How Should a Behavioral Economist Do Welfare Economics?

33 Pages Posted: 26 Oct 2002

See all articles by H. Lorne Carmichael

H. Lorne Carmichael

Queen's University

W. Bentley MacLeod

Columbia University - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Date Written: May 2002

Abstract

Economists use the standard rational model to predict behaviour under a new policy regime and to evaluate the policy according to its impact on the welfare of the people affected. Experimental observation of behaviour casts some doubt on the predictive accuracy of the standard model, but the more realistic behavioral alternatives often provide a poor basis for normative evaluations. This paper suggests that in some cases we can do both. A behavioral trait can be modeled as a cognitive strategy that has evolved to augment a deeper notion of personal welfare. This makes it possible to predict behaviour with greater accuracy and to make normative evaluations of the outcomes of policy.

Keywords: Bargaining, Fairness, Property Rights, Endowment Effect, Framing

JEL Classification: D0

Suggested Citation

Carmichael, H. Lorne and MacLeod, William Bentley, How Should a Behavioral Economist Do Welfare Economics? (May 2002). USC CLEO Research Paper No. C02-18. Available at SSRN: https://ssrn.com/abstract=338280 or http://dx.doi.org/10.2139/ssrn.338280

H. Lorne Carmichael

Queen's University ( email )

Kingston, Ontario K7L 3N6 K7L 3N6
Canada
615-533-2253 (Phone)
615-533-6668 (Fax)

William Bentley MacLeod (Contact Author)

Columbia University - Department of Economics ( email )

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New York, NY 10027
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

IZA Institute of Labor Economics ( email )

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