Subsidies and game theory
LostInEmulation
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Yesterday, I was tired and while I was playing Aisleriot, I suddenly started thinking about the Prisoners' dilemma in game theory:
http://en.wikipedia.org/wiki/Prisoners'_Dilemma
Then I thought that Subsidies are a kind of prisoners' dilemma for governments. It would be most advantageous for all governments not to subsidize industry. When only a few or even one uses subsidies it can mean that more industry settles there. But since most nations do it, it does not even make that much of a difference and other factors are more important. But it would put the government, which stops doing it at a disadvantage. Of course this commits the fallacy of grouping all companies into one group, some might prefer lower taxes to this.
However seeing that most comapies are probably as described... is there a chance to see the IMHO harmful culture of subsidy-giving cease?
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LostInEmulation
Veteran
Joined: 10 Feb 2008
Age: 41
Gender: Female
Posts: 2,047
Location: Ireland, dreaming of Germany
I know... it's a very interesting topic. I wondered more whether my thought makes any form of sense...
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I am not a native speaker. Please contact me if I made grammatical mistakes in the posting above.
Penguins cannot fly because what cannot fly cannot crash!
Your argument makes some sense, however, it can be argued that there would likely be an optimal strategy in this case, given the fact that this isn't a prisoner's dilemma, however, I am not sure about the empirical evidence for where this would be, I know that some research argues that subsidies do not pay back, but I doubt all research says that. In any case, I do not think that subsidies are necessary for a working economy, only friendly enough laws, because in a developed economy, with laws that do not hurt employment or growth, I would think that businesses would expand to use all available resources anyway, thus leading to a steady economy that is about as good as other economies. The only area where I think I've heard competitiveness possibly mattering is in technology, due to the externalities that a bit of technology sometimes creates.
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