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

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  • Stergios Skaperdas

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 901.

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

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Cited by:
  1. Konrad, Kai A., 2007. "Strategy in contests: an introduction," Discussion Papers, Research Unit: Market Processes and Governance, Social Science Research Center Berlin (WZB) SP II 2007-01, Social Science Research Center Berlin (WZB).
  2. Johannes Münster, 2007. "Simultaneous inter- and intra-group conflicts," Economic Theory, Springer, Springer, vol. 32(2), pages 333-352, August.
  3. Münster, Johannes, 2005. "Simultaneous inter- and intra-group conflicts," Discussion Papers, Research Unit: Market Processes and Governance, Social Science Research Center Berlin (WZB) SP II 2005-08, Social Science Research Center Berlin (WZB).
  4. Münster, Johannes, 2004. "Simultaneous inter- and intra-group conflicts," Discussion Paper Series of 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 4, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  5. Münster, Johannes, 2008. "Repeated contests with asymmetric information," Discussion Papers, Research Unit: Market Processes and Governance, Social Science Research Center Berlin (WZB) SP II 2008-08, Social Science Research Center Berlin (WZB).
  6. Leeson, Peter T. & Nowrasteh, Alex, 2011. "Was privateering plunder efficient?," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 79(3), pages 303-317, August.
  7. Lagerlöf, Nils-Petter, 2013. "Violence and property rights," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(1), pages 312-328.
  8. Horatiu A. Rus, 2012. "Environmental Depletion, Governance, and Conflict," Southern Economic Journal, Southern Economic Association, Southern Economic Association, vol. 78(4), pages 1305-1332, April.
  9. Lagerlöf, Nils-Petter & Tangerås, Thomas, 2005. "Human Capital, Rent Seeking, and a Transition from Stagnation to Growth," Working Paper Series, Research Institute of Industrial Economics 656, Research Institute of Industrial Economics.
  10. Michelle R. Garfinkel & Stergios Skaperdas, 2006. "Economics of Conflict: An Overview," Working Papers 050623, University of California-Irvine, Department of Economics, revised Sep 2006.
  11. Bester, Helmut & Konrad, Kai A, 2004. "Easy Targets and the Timing of Conflict," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4245, C.E.P.R. Discussion Papers.
  12. Ashish Chaturvedi, 2005. "Rigging elections with violence," Public Choice, Springer, Springer, vol. 125(1), pages 189-202, July.
  13. Münster, Johannes & Staal, Klaas, 2005. "War with Outsiders Makes Peace Inside," Discussion Paper Series of 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 75, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  14. Edgardo Barandiarán, 2003. "Protecting Property from Stationary Bandits," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(121), pages 626-632.
  15. Michelle R. Garfinkel, 2003. "On the Stability of Group Formation: Managing the Conflict Within," Public Economics, EconWPA 0312005, EconWPA, revised 04 Mar 2004.
  16. Konrad, Kai A., 2003. "Bidding in hierarchies," Discussion Papers, Research Unit: Market Processes and Governance, Social Science Research Center Berlin (WZB) SP II 2003-27, Social Science Research Center Berlin (WZB).

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