Collective Action Problem: A Prisoner's Dilemma

For how often the term ‘government’ is used, it can be difficult to understand in its entirety. At times, the government can seem like nothing more than a bother in our lives and some may question its true practicality. To understand exactly who has power and under what circumstances, as well as why government is necessary in the first place, it can be fruitful to explore it through the lens of principal agent problems and collective action problems. I will explain the scope of these problems, how and why they arise among members of a society, and how government attempts to solve them.

One of the main functions of government is to solve collective action problems that arise in our society. A collective action problem is a situation in which

In the prisoner’s dilemma, two prisoners each have the chance to shorten their sentence in jail. If neither prisoner rats each other out for the crime, they each serve only 1 year. If one rats and one does not, the one who did not will serve 4 years and the other will serve none. If they both rat on each other, they will each serve 2 years. It is clear that the socially optimal solution is for both prisoners to stay silent so they each serve only 1 year. However, neither prisoner should trust the other to do that if they are both thinking rationally. No matter what one prisoner does, the other should always rat. If prisoner A doesn’t rat, prisoner B should turn around and rat to get away with no jail time. If prisoner A does rat, prisoner B should rat anyways to serve only 2 years instead of 4. Therefore, regardless of which option prisoner A chooses, it is in prisoner B’s best interest to rat on them. The same goes for prisoner A as well, so both prisoners will inevitably, predictably end up ratting one another out and each spending 2 years in