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Markets vs. Government when Rationality Is Unequally Bounded: Some Consequences of Cognitive Inequalities for Theory and Policy

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Author Info
Pelikan, Pavel (Prague University of Economics and The Ratio Institute)
Abstract

Recognizing that human rationality has bounds that are unequal across individuals entails treating it as a special scarce resource, tied to individuals and used for deciding on its own uses. This causes a meta-mathematical difficulty to the axiomatic theories of human capital and resource allocation, and raises a new problem for comparative institutional analysis, allowing it to explain some so far little understood differences between markets and government. The policy implications strengthen the case against national planning, selective industrial policies, and government ownership of enterprises, but weaken the case against paternalism.

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Publisher Info
Paper provided by The Ratio Institute in its series Ratio Working Papers with number 85.

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Length: 43 pages
Date of creation: 21 Mar 2006
Date of revision: 03 Sep 2006
Handle: RePEc:hhs:ratioi:0085

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Related research
Keywords: Rationality; meta-mathematics; institutions; markets; government;

Other versions of this item:

Find related papers by JEL classification:
A10 - General Economics and Teaching - - General Economics - - - General
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
H10 - Public Economics - - Structure and Scope of Government - - - General
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Pelikan, P., 1999. "Institutions for the Selection of Entrepreneurs: Implications for Economic Growth and Financial Crises," Research Institute of Industrial Economics Working Papers 510, Research Institute of Industrial Economics (IFN).
  2. Viktor J. Vanberg, 2004. "The rationality postulate in economics: its ambiguity, its deficiency and its evolutionary alternative," Journal of Economic Methodology, Taylor and Francis Journals, vol. 11(1), pages 1-29, March. [Downloadable!] (restricted)
  3. Edward L. Glaeser, 2005. "Paternalism and Psychology," NBER Working Papers 11789, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Pelikan, P, 1997. "Allocation of Economic Competence in Teams : A Comparative Institutional Analysis," Research Institute of Industrial Economics Working Papers 480, Research Institute of Industrial Economics (IFN).
  5. Eliasson, Gunnar, 1990. "The firm as a competent team," Journal of Economic Behavior & Organization, Elsevier, vol. 13(3), pages 275-298, June. [Downloadable!] (restricted)
  6. Winter, Sidney G, 1971. "Satisficing, Selection, and the Innovating Remnant," The Quarterly Journal of Economics, MIT Press, vol. 85(2), pages 237-61, May. [Downloadable!] (restricted)
  7. Pelikan, Pavel, 2003. "Bringing Institutions Into Evolutionary Economics: Another View with Links to Changes in Physical and Social Technologies," Ratio Working Papers 24, The Ratio Institute. [Downloadable!]
  8. Boland, Lawrence A, 1981. "On the Futility of Criticizing the Neoclassical Maximization Hypothesis," American Economic Review, American Economic Association, vol. 71(5), pages 1031-36, December. [Downloadable!] (restricted)
  9. North, D-C, 1997. "The Process of Economic Change," Research Paper 128, World Institute for Development Economics Research.
  10. Richard H. Thaler & Cass R. Sunstein, 2003. "Libertarian Paternalism," American Economic Review, American Economic Association, vol. 93(2), pages 175-179, May. [Downloadable!]
  11. Simon, Herbert A, 1979. "Rational Decision Making in Business Organizations," American Economic Review, American Economic Association, vol. 69(4), pages 493-513, September. [Downloadable!] (restricted)
  12. Berggren, Niclas, 2003. "The Benefits of Economic Freedom: A Survey," Ratio Working Papers 4, The Ratio Institute. [Downloadable!]
  13. Pelikan, P, 1992. "The Dynamics of Economic Systems, or How to Transform a Failed Socialist Economy," Journal of Evolutionary Economics, Springer, vol. 2(1), pages 39-63, March.
  14. Pavel Pelikan, 2003. "Bringing institutions into evolutionary economics: another view with links to changes in physical and social technologies," Journal of Evolutionary Economics, Springer, vol. 13(3), pages 237-258, August. [Downloadable!] (restricted)
  15. Edward L. Glaeser, 2005. "Paternalism and Psychology," Harvard Institute of Economic Research Working Papers 2097, Harvard - Institute of Economic Research. [Downloadable!]
  16. Simon, Herbert A., 2000. "Barriers and bounds to Rationality," Structural Change and Economic Dynamics, Elsevier, vol. 11(1-2), pages 243-253, July. [Downloadable!] (restricted)
  17. North, Douglass C, 1991. "Institutions," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 97-112, Winter. [Downloadable!] (restricted)
  18. Pelikan, Pavel, 1997. "Allocation of Economic Competence in Teams: A Comparative Institutional Analysis," Working Paper Series 480, Research Institute of Industrial Economics. [Downloadable!]
  19. Pelikan, Pavel, 1989. "Evolution, economic competence, and the market for corporate control," Journal of Economic Behavior & Organization, Elsevier, vol. 12(3), pages 279-303, December. [Downloadable!] (restricted)
  20. Bardhan, Pranab & Roemer, John E, 1992. "Market Socialism: A Case for Rejuvenation," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 101-16, Summer. [Downloadable!] (restricted)
    Other versions:
  21. Heiner, Ronald A, 1983. "The Origin of Predictable Behavior," American Economic Review, American Economic Association, vol. 73(4), pages 560-95, September. [Downloadable!] (restricted)
  22. Sugden, Robert, 1991. "Rational Choice: A Survey of Contributions from Economics and Philosophy," Economic Journal, Royal Economic Society, vol. 101(407), pages 751-85, July. [Downloadable!] (restricted)
  23. Nicolai J. Foss, 2001. "Bounded Rationality in the Economics of Organization Present Use and (Some) Future Possibilities," DRUID Working Papers 01-13, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies. [Downloadable!]
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