Should evolutionary economists embrace libertarian paternalism?

Libertarian paternalists hold that biases and distortions in human decision-making justify paternalistic interference affecting individuals’ decisions. The aim of this paper is to analzye to what extent an evolutionary outlook supports libertarian paternalism. I will put forward three arguments in favour of libertarian paternalism and six objections that strongly oppose it. While evolutionary economists should take seriously the contention that our positive knowledge of real-world decision-making will have to influence our normative assessment of these decisions, the objections against libertarian paternalism brought forward in this paper serve as a cautionary note. Contrary to the claims of its proponents, libertarian paternalism is neither inevitable, nor does it provide an adequate measuring rod of normative rationality. It is prone to abuse by anchoring its standard of rationality pragmatically to norms and can thus promote conservative bias and stifle innovative exploration. It also presents the policy-maker with a compounded Hayekian knowledge problem. Finally, from a dynamic point of view, libertarian paternalism’s manipulative shaping of preferences might lock-in individuals into heteronomous preference learning paths without them being even aware of it.     

Nudging Merit Goods: Conceptual,Normative, and Practical Connections

Abstract

Mainstream economics has traditionally maintained a respect for preferences and the choices that individuals make based on them. But recent advances in psychology and behavioral economics have led scholars and policy-maker to doubt if people make wise choices in their own interests. Based on this, libertarian paternalists endorse choice interventions—nudges—designed to steer people to decisions that will better promote their interests. However, the complex, multifaceted, and subjective nature of interests implies that policy-makers are imposing externally chosen interests for people’s own when designing nudges. In this sense, policy-makers are treating the interests they choose to advance like merit goods as described by Richard Musgrave, goals or ends that are explicitly judged by policy-makers to be worth advancing even if they are not ranked highly or chosen consistently by individuals themselves. This paper will make explicit the conceptual and normative connections between nudges and merit goods, arguing that nudges can be considered delivery mechanisms for merit goods, and recommending that libertarian paternalists abandon their claim to be advancing people’s true interests and instead adopt the objective theories of good used to justify merit goods.     

The Road to Serfdom symposium.: Comment on papers by Rosser and by Levy, Peart, and Farrant

The paper reviews the history of the socialist calculation debate leading up to the publication of Hayek's The Road to Serfdom, and then uses that information to address various claims made by Rosser and Levy, Peart, and Farrant in their symposium papers.     

A constitutional paradigm is not enough—would sovereign citizens really agree to manipulative nudges?—A reply to Christian Schubert

In this short note I reply to a comment made by Christian Schubert, who argues that my criticism of libertarian paternalism cannot be upheld under a constitutional economics paradigm. I disagree: it is implausible to assume that sovereign individuals behind a veil of ignorance would actually agree on manipulative nudges from the public sector. Resorting to a constitutional economics paradigm does not diminish the force of the manipulation objection—libertarian paternalism remains morally objectionable. Moreover, where sovereign citizens would agree on permissible (morally legitimate) nudges behind a veil of ignorance, these would no longer constitute “paternalism” under its commonly agreed definition. More constructively, the only morally defensible paternalistic nudges would be those that improve welfare while respecting or, better yet, improving individual autonomy. These are not the typical nudges defended by libertarian paternalists.     

Oil,Local Content Laws and Paternalism: Is Economic Paternalism Better Old,New or Democratic?

Abstract

Although paternalism has long been studied, the ‘new paternalism’ has received relatively little attention, and much less attention in the oil and gas industry where interferences into preferences centre more strongly on the supply, rather than on the demand, side. The ‘choice architects’ in Ghana have succeeded in nudging local businesses to go into the provision of services for the oil industry and the supply of goods and services needed in the petroleum sector. Yet, the new paternalism in the petroleum industry has had major limitations too, including re-enforcing systemic inequality and labour exploitation, while paying scant attention to the destruction of local content. These problems can only be addressed through systemic redistribution, structural transformation of the economy, comprehensive social protection and deliberate interventions for ecological sustainability. In this process of social change, an embrace of old paternalism will not do neither will asserting a new paternalism as the philosophy behind local content laws and policies. A philosophy and praxis of democratic paternalism provide a surer path for more effective transformation.     

