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.     

BASIC JUSTICE AND MACROPOLICY

In their Pastoral Letter on Catholic Social Teaching and the U.S. Economy, the bishops stress that basic justice requires work with adequate pay for all who seek it. This essay sets forth a domestic macropolicy centered on government employment consistent with the bishops' positions on basic justice.     

Is UK economics teaching changing? Evaluating the new subject benchmark statement

This paper evaluates the recent reform to the curricular governance framework for UK Economics teaching: the revised Subject Benchmark Statement document for Economics (SBSE). The crisis of confidence in economics which was amplified by the global financial crisis presented an opportunity for fundamental change in economics teaching. The paper asks whether the new SBSE represents change. We ask whether the new SBSE is pluralist with regard to economic theory and method; how it treats the economy and its wider socio-political dimension; what are its educational goals and approach; and overall, how much change has it brought? The paper concludes that the new SBSE does not constitute change: it still exhibits limited pluralism, ignores ethics, power and politics and ignores key educational goals.     

ECONOMICS OF THE CANADIAN BISHOPS

The author welcomes the bishops' statement as an expression of the uniquely moral aspect of the Canadian unemployment crisis. The statement is dramatic, compassionate and deeply ethical in its concern for the Canadian economy and its people—especially for the poor, the afflicted, and the oppressed. However, the bishops' public policy recommendations are ill-advised and incompatible with the attainment of their very worthwhile goals. By relying on a quasi-Marxist economic analysis, the bishops misconstrue the role and effects of inflation, price controls, technological progress, welfare, and the labor union movement. To achieve economic progress, including a cure for unemployment, a move toward freer markets is needed—not more government intervention.     

An Economist's Comment on Philosophico-Economic Relationships

In this journal, Welch and Mueller (WM) (2001) demonstrated a classificatory method for conceptualizing relationships between religion and economics. No judgement can be drawn from WM as to which of their four classifications might be a, or the, correct one. They conclude that the relationships are “both complex and controversial”, and that before any assessment can be apprehended adequately of how the two fields interact, “the permutations and subcategories implied by the system” used need to be identified and explored more thoroughly. This paper pursues that path, but argues that a more determinate verdict than WM's is possible. Here, an alternative interpretation of the relationship between religion and economics is investigated, in which WM's categories are assessed. In the alternative, WM's four classes are not taken to possess equal intellectual merit, as they appear to be. Using more current and comprehensive definitions of religion than WM's, a case is constructed that three of their four categories possess greater intellectual value than the remaining one. These three are here collapsed into one new mega-category regarded as that most validly describing the relationship between religion and economics.     

Economics research in Spain during the 1990s: a literature review

This paper reviews the results of the literature on the ranking of centers of excellence in economics. There are two objectives: (1) to examine the evolution during the 1990s of certain features of economics research—such as the gap that exists between the US and the rest of the world, the dominant position of the UK within Europe, and the low productivity of economic scholars everywhere—and (2) to document the significant progress that Spanish research institutions have experienced during this period. Results by several broad fields of specialization are summarized here for the first time. This work was carried out under project SEJ2004-01959 financed by the Spanish Ministry of Education and Science. I would like to thank Eduardo Ley, José Luis Ferreira, and Diego Moreno for their comments, as well as Bruno Cassiman for his editorial work.     

The Normative Problem of Merit Goods in Perspective

Abstract

In his Theory of Public Finance (1959), Musgrave invented the concept of merit wants to describe public wants that are satisfied by goods provided by the government in violation of the principle of consumer sovereignty. Starting from Musgrave’s mature discussion (1987), I construct two categories to classify the explanations of merit goods. The first strand of thought attempts to justify merit goods within the New welfare economics, by modifying its assumptions to accommodate irrationality, uncertainty, lack of information, and psychic externalities. The second category encompasses more radical departures from consumer sovereignty, drawn from philosophical critiques of economics. In the third part of the paper, I argue that the two strands might be represented by a non-individualistic social welfare function. I also show how this solution echoes Musgrave’s early views on public expenditures before he coined the concept of merit wants. From an historical perspective, the survival of the concept highlights the persistence of a social point of view in welfare economics.     

