This is the Cato Daily Podcast for Tuesday, March 8, 2011.

I'm Caleb Brown.

Classical liberalism is beset by many modern challenges.

Modern incarnations of the market failure critique are now joined by some modern of these critiques in his new book robust political economy. We spoke following a forum

for the book held earlier today. I'd like you to elaborate on something you said at the

forum, which is controlling government is the mother of all principal agent problems.

Can you break those terms out and just sort of explain what you mean by that?

Okay, well the main issue that I was focusing on is the accountability of government and I was focusing on the idea

that if we recognize that people can be opportunistic in the way that they're behaving as most economists economists would want to do, then we need to focus

on whether or not people can actually operate within a context of incentives which control

that sort of behavior.

So in a principal agent context, people normally thinking about relationships within firms

that it's quite difficult for shareholders to control what management is doing

because shareholders face a sort of collective action problem.

So that any one shareholder, if they spend a lot of time

sort of checking up on the management,

what they're doing there is a kind of collective good

that the other shareholders can free ride on and the

argument is because if everybody thinks in this sort of way shareholders don't really

hold management to account and management can run amok and a lot of people would say

you know if you look at Enron and some of these other

corporate scandals these are classic cases of this principal agent problems and on my

...