Inside and Outside Perspectives on Institutions: An Economic Theory of the Noble Lie

29 Pages Posted: 15 Jun 2018 Last revised: 9 Sep 2020

Date Written: September 8, 2020

Abstract

If there exist no incentive or selective mechanisms that make cooperation in large groups incentive-compatible under realistic circumstances, functional social institutions will require a divergence between subjective preferences and objective payoffs – a “noble lie”. This implies the existence of irreducible and irreconcilable “inside” and “outside” perspectives on social institutions; that is, between foundationalist and functionalist approaches, both of which have a long pedigree in political economy. The conflict between the two, and the inability in practice to dispense with either, has a number of surprising implications for human organizations, including the impossibility of algorithmic governance, the necessity of discretionary enforcement in the breach, and the difficulty of an ethical economics of institutions.

Keywords: Game Theory, Cooperation, Institutions, Public goods

JEL Classification: C73, A13

Suggested Citation

Harwick, Cameron, Inside and Outside Perspectives on Institutions: An Economic Theory of the Noble Lie (September 8, 2020). Available at SSRN: https://ssrn.com/abstract=3187581 or http://dx.doi.org/10.2139/ssrn.3187581

Cameron Harwick (Contact Author)

SUNY College at Brockport ( email )

Brockport, NY 14420
United States

HOME PAGE: http://cameronharwick.com

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