4) Game theory: markets, policing, and the self — an expanded essay

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Why this lens helps. Game theory asks what happens when payoffs depend on others’ moves—including police, sellers, buyers, and even my future self. It clarifies why crackdowns displace markets, why some neighborhoods get “quiet” equilibria while others get turf wars, why reputation can substitute for law, and why commitments (self-exclusion, deposits, delays) are rational for present-biased people.

4.1 Enforcement vs. dealers (inspection games)

I model policing as an inspection game: authorities choose inspection intensity; sellers choose exposure (how open, how often, where). The equilibrium is typically mixed (randomized checks; intermittent exposure). If inspections concentrate, sellers displace—spatially or temporally. The math predicts that randomized, unpredictable checks can reach deterrence with fewer resources than deterministic patrols; conversely, when resources are thin, enforcement predictably reallocates rather than eliminates supply (Chapter “Inspection games” in the Handbook of Game Theory; von Stengel’s survey). Handbook chapter; overview. (sciencedirect.com)

4.2 Seller–seller interaction (Hawk–Dove / coordination)

Among sellers, I often see a Hawk–Dove structure: violent assertion (Hawk) vs. tacit coexistence (Dove). Legal alcohol markets offload conflict to competition law and licensing; illegal heroin markets lack courts, so informal governance (reputation, retaliation) decides whether the equilibrium is relatively peaceful or violent. Theory also predicts price wars when monitoring is noisy: even cooperative cartels occasionally “punish” with low prices to discipline cheats. That result—collusion under imperfect information—is Green & Porter’s classic and it travels to street markets as periodic bursts of visible conflict. Green & Porter 1984; IDEAS entry. (jstor.org)

4.3 Seller–buyer trust (signaling & reputation)

Quality and safety rely on repeated play. With repeat interactions, sellers invest in reputation—predictable location/time, consistent packaging, sometimes third-party testing—because cheating pays once but destroys the stream. In one-shot interactions, trust unravels and the lemons problem bites: average quality falls, variance rises, and buyers face higher risk. For the repeated-game foundations see Mailath & Samuelson (OUP); for lemons, Akerlof (QJE, OUP). Mailath & Samuelson 2006; Akerlof 1970. (OUP Academic)

4.4 Intrapersonal game (present vs. future self)

Addiction also plays out as a game with myself over time. With present bias, “today-me” overweights now; “tomorrow-me” bears the costs. Sophisticates anticipate this and seek commitments (self-exclusion lists, deposits, cooling-off delays); naïfs don’t and over-consume. O’Donoghue & Rabin model the logic (AER). The intrapersonal game interacts with dynamic complementarity—today’s use raises tomorrow’s propensity (Becker & Murphy)—and with imperfect commitment technologies (Laibson’s illiquid “golden eggs”). O’Donoghue & Rabin 1999; Becker & Murphy 1988; Laibson 1997. (American Economic Association)

4.5 Harm reduction as coordination (the Stag Hunt)

Needle exchange, naloxone coverage, or alcohol-free “third places” are coordination problems: their value jumps once enough people and services participate. That’s a Stag Hunt: the safe, high-payoff outcome requires mutual assurance; otherwise people settle for risky, low-trust routines. Public provision and peer signaling shift payoffs so the safe equilibrium dominates. For the social-theory of Stag Hunt see Skyrms (CUP). Skyrms 2004/2012. (Cambridge University Press & Assessment)

Design heuristics I carry forward

Randomize inspections; avoid purely predictable patrols (4.1). (sciencedirect.com)
Lower the payoff to “Hawk”. Create licit avenues for dispute resolution; reduce the returns to violent governance (4.2). (jstor.org)
Institutionalize reputation. Drug checking and supervised consumption add verifiable signals into buyer–seller games (4.3, 4.5). (OUP Academic)
Offer commitments. Make self-exclusion, deposits, and delays easy and dignified in alcohol and platform contexts (4.4). (American Economic Association)

Literature & Links (APA)

Akerlof, G. A. (1970). The market for “lemons”: Quality uncertainty and the market mechanism. Quarterly Journal of Economics, 84(3), 488–500. Oxford Academic · JSTOR. (OUP Academic)
Becker, G. S., & Murphy, K. M. (1988). A theory of rational addiction. Journal of Political Economy, 96(4), 675–700. IDEAS/UChicago Press index · JSTOR. (IDEAS/RePEc)
Green, E. J., & Porter, R. H. (1984). Noncooperative collusion under imperfect price information. Econometrica, 52(1), 87–100. JSTOR · IDEAS. (jstor.org)
Laibson, D. (1997). Golden eggs and hyperbolic discounting. Quarterly Journal of Economics, 112(2), 443–478. Oxford Academic. (OUP Academic)
Mailath, G. J., & Samuelson, L. (2006). Repeated Games and Reputations: Long-Run Relationships. Oxford University Press. OUP page. (OUP Academic)
O’Donoghue, T., & Rabin, M. (1999). Doing it now or later. American Economic Review, 89(1), 103–124. AEA publisher page. (American Economic Association)
Skyrms, B. (2004/2012). The Stag Hunt and the Evolution of Social Structure. Cambridge University Press. Cambridge Core. (Cambridge University Press & Assessment)
(Survey) Inspection games. In Handbook of Game Theory with Economic Applications. Elsevier. ScienceDirect chapter · overview von Stengel. (sciencedirect.com)

Publishable version of the prompt

“Please expand ‘4) Game theory: markets, policing, and the self’ into a coherent essay. Cover: (4.1) inspection games and displacement; (4.2) Hawk–Dove dynamics among sellers and collusion under imperfect information; (4.3) signaling/reputation and the lemons problem (link to OUP Academic where relevant); (4.4) the intrapersonal present-bias game (link to American Economic Association page for O’Donoghue & Rabin); (4.5) harm reduction as a Stag Hunt coordination problem. Close with design heuristics and APA references with publisher-first links. Note the foundations in rational addiction and present bias (IDEAS/RePEc / OUP).”

Prüfprotokoll

Status: Enriched section v1.0 (WordPress-ready).
Checks: All claims tied to primary, publisher-linked sources (OUP, AEA, Oxford Academic, Elsevier/ScienceDirect, JSTOR/IDEAS).