Does inequality imperil cooperation?

Cooperation is ubiquitous in Nature. Inequality- as between man and beast- does not seem to matter at all. The same is true of all human societies which have ever existed. Nowhere do we see the absence of cooperation by reason of inequality of outcome.

No doubt, there have been social conflicts where equality has been a rallying cry. Yet, any equality established by Revolutionary action has been evanescent.  Globalization means that production and consumption decisions are increasingly well coordinated despite much greater differences in wealth and effective liberty, with respect to cooperating agents, than have ever previously existed in history.

Some economists and game theorists appear oblivious to this development. As a case in point, consider this interview Nautilius magazine conducted with Christoper Hilbe.

How do you model inequality’s impact on the public? 

We took a game often used as a model for cooperation, called the Public Goods Game, and explored what happens if there is some kind of heterogeneity between players, which isn’t normally done. Usually the players are equals. The standard case is that everyone gets the same amount, for example, $10. Then everybody can decide how much of this money to put into a public pool, knowing that the money in this pool is say, doubled, then equally split among all individuals. This is a game where the best outcome for the group is everyone contributes the full amount, as everything in the pot is doubled. But for you, as an individual, it’s best to keep your own endowment, the $10, for yourself, and to hope everyone else cooperates. Because then you keep your $10, and you get everything that everyone else put into the public pot.

Sadly, this game does not capture anything salient, or existential, about cooperation. It merely describes a kind of bet which you may take or walk away from. By contrast, living beings cooperate to survive- indeed, they develop a tropism or funktionslust for such activity.

That’s the standard game, but there must be many ways to play with it.
Right. For example, the people could have unequal endowments. Or, everyone’s contribution to the public pool might not be doubled, but rather some people are more efficient, and their contributions are tripled. You could also have not everyone get the same amount of whatever is in the public pot, but rather I get 60 percent of it, and you get only 20 percent.

You could also pretend there was another game exactly like this except for the fact that players get to use a shrinking ray upon the genitals of those conducting the experiment. My research reveals that whether or not inequality obtains, subjects will always prefer this game. Thus all experimenters end up with really tiny dicks which they find demoralizing.

How does cooperation depend on how unequal the endowments are?
What we found is that no matter how the Public Good game looks exactly, it’s always the case that if endowments are too unequal, you’ll never get cooperation.

But you will get a really tiny dick.

So if it’s the case that only the two of us are playing and you get 99 percent of the initial endowment, then we will never get cooperation started. Simply because of the fact that you already have 99 percent of the wealth, right? You have zero incentive to cooperate with me, because there is very little you could gain from me, because I only have 1 percent to start with.This result is very robust. It’s always the case that too much inequality is bad.

How is it bad? Maybe you are better off having a tiny dick.

If you are just an investment banker, you might be productive, but what you do is not for the common good.

How do we know? The investment banker may have a PhD in Molecular Biology. He may be putting together an enterprise which will find the cure to cancer and market it for free.

What else did your modified public goods game reveal?
We also found that if the game is symmetric, meaning that other than endowments, we are all exactly equal in all relevant dimensions, then equal endowment is the best thing that could happen. We are most likely to cooperate if everyone starts with the same amount of money.

But 'cooperate' here simply means 'pool money so it can double by magic'. The world does no work like that.

Of course, in ordinary parlance we don't really speak of 'cooperating'. We simply go to work and get paid and go to the shops and buy stuff. If we steal or are stolen from, the police get involved.

However, producer and consumer cooperative enterprises do exist. Do they depend on a Goldilocks condition re. Income and Wealth? No. A Billionaire might be a member of a Banking Cooperative. But so might a beggar. The lord or ten thousand acres may send his grapes to the same Wine Cooperative as a smallholder.

On the other hand, if people value equality, then a Cooperative may succeed if this is an explicit goal of the enterprise. The Mondragon Corporation employs 75,000 people. Pay differentials are much smaller than in conventional companies. However, there is little reason to believe that people remain attached to an abstract notion of equality. They may prefer to be better paid but more unequal.

Wealth is about power over assets. It would seem natural to prefer to oneself own an asset which is important to us. Surely, we would all like to own our own homes? The answer is- no, not necessarily. In East London, people tended to own the freeholds of their property. But, it proved more profitable to turn mansions into slum housing and so the better off fled the area. In the 'West End', great Lords owned the freehold of large contiguous areas. They had an interest in protecting the character of the neighborhood. Thus 'Belgravia' retains its cachet to this day. The Grosvenors and Portlands and so forth 'internalized an externality' and thus prevented a market failure. By contrast, East London went to the dogs.