Preference Anomalies,Preference Elicitation and the Discovered Preference Hypothesis

There is wide-ranging evidence, much of it deriving from economics experiments, of ‘anomalies’ in behaviour that challenge standard preference theories. This paper explores the implications of these anomalies for preference elicitation methods. Because methods that are used to inform public policy, such as contingent valuation, are based on standard preference theories, their validity may be called into question by the anomaly data. However, on a new interpretation, these anomalies do not contradict standard theory but are errors in stated preference that can be expected to disappear as people become more experienced in relevant decision environments. We explore the evidence for this interpretation and what implications follow for preference elicitation methodology. JEL classifications: C91, D01, D60, D81, D83, H40     

Religion,economics and politics: The Bishops and Keynes in the post-Keynesian ERA

The present is adapted from Bruce J. Malina and Thomas O. Nitsch, “The Bishops' Pastoral Letter and the Poverty Problem: Early vs. Contemporary Concerns and Doctrines,” presented at the Fourth World Congress of Social Economics, Toronto, Canada, 15–18 August 1986, 34 pp. The author is deeply indebted to colleagues Malina, professor of theology at Creighton University, and John E. Elliott, professor of economics at the University of Southern California, for helpful critical insights and comments.     

Hollander, de Vivo and the 'further evidence' for the corn model interpretation of Ricardo: a conspiracy of silence?

This paper reconsiders the debate between de Vivo and Hollanderover the ‘further evidence’ in favour of Sraffa's‘corn model’ interpretation of Ricardo in the lightof Torrens's Letter to Lord Liverpool (1816). It is argued thatthe Letter provides unique evidence of the influence on Torrensof Ricardo's Essay on Profits (1815); and that, contrary tode Vivo, the evidence is not that of a ‘corn model’influence. It is further argued that the manner in which theLetter has been dealt with is unsatisfactory. The shortcomingsin Hollander's position are traced to peculiarities in his long-standinginterpretation of the early Ricardo.     

An economics for development and peace: With a particular focus on the thought of Ernst F. Schumacher

Ernst F. Schumacher'sSmall is Beautiful seems thoroughly persuasive even at the turn of the century, as reckless material development is increasingly recognized as a threat to peace. This article describes how his thought was influenced by Mahatma Gandhi. Gandhi's and Schumacher's ways of thinking are considered as alternative development theorees, different from any of those stemming from laissez-faire economics or Marxism. The formulation and proliferation of Schumacher's ideas about intermediate technologies are traced in both Indian and global contexts, to evaluate their sufficiency as bases for development. Moreover, their implications for contemporary economics are discussed, with the assistance of Amartya K. Sen's concepts of “capability,” “sympathy” and “commitment,” which are in clear contrast to the conventional concept of “economic man.” Finally, it is concluded that Schumacher's alternative development theories and practices, as well as Sen's economics, may play important roles in development and peace studies in the 21^st century. I am grateful to William Volgor, Michael McPherson, David Schrom and Mark Kurowski for their helpful suggestions on drafts of this article.     

Mere quibbles: Bagus and Howden’s critique of the theory of free banking

Despite its title, Philipp Bagus and David Howden’s critique of The Theory of Free Banking does more than merely “quibble” with that book’s arguments; their criticisms of those arguments are such as to suggest that the very foundation upon which my defense of free banking rests is deeply flawed. Here, I defend my work against Bagus and Howden’s criticisms, by showing that they rest upon careless or disingenuous readings of my arguments and a poor grasp of basic monetary economics.     

Keynes’ Preface to the German Edition of the General Theory: Nazi Sympathies or Methodological Empathies?

