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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.

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  • 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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    Cited by:

    1. Viktor Vanberg, 2010. "The ‘science-as-market’ analogy: a constitutional economics perspective," Constitutional Political Economy, Springer, vol. 21(1), pages 28-49, March.
    2. Viktor Vanberg, 2015. "Schumpeter and Mises as ‘Austrian Economists’," Journal of Evolutionary Economics, Springer, vol. 25(1), pages 91-105, January.
    3. Pelikan, Pavel, 2007. "Public Choice with Unequally Rational Individuals," Freiburg Discussion Papers on Constitutional Economics 07/2, Walter Eucken Institut e.V..
    4. Wohlgemuth, Michael, 2007. "Learning through institutional competition," Freiburg Discussion Papers on Constitutional Economics 07/9, Walter Eucken Institut e.V..
    5. Goldschmidt, Nils & Rauchenschwandtner, Hermann, 2007. "The Philosophy of Social Market Economy: Michel Foucault's Analysis of Ordoliberalism," Freiburg Discussion Papers on Constitutional Economics 07/4, Walter Eucken Institut e.V..
    6. Vanberg, Viktor J., 2007. "Rational choice, preferences over actions and rule-following behavior," Freiburg Discussion Papers on Constitutional Economics 07/6, 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:

    • P51 - Political Economy and Comparative 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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