaller dividends because it operates at higher cost – specifically, it pays lighthouse fees. Which company do you invest in?

THAT’s who cares.

There are voluntary schemes

There are voluntary schemes to accomplish this.

Decide what everyone's fair share of the cost of the lighthouse is. (Good luck with that.) Then set up a fund which pays for the lighthouse only when everyone puts in their share, otherwise the money is refunded. There is no possibility of free riding. If you are right that everyone benefits, then why wouldn't they contribute voluntarily?

Why wouldn't they contribute voluntarily?

Answer the Who Cares...? question above.

THAT's why they wouldn't contribute voluntarily.

Re-reading the entire conversation,

Re-reading the entire conversation, I think I have really just agreed with the bulk of your original post: a libertarian society of equals who respect the life, liberty, and property of each other has no way to deal with the "problem" of free-riding.

Upon examining different cases of free-riding, I haven't met one yet that wasn't an example of poor business planning that someone wanted to remedy by using the State as mythical omniscient, omnipotent, benevolent superhero that sets the world right. I am convinced that such a being doesn't exist, and that its pale, earthly effigy has never served me when they decide they're going to 'optimize' my stuff. I've tried to accept reality and it doesn't piss me off.

So, if the original investors want to sink construction costs into the lighthouse, and expect it to generate an income from lighthouse fees, or if they can only operate the lighthouse with high maintenance fees, they should

  1. set out their tip jar, collect donations and have low administration/enforcement costs, or
  2. buy up coastal land (or options or landing rights on coastal land) to prevent competition, set up a line of buoys at the harbor entrance and man them with guard boats to prevent unauthorized entry so they can collect their large fees from each and every ship that passes within eyeshot of the lighthouse.

Frankly, I would expect the first model to be an undertaking of the residents of a coastal town, since it would serve not only trading ships, but fisherman and passenger craft. Townsfolk might see the benefit of generally improving navigation to their town. A shipping company might give an initial grant and write it off against his first trip to the town, or might buy futures contracts on some local resources like timber. But any shipping magnate capable of running an enterprise would be unlikely to risk a large sum of capital, then demand payment from his competitors at a price he sets and expect it to be paid--unless, of course, he has the overwhelming power of the State under his control.

So, yes, I would consider the shipping company that doesn't pay fees to be the better investment. Not only do they have lower lighthouse expenses, but they also focus on their core business of shipping instead of litigation and lobbying.

One more time, with <i>feeling</i>!

So, if the original investors want to sink construction costs into the lighthouse, and expect it to generate an income from lighthouse fees, or if they can only operate the lighthouse with high maintenance fees, they should …

2. buy up coastal land (or options or landing rights on coastal land) to prevent competition, set up a line of buoys at the harbor entrance and man them with guard boats to prevent unauthorized entry so they can collect their large fees from each and every ship that passes within eyeshot of the lighthouse.

How did you arrive at such a solution?

I ask because 1) I agree; conceptually, this would solve the problem. That is, this practice would convert the public good -- something people could consume without the owner's permission -- into a private good. And I suspect we largely agree on the merits of private goods.

I also ask because 2) the fact that you'd propose such a solution suggests that you recognize and appreciate the problem.

Note the dynamics of this remedy, however. It would eliminate the problem of free riders by 1) eliminating the alternatives a would-be free rider has to secure various benefits without paying, and 2) using force to extract payments by everyone within a given geographical area. This seems like a remarkably tax-like remedy. Sure, ships could avoid the payments by avoiding certain areas. But that's akin to saying that anyone can avoid paying Connecticut's property taxes by avoiding dealings in Connecticut. It strikes me as odd to object to the predations of taxes while embracing the predations of monopolists.

So, yes, I would consider the shipping company that doesn't pay fees to be the better investment. Not only do they have lower lighthouse expenses, but they also focus on their core business of shipping….

Minimizing shipwreck is not part of the core business of shipping?

