American Economic Association

Competition, Cooperation, and Conflict in Economics and Biology Author(s): J. Hirshleifer Reviewed work(s): Source: The American Economic Review, Vol. 68, No. 2, Papers and Proceedings of the Ninetieth Annual Meeting of the American Economic Association (May, 1978), pp. 238-243 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/1816696 . Accessed: 19/06/2012 18:00
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Competition, Cooperation, and Conflict in Economics and Biology

BN J. HIRSHLEIFER> From one point of view, the various social sciences devoted to the study of
man, economics among themn constitute

but a subdivision of the all-encompassing field of sociobiology (see Edward 0. Wilson, 1977). This idea need not be strange to economists. Adam Smith rested what he regarded as the foundation of human economy, the division of labor, upon a (supposedly unique) biological instinct of mankind to truck. bartei-rand exchange. And Alfred Marshall declar-ed that economics is a brianch of biology. But a rather- mor-e exciting interpretation of the relation between the two fields of study has been proposed here by Michael Ghiselin: he argues that biology should be regar-ded as 1lltlItrtil e(onom1v, while much if not all of the subject matter of the conventional
social sciences
coimlpr-ises

in essence

the

field of political eolnN-both (ol being subdivisions of universal gec;ieral ecw(i( o1n11i.
1. Natural Econoim vs. Political Econonm

In traditional political philosophy, or legendary political history. the step from natural economy to political economy was taken only by man in the form of the social contract of Rousseau or Hobbes. But one thing we have lear-ned from comparative sociobiology is that there is no such sharp discontinuity in social organization, just as there is no sharp discontinuity in physical for-m between man and other- branches of life. Within a social group. 11i1' emerges when "moralistic aggression '' (see Robert
Trivers) by third-party intervenor-s ser-ves

to control internal strife. Parental regulation of intrafamily conflict is an obvious and widespr-ead example. Goicruimen;t may be said to exist when, in groupings lcargerthan a single family. control tasks are performed
University (f Californila-Los Angeles. 238

by specialists (in the biological realm, generally by dominant animals). The immunities from invasions thus created prefigure the human institution of property (see Melviin Fredlund). The advantages of these political economny institutions are evident. Law and gover-nment deter or limit the internal fighting that would be disfunctional for the group as a whole. Individuals need not diver-t effort to continual patrolling and monitor-i ng. Also, with property becomes a possirecognized, e.x('aIllge bility-and. ultimately, the more sophisticated dealings in deferred reciprocations that constitute the essence of cmOtract. Yet the institutions of political economy can never be so perfect as to entirely displace. even in human societies, the underlying realities of natur-al economiiy. Every living organismiiriemains to some degree in a Hobbesian state of nature. Most importantly for mankind, intercourse among nations lies outside the scope of effective law. Even under law and government, the rational self-interested individual will strike a balance between lawful and unlawful means of acquilring resources-between production and exchange on the one hand and theft, friaud,and extor-tion on the other. For that matter a perfectly law-abiding individual (if there is any such) could not have such confidence in third-party enforcement as to entirely forego personal vigilance and self-defense. Ancdsetting aside i'iolation of law, the structur-e of the law itself will necessar-ily have greater-or lesser imperfections. It is not always practicable to define rights to proper-ty in sulch a way as to ban socially wasteful activities designed to capture benefits while imposing costs on others (what we call externalities), or to for-eclose effor-ts aimed at influencing government or revising the law so as to redefine rights in ones favor. This latter activity is of course

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the stuff of redistributive politics. In short, while the intellectual division of labor whereby biologists concentrated on natural economy and economists on an idealized political economy is an entirely understandable one, in the actual world the separations are by no means clean-cut. As categories in general or universal economy, fundamental concepts like scarcity, competition, equilibrium, and specialization play similar roles in biological and economic systems. Analogs are suggested by terminological pairs like species/industry, mutation/innovation, mutualism/exchange, and evolution/ progress. Regarded more systematically, the isomorphism between formalizations of natural economy and political economybetween sociobiology and economics-involves the intertwining of two levels of analysis. On the first level, the acting units or entities choose strategies or develop techniques that promote success in the

struggle or comnpetition for advantage in

given environments. The economist usually calls this process "optimizing," the biologist, "adapting." The equations involved represent constrained maximization. The second, higher level of analysis examines the aggregate result, the social consequences of the interactions among the striving entities. Here we have equations of equilibrium, or of paths of change toward solution states. The solutions on the two levels are of course interdependent. The pursuit of advantage on the part of acting units takes place subject to opportunities and constraints that emerge from the social context, while the social configuration itself depends upon the strategies employed by the advantage-seeking entities.
II. Competition in Relation to Cooperation and Conflict

