I develop a model of ideologies as collectively sustained (yet individually rational) distortions in beliefs concerning the proper scope of governments versus markets. In processing and interpreting signals of the efficacy of public and market provision of education, health insurance, pensions, etc., individuals optimally trade off the value of remaining hopeful about their future prospects (or their children’s) versus the costs of misinformed decisions. Because these future outcomes also depend on whether other citizens respond to unpleasant facts with realism or denial, endogenous social cognitions emerge. Thus, an equilibrium in which people acknowledge the limitations of interventionism coexists with one in which they remain obstinately blind to them, embracing a statist ideology and voting for an excessively large government. Conversely, an equilibrium associated with appropriate public responses to market failures coexists with one dominated by a laissez-faire ideology and blind faith in the invisible hand. With public-sector capital, this interplay of beliefs and institutions leads to history-dependent dynamics. The model also explains why societies find it desirable to set up constitutional protections for dissenting views, even when ex-post everyone would prefer to ignore unwelcome news.
|Date of creation:||Mar 2008|
|Publication status:||published in: Journal of the European Economic Association, 2008, 6 (2-3), 321-352|
|Contact details of provider:|| Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany|
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
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.:
- Marcus Noland, 2003. "Religion, Culture, and Economic Performance," Working Paper Series WP03-8, Peterson Institute for International Economics.
- Brunnermeier, Markus K & Parker, Jonathan A, 2004.
CEPR Discussion Papers
4656, C.E.P.R. Discussion Papers.
- Jonathan A. Parker & Markus K. Brunnermeier, 2004. "Optimal Expectations," Econometric Society 2004 North American Winter Meetings 426, Econometric Society.
- Jonathan Parker & Markus K Brunnermeier, 2002. "Optimal Expectations," FMG Discussion Papers dp434, Financial Markets Group.
- Markus K. Brunnermeier & Jonathan A. Parker, 2002. "Optimal Expectations," Working Papers 146, Princeton University, Woodrow Wilson School of Public and International Affairs, Discussion Papers in Economics.
- Markus K. Brunnermeier & Jonathan A. Parker, 2002. "Optimal expectations," LSE Research Online Documents on Economics 24954, London School of Economics and Political Science, LSE Library.
- Markus K. Brunnermeier & Jonathan A. Parker, 2004. "Optimal Expectations," NBER Working Papers 10707, National Bureau of Economic Research, Inc.
- Thomas Piketty, 1995.
"Social Mobility and Redistributive Politics,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 110(3), pages 551-584.
- Akerlof, George A & Dickens, William T, 1982. "The Economic Consequences of Cognitive Dissonance," American Economic Review, American Economic Association, vol. 72(3), pages 307-319, June.
- Matteo Cervellati & Joan-Maria Esteban & Laurence Kranich, 2007.
"The Social Contract with Endogenous Sentiments,"
311, Barcelona Graduate School of Economics.
- Laurence Kranich & Matteo Cervellati & Joan Esteban, 2006. "The Social Contract with Endogenous Sentiments," Discussion Papers 06-06, University at Albany, SUNY, Department of Economics.
- Joan Esteban & Laurence Kranich, 2003. "The Social Contracts with Endogenous Sentiments," Working Papers 71, Barcelona Graduate School of Economics.
- Cervellati, Matteo & Esteban, Joan & Kranich, Laurence, 2006. "The Social Contract with Endogenous Sentiments," IZA Discussion Papers 2312, Institute for the Study of Labor (IZA).
- Matteo Cervellati & Joan Esteban & Laurence Kranich, 2007. "The Social Contract with Endogenous Sentiments," UFAE and IAE Working Papers 702.07, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Loewenstein, George, 1987. "Anticipation and the Valuation of Delayed Consumption," Economic Journal, Royal Economic Society, vol. 97(387), pages 666-684, September.
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp3416. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)
If references are entirely missing, you can add them using this form.