A simplification of the topic of incentives is the carrot-or-the-stick metaphor. As a mechanism designer, the carrot represents an incentive to attract or encourage the behaviour you want to promote by offering rewards. The stick represents a deterrent that discourages behaviour by threatening punishment.

Today: Legal Punishments as Deterrents

The way that cannabis is controlled today is by using legal punishments as a deterrent to discourage illegal activity. The system is the best that we’ve been able to come up with so far as a society, but there is definitely room for improvement that we want to solve with this kind of mechanism design.

It’s expensive to wage a war on drugs: you need police, court systems, and a whole bunch of manual labor. Who pays for this? You, the taxpayer. It is a form of external regulation by a centralized entity, meaning there is large amounts of polarization between market factions, discouraging consensus and collaboration. Also, there are tough emergences like institutional racism that we do not want.

If you’re following along, this is a stick solution.

Future: Enforcement Bounties as Rewards