Upon examining different cases of free-riding, I haven't met one yet that wasn't an example of poor business planning that someone wanted to remedy by using the State as mythical omniscient, omnipotent, benevolent superhero that sets the world right. I am convinced that such a being doesn't exist, and that its pale, earthly effigy has never served me when they decide they're going to 'optimize' my stuff. I've tried to accept reality and it doesn't piss me off.

For purposes of this discussion, I won’t challenge anyone’s view that governments/taxation are a cure that’s worse than the disease of free ridership. But I reassert that the problem of free ridership is not merely a problem of poor business planning.

Let’s put some numbers on the Who Cares…? question. Assume that a shipping firm that must run the constant risk of losing ships in areas without lighthouses will earn a net return of 10. Assume that subscribing to building and maintaining lighthouses will cost 1. And assume that a firm that operates with the benefit of lighthouses will earn a net return of 100.

By investing in lighthouses, a firm will increase its net return from 10 to 99 (that is, 100 – the cost for the lighthouses).

But the firm’s competitors will increase their net return from 10 to 100.

Under this scenario, the world is clearly better off with lighthouses. But the people who build the lighthouses are placed at a permanent competitive disadvantage. If you believe in competitive markets, you believe that less competitive firms will be displaced by more competitive firms. Eventually the lighthouse builders will be driven out of business. And the lighthouses, losing their funding, will be abandoned.

This is NOT a problem of poor business planning; it’s a problem endemic to public goods. And when you acknowledge that you wouldn’t invest in a shipping firm that would invest in a lighthouse, you affirm this conclusion.

So conceptually we’re faced with a choice between a world in which shipping firms earn 10, or a world in which they earn 100 but have to pay 1 in harsh, coercive, non-consensual taxes.

Finally, I can’t help noting the irony of all of us armchair libertarians corresponding using electricity that is delivered to us by state-regulated monopolies over wires installed using powers of eminent domain, over telecommunications lines that are provided under state regulation and created using eminent domain, using the internet, a communications medium created by the United States government via taxation. I don’t doubt that some people do accept a reality of rejecting the state’s provision of public services; I just doubt that any of them post here.

I'm not objecting to most of

I'm not objecting to most of what you say, but I take exception to this:

Finally, I can’t help noting the irony of all of us armchair libertarians corresponding using electricity that is delivered to us by state-regulated monopolies over wires installed using powers of eminent domain, over telecommunications lines that are provided under state regulation and created using eminent domain, using the internet, a communications medium created by the United States government via taxation. I don’t doubt that some people do accept a reality of rejecting the state’s provision of public services; I just doubt that any of them post here.

I don't know if there's any point in my providing a critique of this. I have a feeling you could critique it if you tried. Just to take one example, you point out that telecommunication is state-regulated and yet we use the telecommunication when we attack the regulation as unnecessary and harmful. How is that in the slightest ironic? It might be ironic if the regulation were in fact necessary or helpful, but to assume that the regulation is helpful is to make an assumption that obviously your targets will reject.

If that's not clear enough, let's consider an imaginary regulation. Suppose that the government starts regulating shoes, so that all shoes must be the same color. You can't obtain shoes of a different color anywhere. People decide to protest, so they put on their shoes - which are of that single allowed color - and go to protest. Is that ironic?

Suppose that the state starts regulating tongues, so that everyone's tongue must be only one inch long. The state proceeds to cut everyone's tongue to that length. People speak up in protest, using their regulated one-inch tongue - and you stand there laughing at the irony?

Actually....

Actually, I wrote that last paragraph in response to my mis-reading of one aspect of Mark's post. So it's not really apropos to much that's been said here. And appologies to Mark.

True, state-enforced monopolies are problematic. In the US we don't have quite so many right now. I could start my own phone company, and I could generate my own electricity. Given the overwhelming economies of scale provided by the existing firms, I choose not to. This leads into a discussion of natural monopolies, yet another market failure. But that's probably stretching this discussion too far.

