Behavioural Economics: A Virginia Political Economy Perspective


Economic Affairs, Volume 36, Issue 3

Abstract: Behavioural economics offers a critique of modern neoclassical economics by providing empirical evidence that the model of rational choice does not accurately describe human decision-making processes. The existence of cognitive biases, what we might term ‘agent failure’, becomes reason to doubt the efficacy of unhampered markets, and is seen by some as a sufficient condition for government intervention. This article offers a critique of this argument from an Austrian and public choice theory comparative institutions perspective. Agent failure arguments are analogous to market failure arguments of the mid-twentieth century and the same kinds of responses made against the latter are applied to the former. Behavioural economics arguments for intervention ignore the cognitive biases of political actors, neglect the comparative perspective that results from such biases, and do not examine the ways in which markets are superior to politics in providing the information and incentives actors need to become aware of their errors and correct them. The existence of imperfectly rational agents, like the existence of imperfect markets, is therefore not a sufficient condition for government intervention into the market.

Competitive Federalism, Government’s Dual Role and the Power to Tax


Journal of Institutional Economics, Volume 12, Issue 4

Abstract: Theories of competitive federalism generally focus on exit as the principal mechanism for making governments responsive to the interests of those who are subject to their powers. This paper draws attention to the fact that democratic governments act in two distinguishable roles, as ‘territorial enterprises’ and as ‘club enterprises’. As territorial enterprises they define and enforce the rules and terms that apply to everybody, whether citizen or alien, who resides and/or operates within their jurisdictional boundaries. As club enterprises, they define and enforce the rules and terms of membership in the respective polity. The focus of this paper is on the implications of the fact that ‘exit’ means something different when one looks at governments’ role as territorial enterprises (exit = leaving the territory) in contrast to their role as club enterprises (exit = giving up one’s membership status/citizenship).

Paul Sakmann’s and Albert Schatz’s Mandeville Studies: Their Link to Hayek’s ‘Spontaneous Order’ Theory

Abstract: This paper agrees with Friedrich August Hayek’s assertion in his 1945 Dublin lecture that the importance of Dutch physician Bernard Mandeville’s role in the history of economics had been overlooked and with his 1966 London lecture’s assertion that Mandeville’s important contribution qualified him as a master mind. Paul Sakmann’s and Albert Schatz’s studies of Mandeville’s eighteenth-century allegorical Fable of the Bees satire were acknowledged by Hayek as having influenced his formulation and development of the theory of spontaneous order extended from Scottish Enlightenment thinkers. Each of these two writers’ contribution to Mandeville and spontaneous order theory is considered as well as proposing a new source for the term “spontaneous order”—Schatz’s 1907‘le principe d’ordre spontané.’

Why Behavioural Policy Needs Mechanistic Evidence


ECONOMICS &  PHILOSOPHY, Volume 32, Issue 3

Abstract: Proponents of behavioural policies seek to justify them as ‘evidence-based’. Yet they typically fail to show through which mechanisms these policies operate. This paper shows – at the hand of examples from economics and psychology – that without sufficient mechanistic evidence, one often cannot determine whether a given policy in its target environment will be effective, robust, persistent or welfare-improving. Because these properties are important for justification, policies that lack sufficient support from mechanistic evidence should not be called ‘evidence-based’.

The Influence of Patents on Science



Abstract: This paper is a critique of the current US patent system along general consequentialist lines. I present a pro tanto case against it because of its effects on scientific inquiry. The patent system is often thought to be justified (or necessary) because it provides incentives to innovate. I challenge this concern. Economists and legal scholars have spent a good portion of time analyzing particular aspects of the patent system. I here synthesize their work, showing how it amounts to a pro tanto moral case against patents. This is the case even though patents are said to incentivize innovation, its disclosure, and its transfer to interested parties. I explore all of these possibilities, finding them to only weakly (at best) support the institution of patent rights. Juxtaposing this weak case for patents along with various problems that patents cause for science, we find a pro tanto case against our current patent system. To my knowledge, no one has tried to synthesize the various concerns I raise, with particular attention to not only the patent’s system purported ability to incentivize innovation, but also to disclose and transfer technology.

American Individualism Rises and Falls with the Economy: Cross-temporal Evidence that Individualism Declines When the Economy Falters



Abstract: Past work has shown that economic growth often engenders greater individualism. Yet much of this work charts changes in wealth and individualism over long periods of time, making it unclear whether rising individualism is primarily driven by wealth or by the social and generational changes that often accompany large-scale economic transformations. This article explores whether individualism is sensitive to more transient macroeconomic fluctuations, even in the absence of transformative social changes or generational turnover. Six studies found that individualism swelled during prosperous times and fell during recessionary times. In good economic times, Americans were more likely to give newborns uncommon names (Study 1), champion autonomy in children (Study 2), aspire to look different from others (Study 3), and favor music with self-focused language (Study 4). Conversely, when the economy was floundering, Americans were more likely to socialize children to attend to the needs of others (Study 2) and favor music with other-oriented language (Study 4). Subsequent studies found that recessions engendered uncertainty (Study 5) which in turn tempered individualism and fostered interdependence (Study 6).

An Interest Group Theory of Public Goods Provision: Reassessing the Relative Efficiency of the Market and the State



Abstract: Extending Brennan and Buchanan’s model of leviathan, in which rulers represent the residual claimants of constitutionally unconstrained tax revenue, this paper presents a model in which the government provides the level of public goods that maximizes its revenue surplus as a function of the cost of emigration. To the extent that emigration is impeded, government converges toward pure monopoly provision, generating monopoly rents that facilitate the rent-seeking society. In contrast with Niskanen’s model, in which governments tend to overproduce public goods, this model suggests that governments tend toward underproduction. This result undermines the notion that government must provide public goods to overcome the underproduction of private provision; in reality, government provision may be less efficient than private provision.