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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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  • Pelikan, Pavel

    (Prague University of Economics and The Ratio Institute)

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    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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    Bibliographic 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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    Keywords: Rationality; meta-mathematics; institutions; markets; government;

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    1. Eliasson, Gunnar, 1990. "The firm as a competent team," Journal of Economic Behavior & Organization, Elsevier, vol. 13(3), pages 275-298, June.
    2. Pelikan, Pavel, 1997. "Allocation of Economic Competence in Teams: A Comparative Institutional Analysis," Working Paper Series 480, Research Institute of Industrial Economics.
    3. Pavel Pelikan, 1993. "Ownership of firms and efficiency: The competence argument," Constitutional Political Economy, Springer, vol. 4(3), pages 349-392, September.
    4. 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.
    5. Edward L. Glaeser, 2005. "Paternalism and Psychology," Harvard Institute of Economic Research Working Papers 2097, Harvard - Institute of Economic Research.
    6. Edward L. Glaeser, 2005. "Paternalism and Psychology," NBER Working Papers 11789, National Bureau of Economic Research, Inc.
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    8. Berggren, Niclas, 2003. "The Benefits of Economic Freedom: A Survey," Ratio Working Papers 4, The Ratio Institute.
    9. North, D-C, 1997. "The Process of Economic Change," Research Paper 128, World Institute for Development Economics Research.
    10. 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.
    11. Viktor Vanberg, 2004. "The rationality postulate in economics: its ambiguity, its deficiency and its evolutionary alternative," Journal of Economic Methodology, Taylor & Francis Journals, vol. 11(1), pages 1-29.
    12. 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.
    13. Eliasson, Gunnar, 1988. "The Firm as a Competent Team," Working Paper Series 207, Research Institute of Industrial Economics, revised Feb 1990.
    14. Roemer, John E., 1987. "Egalitarianism, Responsibility, and Information," Economics and Philosophy, Cambridge University Press, vol. 3(02), pages 215-244, October.
    15. Simon, Herbert A., 2000. "Barriers and bounds to Rationality," Structural Change and Economic Dynamics, Elsevier, vol. 11(1-2), pages 243-253, July.
    16. Pelikan, Pavel, 1989. "Evolution, Economic Competence, and the Market for Corporate Control," Working Paper Series 215, Research Institute of Industrial Economics.
    17. 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.
    18. Simon, Herbert A., 1978. "Rational Decision-Making in Business Organizations," Nobel Prize in Economics documents 1978-1, Nobel Prize Committee.
    19. Heiner, Ronald A, 1983. "The Origin of Predictable Behavior," American Economic Review, American Economic Association, vol. 73(4), pages 560-95, September.
    20. Pranab Bardhan & John E. Roemer, 1992. "Market Socialism: A Case for Rejuvenation," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 101-116, Summer.
    21. 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.
    22. repec:fth:iniesr:480 is not listed on IDEAS
    23. 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.
    24. Richard H. Thaler & Cass R. Sunstein, 2003. "Libertarian Paternalism," American Economic Review, American Economic Association, vol. 93(2), pages 175-179, May.
    25. Winter, Sidney G, 1971. "Satisficing, Selection, and the Innovating Remnant," The Quarterly Journal of Economics, MIT Press, vol. 85(2), pages 237-61, May.
    26. 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.
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