Recent work has argued for a Hayekian behavioural economics, which combines Austrian economics with behavioural economics as developed by Kahneman, Thaler, Sunstein, and others. We suggest that this hybrid is misguided because it relies on individual cognitivism. This view of cognition is incompatible with the Hayekian view of cognition which treats rationality as an emergent phenomenon of social interaction in an institutional environment. This Hayekian view, which we call epistemic institutionalism, is compatible with an alternative prominent perspective in psychology, that of the extended mind, sometimes known as 4E cognition. We demonstrate how the Hayekian perspective on individualism, the price system, and the evolution of rules can be connected to the extended mind programme, through concepts such as the coupling of the individual and their environment, cognitive off-loading, and affordances. We suggest that this alternative combination of Austrian economics and psychology provides a more fruitful way forward, especially because it foregrounds the processes of learning, error-correction, and institutional orders, rather than choice, bias, and individual rationality. To explain why Austrian economists have been receptive to behavioural economics, we distinguish epistemic institutionalism from the (radical) subjectivist approach, which shares key assumptions of individual cognitivism.

It is now abundantly clear that social norms channel behaviour and impact economic development. This insight leads to the question: How do social norms evolve? In a companion paper (Voigt (2023). Journal of Institutional Economics, 20), I survey studies showing that geographical conditions can have direct and long-lasting effects on social norms. This paper goes one step further: It surveys studies that show how different geographical conditions affect both religious beliefs as well as traditions of family organization and how these, in turn, affect social norms.

We propose a methodology for normative evaluation when preferences are context-dependent. We offer a precise definition of context-dependence and formulate a normative criterion of self-determination, according to which one situation is better than another if individuals are aware of more potential contexts of a choice problem. We provide two interpretations of our normative approach: an extension of Sugden’s opportunity criterion and an application of Sen’s positional views in his theory of justice. Our proposition is consistent with Muldoon’s and Gaus’ approaches of public reason in social contract theory, which account for the diversity of perspectives in non-ideal worlds.

It is now abundantly clear that social norms channel behaviour and impact economic development. This insight leads to the question: How do social norms evolve? This survey examines research that relies on geography to explain the development of social norms. It turns out that many social norms are either directly or indirectly determined by geography broadly conceived and can, hence, be considered largely time invariant. Given that successful economic development presupposes the congruence between formal institutions and social norms, this insight is highly relevant for all policy interventions designed to foster economic development. In a companion paper, the role of religion and family organization as potential mediators between geography and social norms assumes centre stage.

We study a retirement savings plan with a default contribution rate of 12 percent of income, which is much higher than previously studied defaults. Twenty-five percent of employees had not opted out of this default 12 months after hire; a literature review finds that the corresponding fraction in plans with lower defaults is approximately one-half. Because only contributions above 12 percent were matched by the employer, 12 percent was likely to be a suboptimal contribution rate for employees. Employees who remained at the 12 percent default contribution rate had average income that was approximately one-third lower than would be predicted from the relationship between salaries and contribution rates among employees who were not at 12 percent. Defaults may influence low-income employees more strongly in part because these employees face higher psychological barriers to active decision making.

The current unsustainable growth of the world economy is largely a consequence of the crisis of social capital experienced by much of the world’s population. Declining social capital leads economies towards excessive growth, because people seek, in economic affluence, compensation for emotional distress and loss of resources caused by scarce social and affective relationships. To slow down economic growth requires an increase in social capital that is a fundamental contributor to happiness. From a wide range of possible approaches to increasing present happiness, this article suggests policies that would shift the economy to a more sustainable path. It focuses on a more politically sustainable set of proposals for a green ‘new deal’ than some of those currently under discussion.

We are now close to reaching what climate scientists advise is a ‘tipping point’ when the injuries we have visited on the planet will become self-reinforcing and produce an ecosystem that is alien to human life. The mal-distribution of consumption within and between nations is a major reason why there is little agreement on appropriate remedial action. Ensuring planetary survival while reducing inequity is made the more difficult, because the richest one-seventh of the world’s population has already reached consumption levels beyond the capacity of the planetary ecosystem to accommodate it.

