Benchmarks and Economic Analysis

This paper analyzes a concept that has attracted relatively little attention in the literature, even though the concept is important to both theoretical analysis and human behavior in general. Specifically, the concept of a benchmark and its implications are explored. In advancing an argument, economists are taking the existing literature as the departure point and trying to add value. Controversies and/or debates between economists are often related to the fact that their arguments are based on different benchmarks. In addition, benchmarks are also prevalent in the other social sciences, with Weber's ideal types in sociology and various doctrines in legal studies as clear examples. Both theoretical and behavioral benchmarks are illustrated, and a synthesis is provided. In essence, benchmarks are tools and the functioning and maintenance of these tools are affected by cost/benefit considerations pertaining to all tools. Moreover, as behaviors are inevitably related to benchmarks, having a better benchmark improves the efficiency of resource allocation. It is argued that the economic worldview, once adopted, constitutes a useful benchmark for the general public. The reasons are provided and possible ingredients of such a worldview are suggested.