> Underproduced compared to what? “Compared to the consumers’ true preferences,” a mainstream economist would respond. This would imply, however, that Lambos are also underproduced, and almost everyone would agree that this conclusion is ridiculous.

Huh? This does not make sense. Lambos are a private good (and a mild public bad for congestion and Veblen reasons, but let’s skip past that…), police are a public good. The reason why public goods are underproduced is that anyone paying for a public good, by increasing the level of production of that public good, is benefiting N people, but is only themselves getting 1/N of that benefit. Ergo self-interested individuals will only contribute to public goods whose benefit/cost ratio is greater than N:1. It’s a tragedy of the commons scenario. I agree that it’s difficult to know which public goods have a benefit/cost ratio greater than 1:1 (and so are worthy of production), but what we do very clearly know is that the set of goods that would be produced only through individual donations is much smaller than this set. Meanwhile, if you buy a lambo, you pay 100% of the cost and absorb 100% of the benefit.

> It is thus impossible for the government to deduce what maximum concentration of CO2 they would settle on if it were possible to have a process similar to the market provision of apartments. Just with government-provided policing, any CO2 emission cap will be an extra-economic decision by the social engineer.

Well, if you want a market/democratic mechanism to figure out the optimal tax level there is https://vitalik.ca/general/2019/12/07/quadratic.html ; but sure, because of limits to rationality, the optimal tax level is much harder to determine than the optimal level of purchase of a private good.

> compared to non-economic criteria like the ethical imperative to curb catastrophic risks

Huh? Catastrophic risks are a public bad and can be modeled as a public bad similar to CO2 levels.

> it may well be that a certain minimum block reward may be needed to induce a given blockchain’s validators purely from the network security perspective. It just will not mean that this would reflect economic factors

How is people’s desire to have a secure network not an economic factor?

> A mainstream economist would certainly consider the maintenance of money supply to be a public good that in the absence of government involvement will tend to be underprovided.

I definitely do not subscribe to the viewpoint that the maintenance of the money supply is a public good to remotely the same extent that network security is. Sure, there are some public interest concerns (eg. for weird systemic reasons deflation is more likely to lead to recessions than mild inflation), but the largest function of money is its benefit to the specific people transacting in it, who can choose which money they use.

Network security, OTOH, is non-excludable within the scope of users who already agreed to use that network.



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Vitalik Buterin

Vitalik Buterin

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