+1. This also ties in to the context in which I was thinking about this stuff: theory of the firm. The question is, why do people organize into companies? Why isn’t everyone always an independent contractor? Or, conversely, if firms are more efficient, then why isn’t there one giant firm? What determines the size of companies, and what’s insourced vs outsourced?
One broad class of theories boils down to “the employment relationship gives repeat interactions, which gives more data with which to figure out (in hindsight) what employees are doing”. Thus, companies. However, this is only useful until we have enough interactions to identify good employee behavior—after that, further interactions don’t add much, and the usual allocative benefits of market competition are more useful. Thus, not just one giant firm.
You could go further and say that when firms are too small, the level of trust is inefficiently low (“fly-by-night”), and when firms are too big, the level of trust is inefficiently high (“managerial feudalism”).
(On a side note, it now strikes me that there’s a parallel to RL blackbox optimization: by setting up a large penalty for any divergence from the golden path, it creates an unbiased, but high variance estimator of credit assignment. When pirates participate in enough rollouts with enough different assortments of pirates, they receive their approximate honesty-weighted return. You can try to pry open the blackbox and reduce variance by taking into account pirate baselines etc, but at the risk of losing unbiasedness if you do it wrong.)
+1. This also ties in to the context in which I was thinking about this stuff: theory of the firm. The question is, why do people organize into companies? Why isn’t everyone always an independent contractor? Or, conversely, if firms are more efficient, then why isn’t there one giant firm? What determines the size of companies, and what’s insourced vs outsourced?
One broad class of theories boils down to “the employment relationship gives repeat interactions, which gives more data with which to figure out (in hindsight) what employees are doing”. Thus, companies. However, this is only useful until we have enough interactions to identify good employee behavior—after that, further interactions don’t add much, and the usual allocative benefits of market competition are more useful. Thus, not just one giant firm.
You could go further and say that when firms are too small, the level of trust is inefficiently low (“fly-by-night”), and when firms are too big, the level of trust is inefficiently high (“managerial feudalism”).
That’s a great explanation. Bonus points for panache.
So this is the 2-of-2 exploding Nash equilibrium technique applied to multiple parties/transactions? What’s this generalized kind called?
(On a side note, it now strikes me that there’s a parallel to RL blackbox optimization: by setting up a large penalty for any divergence from the golden path, it creates an unbiased, but high variance estimator of credit assignment. When pirates participate in enough rollouts with enough different assortments of pirates, they receive their approximate honesty-weighted return. You can try to pry open the blackbox and reduce variance by taking into account pirate baselines etc, but at the risk of losing unbiasedness if you do it wrong.)