Calculation in kind and marketless socialism: On Otto Neurath's utopian economics

Abstract

Otto Neurath is notorious amongst economists for his plans for a socialist economy with calculation in kind in place of a market. This paper considers the common criticism of “utopianism” from an immanent point of view. To do so, it will first be established in what Neurath recognized a negative sense of utopianism that was opposed to his own self-confessed “scientific utopianism”. Then it will be considered in what respect, if any, Neurath's stance in the socialist calculation debate can be shown to be objectionably utopian in this sense by the counter-arguments put forward by Ludwig von Mises.     

Normative economics and paternalism: the problem with the preference-satisfaction account of welfare

The normative turn of behavioral economics has led to a reconsideration of paternalism in normative economics. This article argues however that the preference-satisfaction account of welfare that still dominates welfare economics makes impossible to account for all the dimensions of the debate over paternalism. The laundered preferences approach and the alternative selves approach are two available frameworks to reconcile the consumer sovereignty principle that underlies the preference-satisfaction account with the fact that preferences are endogenous and context-dependent. I show however that neither of them is able to account for autonomy-related issues which are central in current debates over “soft” or “libertarian” paternalism. I suggest that a justification of paternalism compatible with liberal principles depends on the ability for reasonable persons to voluntarily consent to a collective choice rule with paternalistic tendencies. This argument relies on a distinction between preferences (which can be attached to other entities than persons) and values which is unknown to welfare economics.     

Economic Calculation: Private Property or Several Control?

Abstract

As the centenary of the 1917 Russian revolution approaches, it is worth reviewing the past 100 years’ discussion amongst economists on the possibility—or otherwise—of economic planning under socialism. The socialist calculation debate is of fundamental importance, not merely as a specialist application of economic ideas, but as an investigation of the foundations of economic activity. Every economic action is premised upon calculation, every choice depends upon an assessment of the costs and benefits of each alternative between which the agent must choose. The view of that choice and its attendant calculation is constitutive of the schools of thought—Marxian, neoclassical and Austrian—which have contributed to the debate. An understanding of the calculation debate is therefore required to understand how these paradigms stand in relation to each other. This article addresses one aspect of that debate—the claim by Austrian economists that socialism is impossible because the absence of private property in the means of production precludes economic calculation. The article suggests that several control rather than private property is required for economic calculation, and that several control is consistent with public ownership of the means of production. The Austrian argument on this point, therefore, is without force.     

Tugan-Baranovskii's vision of an international socialist economy

This article examines a hitherto neglected book published in 1918 by M. I. Tugan-Baranovskii, which is devoted to outlining his vision of an international socialist economy. It focuses on Tugan's approach to economic planning, money and prices in socialism, and the new international economic order. It is shown that Tugan attempted to assimilate marginalism into his vision of planning, and was more flexible than the Bolsheviks in adapting socialist economics to the task at hand. The reception of Tugan's approach is also briefly sketched, as is the context of the socialist calculation debate.     

Workplace Accident Compensation Reform A Reappraisal

Despite the considerable time and money spent by various states investigating mounting financial problems in workers' compensation in recent years, we still do not know very much about the causes of the problems. An important reason for this has been that the debate in Australia has suffered from a number of misconceptions and lack of analytical rigour. This article outlines how some basic economics can provide a framework for analysing many issues in the workers' compensation debate. In doing so the analysis casts doubt on a number of conventional wisdoms, particularly the belief that employers pay for workers' compensation and the assumption that current levels of government involvement in worker disability insurance arrangements are justified. In addition, data from New South Wales are presented that suggest the main reason for increased costs is higher income maintenance payment per claim. As with overseas experience, higher benefit levels appear to give workers more incentive to stay away from work and make claims for injuries whose severity is harder to measure.     

WHO WANTS PATERNALISM?

