Wednesday, October 28, 2009

Roger Myerson and Paul Romer on designing nations and cities

Two emininent economists have been thinking about design on the largest of scales.

Roger Myerson thinks about nation building in general, and Iraq in particular, and reflects on the role of political leaders' reputations, for patronage among other things.

Paul Romer thinks about macro-market-design in the form of new "charter cities," to be modeled roughly on Hong Kong.

Here is Roger, in "A Field Manual for the Cradle of Civilization:Theory of Leadership and Lessons of Iraq, " Journal of Conflict ResolutionVolume 53 Number 3 June 2009 470-482. (HT Paul Milgrom)

"Agency incentive problems in government make patronage an essential aspect of statebuilding, and political leaders become fundamentally constrained by their reputations. Democratic competition requires many leaders to develop independent reputations for exercising power and patronage responsibly, which can be encouraged by political decentralization."

Roger then recounts Xenophon's description of the rise of Cyrus (Koresh), the Persian leader.

"The key to Cyrus’s success was his apparent love of justice, which was inculcated by his education and which enabled him to earn the trust and loyalty of a great army. But what kind of justice was it that Cyrus loved so much? It was certainly not justice for poor peasants, whose crops were gathered to support his conquering forces.
What Cyrus loved was justice for the soldiers who served his cause. Apparently Cyrus’s greatest pleasure in life was to judge the valor of troops in battle and to reward them richly for their accomplishments, asking nothing for himself. As a mechanic knows the names of his tools, Cyrus learned the names of all the captains in his army, so that each could be confident of his service being remembered. When everybody recognized Cyrus as the best leader to distribute their booty after a victory, he could take power, first over the multinational coalitional forces and, ultimately, over Asia."

Paul Romer, explains the idea of charter cities here, and in a Q&A at Freakonomics, here: Can “Charter Cities” Change the World? A Q&A With Paul Romer

He argues that to credibly move to better rules, you might have to do some things all at once and start fresh. (He suggests a good place to start would be to have a new Cuban city administered by Canada at Guantanamo Bay, to try to recreate the experience of Hong Kong.)

He too isn't afraid to think big:

"Q. It all sounds great as a theoretical exercise, but honestly, don’t your colleagues tell you that something like this will never happen?

A. They do say this, which is actually kind of ironic when you line it up with the other things they say. They recognize that the construct of a charter city is something that could make everyone better off. They admit that there is no technological or economic constraint that keeps us from building many of these. Then they say that for political reasons, it will never happen. They tell me that you can’t change politics; you can’t overcome nationalism; there is no way for countries to work together to extend the reach of good rules. Then these same economists suggest that we should just stick to business as usual. We should offer conventional economic advice and assume that political systems will naturally follow our advice when we point to something that could make everyone better off. But of course, they have already revealed that they don’t believe this. What’s going on here is a kind of self-censoring. Economists seem to think that we should propose things that are acceptable and that political systems will pursue, but that we should avoid proposing or even discussing things that are controversial or politically incorrect. I think we’d do our jobs better if we just said what’s true without trying to be amateur politicians. "

Romer and Myerson seem to have different views of where economics ends and politics begins.

No comments: