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Restraining the Genuine Homo Economicus: Why the Economy Cannot be Divorced from its Governance

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Author Info
Stergios Skaperdas ()

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Abstract

The Homo economicus of traditional economics is far from being completely self-interested, rational, or as individualistic as he is purported to be; he will haggle to death over price but will not take what he wants by force. Implicitly, he is assumed to behave ruthlessly within a welldefined bubble of sainthood. Based on a simple model, I first examine what occurs when this assumption is relaxed and genuine, amoral Homo economici interact. Productivity can be inversely related to compensation; a longer shadow of the future can intensify conflict; and, more competition among providers of protection reduces welfare. The patently inefficient outcomes that follow call for restraining self-interest, for finding ways to govern markets. I then review some of the different ways of creating restraints, from the traditional social contract, to the hierarchical domination of kings and lords, to modern forms of governance. Checks and balances, wider representation, the bureaucratic form of organization, and other ingredients of modern governance can partly be thought of as providing restraints to the dark side of self-interest. Though highly imperfect, these restraints are better than the alternative, which typically involves autocratic, amateurish, and corrupt rule. Then, thinking of most problems in terms of a first-best economic model is practically and scientifically misguided.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 901.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_901

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Find related papers by JEL classification:
D00 - Microeconomics - - General - - - General
D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
H10 - Public Economics - - Structure and Scope of Government - - - General

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  1. Ashish Chaturvedi, 2005. "Rigging elections with violence," Public Choice, Springer, vol. 125(1), pages 189-202, July. [Downloadable!] (restricted)
  2. Helmut Bester & Kai A. Konrad, 2003. "Easy Targets and the Timing of Conflict," cege – Center for European, Governance and Economic Development Research Discussion Papers 21, cege – Center for European, Governance and Economic Development Research, University of Goettingen (Germany).. [Downloadable!]
    Other versions:
  3. Michelle R. Garfinkel, 2003. "On the Stability of Group Formation: Managing the Conflict Within," Public Economics 0312005, EconWPA, revised 04 Mar 2004. [Downloadable!]
  4. Johannes Münster, 2007. "Simultaneous inter- and intra-group conflicts," Economic Theory, Springer, vol. 32(2), pages 333-352, August. [Downloadable!] (restricted)
  5. Johannes Münster & Klaas Staal, 2005. "War with Outsiders Makes Peace Inside," Discussion Papers 75, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
  6. Lagerlöf, Nils-Petter & Tangerås, Thomas, 2005. "Human Capital, Rent Seeking, and a Transition from Stagnation to Growth," Working Paper Series 656, Research Institute of Industrial Economics. [Downloadable!]
  7. Michelle R. Garfinkel & Stergios Skaperdas, 2006. "Economics of Conflict: An Overview," Working Papers 050623, University of California-Irvine, Department of Economics, revised Sep 2006. [Downloadable!]
    Other versions:
  8. Edgardo Barandiarán, 2003. "Protecting Property from Stationary Bandits," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(121), pages 626-632. [Downloadable!]
  9. Johannes Münster, 2004. "Simultaneous inter- and intra-group conflicts," Discussion Papers 4, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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