David R. Henderson  

Adam Smith on Stationary Bandits vs Roving Bandits

Ownership for Cartoonishly Nic... There are two kinds of people ...

Or, you could call this post "Adam Smith on the Tragedy of the Commons"

I'm reading a section of Adam Smith's The Wealth of Nations for a conference on The East India Company. I've never read Smith's book all the way through, and this is a section that I don't recall reading. As I read it, I was impressed that he was making a point similar to one that the late Mancur Olson made with his "stationary bandits vs. roving bandits" analogy. For a quick discussion of Olson's point, and a case where I applied it to local government with many groups seeking their own tax increase for their own special interest, see here.

Here's Smith:

From the nature of their situation, too, the servants [DRH: here I think Smith means lower-level employees of the East India Company] must be more disposed to support with rigorous severity their own interest against that of the country which they govern than their masters can be to support theirs. The country belongs to their masters [DRH: here I think he means the high-level who run the East India Company], who cannot avoid having some regard for the interest of what belongs to them. But it does not belong to the servants. The real interest of their masters, if they were capable of understanding it, is the same with that of the country,*134 and it is from ignorance chiefly,*135 and the meanness of mercantile prejudice, that they ever oppress it. But the real interest of the servants is by no means the same with that of the country, and the most perfect information would not necessarily put an end to their oppressions. The regulations accordingly which have been sent out from Europe, though they have been frequently weak, have upon most occasions been well-meaning.*136 More intelligence and perhaps less good-meaning has sometimes appeared in those established by the servants in India. It is a very singular government in which every member of the administration wishes to get out of the country, and consequently to have done with the government as soon as he can, and to whose interest, the day after he has left it and carried his whole fortune with him, it is perfectly indifferent though*137 the whole country was swallowed up by an earthquake.

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COMMENTS (3 to date)
AlexR writes:

Great find. I think you should submit this to the JPE back cover. It could be titled something like "Adam Smith on the Principal-Agent Problem."

Bill writes:

Thanks for the link to your January post, which I somehow missed. Our local (no fare) bus system administrators wanted a ballot measure for a dedicated increment to local sales taxes, the proceeds going to expand the empire of the bus system. The County Council came out against this, explicitly saying this would reduce the chances that voters would approve increased taxes for measures the County government wanted.

ThomasH writes:

This also applies to individual CO2 emitters who do not wish to pay share of a Pigou carbon tax.

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