Jockeys, whips & market failure

The British Horseracing Authority has announced tougher new rules on jockeys’ use of the whip. This draws attention to an insufficiently appreciated failing of free markets.
What I mean is that using the whip is an example of an arms race. In the absence of rules against whipping, each jockey would whip his horse to go faster. The upshot would be no advantage to individual jockeys - only one of whom could win the race - but lots of discomfort to the gee-gees.  In other words, the rational pursuit of individual self-interest leads to an outcome that is, in aggregate, worse for everyone* - “smart for one, dumb for all“, as Robert H. Frank has said.
What’s more, this problem cannot be solved reliably merely by voluntary contracts. Jockeys cannot agree among themselves not to use the whip, simply because any individual jockey would have an incentive to defect and use the whip to increase his chances.
The only solution, then, is to have rules imposed from outside, as the BHA is doing.
But here’s the thing. There are, perhaps, lots of examples in economic behaviour of arms races.
1. In a workplace each individual has an incentive to work longer hours to win promotion. But if everyone does so, individuals’ chances of promotion don’t change. All that happens is that people work longer (pdf) than they‘d like.
2. One objection to  Catherine Hakim’s advice that women should make more of their erotic capital is that, if all women do this they will over-invest in surgery, clothes and cosmetics without improving their earnings. Men will benefit from there being fewer munters, but women will lose.
3. Education, arguably, has become an arms race. If loads of people have degrees, others need one merely to avoid the negative signal sent by not having one. And yet others will get a postgraduate degree to signal their superiority over first degree-holders. The upshot is over-spending on education and over-qualified workers.
4. Robert H. Frank has argued (pdf) that Americans’ over-indebtedness in the 00s arose from a kind of arms race. As people saw friends and neighbours spending more, they too spent more in order to keep up with the Jones’. The result was high debt and anxiety arising from a fear of “falling behind.”
In all these cases, rational self-interest can lead to a decline in aggregate well-being. Adam Smith’s invisible hand, then,  fails more often than is generally realized. In this sense, the BHA has reminded us of the limits of “neoliberalism”
* I’m ignoring here the possibility that race-goers gain utility from the increased speed of all horses.

Comments

[WH]

This needn't be a negative thing though, surely some arms races can be seen as virtuous circles? I'd rather be in an office in which everyone works hard, rather than a place where slacking is tolerated, because I know how lazy I can be if given the chance, and I don't want to feel like I'm wasting whatever talents I might have. Man is not just a rational animal, he's a lazy one too, and knows it ;).

[matt]

These are not examples of market failure, rather of individual failures. There are no inherent inefficiencies in any of the scenarios.

It's attempts like this to couch personal belief systems in economic terms that discredit attempts to study human choice. The individuals above are acting irrationally (not rationally, as you posit) when they fail to obtain sufficient information regarding their actions and the actions of others.

This is simple game theory at best and mere irony at worst.

[gastro george]

Can I add the luggage conveyor belt? Everybody gets as close as they can to the belt, so few can see or retrieve their luggage without barging other people out of the way. Where's James Dyson when you need him?

[CMcM]

"There are no inherent inefficiencies in any of the scenarios".

Well, it does rather depend if you're a horse or not.....

[Yo Gabba Gabba]

In the absence of rules against whipping, each jockey would whip his horse to go faster

This is factually wrong. You should talk to some trainers.

[James]

This ain't right, something should be done about this!

[TheThoughtGang]

I'm not sure I see the rationality in the self-interest in No 4.

In 3, well we can argue that human capital gains from having all these educated people. If we're disregarding that and focussing purely on the quest for employment, then those who follow a course thinking that it will benefit them, when objectively they should see that it will not, are not being rational. So in 3, we have a great many people acting irrationally… and will the market not reward people who innovate and chose a different path?

Again, in 2, it's not rational to seek advantage by being the same as everyone else. It's rational to distinguish oneself by finding the best way to be different.

One is tricky. It may be irrational for me to work longer than I would like to gain a promotion, but it is not necessarily irrational of me to work longer to keep my employment. That takes us to the same place (though, perhaps, slightly better because, at least, we may get what we want). But if everyone does it, and does it rationally (i.e. only does the hours if there is productive outcome to them) then eventually there are no hours to fill and do we then scale back. Could one extend your argument the other way.. with everyone doing less and less until we reach just the right balance?

Of course, the whipping issue stands up the best.

[uzsi]

As for the main post of the blog and the idea, it's probably humans' nature to have the herd instinct. If somebody does a thing, which seems relevant or beneficial for other (in some of these cases avoiding being outran), it is natural that most of others will follow the "discovery" and follow the "trend". Only few, probably, would stop and think, that, as a consequence everybody will still reach the same level in a long-run.. and only those few would try to find out something own to overcome a throng. And even in these situations there'll appear the "trend followers". Just a thought..

[Paolo Siciliani]

@matt - may well be simple game theory, but you show lack of understanding: ever heard about the prisoner's dilemma, where the stage game only Nash eq is the arm race, even if you know it.

You know you'd be better off if everyone worked less, since the extra effort you put in to get a promotion is wasted as you know everyone will match it and your chances will be unchanged (this is an inefficiency as the extra effort at the margin doesn't pay off). At the same time you know that if you don't put the extra effort, your chances of promotion will be squandered, given that you expect everyone else to work longer hours than you.

[WH]

@Paolo regards being better off if everyone worked less, what if the result of that is that the company goes down the pan? I think that example only really works if ones job is to dig holes in the ground and then fill them in, unless I've missed something?

[Paolo Siciliani]

@WH, yes you have. The company may actually overcook its employees, who may take suboptimal short term risks, induce too much turnover, and so on and so forth, all of which could result in lower productivity than absent an arms race. This blog has been pointing out many of these distortions so you should be familiar with them,

I'm not saying that competition is bad, I'm saying, like everyone not interested in easy rethoric that it is not a monotone relationships (more of an inverted U relationship I'd argue), hence passed a certain threshold there might well be market failures.

[Keith]

So the correct policy by this logic is to have no whip so all are on the same footing. Or Better to stop exploiting horses as entertainment by ending horse racing and bull "fighting", plus abolishing wage Labour hence the need to impress bosses. The answer as Einstein put it " is Socialism ". Be nice to people and animals.