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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

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.

Suggested Citation

  • Pelikan, Pavel, 2006. "Markets vs. Government when Rationality is Unequally Bounded: Some Consequences of Cognitive Inequalities for Theory and Policy," Freiburg Discussion Papers on Constitutional Economics 06/5, Walter Eucken Institut e.V..
  • Handle: RePEc:zbw:aluord:065
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    References listed on IDEAS

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    1. Richard H. Thaler & Cass R. Sunstein, 2003. "Libertarian Paternalism," American Economic Review, American Economic Association, vol. 93(2), pages 175-179, May.
    2. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 503-530.
    3. Boland, Lawrence A, 1981. "On the Futility of Criticizing the Neoclassical Maximization Hypothesis," American Economic Review, American Economic Association, vol. 71(5), pages 1031-1036, December.
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    Cited by:

    1. Pelikan, Pavel, 2007. "Public Choice with Unequally Rational Individuals," Freiburg Discussion Papers on Constitutional Economics 07/2, Walter Eucken Institut e.V..

    More about this item

    Keywords

    Rationality; meta-mathematics; institutions; markets; government;

    JEL classification:

    • P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • A10 - General Economics and Teaching - - General Economics - - - General
    • H10 - Public Economics - - Structure and Scope of Government - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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