Where are the Big Bills? Escaping the Endogenizer's Dilemma
26 Pages Posted: 25 Oct 2013
Date Written: October 22, 2013
Abstract
The continual expansion of rational choice theory to a greater range of social phenomena — from markets to politics and institutions — is a testament to its success. Each further application, however, simultaneously forecloses a potential source of inefficiency in economic systems. Abdicating efficiency considerations impairs economics' explanatory power as much as its normative relevance. In this paper I explore the interconnected roles of subjectivism and knowledge problems in accounting for inefficiency. I conclude that the knowledge-generating properties of institutions allow for efficiency comparisons, but only in the embrace of a thoroughgoing subjectivism.
Keywords: Coase theorem, Economic efficiency, Knowledge problem, Rational choice, Subjectivism, Public Choice, Austrian Economics
JEL Classification: A11, B21, B53, O12, P51
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