Little is known about the demand side of paternalism. We investigate attitudes towards paternalism among Danish students. The main question is whether demand for paternalism is related to self‐control, either because people with self‐control problems seek commitment devices to overcome these problems, or because people with good self‐control want those who lack it to change their behaviours. We find no evidence linking self‐control to attitudes towards weak forms of paternalism (e.g., nudges or information about health consequences). But respondents with good self‐control are significantly more favourable towards strong paternalism (e.g., restricting choices or sin taxes) than those struggling with self‐control.     

Varieties of paternalism and the heterogeneity of utility structures

A principal source of interest in behavioral economics has been its advertised contributions to policies aimed at ‘nudging’ people away from allegedly natural but self-defeating behavior toward patterns of response thought more likely to improve their welfare. This has occasioned controversies among economists and philosophers around the normative limits of paternalism, especially by technical policy advisors. One recent suggestion has been that ‘boosting,’ in which interventions aim to enhance people’s general cognitive skills and representational repertoires instead of manipulating their choice environments behind their backs, avoids the main normative challenges. A limitation in most of this literature is that it has focused on relatively sweeping policy recommendations and consequently on strong polar alternatives of general paternalism and strict laissez faire. We review a real instance, drawn from a consulting project we conducted for an investment bank, of a proposed intervention that is more typical of the kind that economists are more often actually called upon to offer. In this example, the sophistication of current tools for preference attribution, combined with philosophical externalism about the semantics of preferences that makes it less plausible to attribute their literal self-conscious representation to people as propositional attitude content becomes more tightly refined, blocks applicability of the distinction between nudging and boosting. This seems to call for irreducible, context-specific ethical judgment in assessing the appropriateness of the forms of paternalism that economists must actually wrestle with in going about their everyday business.     

Information and Knowledge: Austrian Economics in Search of its Uniqueness

The Austrian School of Economics since WWII has increasingly claimed a unique position within the scientific community of economists. This paper argues that the most persuasive way to make this claim to uniqueness is to focus on the distinction scholars in the Austrian tradition place between information and knowledge in their work. In other words, it is the epistemic-cognitive turn that the Austrian school took in the wake of the socialist calculation debate that separates the school from other branches of neo-classicism within economic science that constitutes its best case for analytical uniqueness.     

Austrian Economics,Socialism and Impure Forms of Economic Organisation

Modern supporters of the Austrian school of economics maintain that their critical stance towards impure forms of economic organisation - such as the mixed economy - grew out of the arguments of Mises and Hayek during the socialist calculation debate of the 1930s. The paper assesses the two theorists, contributions in the debate and argues that their ideas cannot provide the basis for a general rejection of impure forms of economic organisation. First of all, and contrary to most modern Austrians, who consider the contributions of Mises and Hayek as essentially consistent, it is argued that Hayek's critique of socialism is much more effective than Mises' as it rests on his concept of tacit knowldge and on an evolutionary account of the emergence of capitalist institutions. However, the paper goes on to argue that, if Hayek's critique of state intervention is to have any relevance for contemporary capitalist economies, it must be in a position to show the non-viability not only of a fully centrally planned economy of the Soviet type but also of the mixed economy. It is argued that it is precisely in this that Hayek's evolutionism fails, for his teleological approach is not persuasive in ruling out the possibility of impure forms of capitalism in a manner that is consistent with truly evolutionary - i.e. non-teleological - ideas.     

Competition as market progress: An Austrian rationale for agent-based modeling

Economists recognize competition as fundamental to economic science. General equilibrium is not competition; Austrians, like other economists, have sometimes confused the two. The socialist calculation debate and the elimination of competition by socialists in the Soviet Union offer insight into danger of using an equilibrium framework to study competition. Current policy models are based on a general equilibrium framework, but heterogeneous interactive agent-based models are rising to challenge them. Austrian economists should embrace this new direction and guide the creation of agent-based models of the economy.     

The plural roots of rewards: awards and incentives in Aquinas and Genovesi

Abstract

In this economic debate, incentives (material, extrinsic) and awards (symbolic, intrinsic) are conceived as two opposite tools to prompt human actions. In this article, we provide a historical argument to problematise this opposition. We investigate the idea of prizes (“premi”) in the works of civil economist Antonio Genovesi, and its seeds in Thomas Aquinas’ thought. They both discuss if material rewards can crowd-in intrinsic motivations. Aquinas considered the crowding-out risks related to honour (award). Genovesi stressed the role of private prizes (incentives) and market in fostering the development of society, and claims that crowding-in is more common than crowding-out.     