Competition is the all-pervasive law of natural economy interactions. The source of competition is, of course, the limited resource base of the globe in the face of the universal Malthusian tendency to multiply. By natural selection the biosphere has come to be filled by life forms successful at

multiplying and pressing upon one another for command over resources. This teeming of life is therefore both cause and consequence of biological competition. Biologists have found it useful to distinguish between "scramble" and "interference" as competitive strategies. Scramble competitors ignore one another, interacting only through depletion of resources. The winning organisms are those most efficient at extracting energy and other inputs from the external environment. Interference strategists, in contrast, gain and maintain control over resources by fighting off or reducing the efficiency of rivals. By a further extension, an interference strategist may go so far as to become a predator-for whom the competitor organisms become part of the resource field. From these biological categories it might be inferred that competition must be wasteful and antisocial (Pareto inefficient). And yet the economist views competition as essentially a harmonizing force (the "Invisible Hand"). How can this be'? First, under (idealized) institutions of political economy only scramble competition would be permitted. A businessman cannot blow up his rival's shop (interference), or stock his own store by raiding the other's inventory (predation). (Note that "predatory competition" in the antitrust sense is an inaccurate biological metaphor.) And furthermore, again ideally speaking, the assignment of property rights would be such as to rule out "Pareto-relevant externalities." If this condition were not met, then, as in the classical fishing model of H. Scott Gordon, even the more innocuous scramble competition has each fisherman the extractive impairing efficiency of his rivals. There would thus be a net social loss from competitive (as opposed to monopolized) fishing effort. The second essential is that competition for the economist is always a three-sided interaction: vying against a rival or rivals, but for the opportunity to engage in mutually advantageous exchange with a third party. Biological competition mav also be three-sided, as when males vie to

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mate with females, or flowers produce fragrances to attract pollinating insects. More commonly, biological competition is two-sided striving, which inevitably becomes socially wasteful. A human example would be duels for survival, as between gunfighters or nations, conducted of course under rules of natural economy. The Invisible Hand thus requires a severely constrained form of competition; vying to engage in exchange with third parties, and doing so only by offering better terms under an ideal system of property and law.
III. Cooperation, Conflict, and Their Limits

If competition is the basic law of life, how is it that organisms sometimes confer benefits on others? In the political economy cooperation mainly takes the form of exchange for mutual gain. How can the analog of exchange, mutualism, be viable in the realm of natural economy without any system of law to guarantee repayments'? And how can one-way transfers, unilateral gifts, be explained in either the natural or the political economy? Or, where (on fict exists, how and why is it that the battle is often limited rather than all out (see Konrad Lorenz)'? The economist approaches problems of optimal action by distinguishing between
preferences

and

opportlunities.

Tradi-

tionally, he takes preferences as arbitrary brute facts. An individual might inexplicably have an innate sympathy for some of his fellow men and, perhaps, an antipathy to others. Yet to a good approximation, mainstream economics has argued, people can be assumed to be merely neutral or self-interested (economic man). In our intellectual tradition, overwhelming emphasis has consequently been placed upon the determining importance of opportunities: the mutual advantages that entirely self-interested persons can gain through social cooperation, to wit, increased production through specialization and the division of labor and improved allocations of products through exchange. But, social biology tells us, preferences (and, in particular, innate benevolence or

