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Good policies for bad governments: behavioral political economy

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  • Daniel J. Benjamin
  • David I. Laibson

Abstract

Politicians and policymakers are prone to the same biases as private citizens. Even if politicians are rational, little suggests that they have altruistic interests. Such concerns lead us to be wary of proposals that rely on benign governments to implement interventionist policies that "protect us from ourselves." The authors recommend paternalism that recognizes both the promise and threat of activist government. They support interventions that channel behavior without taking away consumers' ability to choose for themselves. Such "benign paternalism" can lead to very dramatic behavioral changes. But benign paternalism does not give government true authority to control our lives and does not give private agents an incentive to reject such authority through black markets and other corrosive violations of the rule of law. The authors discuss five examples of policy interventions that will generate significant welfare gains without reducing consumer liberties. They believe that all policy proposals should be viewed with healthy skepticism. No doctor would prescribe a drug that only worked in theory. Likewise, economic policies should be tested with small-scale field experiments before they are adopted.

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Bibliographic Info

Article provided by Federal Reserve Bank of Boston in its journal Conference Series ; [Proceedings].

Volume (Year): 48 (2003)
Issue (Month): Jun ()
Pages:

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Handle: RePEc:fip:fedbcp:y:2003:i:jun:n:48:x:4

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Keywords: Macroeconomics ; Economics ; Economic policy;

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Cited by:
  1. Lukáš Kovanda, 2011. "The Future of Economics: Four Possible Scenarios," Politická ekonomie, University of Economics, Prague, University of Economics, Prague, vol. 2011(6), pages 743-758.
  2. David Colander, 2003. "The Complexity Revolution and the Future of Economics," Middlebury College Working Paper Series, Middlebury College, Department of Economics 0319, Middlebury College, Department of Economics.
  3. D Nocetti, 2006. "A Monetary Model of Exchange Rate and Balance of Payments Adjustment," Economic Issues Journal Articles, Economic Issues, Economic Issues, vol. 11(1), pages 25-36, March.
  4. Dhami, Sanjit & Al-Nowaihi, Ali, 2010. "Optimal taxation in the presence of tax evasion: Expected utility versus prospect theory," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 75(2), pages 313-337, August.

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