The truth is, we may not even want to own ourselves. As the slave of the Sultan we may be safer and more prosperous than as a free man subject to conscription, the depredations of the taxman, or the hazards of vendetta.

In an age of rapid technological change we may want billionaires to control things. We may fear 'worker control' or 'nationalization'.

Consider the suggestio falsi with which the Nautilus article begins-

Last year news came that Indian billionaire Gautam Adani was set to exploit Australian coal reserves. The deal, The New York Times reported, was the result of a successful campaign by the Adani Group, a vast conglomerate with diverse interests, to capture the hearts and minds of Queenslanders, who occupy Australia’s second-largest state.

Adani was paying the Australians good money. He wasn't 'capturing hearts and minds'. It is not the case that Adani used sexual wiles to ingratiate himself with Queenslanders and persuade them to alter their wills in his favor.

It’s a project that will, in the short term, help power development in India and Bangladesh, where renewable sources of energy can be too costly to implement. India, unlike the United States and Western Europe, “doesn’t have a choice” about whether to use coal, Adani told the Times.

This is true enough. The real story here is that Adani has built ports in India and has experience running power stations. Indians find that State owned ports or electricity generators are completely shit. The Adanis deliver a good product for a reasonable price. So Indians buy power from the Adanis. This means they can buy coal from the Australians. India has discovered that it is a good thing that wealth is concentrated in the hands of Adanis and Ambanis who produce useful things. If wealth is broken up and divided, a tragedy of the commons- i.e. negative externalities- may predominate. Consider the problem of agricultural involution. Everybody staying on the ancestral farm having babies like crazy so as to get a larger share of the patrimony is a recipe for poverty and malnourishment and a paralyzing social, geographical, and occupational immobility. 

In the long run, relying on coal will exacerbate efforts to stem global heating, as burning coal is one of the main drivers of climate change.

Is this really true? How come Britain is no longer burning coal? The fact is, it is economic progress which stimulates technological change which in turn reduces our dependence on things which have negative externalities.

Nautilus is pretending that Adani, for some perverse reason, is burning coal for his private pleasure. 

One billionaire’s endeavor, in other words, represents a social dilemma of global proportions.

Rubbish! Australia's desire for money is the money. If they didn't sell coal to the Indians they would do so to Chinese or the Bangladeshis. 

India’s reliance on coal threatens to destroy public goods—clean air, favorable weather patterns, national security—and upend cooperation efforts to develop and implement renewable energy.

Is this true? No. Indians need to use electricity rather than chop down trees to burn wood. Electricity from Coal is actually better for the environment and public health than charcoal. As Indira Gandhi realized long ago the main cause of environmental degradation in India was not industry but Malthusian poverty.

Inequality is lower, statistically speaking, in technologically backward places. But, for Malthusian reasons, anthropogenic climate change may be greater. Some have speculated that the vast Sahara desert may itself have been caused by human activity. But that activity wasn't industrial or directed by plutocrats. It was egalitarian. Such is the tragedy of the commons.

The absence of the Laws and Institutions which create or sustain inequality or social stratification is an example of a 'competitive' Nash Equilibrium. A Cooperative equilibrium is better but it reduces equality. It makes games asymmetric. The first generation of game theorists were smart. They never suggested otherwise. However, those who followed in their wake were fools. This particular availability cascade has become wholly degenerate.

Game theory looks at a world without Knightian Uncertainty. Life evolved cooperatively on a highly uncertain fitness landscape. This does not mean that an, after the fact, mathematical representation of co-evolved processes can't be quite simple. But, little guidance of a general kind can be gained thereby precisely because our future is uncertain. We don't know what types of assets will be valuable in the future. We can't say what is or isn't wealth because we don't know whether or not it will yield income in the days to come. Some who are now billionaires may end their days in a jail cell. Others who have taken great trouble to secure equality for themselves in some particular, may find themselves defrauded. Few Chavistas in Venezuela would have predicted that a day would come when they would regret their egalitarian zeal. But, the opposite point is equally true. Numberless elites, throughout history, have had reason to curse their own greed.