Smith on the Proper Role of Government, Game-theoretically

25 Pages Posted: 20 Jan 2022

See all articles by Andreas Ortmann

Andreas Ortmann

UNSW Australia Business School, School of Economics

Stephen Meardon

Bowdoin College - Department of Economics

Benoit Walraevens

University of Caen Normandy

Date Written: January 18, 2022

Abstract

Adam Smith’s view of the proper role for government in commercial societies remains a source of debate. Here we sketch out in simple game-theoretic terms the numerous public-goods provision and externalities problems on display in particular in Book V of The Wealth of Nations. Casting these problems in these terms highlights the strategic nature of the thinking that Smith brought to the analysis of these problems. It leads us to claim that Smith -- while he did not use these terms -- understood well the pervasive nature of inter- and externalities, as well as the related issue of reputational enforcement. Our approach allows us to identify Smith as an early (and perhaps the first) analyst of incentive-compatible state intervention. By showing how game theory can be fruitfully applied to Smith's oeuvre, we suggest a methodology that allows an answer to the question: "What would Smith say if he were alive today?" Such an answer is important in determining Smith's stance regarding the proper role of government which is, as Smith emphasized, very different in the different states of society.

Keywords: proper role of government, Adam Smith, game theory

JEL Classification: B10, B12

Suggested Citation

Ortmann, Andreas and Meardon, Stephen J. and Walraevens, Benoit, Smith on the Proper Role of Government, Game-theoretically (January 18, 2022). UNSW Business School Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=4011744 or http://dx.doi.org/10.2139/ssrn.4011744

Andreas Ortmann (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Stephen J. Meardon

Bowdoin College - Department of Economics ( email )

9700 College Station
Brunswick, ME 04011
United States

Benoit Walraevens

University of Caen Normandy ( email )

Esplanade de la Paix
Caen, 14000
France

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