When you design a game, there are a couple things you use to make the experience fun and fair for the players: rules and objectives. Objectives are the winning conditions of the game, the payoff structures, the stuff that people complete for. Rules are the things that keep the game fair, the bounds to the game, the stuff that ensures the game itself is neutral. Many believe the rules are what makes the game, but that's not how it works. The game exists as soon as you have an objective. The rules are just there to make certain everyone has an equal chance of attaining that objective. The true art of game design, then, is to make the objectives, the incentives, and the inducements so perfect that the game only needs a minimum of rules. Rules create a kind of friction. They can limit creativity and expression, and they certainly take time to learn. The less of them, the better - so long as the game is fun and fair.
Policy should be thought of more like game design. Objectives themselves change player behaviour, and rules are a necessary evil. As Laozi said:
A leader is best when people barely know that he exists, not so good when people obey and acclaim him, worst when they despise him. Fail to honour people, They fail to honour you. But of a good leader, who talks little, when his work is done, his aims fulfilled, they will all say, "We did this ourselves."
Just so, a game should take its players seamlessly into a joyful place without their even noticing. Equally so, the incentives in society must be structured such that simply by acting in accordance with self-interest, all are able to chase their own objectives on a level playing field. Game theory is a great example of how to study the structuring of incentives. If incentives make cooperation easier, then cooperation will happen. If cooperation happens, you don't need to make a rule against being a killjoy. By structuring the incentives, you can eliminate rules. By eliminating rules, you make the game self-ordering based not on fiat but on the simple self-interest of the players. In other words, good policy makes certain laws obsolete simply through incentives.
The interesting thing about real life is that everyone more or less sets their own objectives and sets out to attain them... but most lose track along the way. Both conveniently and sadly, the medium of exchange and competition in real life is money. The place through and in which we compete is the market. Since money is so relevant to achieving so many objectives, many people take it for an objective in itself. Part of helping people play the game of life is helping them discover what their objectives are, and how to attain them. Me, personally, I'd like to have a nice place in the country and perhaps an alpaca or two. That will take money, but if someone offered me a place in the country (and a couple alpacas) for the price of three kilos of dandelion fluff, my value system would shift to the collection of dandelion fluff. For everything, there is a medium of exchange, and it is not always money. For some human needs, money does not provide satisfaction. Knowledge of self and a sense of imagination regarding how to attain one's goals should be a prerequisite to playing the game. The first key to structuring incentives is to engage the players to seek their own goals, and not simply to seek the medium with which some goals may be attained.
Corporations are so structured as to make the accumulation value (denominated in money) their sole objective. Corporations, being individuals with objectives, are also players - albeit rather mechanistic ones. Since their objective is money, it is all the more important that incentives are structured through the use of money. Money flows to where it will make the most money, and the market will act according to price. If, in the words of Hawken, price reflected cost, the market - and corporations - would begin acting in a manner that had a lower or negligible negative impact on society. The market is a place in which choices are made, and corporate choices are reasonably predictable. If corporate choices are predictable, then they can be manipulated to do good rather than evil through incentives, not rules.
So what is the key to a good game? It must be fun and it must be fair. What is the key to good policy? It must be fun and it must be fair. The more incentives and prices reflect actual cost, the more positive decisions will be made by the market. The more positive decisions are made by the market, the less rules are required. The less rules are required, the greater the range human ingenuity can roam. The greater human ingenuity is employed, the more rich the ecology of ideas is, and the more fun the game becomes.