Inside and Outside Perspectives on Legitimacy: An Economic Theory of the Noble Lie
29 Pages Posted: 15 Jun 2018 Last revised: 16 Jan 2019
Date Written: December 4, 2018
The impossibility of constructing totally incentive-compatible institutions, whether organizationally or politically, implies the necessity of something like what has traditionally been called a “noble lie”. Drawing on the theory of cooperation, the paper argues that viable social organization requires a systematic divergence between subjective preferences and objective payoffs. 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 practical impossibility of dispensing with either, poses a challenge for an ethical institutional economics.
Keywords: Game Theory, Cooperation, Institutions
JEL Classification: C73, A13
Suggested Citation: Suggested Citation