Category Archives: Game Theory

Double Post: Subsidies and the Prisoner’s Dilemma

Again, I’m sorry for missing a day, but I’ll do some related topics in today’s double post: Subsidies and the Prisoner’s Dilemma.

Subsidies are support income provided by the government to certain companies, namely agriculture and energy providers. In the past, these sectors were weak and needed support from their companies otherwise life in general would collapse (no food, no electricity, no fuel, etc.). I’m not going to argue that subsidies are not needed, I’m no expert in economics and it’s not my place to do so, but some subsidies, such as those that pay farmers not to farm (which I’ll get to in a bit because it has a little to do with the next topic) are counter-intuitive.

So what does paying farmers not to farm have to do with the Prisoner’s Dilemma? First we have to know what the Prisoner’s Dilemma is. Say we take two prisoners, Alvin and Bruce, who have together committed a crime (the details aren’t exactly important). If either one sells out the other, and the other confesses, the one who confessed gets one year in prison while the one who betrayed gets off free, if both betray each other, both will get three months in prison, and if both confess, both get only one month in prison. It’s, individually, in both Alvin’s and Bruce’s to betray, but it’s in their collective interest if they both confess. We see something similar in raw food prices. If a farmer produce large amounts of food, that food will be worth less due to inflation, than it would be if they produced less, but if farmer produce less food they are at the whim of the markets and could get in trouble due to other farmers potentially producing more food and driving prices down. That’s the farmer’s dilemma, and that’s where subsidies come in.

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