malevolence) are not arbitrary but are themselves mainly adaptive (see Darwin on social instincts in The Descent of Man, chs. 3-4). The fundamental brute fact is the selfishness of the gene (see Richard Dawkins). Man himself, full of love and hate and sheer cussedness, ill fits the model of'"ecothe gene is an "economic man"-but nomic gene." It has been selected to survive on the basis of successful selfishness. However, depending upon opportunities, the interests of the gene may sometimes be served if the organism housing it is programmed to help or to hurt other organisms. Biologists have examined the problem of social cooperation (see especially Mary Jane West Eberhard, Trivers, Wilson 1975) under the heading of "altruism," followed by some economists (Gary Becker; Mordecai Kurz). But altruism is a term with unwanted and rather misleading connotations, and I will instead speak here simply of the of dleterrminaunts helping. The patterns of helping are grouped by biologists into three main categories: those associated with kinship; those merely incidental to selfish behavior; and those involved in reciprocal interactions. In the most straightforward kinship case the basic helping rule (see W. D. Hamilton) says that evolutionary selection impels a donor D to aid a recipient R if c,,< r)RbR, if the cost-benlefit ratio of the action (c IbR) is less than the degree of relatedness rI)R between the pair. Both benefit b and cost c are measured here in terms of increments to reproductive survival-the ultimate payoff that biologists call "fitness" (W). Relatedthe innate genetic ness constitutes preference element: the helping gene in organism D values itself equally with any identical copy of itself, and rDR measures the chance of organism R having an identical copy. Thus, other things equal, a gene for kinship helping instructs a man to give his life to save two siblings, four halfsibs, eight cousins, etc. Of course other things are not in general equal; the (lb ratio expresses the individual's "terms of trade" or opportunities for helping. While r is a constant feature of

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the interaction between two organisms, the clb ratio may be rather volatile. Neverthepossible to less, it is sometimes characterize classes of interactions where aid is cheap (low c) or benefit is big (high b), and observation generally confirms the prediction that helping evolves in such situations (see West Eberhard). One example relevant for humans: because offspring generally need help more urgently, and parents are in a position to give it, from cost-benefit considerations we would expect to see parents aiding children more than children aiding parents, even though relatedness r is the same both ways. Some biologists have argued that kinship helping can scarcely be important beyond the immediate family, as relatedness r falls off very rapidly toward zero. But West Eberhard points out that one individual might sometimes be able to influence fitness of a great many others, so that increases in numbers affected may offset decrease in average r. In human endeavors this perhaps explains the grueling hours and intense devotion often observed of leaders in war, politics, or even business. The interpersonal-fitness opportunity set might be more or less competitive (unrewarding to mutual aid). In the limiting case of severe competition, the environment can only support a fixed number of organisms. Then helping some necessarily means hurting others. In this situation each organism optimizes by transferring fitness, subject to diminishing returns, from individuals less closely related to those more closely related to him (including himself in the calculation). The xenophobic implications are somewhat mitigated, however, to the extent that closeness of competition tends to be positively correlated with relatedness. Looking at this another way, we can suppose that donor D is maximizing his "'inclusive" fitness WD = WD+ rDRWR, subject to a given resource endowment, and a "production function" showing the alternative combinations of WD and WR he can bring about (Eric Charnov, personal comThe usual constrained munication). maximization procedure leads immediately to Hamilton's helping rule. However, as

the increment to recipient R's "fitness income" will generally lead R to react (depending on his preferences and opportunities) in such a way as to help or hurt the donor or third parties, donor D should take these reactive income effects into account. The "rotten-kid theorem" (see Becker, and the comment by the author) provides an instructive instance. Reactive interactions are also relevant for incidental and, especially, reciprocal helping. Ruling out the kinship element by letting rDR = 0, the helping rule reduces simply to c,, < 0. But cD can be decomposed into a primary cost term c,$ and a reactive cost term c' . Incidental helping is associated with negative c, (the helping act has a primary selfish net benefit). Reciprocal helping is associated with negative c,, (the repercussion upon D of R's reaction to aid is favorable). Evidently, in each case it is the sum of the decomposed cost elements that determines whether the helping rule is met. More generally, all three elementskinship (positive rDR ), incidental (negative cDs), and reciprocal (negative (, )- may be involved where helping is observed. Reciprocation brings us to the interactions mainly studied by economists. The basic rule of reciprocal interactions is "'help your helper!" But two classes of reciprocations can be distinguished. First, it may be that recipient R is an individual who would unconditionally help you in return. His reactive income effect for helping you is positive (and, of course, sufficiently large). This requires that he be, on the margin, a kinship or incidental helper to you. But where R is not an unconditional helper, there may still be a potential gain from mutual aid (i.e., from exchange). If R were to react positively, D would help so that both gain, but what if, ex post, R is not motivated to reciprocate? The shift from natural economy to political economy solves this Prisoner's Dilemma problem via third-party enforcement of contract. But political economy institutions are inevitably imperfect. Observed human improvisations and substitutes for are often of contract enforcement paralleled by evolutionary emergences in