The aim of this article is to better understand how judgements about nudge acceptability are formed and whether they can be manipulated. We conducted a randomized experiment with N = 171 participants to test whether acceptability judgements could be (1) more favourable when the decision to implement the nudges was made following a consultation with the targeted population and (2) influenced by the joint framing of the nudge's purpose and effectiveness (in terms of an increase in desirable behaviour versus decrease in undesirable behaviour). We tested these hypotheses on various nudge scenarios and obtained mixed results that do not clearly support our hypotheses for all nudge scenarios. A surprising result that calls for further work is that by mentioning that a nudge had been implemented through a consultation with the targeted population its acceptability could be lowered.

Recently several authors have proposed proxies of welfare that equate some (as opposed to all) choices with welfare. In this paper, I first distinguish between two prominent proxies: one based on context-independent choices and the other based on reason-based choices. I then propose an original proxy based on choices that individuals state they would want themselves to repeat at the time of the welfare/policy evaluation (confirmed choices). I articulate three complementary arguments that, I claim, support confirmed choices as a more reliable proxy of welfare than context-independent and reason-based choices. Finally, I discuss the implications of these arguments for nudges and boosts.

In a novel experimental design, we investigate the impact of exogenous variation in economic growth and inequality on trusting behaviour. In addition to a control with uniform endowment, three treatments were implemented where the initial endowment is exogenously changed to produce inequality and three growth scenarios where average endowments increase (boom), decrease (recession) or remain unaltered (steady state). We find that aggregate trust and trustworthiness both decrease due to the induced heterogeneity in endowments. Also, trust (but not trustworthiness) decreases (increases) due to recessions (booms). The impact of inequality on trust is greatest in a recession and absent in a boom. These aggregate effects are driven mainly by the reactions of those who, after treatment, end up at the bottom of the endowment distribution. These findings are close in sign and in the order of magnitude to those reported in observational studies on the relationship between growth, inequality and trust.

Social discounting conventions vary widely. Some differences reflect institutional constraints, but many reflect differing assumptions about how a social discount rate should be derived and applied. The divide between advocates of social opportunity cost and social time preference (STP) frameworks seems unbridgeable. There is no consensus among STP advocates on whether the social cost of funding $1 of public spending is barely more than $1 of consumption or perhaps more than $2; or on whether the covariance of public service benefits with income merits a discount rate premium that is trivial or a few percentage points. The practicalities of government fund raising are sometimes overlooked. The issues are here reviewed in the light of the literature and of experience with developing and applying social discounting regimes and extended debates within government.

To ensure the long-term sustainability of the US Social Security System, several policy alternatives can theoretically be implemented. However, in practice, consumer responses can be challenging for policymakers to anticipate. We conducted a randomized survey on the nationally-representative Understanding America Study (UAS) panel where respondents were presented with a series of ‘policy scenarios’ in which the government enacts alternative reforms aimed to reduce the expected shortfall in the trust fund that pays Social Security retirement benefits. These scenarios included an increase in the Social Security payroll tax, an increase in the wage ceiling, and a reduction of benefits. We find that changes in respondents’ subjective expectations about their benefits and how this will affect their behaviors are directionally consistent with what would be expected when individuals are attentive to the available information and form rational expectations (e.g., monthly benefit expectations increase upon the announcement of an increase in the Social Security tax rate or in the wage ceiling, and they decrease less-than-proportionally with hypothetical benefit cuts). However, surprisingly, these changes are not sensitive to the magnitudes of policy change (e.g., the increase in expected benefits is about the same regardless of the size of Social Security payroll tax increases). Individuals with higher levels of education, cognitive ability, and financial literacy are more likely to adjust their expectations as predicted by theory.

