What does economic theory teach that is relevant to thinking about public policy in general and welfare reform in particular? At a very general level, economic theory emphasizes two basic themes. Individuals are rational. Hence, they respond in predictable ways to changes in incentives, for example, to changes in market prices, taxes, and welfare rules.
Equilibrium matters. Individuals' responses to an initial change in the incentives they face have feedback effects: their responses to the initial change affect the incentives facing others and induce second, third, and subsequent rounds of responses. Economists focus on the long-run equilibrium implications of this sequence of responses. Economists are most comfortable talking about real markets, such as markets for consumer goods and labor markets, but equilibrium conditions are crucial in metaphorical markets such as marriage markets and political markets. Indeed, many of the much ballyhooed examples of "unintended consequences" of government policies are equilibrium responses to rules, regulations, and policies that should have been anticipated -- the Savings and Loan fiasco is a case in point.
I begin by elaborating on these two themes of individual rationality and equilibrium responses, then argue for the importance of gedanken experiments, and, finally, discuss some empirical issues.
Download Info
To our knowledge, this item is not available for
download. To find whether it is available, there are three
options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page
whether it is in fact available.
3. Perform a search for a similarly titled item that would be
available.
Publisher Info
Paper provided by Northwestern University/University of Chicago Joint Center for Poverty Research in its series JCPR Working Papers with number
35.
For technical questions regarding this item, or to correct its listing, contact: (Thomas Krichel).
Related research
Keywords:
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.:
Pollak, R.A., 1997.
"Risk Regulation,"
Washington University
97-01, Business, Law and Economics Center, John M. Olin School of Business, Washington University.
Gary S. Becker & James S. Duesenberry & Bernard Okun, 1960.
"An Economic Analysis of Fertility,"
NBER Chapters,
in: Demographic and Economic Change in Developed Countries, pages 225-256
National Bureau of Economic Research, Inc.
[Downloadable!]