Where are the big bills? Escaping the endogenizer's dilemma

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Abstract

The continual expansion of rational choice theory to a greater range of social phenomena-from markets to politics and institutions-is a testament to its success. Each further application, however, simultaneously forecloses a potential source of inefficiency in economic systems. Abdicating efficiency considerations impairs economics' explanatory power as much as its normative relevance. In this paper I explore the interconnected roles of subjectivism and knowledge problems in accounting for inefficiency. I conclude that the knowledge-generating properties of institutions allow for efficiency comparisons, but only in the embrace of a thoroughgoing subjectivism.

Original languageEnglish
Pages (from-to)81-95
Number of pages15
JournalReview of Austrian Economics
Volume27
Issue number1
DOIs
StatePublished - Mar 2014

Keywords

  • Coase theorem
  • Economic efficiency
  • Knowledge problem
  • Rational choice
  • Subjectivism

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