Optimal design of experiments to identify latent behavioral types

Bayesian optimal experiments that maximize the information gained from collected data are critical to efficiently identify behavioral models. We extend a seminal method for designing Bayesian optimal experiments by introducing two computational improvements that make the procedure tractable: (1) a search algorithm from artificial intelligence that efficiently explores the space of possible design parameters, and (2) a sampling procedure which evaluates each design parameter combination more efficiently. We apply our procedure to a game of imperfect information to evaluate and quantify the computational improvements. We then collect data across five different experimental designs to compare the ability of the optimal experimental design to discriminate among competing behavioral models against the experimental designs chosen by a “wisdom of experts” prediction experiment. We find that data from the experiment suggested by the optimal design approach requires significantly less data to distinguish behavioral models (i.e., test hypotheses) than data from the experiment suggested by experts. Substantively, we find that reinforcement learning best explains human decision-making in the imperfect information game and that behavior is not adequately described by the Bayesian Nash equilibrium. Our procedure is general and computationally efficient and can be applied to dynamically optimize online experiments.

     

Time for behavioral political economy? An analysis of articles in behavioral economics

This study analyzes leading research in behavioral economics to see whether it contains advocacy of paternalism and whether it addresses the potential cognitive limitations and biases of the policymakers who are going to implement paternalist policies. The findings reveal that 20.7% of the studied articles in behavioral economics propose paternalist policy action and that 95.5% of these do not contain any analysis of the cognitive ability of policymakers. This suggests that behavioral political economy, in which the analytical tools of behavioral economics are applied to political decision-makers as well, would offer a useful extension of the research program. Such an extension could be related to the concept of robust political economy, according to which the case for paternalism should be subjected to ??worst-case?? assumptions, such as policymakers being less than fully rational.     

The unimportance of the choice-value thesis in economics

The choice-value thesis claims that people always choose what is best for them, given their information on the set of alternatives. This paper attempts to show that this assumption is less important than is suggested by the high esteem in which it is held. Modern economics neither relies on it, as shown by inspecting a sample of 742 papers, nor does the rejection of the choice-value thesis imply paternalism, as is sometimes suggested. It is shown that paternalism can be argued against without referring to the choice-value thesis.The author is indebted to an anonymous referee, Laszlo Goerke, Yew-Kwang Ng, Barbara Seel, Gordon Tullock, and other participants at the Forty-ninth International Atlantic Economic Conference in Munich for comments.     

US—Mexico employment effects of repealing the US offshore assembly provision

The [OAPs] are contributing to the actual displacement – and impending displacement in the next few years – of scores of thousands of unskilled and semi-skilled factory production workers who are in the economy' mainstream.

Nathaniel Goldfinger, AFL-CIO, 1970

We believe that the only benefits derived from the existence of [the OAP] are reached by transnational enterprises through increases in profits. This, however, cannot offset the harm done to the thousands of American's whose livelihoods have been sacrificed in the pursuit of those profits.

Mark Anderson, AFL-CIO, 1987

What my well-intentioned but misinformed colleagues fail to realise is that without provisions like [the OAP], products [assembled in Mexico] would be 100 per cent made in Asia. The loss, therefore, would equal not only the jobs used in the assembly process in Mexico, but those used to manufacture the components produced here in the United States.

Hon. Jim Kolbe, 1987

The employment effects of the Offshore Assembly Provision (OAP) are highly controversial. Organized labour strongly opposes the provision because they believe it shifts assembly jobs offshore. In constrast, US business contends that in order to compete with imports, domestic components must be assembled abroad. Thus, the OAP preserves jobs in components industries. Mexico favours the provision, believing that it is an important cause of the growth in assembly employment in its northers border region. In this paper, we contribute to the debate over the OAP by supplying estimates of its employment effects in the United States and Mexico for disaggregate industries. We find the claims of both proponents and opponents of the OAP to be greatly exaggerated.