Der Besuch der Alten Dame

An wealthy old woman comes to a broken down old town and promises the community a large sum of money if they will assassinate her old beau; he had once spurned her.  At first the citizenry refuses.  But suddenly people start spending more and borrowing more.  The woman’s promise is like a strongly expansionary monetary policy.  The circulating debt becomes liquid.  Prices rise.  Output rises too.

But there is still a free rider problem.  Who will kill the old beau?  Let someone else do it.

The clock ticks and prices, expenditures, and debts all continue to rise (what game-theoretic solution concept brings this result?).

At some point personal indebtedness is so high that it becomes privately rational to kill the old beau.  Remember the 1984 Bliss and Nalebuff piece about dragonslaying?  Someone will be the least cost killer, relative to benefit.



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