A large and growing body of literature has studied consumer willingness to pay (WTP) for local foods in the United States. However, these studies implicitly assume that consumers perceive local foods to have superior quality than nonlocal foods. Little is known about WTP for local foods when taking into account differences in consumer perception of food quality between local and nonlocal foods. In this article, we conduct an economic experiment to assess the effect of locally grown information on consumer WTP and quality perceptions of three broccoli varieties (one commercial variety grown in California and two newly developed local varieties). Our results show that consumers rate both the appearance and the taste of the two local broccoli varieties lower than the California variety when evaluating food quality blindly. However, consumers’ evaluations of the two local varieties improve substantially after being told the two varieties are locally grown. Results also indicate that consumers are willing to pay a price premium for the two local varieties after being told that they are locally grown. Our results provide evidence that locally grown information has a positive effect on both consumer WTP and quality perception of local foods.

This study assesses the effect of tax withholding on pre-retirement withdrawals from a tax-preferred savings account in Canada. Using a large sample of administrative tax records and exploiting inter-provincial variation in tax withholding rates over time in the identification, the withdrawal elasticity to the net-of-tax withholding rate is estimated to be approximately 0.40 for many prime-aged savers. Hence, tax withholding discourages pre-retirement savings withdrawals and serves as a de facto savings commitment device. This finding is not well-explained by rational agency, and theories of present-biased time preferences and fiscal illusion are shown to be a better explanation of such behavior.

This paper provides a closed-form solution for the health capital model of health demand. The results are exploited in order to prove analytically the comparative dynamics of the model. Results are derived for the so-called pure investment model, the pure consumption model and a combination of both types of models. Given the plausible assumptions that (i) health declines with age and that (ii) the health capital stock at death is lower than the health capital stock needed for eternal life, it is shown that the optimal solution implies eternal life.

The possibility of indeterminacy and sunspot fluctuations in dynamic rational expectations models has been often questioned on empirical grounds, for such models are widely believed to rely on implausibly high degrees of increasing returns to scale and/or other controversial calibrations of economic fundamentals. In this paper, we study the occurrence of such phenomena in a standard (one-sector) optimal growth model with endogenous labor supply and a partial cash-in-advance constraint on consumption purchases. We show that, under standard preferences and constant returns to scale in production, indeterminacy typically prevails for an arbitrarily small amplitude of the liquidity constraint. We also analyze the cyclical properties of the model submitted to technological and beliefs disturbances and observe that it performs as well as comparable indeterminate models in the literature.

A major issue in reforming previously planned economies is the creation of assets markets. In this paper, it is argued that the mere characteristics of the assets to be privatized matter. Indeed, private ownership of land diverts resources from more productive activities. This suggests that for a given economy, there exists an optimal rate of public ownership of land. It is the purpose of this paper to provide a theory of such rate. We make use of a two-sectors overlapping generations model economy with land and capital. We find a version of the second welfare theorem: the command optimum can be decentralized using one and only one instrument, i.e. the rate of land publicly held. We call such a rate the optimal rate of public ownership of land.

Cet article compare les différentes hypothèses d’altruisme qui ont été étudiées dans le cadre du modèle à générations imbriquées. Deux visions concurrentes de l’altruisme se côtoient. La première due à Barro [1974] est proche de l’intuition que l’on peut avoir des solidarités au sein de la famille, mais ne permet pas de garantir la neutralité de la politique budgétaire. La seconde qualifiée de ad hoc dans la mesure où elle ne vérifie plus la définition de Barro selon laquelle l’utilité d’un agent ne dépend que de son utilité de cycle de vie sensu stricto et des utilités de ses enfants (ou de ses parents) permet de retrouver le résultat escompté par Barro, mais au prix d’un retour à la logique du modèle avec agent à durée de vie infinie.

Given the difficulties of utilitarian and egalitarian social welfare functions in the context of intergenerational equity, an analysis directly based on the potential transfers that can be made between generations is proposed. A consumption path may be rejected if some transfers with infinite returns can be made. It is shown that such potential transfers are unlikely in the short run in ordinary growth models, but that the returns to sacrifice are often unbounded when distant dates are considered, except in some particular cases. These concepts help select acceptable growth paths, and give some insight into the dilemmas of intergenerational justice.