Sorry for being passive for the last week. I decided to take a bed from this blog because of work. Now let me get back at you folks with some story telling.
A week ago an auction sold a giant truffle, a rare delicacy, for about than 40,000 USD/pound. For those who are not familiar with this wild root, this item is chic enough to drive restauranteur and executive chefs from restaurants such as New York's Union Pacific to California's French Laundry crazy. Looking somewhat similar like a potato yet slightly pungent in aroma, ordering a salad-du-jour sprinkled with truffle, a splash of cold pressed extra virgin olive oil, and Parmigiano-reggiano cheese can asymptotically transform your average appearance to a regular bloke in the discontinued trans-Atlantic Concorde flight.
Exit straight East. Last Thursday, Japanese consumers were to be the 2nd largest consumers of Beaujolais-Nouveau, a young French wine, in the world. By law, this type of French wine can only be consume simultaneously on the 3rd Thursday regardless where you live. Apparently it has become a ritual race to serve wine fanatics around the globe on Thursday early midnight. For the last month, unnoticed mammoth logistical operation had taken place to transport millions of bottles around the world, from Lyons to Tokyo, Singapore, Jakarta, as well as the cafetaria of my workplace.
Move westward. China. One billion people with excess appetite for endangered species parts from turtle, monkey brain, shark’s fin, bear claw, and tiger penis. Some consume because their belief in the healing power of those delicacies and some are just plainly hungry for new yet sometimes raw adventure. Tiger penis’ soup in fact are priced according to how many times that poor animal meat has been used. The first "boil" is supposed to be the most expensive.
Let us all not be deceived. My point in each illustration is that there is an immense value created from the production, transaction, and delivery processes of each good/services.
Back to last month posting by AP on Friedman paradox (government role to protect property rights vs. to serve individual interest). I do not intend to answer your posting directly.
But what I do intend is for us to imagine how would it be if none of us has the right to legally defend our idea and our possession. Imagine a world without governance, without any legal protection whatsoever for your ideas and possessions. Then truffle would be cultivated by savage tribes; auctioneer will be likely found dead before even announcing the winner; and executive chefs can be kidnapped and force to work for any restaurant run by gangster. Not to mention resources spend on arming yourself and your family against looters. Red wine ? No Japanese will be able to consume because the shipment will not likely to pass even 5 km from Lyon. The UPS driver is likely to be lynched by mob who are desperate to possess the wine at the same time forgetting that no value can be created if there demand is suppressed at the other end. Tiger penis? Except Chinese royals or communist party officials, average bloke like us can’t get access to that rare thingy, hence “consumer surplus” evaporates (Don't get me wrong, I'm not advocating to eat /hunt down tigers. I believe this is an endagered species and its extinction is worse for all of us)
Thus IMHO an institution (or an agent zero as said in the infamous Mascolell et.al) that can credibly facilitate an efficient and secure bargaining process is needed if parties are interested in achieving optimal bargaining outcome. Othewise, as characterized by the Nash bargaining problem, short-sighted, short-tempered, ill-informed parties have less likelihood to achieve greater outcome and more likely to get the trheat value (low equilibrium).
...Mmmmm...... we need a government ?