In the (1936) preface to the German edition of The General Theory of Employment, Interest and Money, Keynes contrasts his methodology with that of Classical laissez-faire economics. He also compares and contrasts his methodology with German economics, which members of the German Historical School had heavily influenced. Unfortunately, some view Keynes as arguing in this Preface that his theory could more deductively apply to fascism than to laissez-faire economies. This would suggest an endorsement of Nazism. Of course, any support offered for Nazism should be condemned. However, instead of displaying Nazi sympathies, this paper argues that the Preface more likely supports the widespread methodological rejection in German economics of deducing laissez-faire outcomes from Classical postulates. Furthermore, Keynes criticizes the more inductive approach of many German economists, and states that he provides them with the theoretical framework which they could deductively apply to their totalitarian economy. Keynes should be read as arguing that his theoretical framework would prove more applicable to a totalitarian system than would a theory based on Classical laissez-faire economics. Comments in the Preface which seem to some to support Nazism should be taken, then, as support for the applicability of his theory to such a system. Keynes’ methodological arguments in the prefaces to the other editions, which reflect his overall methodological approach in the General Theory, his familiarity with German economics, his support for liberal economic and political institutions, and his anti-Nazism, all support this alternative interpretation. An earlier version of this paper was presented at the Midwest Economics Association Meetings in Chicago on March 16, 2008.     

IS THE REVENUE ALLOCATION SCHEME OF FORMULA ONE MOTOR RACING A CASE FOR EUROPEAN COMPETITION POLICY?

Recent allegations from participants of the FIA Formula One World Championship (F1) suggest that its authorities violate European competition law in two ways. First, they allegedly abuse market power by forcing unfavorable contracts on media revenue allocation upon teams as a whole and on smaller teams in particular (vertical allocation of media revenue). Second, they allegedly form a cartel with selected teams to the detriment of smaller teams by providing unjustified extra payments to these teams (horizontal allocation of media revenues). In doing so, the cartel members allegedly secure supracompetitive rents from the authorities and cement an unfair competitive advantage over the outsider teams. Employing concentration measures from empirical economics, we present an assessment of whether the current antitrust allegations against F1 may be considered valid or not. We show that the allocation scheme employed in F1 considerably differs from those in other professional sports championships. We find the empirical picture to be consistent with an anticompetitive interpretation of F1 media revenue structures and policies. We conclude that there is merit in initiating an in‐depth antitrust investigation of Formula One motor racing. (JEL K21, L12, L40, L83, Z20)     

Labor theory of value and the uncertainty in capitalist economy

This article aims to offer a reply to Steedman’s critique of Marx’s labor theory of value. Although this critique having been there for about three decades, the anti-critiques from Marxists are up to date flawed with fatal limitation, losing sight of an important dimension of labor theory of value, i.e., without taking it as a theoretical tool of understanding the uncertainty rooted in capitalist mode of production. The first part of this article reviews the controversy initiated by Steedman. Part 2 discusses Marx’s dual theory of market value and Rubin’s interpretation. Our view is that, if Rubin’s interpretation is accepted, a refutation of Steedman’s critique towards Marx will be impossible. Part 3 of this article explores the possible reconstruction of market value in the perspective of the dynamics in the pivoting of market value. We concludes that, the relationship between the standard condition of production and value is not, as argued by Steedman, of deterministic and one-directional character. For Marx, labor theory of value is applied to analyze the uncertain relation between the means and the end, the condition and the result of capitalist production. Meanwhile, another reply is attempted towards the negative comment on labor theory of value made by contemporary evolutionary economist such as Hodgson. In our view, Marx’s labor theory of value is not irrelevant as claimed by Hodgson to the main topics of evolutionary economics such as variety and “natural selection.” It is through labor theory of value that Marx explains the co-evolution of technology and economy.     

Out of a slave contract: the analysis of pre-Hobbesian anarchists in the Old Testament

Buchanan’s constitutional economics takes social conflict (the ‘Hobbesian jungle’, ‘Hobbesian anarchy’) as the starting point for the analysis of social contract. Buchanan argues that in the presence of social conflict either some social contract (e.g. some system of formal laws) or some generally shared moral precepts are needed to resolve the predicament that social conflict presents. The present paper argues that a social conflict model also served the Old Testament as an analytical starting point. However, contrary to both standard theological interpretation and Buchanan’s explicit claims, I argue that the Old Testament had already made an attempt to model ‘Hobbesian anarchy’ in order to approach social conflict in an essentially modern, non-metaphysical manner. I argue that figures like Adam and Eve or Jacob, in the tradition of Hobbesian anarchists, questioned godly authority and the associated imposed, authoritarian, metaphysical social contract. In this way, one can detect a modern, contractarian constitutional economics in pre-Enlightenment literature (and in Genesis, specifically) in direct contrast to Buchanan’s claims.     

