Perpetrators Rules

Frank touches on two major topics in Chapters 6 & 7, the role of government in negotiating disputes and in the mitigation of income inequality. In both cases government's goal is to increase efficiency by balancing costs and benefits through measures that utilize a 'willingness-to-pay' doctrine. I agree with these two responsibilities of government laid out by Frank.

There are many, if not a large percentage, of situations where disputes between private entities with economic interests cannot be solved, let alone efficiently. These include situations with excessive transaction costs (i.e. one party is composed of a large number of independent entities, such as when a power plant pollutes a river), the involvement of a monopoly, the offering of public goods, or a vast inequality between absolute capitals relative to willingness to pay (i.e. grandfather clock scenario). The government plays the role of an arbitrator in these situations by providing a cost-benefit analysis and a judgement. In these situations simply the assignment and enforcement of property rights will not suffice. But why shouldn't we just let these situations remain inefficient? Harm imposed on a party by another party within a society is an action that should be dealt with by the society as a whole. It is, however, unfortunate we live in an inefficient form of representative government that incentives corruption.

Income inequality is a dimension of a society that should be monitored by the society itself. Like most things in life, an economy, at least in our current state, runs most efficiently when income inequality is not to vast or minuscule. The more that wealth becomes concentrated the less efficiently capital is allocated. The more that wealth is distributed evenly the less efficiently capital is allocated as well but for different reasons.

As wealth becomes highly concentrated, it becomes less valuable on the margin to those that possess the large quantity. To those that do not possess the large quantity, wealth becomes increasingly valuable because each expenditure contributes towards a greater percentage of their total worth. Income inequality skews the willingness-to-pay mechanism because willingness-to-pay is relative, based on absolute income. Therefore, for goods and services to be efficiently allocated, income inequality cannot be so great as to dramatically skew the willingness-to-pay mechanism to the point of... slavery (which is the result of both extreme income inequality and equality, perhaps). Without a government to monitor income inequality, capitalism will concentrate wealth to a point of severe detriment for the society as a whole.

Apologies for the sloppiness and delay, though I know it doesn't matter.