Lokpal or some mechanism design theory? Your choice.

Top politicians and so called members of “the civil society” are all enthusiastic to get the best Lokpal bill in the world. What bewilders me is the fact most of this is show off and meant to gain media mileage. I do not think that these sudden saints of India care about corruption or welfare at all. If they did, then there are probably easier mechanisms that you’ll find in any elementary economic theory text book which are easier to implement, easier to manage and more welfare improving than designing laws and getting passed. My worry is that if the society is inherently corrupt and works largely in self-interest then no law would serve the required purpose. What would work however is a mechanism which is incentive compatible and individual rational for all participants of the society. Better still, some of the leading experts in game theory and mechanism design are Indians. To a student of economics names like Dilip Abreu, Arunava Sen and Rajiv Vohra are well familiar.

Some years ago I remember two IIT-IIM graduates, working for ONGC and some government construction company in U.P. and Bihar respectively, getting killed because they had gone a little too deep into the business of the local mafia. Obviously, even the local police did not do anything because unarguably even they were involved. As far as I remember, nothing eventually happened. Even the national media have forgot about them and are spending their airtime covering the jackass, good-for-nothing Ramdev. No member of the civil society ever pursued what happened to these young kids and what they were after. And I can assure you that there would be plenty cases like these which do not even get reported and no one really cares. In such an environment then, it inherently becomes the best response of every one to play the strategy to maximize their own welfare and forget about the society. It’s like the classic co-ordination failures game!

Do we have a better solution? I believe we do. Let me give an example. Kaushik Basu says that typically we have too much of government and ideally government should be scarce. I buy his point entirely. Why do you want to do everything yourself? Delegate. The government should just create incentives so that funds get allocated in the right areas and work happens. Consider a system in which the local government or panchayat lists out the facilities that are required in its area – roads, schools, electricity, sanitation, houses anything. Let them also run a fund where anyone can contribute and would be eligible for a r% tax rebate. Let r vary according to availability of funds in schemes. So like in a stock market, some scheme that has received more funds offers a lower rebate than a scheme that has received less funds. Market would ensure that all the funds get equally allocated. Then the panchayats can develop local areas on their own. This reduces the burden on the tax authorities, budget allocators, government, and bureaucracy and gives incentive for everyone to contribute. Since the payment will be online or electronic it will be easier to monitor. Alternatively, corporate giants can take care of small villages entirely and develop them with their money. My hunch is that even if you given them an over 100% rebate it’ll be better for the government in terms of the bureaucratic inefficiencies they have to deal with. Better for the companies also. Obviously, all corruption won’t be over but it’ll be reduced and hence better.

You can also have some government servants to look over the work that the corporate sector does. Again one might expect collusive corruption but if the local authorities have an equal say in ensuring that the rebate actually happens then this would again reduce. What I just said is not foolproof but you get the point. I’m sure if people like Sen, Vohra or Basu sit and create schemes they’ll come with actual better ones. What I am saying is that you do not always need stringent laws. It’s a waste of time. If people now have means and ways to escape the present laws, they’ll surely find ways to escape the new ones later. However, what you need is to get around the “middle men” and put in place a mechanism that is incentive compatible and rational for everyone. With some leading mechanism designers from India, I do not understand why they are not engaged in policy making. For example, why weren’t Sen or Abreu contacted for designing the auction procedure for 2G or 3G spectrum.

Obviously, this is not incentive compatible for the government and the “civil society” because they are the ones who benefit the most when development of any kind happens through the government. Hence, everyone just moves towards creating newer laws and getting more media mileage.

Why Kaushik Basu started reading?

"I began reading to get the better of the nerds of my school. I was talking of the boys with thick spectacles who came first or second or third in my class in Kolkata. I was quite bad at studies even though I too wore spectacles and of a thickness to match those of the finest minds. As a consequence, there were many students ahead of me. It was to counter their showing off of world affairs, Indian history and China's top 20 communist leaders, that I started reading. Technically, I could learn these things by asking others but then those asked would know that I do not know. Reading was the only way to appear innately knowledgeable."

(Source: Prologue to An Economist's Miscellany)

Lazy Allahabad

I always thought that I was the laziest person on earth but I was proved wrong very recently. Last month I was in Allahabad to take my GRE test. Me and my uncle were putting up in this hotel in civil lines right across my test center. It was not a cheap hotel, not a costly one either. Mid-range, charging around 2000 bucks a night we thought that we would have a pleasant stay. A 2.5 grand hotel in New Delhi gives a very very nice experience and Allahabad not being a metro, we thought would be even better at that price.

Anyways, we were soon to be astonished and very disappointed. The next day my uncle ordered his breakfast at 9 and they served it around 11 with no guilt what so ever. "Itna time to lagta hi hai sahab", said the waiter and he even dared to ask for a tip. Next day I was apprehensive that they'll be late again so I ordered my breakfast at 7 as my test appointment was at 9 in the morning and I told them that I have a test. When till 7.45 no one came, I called up the reception and asked them about the meal and they said that a waiter is on the way taking the breakfast.

Finally, at 8.15 we decided to go down and see what was happening. To our horror, the manager was sitting idly and the waiters very casually said that the breakfast had not even been prepared. Amazing un-professionalism this was. Anyways they were scolded and I had to just eat cornflakes and go take my test.

Another incident that frequently would happen in the hotel was that to save electricity bill they would very easily switch off the AC despite the fact that we were paying for an AC room. And when you told them it would take them 15 mins to switch it on. This is by far the worst hotel that I ever stayed it.

After the test we decided to go for a movie as we still had time for the train and so we went to the only PVR in town thinking we'd get AC. For the entire first half, there was no AC. And it mattered to no one in the audience but us. When we told the theater staff they said, "Sahab AC kharab hai". Again, the worst PVR experience. They should have ideally told us before or refunded our ticket fees. Why should a customer be charged 200 bucks for a non-AC movie hall once you promise something.

Anyways, after all that we were slightly late and had to pick up our luggage from the hotel and then goto the station. We told the rick guy to hurry and he said "Hum tez nahi chalega!". It's the worst experience I've had in any city. People are un-imaginably laid back and carefree. How can you expect change to happen?