Sociology of economics or sociology of economy? theoretical-methodological arguments for sociological economics

This paper makes a proposal for reintroducing sociological or social economics into contemporary economic science. Such a reintroduction is proposed to be substantive, by analyzing the social structuring of the economy, and formal, by including sociological/social economics in the current (JEL) classification system of economic disciplines (code A.15). Both epistemological and ontological arguments can be presented to support the proposal. Epistemological arguments invoke the presence of essential components of sociological economics in the development of economic thought, and ontological arguments stress the role of social factors in economic life. In this paper I present primarily epistemological (theoretical-methodological) arguments for sociological economics, and secondarily ontological ones. I show that the present designation, sociology of economics, is something different from sociological or social economics in that the former refers to economic epistemology (knowledge) and the latter to economic ontology (reality). I conclude that, in addition to a sociology of economic science, we need a sociology of economic life. There is nothing surprising in the habit of economists to invade the sociological field. A major part of their work—practically the whole of what they have to say on institutions and on the…[social] forces which shape economic behavior—inevitably overlaps the sociologist’s preserves. In consequence, a no man’s land or everyman’s land has developed that might conveniently be called economic sociology … [or sociological economics] (Schumpeter 1956:134). The author is grateful to two anonymous referees for their constructive comments on an earlier version of this article.     

Menger’s causal-realist analysis in modern economics

Carl Menger pioneered a unique theoretical research method which served as the foundation of the early Austrian school of economics. Menger’s causal-realist analysis was revived and formalized just before and after World War 2 by Ludwig von Mises as the “praxeological method.” Murray Rothbard, a student of von Mises’, utilized the method in formulating a comprehensive system of economic theory in his treatise, Man Economy, and State published in the early 1960s. Rothbard’s treatise became the foundational work for the “Austrian revival” in the 1970s. In this paper, we address several issues related to the role of Menger’s method in modern economics. First, ample evidence is adduced that von Mises and Rothbard each expressed a surprising ambivalence with respect to his own work in relation to the early Austrian school. Second, von Mises viewed Rothbard’s treatise as beginning a new epoch in economic theory. Third, contrary to the conventional view, a careful analysis of his treatise shows that Rothbard drew heavily on the contemporary neoclassical literature in developing his theoretical system and that his intent was never to set up a heterodox movement to challenge mainstream economics. Rather, his main aim was to consistently apply the praxeological method to rescue economics from what he considered the alien methodology of positivism, which was imported into economics after World War 2. Lastly, I will tentatively suggest that the term “Austrian economics” as the designation for the intellectual movement that coalesced in the early 1970s may now have outlived its usefulness. This term, which initially served an important strategic purpose in promoting the revival of the broad Mengerian tradition, may have come to obscure the meaning and importance of the praxeological research paradigm that Menger originated.     

Why Meso? On “Aggregation” and “Emergence”, and Why and How the Meso Level is Essential in Social Economics

Simplistic aggregation in idealized “markets” versus structural emergence in complex and path-dependent processes have always marked a “continental divide” between neoclassical mainstream economics and all kinds of evolutionary and institutional social economics. This paper deals with institutional, or structural, emergence and argues that the meso level (to be specific) is the proper aggregate level for social economic analyses of complex systems and processes. Also, neo-Schumpeterian economists have stressed recently the issue of an “institutional trajectory” taking place on the meso economic level. This paper argues that the creative ideas of a Schumpeterian entrepreneur are not a sufficient explanation in this case. Using an evolutionary interpretation of a simple game-theoretic formalism (the Folk Theorem), the paper strives to demonstrate that the meso level, as the proper level of institutional emergence, must and can be endogenously explained from a process of interactive problem-solving of interdependent agents, in their struggle for coordination under strong uncertainty. It will be illustrated that a meso-sized socio-economic group co-evolves, and is constituted, together with the institution that in turn serves as the solution to the coordination problem. The practical and policy implications of the argument are discussed.