Allocation of scarce resources when rationality is one of them: some consequences of cognitive inequalities for theory and policy

Pelikan, Pavel (2007): Allocation of scarce resources when rationality is one of them: some consequences of cognitive inequalities for theory and policy.

Abstract

"Rationality" is understood in the empirical sense of cognitive abilities of human brains for solving economic problems, and consequently recognized bounded in individually unequal ways. This is shown to require treating it as a unique scarce resource, used for deciding on its own uses. This uniqueness disturbs axiomatic economics by a tangled hierarchy, and implies that rationality-allocation can approach efficiency only by means of an institutionally shaped trial-and-error evolution. Applied to the markets vs. government issue, a comparative institutional analysis of rationality-allocation yields novel insights with non-standard policy implications, and thus demonstrates that rationality-allocation matters.

• Item Type: MPRA Paper
• Institution: Department of Institutional Economics, Prague University of Economics
• Language: English
• Keywords: unequally bounded rationality; rationality-allocation; tangled hierarchy; institutionally shaped evolution; comparative institutional analysis
• Subjects: P - Economic Systems > P5 - Comparative Economic Systems; D - Microeconomics > D6 - Welfare Economics; H - Public Economics > H1 - Structure and Scope of Government; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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