Social contracts for real moral agents: a synthesis of public reason and public choice approaches to constitutional design



Abstract: Citizens in contemporary democratic societies disagree deeply about the nature of the good life, and they disagree just as profoundly about justice. In building a social contract theory for diverse citizens, then, we cannot rely as heavily on the theory of justice as John Rawls did. I contend that Rawlsian liberals should instead focus on developing an account of constitutional choice that does not depend on agreement about justice. I develop such an account by drawing on the contractarian approach to constitutional choice pioneered by public choice theorists, especially James Buchanan. With some modifications, public choice can help identify mutually justifiable constitutional rules based on the extent to which these constitutional rules produce appropriate laws under normal conditions. This new, synthetic approach to constitutional choice also helps to explain the moral significance of contractarian agreement for the public choice theorist.

Resource rents and populism in resource-dependent economies



Abstract: A usual explanation for populism is the existence of bad institutions, with an autocratic regime dispelling opposition by distributing income to the ‘masses’ in the manner of the ‘bread and circuses’ of Imperial Rome. In Bolivia, Ecuador, and Venezuela, populist redistribution occurred in conjunction with weakening of institutions. We associate populist redistribution with resource rents available in the course of the commodity price cycle. When production is predominantly natural resources, other industry interests are ineffective in opposing populist redistribution and preventing the undermining of democracy. Rather than associating populism with preexisting bad institutions as others have done, we show empirically that, in the cases we study, resource rents facilitated populism that allowed authoritarian institutions to be created.

The Average Period of Production: The History and Rehabilitation of an Idea



Abstract: Austrian capital theory tried to capture the intuitive and basically undeniable importance that time plays in economic life, but arguably was diverted down a blind alley with Eugen von Böhm-Bawerk’s average period of production, a purely physical measure of ‘roundaboutness’—the length of the production process. For the general case, such a measure is a chimera. But the intuition is strong, and the idea survived and reappeared at various points in the history of capital theory. Almost unknown to economists, an alternative value measure of roundaboutness has existed at least since John Hicks’s formulation of his average period (AP) in 1939, which, coincidentally, was exactly the same measure discovered by the financial actuary Frederick Macaulay in 1938, called by him “Duration” (D). Macaulay’s D, more richly interpreted as Hicks’s AP, is a measure that more appropriately captures what it was that the Austrians struggled to express over many years in their capital theory and in their analysis of the business cycle.

Grotius on Property and the Right of Necessity



Abstract: It is widely held that in situations of peril, it is permissible to use another’s property without her permission if that is the only way to save oneself from serious harm, but that if one damages or consumes that property, one ought to compensate its owner. However, this idea—that there is what is commonly called ‘the right of necessity’—has proven surprisingly difficult to justify. According to Grotius, the right of necessity issues from a constraint imposed by natural law on the positive law of private property. I defend an interpretation of Grotius’s account of property and the right of necessity against some recent sympathetic readers, and show how he escapes a seemingly telling criticism from Pufendorf.

Reapplying behavioral symmetry: public choice and choice architecture



Abstract: New justifications for government intervention based on behavioral psychology rely on a behavioral asymmetry between expert policymakers and market participants. Public choice theory applied the behavioral symmetry assumption to policy making in order to illustrate how special interests corrupt the suppositions of benevolence on the part of policy makers. Cognitive problems associated with market choices have been used to argue for even more intervention. If behavioral symmetry is applied to the experts and not just to market participants, problems with this approach to public policy formation become clear. Manipulation, cognitive capture, and expert bias are among the problems associated with a behavioral theory of market failure. The application of behavioral symmetry to the expanding role of choice architecture will help to limit the bias in behavioral policy. Since experts are also subject to cognitive failures, policy must include an evaluation of expert error. Like the rent-seeking literature before it, a theory of cognitive capture points out the systematic problems with a theory of asymmetry between policy experts and citizens when it comes to policy making.

The Past and the Future of Innovation: some lessons from Economic History



Abstract: In recent years, economists have revived the specter of slow growth and secular stagnation. From the point of view of economic history, what should we make of such doomster prophecies? As economic historians all know, for 97 percent or so of recorded history, the stationary state well-describes the long-run dynamics of the world economy. Growth was slow, intermittent, and reversible. The Industrial Revolution rang in a period of sustained economic growth. Is that growth sustainable? One way to come to grips with that question is to analyze the brakes on economic growth before the Industrial Revolution and examine how they were released. Once these mechanisms are identified, we can look at the economic history of the past few decades and make an assessment of how likely growth is to continue. The answer I give is simple: there is no technological reason for growth in economic welfare to slow down, although institutions may become in some area a serious concern on the sustainability of growth.

Barriers to prosperity: the harmful impact of entry regulations on income inequality



Abstract: Entry regulations, including fees, permits and licenses, can make it prohibitively difficult for low-income individuals to establish footholds in many industries, even at the entry-level. As such, these regulations increase income inequality by either preventing access to higher paying professions or imposing costs on individuals choosing to enter illegally and provide unlicensed services. To estimate this relationship empirically, we combine entry regulations data from the World Bank’s Doing Business Index with various measures of income inequality, including Gini coefficients and income shares to form a panel of 115 countries. We find that countries with more stringent entry regulations tend to experience more income inequality. In countries with average inequality, increasing the number of procedures required to start a new business by one standard deviation is associated with a 7.2% increase in the share of income accruing to the top decile of earners, and a 12.9% increase in the overall Gini coefficient. This result is robust to the measure of inequality, startup regulations, and potential endogeneity. We conclude by offering several policy recommendations designed to minimize the adverse effects of entry regulations.