On Solving Social Dilemmas – Econlib

• A Book Review of Solving Social Dilemmas: Ethics, Politics, and Prosperity, by Richard D. Congleton.

Economists have a penchant for blackboards. Armed with chalk or markers, they sketch out models—neat little abstractions of reality that often earn their share of ridicule from both academics and the public. Yet, these models are rigorously tested against the messy complexities of the real world, and those that fail to align with reality are promptly discarded.

In his thought-provoking work, Solving Social Dilemmas, Richard Congleton takes a refreshing approach by examining how real individuals, through a process of trial, error, and adaptation, create rules and norms that facilitate cooperation. He then explores how these organic solutions are later distilled into the abstract models favored by economists.

To illustrate this paradigm shift, imagine a nascent community grappling with the challenges of cooperation over an extended timeframe. In this setting, where the threat of opportunism looms large, the foundation for cooperative behavior must be laid through established rules. Sometimes, the mere prospect of losing out on future benefits due to immediate selfishness serves as sufficient motivation for cooperation. Other times, the development of norms and reputations acts as a crucial reinforcement, internalizing these principles and generating the rewards of sustained collaboration, which are then passed down through socialization.

Terms like “norms,” “mores,” and “rules” are familiar to anthropologists but fall under the broader umbrella of what economists refer to as “institutions” or “governance.” This umbrella also accommodates government legislation. In everyday vernacular, the conduct shaped by adherence to these institutions is often described simply as “ethical behavior.”

As the community expands to the scale of a village, the cooperation dilemma persists but morphs in complexity. The increase in population means that previously effective solutions may lose their efficacy, necessitating the adaptation of norms. Modifying existing rules can be one approach, while the introduction of new regulations may become imperative—a process marked by trial and error.

When the community transitions from a village to a city, the challenges evolve yet again. The ongoing tinkering continues, but so must innovation; each growth phase presents new hurdles for sustaining cooperation, which must be addressed to ensure further development.

This dynamic is captured succinctly by Congleton when he notes that “communities with an ethos that tends to support market transactions, team production, specialization, innovation, and public policies that do not impede economic development benefit from more extensive and productive commercial networks” (p. 23). In essence, ethics lay the groundwork for markets, which in turn bolster the ethical frameworks that support them, fostering a cycle of prosperity.

This encapsulates the core thesis of Congleton’s Solving Social Dilemmas, offering a compelling lens through which to comprehend economic development and the intuitive processes individuals navigate to create “governance” in their lives. Economists stand to gain from engaging with this work, as it provides a conceptual framework for exploring the evolution of institutions. Economic historians may find new avenues for addressing questions surrounding the divergence between nations. Development economists could utilize it to analyze how top-down policies often disrupt existing complex governance structures, sometimes with disastrous consequences, even when executed by the most well-intentioned planners.

Yet, even this high praise scarcely captures the full merit of the book. Chapters 4 and 5 alone could serve as the foundation for advanced undergraduate courses in economic history, development, philosophy, the history of economic thought, and political economy. If expanded, the appendices offered by Congleton could easily form essential components of graduate-level economics curricula and facilitate interdisciplinary discussions with historians and sociologists.

Chapter 6 distills the concept of customary law as “market-based law” into a digestible format for a broader audience. While followers of Liberty Fund may be familiar with these arguments, they are often buried within lengthy tomes such as Theodore Plucknett’s Concise History of The Common Law (a title that might mislead with its 828-page length) or Arthur Hogue’s Origins of the Common Law, and more contemporary works like John Hasnas’s Common Law Liberalism. Congleton’s chapter condenses this extensive literature in an accessible manner, particularly appealing to economists who often grapple with connecting legal concepts to economic frameworks.

The insight gained is that customary law possesses a degree of flexibility, allowing for smoother adaptations as societal needs evolve, particularly in the face of growth, and is less costly to enforce due to its “customary” nature.

Finally, Part III of the book could serve as the backbone of a Politics, Philosophy, and Economics (PPE) curriculum, intertwining the previously discussed economic themes with historical and philosophical perspectives. This integration sheds light on why effective tinkering and innovation processes in social governance have proven successful in maintaining cooperation.

Some readers might hastily dismiss Congleton’s arguments as suggesting that prosperous societies are simply more ethical, while poorer societies are comprised of less ethical individuals. This would be a misinterpretation of his position. Instead, Congleton contends that specific ethical systems—shaped through trial, innovation, and experimentation—are more adept at addressing cooperation challenges and sustaining markets. He encapsulates this notion effectively: “some ethical systems ameliorate or solve a broader array of dilemmas than others” and “some internalized systems of ethical and normative rules provide more support for commerce than others” (p. 430).

In this respect, Congleton resonates with Adam Smith’s assertion that prosperity stems not from individual virtue but from the governing rules of conduct. In short, this foundational idea serves as the bedrock upon which Congleton constructs one of the most profound works I have encountered in years.