Introduction
This answer provides concise explanations of four important economic and policy concepts: Global Peace Index, Nash Equilibrium, Dual Federalism, and Sink Costs. These topics reflect various dimensions of public economics, from strategic behavior in game theory to structural aspects of governance and investment.
i) Global Peace Index (GPI)
The Global Peace Index is a measure developed by the Institute for Economics and Peace (IEP) to rank countries based on their level of peacefulness. It covers 163 countries and uses 23 indicators across three domains:
- Level of societal safety and security
- Extent of ongoing domestic and international conflict
- Degree of militarization
A lower score on the index signifies a more peaceful country. Iceland consistently ranks at the top, while conflict-affected nations like Afghanistan score lowest. The GPI helps in assessing peace as a developmental and economic factor.
ii) Nash Equilibrium
Nash Equilibrium is a concept in game theory where each player in a strategic interaction chooses their best response given the strategies of others. No player has anything to gain by changing only their own strategy unilaterally.
Example: In the Prisoner’s Dilemma, both players choosing to confess is a Nash equilibrium, even though mutual cooperation would result in a better collective outcome.
Nash equilibrium is widely applied in economics, politics, and business to understand outcomes in situations of interdependent decision-making.
iii) Dual Federalism
Dual Federalism is a concept where the central and state governments operate independently in their own spheres of influence, with limited overlap. It is also known as “layer cake federalism.”
Features:
- Clear separation of powers between different levels of government
- Minimal interference of central government in state matters and vice versa
- Used in early U.S. federal structure and echoed in India during pre-reform era
Today, most federal systems operate on a cooperative model rather than a strict dual federalism model, especially in welfare, infrastructure, and disaster management.
iv) Sink Costs
Sink costs, often called sunk costs, are costs that have already been incurred and cannot be recovered. They should not influence future decision-making, although in practice, people often let past investments bias their choices.
Example: A company invests ₹1 crore in a project that turns unviable. Even though the money is gone, it should base the continuation of the project on future costs and benefits, not the ₹1 crore already spent.
This concept is important in economics, especially in cost-benefit analysis and rational decision-making under uncertainty.
Conclusion
Each of these concepts — from the measurement of peace and strategic behavior in Nash equilibrium to the institutional framework of federalism and economic decision-making through sink cost awareness — plays a crucial role in public economics and governance. Understanding them enhances one’s ability to analyze and respond to complex economic and social challenges.