Suffragettes on their way to Boston.

# Unit 5 The rules of the game: Who gets what and why

How institutions influence the fairness and efficiency of the outcomes that result when people interact in the economy

### Before you start

This unit builds on the modelling of economic interactions in Unit 4. If you have not already worked through Unit 4, you should read, at a minimum, Sections 4.2 to 4.4, which introduces game theory, Section 4.5 on the Pareto criterion and Pareto efficiency; and Section 4.11, which describes the ultimatum game.

To understand the model we develop in this unit, you will need to be familiar with the method explained in Sections 3.2 to 3.5 for solving constrained choice problems using indifference curves and the feasible set.

## 5.1 Pirate economics

Perhaps one of your distant ancestors considered that the best way to get money was by shipping out with a pirate like Blackbeard or Captain Kidd. If he had settled on Captain Bartholomew Roberts’ pirate ship the Royal Rover, he and the other members of the crew would have been required to consent to the ship’s written constitution. As shown in the image in Figure 5.1, ‘The Royal Rover’s Articles’, a written document, set out rules of conduct for the pirates but also guaranteed them several rights.1

The Royal Rover and its articles were not unusual. During the heyday of European piracy in the late seventeenth and early eighteenth centuries, most pirate ships had written constitutions that guaranteed even more powers to the crew members. Their captains were democratically elected (‘the Rank of Captain being obtained by the Suffrage of the Majority’). Many captains were also voted out, at least one for cowardice in battle. Crews also elected one of their number as the quartermaster who, when the ship was not in a battle, could countermand the captain’s orders.

If your ancestor had served as a lookout and had been the first to spot a ship that was later taken as a prize, he would have received as a reward ‘the best Pair of Pistols on board, over and above his Dividend’. Were he to have been seriously wounded in battle, the articles guaranteed him compensation for the injury. He would have worked as part of a multiracial, multi-ethnic crew of which probably about a quarter were of African origin, and the rest primarily of European descent, including Americans.

The result was that a pirate crew was often a close-knit group. A contemporary observer lamented that the pirates were ‘wickedly united, and articled together’. Sailors of captured merchant ships often happily joined the ‘roguish Commonwealth’ of their pirate captors.

Another unhappy commentator remarked: ‘These Men whom we term … the Scandal of human Nature, who were abandoned to all Vice … were strictly just among themselves.’ If they were Responders in the ultimatum game (Section 4.11), by this description they would have rejected any offer less than half of the pie!

1. Peter T. Leeson. 2007. ‘An–arrgh–chy: The Law and Economics of Pirate Organization’. Journal of Political Economy 115 (6): pp. 1049–94.