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Restraining the Genuine Homo Economicus: Why the Economy Cannot Be Divorced from Its Governance

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  • Stergios Skaperdas

    () (University of California-Irvine)

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 well-defined 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. Copyright Blackwell Publishing Ltd 2003.

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  • Stergios Skaperdas, 2003. "Restraining the Genuine Homo Economicus: Why the Economy Cannot Be Divorced from Its Governance," Economics and Politics, Wiley Blackwell, vol. 15(2), pages 135-162, July.
  • Handle: RePEc:bla:ecopol:v:15:y:2003:i:2:p:135-162
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    2. Antoine Pietri & Tarik Tazdait & Mehrdad Vahabi, 2013. "Empire Building and Price Competition," Post-Print hal-00832240, HAL.
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    5. Garfinkel, Michelle R. & Skaperdas, Stergios, 2007. "Economics of Conflict: An Overview," Handbook of Defense Economics, Elsevier.
    6. Lagerlöf, Nils-Petter, 2013. "Violence and property rights," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 312-328.
    7. Konrad, Kai A., 2004. "Bidding in hierarchies," European Economic Review, Elsevier, vol. 48(6), pages 1301-1308, December.
    8. Johannes Münster, 2007. "Simultaneous inter- and intra-group conflicts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(2), pages 333-352, August.
    9. 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 75, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
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    13. Adam, Antonis & Drichoutis, Andreas C. & Georgoula, Maria & Kammas, Pantelis, 2015. "Should I double park or should I go? The effect of political ideology on collective action problems," MPRA Paper 66724, University Library of Munich, Germany.
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    19. 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., vol. 40(121), pages 626-632.

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    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • H1 - Public Economics - - Structure and Scope of Government

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