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the nonhuman sphere: I) Familial cooperation: Relatedness may assure a degree of reciprocation. In less advanced human societies, business associations (firms) extending beyond a single family are almost unknown. 2) Merger: To the extent that a group shares a common fate, helping others becomes self-help. Merger can be of the csompleinentation or supplemnenttation types, involving specialization in the former case (for example, males and females) and returns to scale in the latter (as when a group's fighting prowess depends upon its size). 3) Repeat business: Where reputation or "brand name" can be acquired, the prospect of future association reduces the gain from cheating. 4) Conditional comnmnitmnent:As in military deterrence theory, guaranteeing to repay (even though irrational ex post) good-for-good, or evil-for-evil may limit conflict or enforce cooperation. Mechanisms of conditional commitment include uncontrollable emotions such as rage (which perhaps explains survival of something often thought to be totally disfunctional). 5) Ethics and indoctrination: Uniquely, perhaps, man has evolved a capacity for cultural indoctrination toward cooperative behavior (Wilson 1975, ch. 27). Under ideal political economy institutions, the Coase Theorem (see R. H. Coase) guarantees Pareto-efficient solutions. Without these institutions there are make-shift solutions as just described, but the inability in natural economies to fully control force and fraud limits the prospects for efficiency. (But see H.E. Frech III.) An alternative process rewarding cooperation is group selection: associations of cooperating organisms may win out in social competition against more disunited groups. However, group selection for helping is only rarely effective in the biological realm. What economists would call "free riding" inevitably selects for selfishness tt'ithin the group (Wilson 1975, ch. 5; Dawkins, ch. 6). On the other hand, free riding also serves to limit malevolent activitysince, if A expends fitness to hurt B, some

of the benefit may be reaped by C (see Geoffrey Blainey, ch. 4; Dawkins, ch. 5; Gordon Tullock). Group selection may, however, explain the extraordinary sociality of ants and bees, or the observed tendency toward reduced virulence of disease bacteria. Conceivably, group selection under primitive conditions may have led to the evolution of instincts favoring ingroup cooperation and out-group hostility among humans (see Richard Alexander). REFERENCES R. D. Alexander,"The Search for a General Theory of Behavior," Behavioral Sci., 1975, 20, 77-100. G. S. Becker, "Altruism, Egoism, and Genetic Fitness: Economics and Sociobiology," J. Econ. Lit., Sept. 1976, 14, 817-26. GeoffreyBlainey, The Causes of War, New York 1973. R. H. Coase, "The Problem of Social Cost," J. Law Econ., Oct. 1960, 3, 1-44. Richard Dawkins, The Selfish Gene, New York 1976. H. E. FrechIII, "Biological Externalities and Evolution: A Comment," J. Theort. Biology, 1973, 39, 669-72. M. C. Fredlund, "Wolves, Chimps, and Demsetz," Econ. Inquiry, June 1976, 14, 27990. M. T. Ghiselin,"The Economy of the Body," Amer. Econ. Rev. Proc., May 1978, 68, 233-37. H. S. Gordon,"The Economic Theory of a Common-property Resource: The Fishery," J. Polit. Econ., Apr. 1954, 62, 12442. W. D. Hamilton,"The Genetical Evolution of Social Behavior," J. Theoret. Biology, 1964, 7, 1-16. J. Hirshleifer, "Shakespeare vs. Becker on Altruism: The Importance of Having the Last Word," J. Econ. Lit., June 1977, 15, 500-02. M. Kurz, "Altruistic Equilibrium," in Bela Balassa and Richard Nelson, eds., Eco-

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nomic Progress, Private Values, and Policy. Essays in Honor of William Fellner, New York 1977. Konrad Lorenz, On Aggression, New York
1966.

R. L. Trivers,"The Evolution of Reciprocal Altruism," Quart. Rev. Biology, Mar.

1971,46, 35-57.

G. Tullock, "Altruism, Malice, and Public

Goods," J. Social Theor. Structures, forthcoming. M. J. West Eberhard, "The Evolution of Social Behavior by Kin Selection," Quart. Rev. Biology, Mar. 1975, 50, 1-33. Edward0. Wilson, Sociobiology, Cambridge, Mass. 1975. Biology and the Social Sciences, Daedalus, Fall 1977, 106, 127-40.