What to say about the fact that the government invented the internet? I can't see how this is in any way analogous to the regulation of shoes or toungue lengths. Yet the internet is a tool that has given voice to all kinds of anti-government forces. That strikes me as damned ironic.

The government didn't invent

The government didn't invent networks. What the Internet is, basically, is a common protocol that can be used to link different networks. And as it happens, the protocol that we ended up adopting was created by people working for the government. But, so what, really?

One distinction that really ought to be made is between a standard, such as a protocol, and what the standard is used for. Take the QWERTY standard for keyboard layouts. It was invented by Bob Qwerty (kidding). It was invented by some guy. And now it's the standard, despite the efforts of Dvorak. I'm typing on a QWERTY keyboard. But do you seriously think that if the inventor of the QWERTY layout had never lived, we would not have keyboards? I think we almost certainly would have keyboards - with some other standard layout in all likelihood.

Take any other standard you like. ASCII standard. JPEG standard. Or older standards like inches and meters and seconds. I don't know which of these were developed by government and which were developed by private entities, but one thing seems pretty clear to me: had their inventors not invented them, in all likelihood somebody else would have invented something else in their place and we would be measuring time and length using those different standards, all the browsers would be using some different image compression standard, and so on. The particular standards that we use are not really all that essential. That we happen to have adopted those standards and not some other is to a large extent an accident, and we in all likelihood would have been able to make do without. We would still have the same things, still have a way to measure length, still have a standard file format for text, and so on, but it would have a different name and would be invented by a different person.

So, sure, the standards we use were invented by whoever they happen to have been invented by - but so what? So what that QWERTY was invented by Sholes? Had Sholes never been born, I don't think I would not now be using a keyboard at all. I think I would be using a keyboard with a different layout.

Returning to the qustion of government versus private inventor. The standards that we use were invented some by private inventors, some by governments. I've argued that we should distinguish between the standard itself and the function that the protocol serves (e.g. QWERTY serves as a keyboard layout). I've argued that in most cases, had history deprived us of the particular standard in current use, in all likelihood some other entity would have provided us with an alternative standard which we would be using today instead. So the particular standard that is in use today is not really essential to the function that it serves. We would have had a length measure without inches or meters. We would have had a weight measure without pounds or grams. We would have had a standard compressed image format without gif or jpeg. We would have had an Internet without TCP/IP.

One could argue that without Vint Cerf and company, there would have been a really long delay before private entities worked out an inter-network protocol. Maybe. Or maybe not. But it seems to me that the desire to create a global network of networks was there, there was already the idea of it in many people's heads. I think so. I could be wrong. But I think that the inter-network's time had arrived and that one way or another we were going to have one, and as it happens we've settled on TCP/IP.

You might argue that governments are needed to facilitate the rapid adoption of standards. And in some cases the government's internal standards have become universal standards. But I do believe that there are a lot of universally adopted standards in the world which did not begin in the bowels of a government. So I am not at all persuaded that government is necessary.

Fair point

I caution people about assuming the inevitability of the actual, so let me take my own advice. The fact that government DOES provide (or has provided) certain benefits is not, by itself, proof that the benefits would not have been provided otherwise.

Happy now? Get some sleep, guy.

Privatized profits, socialized costs

I agree that it is within the realm of possibility that the owner of a private lighthouse could enforce his wish to keep it hidden from any unwilling to pay for it. But then, he would bear the cost of purchasing and maintaining any property from which it could be of use. When you propose free-ridership as a problem of public property, you are demanding that others be forced to fund the enforcement, whether or not they perceive any value to the existence of the lighthouse, or were even born when the project was entered into.

Imagine how long the Iraq War would have lasted if Bush, Cheney, and any others interested in prosecuting Saddam Hussein for his crimes of torture and impoverishing his country, had spent their private fortunes rather than funding the war through taxation. Bad ideas are limited when people have to spend their own resources rather than those of someone else.

