The Value of A Privileged Minority

in defense of billionaires

Producing a Public Good

One of the defining features of a public good is that the producer cannot control who gets it, which means that the cost of producing it cannot, as with a private good, be collected by refusing to provide it to anyone who does not pay. That is the public good problem, one of the reasons why a market economy does not always produce anything worth producing, often offered as a justification for government producing things instead.

Controlling government, getting it to do things that are worth doing and not do things that are not, is itself a public good. If I spend time and money electing the better candidate, lobbying for a good law or against a bad one, the benefit from my effort is shared with my fellow citizens whether or not they have shared the cost. Hence the government solution to the public good problem is itself blocked by the public good problem

There are, however, private solutions to the problem of producing a public good. One of them is a unanimous contract; if the public, the group of people who benefit if the public good is produced, is sufficiently small, they may all be willing to chip in to pay for it on the grounds that if any of them refuses it won’t get produced. That gets harder to do the larger the public is.

Another solution, if there is a group of members of the public small enough to manage a unanimous contract and with a combined benefit from the public good being produced larger than the total cost of producing it, is for the members of that group to pay all of the cost. Such a group is referred to in the literature on public goods as a privileged minority, a somewhat misleading label since they have the privilege of paying for what the rest of the public gets for free. A privileged minority is more likely to exist if the benefit from the public good is much greater than the cost and distributed unevenly, so that a small fraction of the public gets a substantial amount of the benefit.

For a simple example, consider my decision to repaint my house. It is a public good since my neighbors benefit by living in a more attractive neighborhood and passersby benefit by enjoying the improved view as they pass. I, however, get a large enough benefit to be willing to pay the entire cost; I am a privileged minority of one. The fact that the benefit is unevenly distributed is the reason the house gets repainted. A public good with the same cost and benefit whose benefit was evenly distributed among the same set of people would not get produced; everyone’s business is nobody’s business.

What started me thinking about this was reading two news stories (London Times, WSJ) about research on slowing or reversing aging, funded by a small number of very wealthy individuals, Jeff Bezos among them. I am old and like living, would be willing to spend a substantial fraction of my total wealth on aging research if doing so would significantly increase the chance of a cure for aging being found. But it wouldn’t; I am well off but not that well off.

Jeff Bezos probably is. If the problem is soluble — neither he nor I knows if it is but I see no reason to be confident it isn’t — an additional few billion dollars spent on research run by competent people might significantly improve the odds. Jeff Bezos is 61. Eric Schmidt is 70. Peter Thiel is 57. Marc Andreessen is 54. Yuri Milner is 63. The combined value to them of a solution to the aging problem must be well over a hundred billion dollars and they may reasonably believe that ten billion dollars will buy a ten percent chance of finding one.

They are a privileged minority, I am a free rider.

Dollars Vs Utility

Part of the reason this works is that the payoff is in utility, not dollars. If the public good to be produced paid a fixed number of dollars its dollar value to Bezos or Thiel would be the same as to you or me; there would not be the very uneven distribution of value that lets a small fraction of the public get a substantial fraction of the value and so makes a privileged minority possible. A payoff in life may be worth the same amount of utility to Bezos as to me but it is worth a lot more dollars.

A common utilitarian argument for transferring dollars from rich to poor is that dollars are worth more to those who have fewer of them. This is the same phenomenon in a different context. Dollars are worth less utility to Bezos so utility, in this case the utility of not dying of old age, is worth more dollars. It follows from this argument that the privileged minority solution to the public good problem is not only more likely to exist when the public is small and the value of the public good much greater than its cost, it is also more likely to exist when the payoff is in utility rather than money.

My usual argument against income transfers as a libertarian is that they are unjust, that individuals who have produced value without violating anyone’s rights are entitled to keep it. My usual argument as an economist is that if political power can be used to transfer wealth it will be in the interest of individuals to spend their resources to transfer wealth to themselves and prevent wealth from being transferred from themselves; substantial amounts will be consumed in rent seeking, making all of us poorer, and there is no reason to expect the poor to be the winners.

Neither of those is an argument in favor of unequal incomes; both work just as well as arguments against transfers from poor to rich. This one is; an advantage of an unequal distribution of wealth and income is that it makes it easier to solve some public good problems. It works even better if the wealthy people got that way through talent, not inheritance, as most of these did, since that makes it more likely that their efforts will succeed.

As Always, More Complicated

I have oversimplified the situation; the knowledge of how to reverse aging is not a pure public good. If research funded by Bezos et. al. produces a way to reverse aging, the people who funded it can probably collect some of the value to other people of the knowledge they have produced as well as all of the value to themselves. In the short run their invention may be protected by patents, if not patentable protected as a trade secret, if not concealable by first mover advantages — the people who invented it will know more about how best to implement their invention than their imitators.

And they asked me how I did it; and I gave 'em the Scripture text,
"You keep your light so shining a little in front o' the next!"
They copied all they could follow, but they couldn't copy my mind,
And I left 'em sweating and stealing a year and a half behind.

(“The Mary Gloster”)

So we might get it even without a privileged minority of billionaires to pay for it.

Or might not.

My thoughts on the results of curing aging.

---

Past posts, sorted by topic

My web page, with the full text of multiple books and articles and much else

A search bar for text in past posts and much of my other writing