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

26 Pages Posted: 15 Jun 2018 Last revised: 22 Dec 2019

Date Written: December 20, 2019

Abstract

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, Public goods

JEL Classification: C73, A13

Suggested Citation

Harwick, Cameron, Inside and Outside Perspectives on Legitimacy: An Economic Theory of the Noble Lie (December 20, 2019). 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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