The Evolutionary Economics Group

Discussion Papers on Economics and Evolution

Yesterday's Games: Contingency Learning and the Growth of Public Spending

L. Dudley and U. Witt
2002

Between 1890 and 1938, the public share of total spending rose to unprecedented peacetime levels in many Western countries. This development has been explained by either (i) a shift in the demand for public goods or (ii) a restructuring of the state to transfer income. However, neither explanation has been shown to be compatible with individual incentives. Here, we model the rise of public spending as a contingency-learning phenomenon within Schelling’s Multi-Person Dilemma. Tests of the resulting propositions with national time series reveal no unit root but a break in trend, a result shown to favor explanation (ii) over(i).