That’s a great explanation. But it still leaves the mystery of why everyone must participate. In your example, coordinating charity with 100 other givers is already a good deal for all involved. Since such deals aren’t happening spontaneously as much as they could, it seems like something else is going on. For some reason society-wide coordination is needed.
I think the missing piece is that, apart from diminishing marginal utility, the preferences of well-off people are partly positional. If you give 1% of your income to charity and Bob doesn’t, that gives Bob a small chance to get ahead of you, and that just won’t do. Even if 100 other well-off people do the same as you, that still lowers your position relative to most well-off people. But if all well-off people give 1% of their income to charity, the problem disappears.
That’s a great explanation. But it still leaves the mystery of why everyone must participate. In your example, coordinating charity with 100 other givers is already a good deal for all involved. Since such deals aren’t happening spontaneously as much as they could, it seems like something else is going on. For some reason society-wide coordination is needed.
I think the missing piece is that, apart from diminishing marginal utility, the preferences of well-off people are partly positional. If you give 1% of your income to charity and Bob doesn’t, that gives Bob a small chance to get ahead of you, and that just won’t do. Even if 100 other well-off people do the same as you, that still lowers your position relative to most well-off people. But if all well-off people give 1% of their income to charity, the problem disappears.