Contracts Technology - Kicking Out the Government and Making Privatization of Public Affairs Efficient

November 30, 1999

Why would you want a government do something that you could do yourself?

You could fix a road, keep the neighborhood safe, make health insurance contracts, make sure companies aren’t violating the environment, and more. Well, some might say that you can’t do these things yourself at all. But that’s not true. The problem is that some of these tasks might take your full time dedication, and they’re not quite your thing. And anyways, all of them are important to you, you can’t pick a single one. So the second best solution is to do whatever you do best, and pay someone to do this things that THEY do best. This is otherwise known as specialization or division of labour, and has been shown to be generally economically beneficial to all involved. This is called the Market Approach, Laissez Faire, and other such terms.

So why aren’t we using the market to perform the tasks I described?

The reason is rooted in Market Failures. This is a class of situations where a bunch of people each following a moderately self interested strategy can cause bad outcomes for everyone. Examples are such things as The Tragedy of the Commons (where a public good is overused) or Monopolies (where a single entitiy gets sole control of a resource).

So how do governments help prevent market failures?

IMPORTANT POINT: you outsource decision making to politicons because like the other examples. you aren’t sure you’d make even the best decision on a policy, because you don’t have enough specialization in a particular field. The problem arises when neither do they.

But what’s the problem with governments then?

Ah! So private initiatives are bad, and governments are bad. We seem to have mostly chosen the government option so far. What would be the optimal solution?

So transactions will be based on contracts, which will help alleviate market failures, and eliminate the need for a government?