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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

    (Prague University of Economics and The Ratio Institute)

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," Ratio Working Papers 85, The Ratio Institute, revised 03 Sep 2006.
    • Handle: RePEc:hhs:ratioi:0085
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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..

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    More about this item

    Keywords

    Rationality; meta-mathematics; institutions; markets; government;
    All these keywords.

    JEL classification:

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

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