NYU Stern

Robert H. Frank

Abstract of Conference Paper

Liberty, Competition, and the Common Good

Anti-government activists fondly cite Adam Smith’s invisible hand theory, which in their version says that competition channels self-interest for the common good in almost all cases, and in other cases far better than any other allocation mechanism.  Liberals counter that regulation is necessary because markets aren’t truly competitive. And there the conversation typically ends.

I will argue that our current gridlock stems from a profound misunderstanding about how markets actually function. Market failure, in most cases, results not from any shortfall of competition, but from the very logic of competition itself.

My case rests on Charles Darwin’s insight that individual and group interests often diverge sharply. The massive antlers of bull elk, for example, were favored because they were effective weaponry in the competition for access to females; but because it was relative antler size that mattered, the result was an arms race that proved costly for bull elk as a group.  Antlers four feet across and weighing 40 pounds made them far more vulnerable to predators in wooded areas.

Similar conflicts pervade the modern marketplace. For instance, a parent might accept a riskier job at higher pay to buy a house in a better school district.  But because school quality is a relative concept, when other parents make the same choice, they succeed only in bidding up house prices in those districts. As in any arms race, individual actions are mutually offsetting.

Everyone might prefer a world in which all enjoyed greater safety, even at the expense of lower wages. But workers control only their own choices.  If a only a few accepted safer jobs, they would be forced to send their children to inferior schools.  To get the outcome they desire, they must act collectively. A mere nudge won’t do.

Regulation exists not because there is insufficient competition, but because individual incentives favor behavior that causes undue harm to others.  The least intrusive remedy is not to prohibit such behavior but to tax it. By so doing, we could eliminate government debt and refurbish long-neglected public infrastructure without requiring painful sacrifices from anyone.

Conference Paper

ISUS 2012 UnderConstruction

Biography and Publications
ROBERT H. FRANK is the Henrietta Johnson Louis Professor of Management and Professor of Economics at Cornell University Graduate School of Management. He has also served as a Peace Corps volunteer in rural Nepal, chief economist for the Civil Aeronautics Board, fellow at the Center for Advanced Study in the Behavioral Sciences, and was professor of American Civilization at l'Ecole des Hautes Etudes en Sciences Sociales in Paris.

Frank's books include Choosing the Right Pond, Passions within Reason, Microeconomics and Behavior, Luxury Fever, and What Price the Moral High Ground? The Winner-Take-All Society, co-authored with Philip Cook, was named a Notable Book of the Year by The New York Times, and was included in BusinessWeek's list of the ten best books for 1995.

Recent Publications by Frank:
Fehige, Christoph; Frank, Robert H.."Feeling our Way to the Common Good: Utilitarianism and the Moral Sentiments"The Monist  93.1  (2010):  141-165.

Frank, Robert H..  "The Strategic Role of the Emotions"  Emotion Review  3.3  (2011):  252-254.

Frank, Rober H..“Supplementing Per-Capita GDP as a Measure of Well-Being,” American Economic Association Annual Meeting Papers, (2011)



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