Your original post opened with the observation that asking for donations can generate as much revenue as a closed subscription model. The linked article didn't talk about the cost of administering the subscription model (which would be low for a house of worship, but high for a lighthouse). Most entrepreneurs in a free society would no doubt choose to let some people benefit without paying and save the cost of enforcement.

If you want to pursue a business model of building lighthouses and preventing anyone but paying subscribers seeing them, then go right ahead. Just don't push the costs of enforcement on other people and claim that this is 'optimized' for anyone other than you.

Lawlessness

So how do you answer the Who Cares...? question?

I find little problem with private property and private consequences. I find little problem with private property and socialized benefits in a non-competitive environment. We still haven't cracked the nut of private property and public benefit in a competitive environment.

Sure enough, different people value things differently, so it's unjust to impose the cost of enforcement on others. That's true of the cost of police and courts, too; heck, even Adam Smith noted that law enforcement was mostly a subsidy to people who own property. So property rights should simply be a matter of my ability to defend whatever I have using my own means -- and, while we're at it, my ability to take what I want using my own means.

It's a perspective. I prefer a world with more lighthouses.

Bound by acceptable social conduct.

So property rights should simply be a matter of my ability to defend whatever I have using my own means -- and, while we're at it, my ability to take what I want using my own means.

That is how it is right now, no need for a change.

One bit of note though, like Franklin said, property rights are creatures of public convention. Some folks got a problem with theft nowadays, but most seem to just deal with it because the terms are couched in civics class fictions like taxation and imminent domain. Your own means are heavily dependent on the folks who sit next to you on this lifeboat.

we can go pure Parato optimal

we can go pure Parato optimal here. Assume 100% of the people in the world want to see the lighthouse built.

Granted that in principle, it is conceivable that a tax-funded lighthouse system may be Pareto optimal. However, that is only in principle, only a thought experiment. In reality we don't really know what people prefer, indeed in reality it is almost certain that some people will have preferences which you weren't expecting and which you believe to be illogical. It's a messy world. Moreover in the real world the policymaker is going to substitute his own judgment for the judgment of others - he will declare that X is better and perhaps presume (without actually asking) that everybody prefers X, or failing that, that everybody ought to prefer X, or failing that, that the people who are actually hurt by X don't matter very much. That's the reality of it, or rather, that's the nice version. The real reality gets worse. In the real reality there are lobbyists, there are politicians looking to get re-elected, there are bureaucrats looking to expand their fiefdoms. In the real world, centralizing decisionmaking power, which is what ends up being done, has huge downsides.

No point in beating a dead horse except for the sheer joy of it

Granted that in principle, it is conceivable that a tax-funded lighthouse system may be Pareto optimal. However, that is only in principle….

My point is that the example works, at least in principle, even for Pareto optimality, so it would necessarily hold for Kaldor-Hicks optimality because Kaldor-Hicks is a less stringent standard.

[I]n the real world the policymaker is going to substitute his own judgment for the judgment of others - he will declare that X is better and perhaps presume (without actually asking) that everybody prefers X, or failing that, that everybody ought to prefer X, or failing that, that the people who are actually hurt by X don't matter very much. That's the reality of it, or rather, that's the nice version. The real reality gets worse. In the real reality there are lobbyists, there are politicians looking to get re-elected, there are bureaucrats looking to expand their fiefdoms. In the real world, centralizing decisionmaking power, which is what ends up being done, has huge downsides.

It has downsides. In particular, it may result in people being coerced into pay more than they would have volunteered to pay for a lighthouse.

Yet when we avoid this downside, so the lighthouse is not built, and your ship hits a reef, and you drown, I can perceive some downsides to that arrangement as well. Yet people don’t seem to label this situation “coercive.” Do people really expect to negotiate mutually-agreeable terms with the waves?