Notes on Robinson Crusoe, chapters 38 through 42
Microeconomics isn’t an unrealistic / useless science. It’s true Varian’s Intermediate Microeconomics textbook addresses market failures vaguely, but I believe we must walk before we can run, and, therefore, it didn’t bother me to think the economic world surrounded by hypothesis for a while prior to aiming at the complexity of human being. I’m not saying my gun is loaded and ready to shoot, but, little by little, as I keep trying to merge different analytical tools or scientific viewpoints (if you will) and widen the analytical framework in which I view the world, I dare take a look at the human being as irreducible.
Anyway, Varian’s last chapter discusses one sort of market failure: Asymmetric Information. That’s the only chapter that loosen the Perfect Information hypothesis, for Asymmetric Information means that buyer and seller aren’t equally informed about the product in transaction; one would except that seller knows much more information than buyer about the good’s quality.
Asymmetric Information leads to Adverse Selection and Moral Hazard, but, as these concepts aren’t met by Robinson Crusoe through chapters 38 and 42, I shan’t talk about them.
A different implication of Asymmetric Information, however, comes into Robinson’s mind this week: the role of incentives.
“We turn now to a slightly different topic, the study of incentive systems. As it turns out, our investigation of this topic will naturally involve asymmetric information (…) The central question in the design of incentive systems is ‘How can I get someone to do something for me?’ ” (Varian, 2006, p.641).
That’s exactly what Robinson was asking himself the day before he met Friday, I.E., Thursday (Friday was named after the day he was saved by Robinson).
Precisely, after having a queer dream in which Robinson saved a savage from being eaten and he became his servant, Robinson started wondering whether that could actually happen.
What kind of incentive would be necessary so that his servant would put maximum effort into work, or, in other words, what would cause a servant to by loyal and help him sail back home?
“If I could only get hold of a savage and teach him to love me, things might turn out just that way. He must be one of their prisoners and I must save him from being eaten; for then it will be easy to win his friendship”
One and half year later Robinson’s dream came true. Everything happened like he dreamt and Friday became his loyal servant.
The asymmetry of information regards knowledge about the ocean’s local conditions. Even though Robinson was a good sailor, he didn’t know the tide patterns at that particular region, actually he didn’t even know where he was. Therefore, Robinson figured that a savage would be necessary so he could get back home. However, also did he know, he needed a savage that was willing to help him, or else the savage could take him back to his tribe. He needed a servant / friend.
Saving a savage from death, thought Robinson, was the only incentive that could make a savage work for him with his maximum effort.
He figured it right, for Friday would do everything to please Crusoe from that day on…