Changing the Debt-Ceiling Game: the “hold-up problem”

We can’t find enough ways to rehash U.S. budget negotiations because there are so many useful lessons.  David McAdams, a Duke econ professor whose upcoming book on game theory looks promising, explains why the conservative threat of default weakens their hand:

In game theory, this sort of quandary has a name: “the holdup problem.” Holdup problems arise anytime you need to trust someone else to follow through on a commitment, whether in business, romance or politics. We solve the holdup problem in everyday life quite simply, by treating one another with good will, and that’s how politicians used to get the government’s business done as well. That’s gone now, unfortunately, but there are other solutions.

When a transaction isn’t happening because of a lack of trust, the affected parties can still often reach a deal by tying their own hands, limiting their ability to take advantage of the other side.

via Changing the Debt-Ceiling Game – NYTimes.com.

Changing the Debt-Ceiling Game - NYTimes.com

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One thought on “Changing the Debt-Ceiling Game: the “hold-up problem”

  1. kttoolson says:

    I found this article to be very intriguing. I think it is important for us to study this government shutdown and make sure that this kind of crisis does not happen again. The approach that they suggest is to make a self-extension on the debt ceiling so that both parties will be held accountable. I think it is sad that the men in our congress can’t get anything done because they don’t trust each other. When we are able to put trust and cooperation back into our government, I think we will be able to get more done and make this country better than it is right now.

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