How the market responds to dynamically inconsistent preferences

This paper responds to the ‘soft paternalist’ argument that the findings of behavioural economics make traditional objections to paternalism incoherent. We show that there is a normatively significant sense in which, even if individuals lack coherent preferences, competitive markets are efficient in providing them with opportunities to get what they want. Extending earlier analysis by Sugden, we model a multi-period ‘storage economy’ and explore the implications of dynamically inconsistent preferences. We show that, despite apparent conflicts of judgement between an individual’s ‘selves’, competitive markets provide maximal opportunity, and that they do so by facilitating voluntary exchanges between selves.     

Coalition Formation and Stability

This paper studies a class of NTU coalition formation games in which every player’s payoff depends only on the members of her coalition. We identify four natural conditions on individuals’ preferences and show that, under each condition, stable (core) allocations exists.     

Pension Participation: Do Parents Transmit Time Preference?

A wide range of economic and health behaviors are influenced by individuals’ attitudes toward the future—including investments in human capital, health capital and financial capital. Intergenerational correlations in such behaviors suggest an important role the family may play in transmitting time preferences to children. This article presents a model of parental investment in future-oriented capital, where parents shape their children’s time preference rates. The research identifies a dual role for a parent’s time preference rate in the process of shaping the offspring’s attitude toward the future, and discusses paths through which parents may socialize children to be patient. The model’s implications are studied by investigating the parent–child correlation in pension participation using data from the Panel Study of Income Dynamics     

Utilities,preferences, and substantive goods

 People’s utility levels are meant to be measures of their well-being. Early utilitarians defined them in terms of people’s happiness. Modern economics defines them in terms of people’s actual preferences. But in ethics they have to be defined in terms of people’s informed preferences. I shall discuss the relationship between people’s desires and preferences, and that between their reasoned and unreasoned preferences. I shall argue that people’s basic desires are much the same, whereas their preferences are often very different. Finally, I shall argue, contrary to Scanlon’s theory, that the things that are good for us are beneficial to us ultimately because they satisfy our biological and psychological needs and our personal interests. Received: 8 July 1996     

The ignorant observer

We propose an extension of Harsanyi’s Impartial Observer Theorem based on the representation of ignorance as the set of all possible probability distributions over individuals. We obtain a characterization of the observer’s preferences that, under our most restrictive conditions, is a convex combination of Harsanyi’s utilitarian and Rawls’ egalitarian criteria. This representation is ethically meaningful, in the sense that individuals’ utilities are cardinally measurable and fully comparable. This allows us to conclude that the impartiality requirement cannot be used to decide between Rawls’ and Harsanyi’s positions. We thank D. Bouyssou, A. Chateauneuf, M. Cohen, M. Fleurbaey, E. Karni, J.-F. Laslier, P. Mongin, J. Moreno-Ternero and especially J. Weymark, as well as seminar audiences at University Pompeu Fabra, University of Cergy-Pontoise, the Roy Seminar and RUD 2006 for useful comments. Comments by two anonymous referees have been extremely useful to improve the paper. Financial support from an ACI grant by the French Ministry of Research is gratefully acknowledged.     

Consequences, opportunities, and procedures

This paper reflects on consequentialism which underlies the traditional normative economics. It asserts that the informational basis of normative economics should be expanded so that the intrinsic value of social choice procedures should be properly taken into account along with the value of their consequences. Three examples – the problem of fair cake division, the role of competition in the promotion of economic welfare, and bilateral trade restrictions – are invoked to pinpoint the services rendered by procedural considerations in making social welfare judgements. The Pareto libertarian paradox is also re-examined within the extended framework incorporating procedural considerations along with consequential considerations. Received: 25 March 1997 / Accepted: 8 July 1997     

Dividing Justly in Bargaining Problems with Claims

Theoretical research on claims problems has concentrated on normative properties and axiomatizations of solution concepts. We complement these analyses by empirical evidence on the predictability of three classical solution concepts in a bankruptcy problem. We examine both people’s impartial normative evaluations as well as their actual negotiation behavior in a bargaining with claims environment. We measure people’s judgments on the normative attractiveness of solution concepts with the help of a survey and also observe actual agreements in a bargaining experiment with real money at stake. We find that the proportional solution is the normatively most attractive rule, whereas actual negotiation agreements are closest to the ‘constrained equal-award’ solution.     

Internalities and paternalism: applying the compensation criterion to multiple selves across time

One reason to call an activity a vice and suppress it is that it reduces a person’s future happiness more than it increases his present happiness. Gruber and Koszegi (Q J Econ 116(4):1261–1303, 2001) show how a vice tax can increase a person’s welfare in a model of multiple selves with hyperbolic preferences across time. The present paper shows that an interself analogy of the compensation criterion can justify a vice ban whether preferences are hyperbolic or exponential, but subject to the caveat that the person has a binding constraint on borrowing.     

Charles Tilly,German Historicism,and the Critical Realist Philosophy of Science

This paper examines Charles Tilly’s relationship to the schools of thought known as historicism and critical realism. Tilly was committed to a social epistemology that was inherently historicist, and he increasingly called himself a “historicist.” The “search for grand laws in human affairs comparable to the laws of Newtonian mechanics,” he argued, was a “waste of time” and had “utterly failed.” Tilly’s approach was strongly reminiscent of the arguments developed in the first half of the 20th century by Rickert, Weber, Troeltsch, and Meinecke for a synthesis of particularization and generalization and for a focus on “historical individuals” rather than abstract universals. Nonetheless, Tilly never openly engaged with this earlier wave of historicist sociology, despite its fruitfulness for and similarity to his own project. The paper explores some of the possible reasons for this missed encounter. The paper argues further that Tilly’s program of “relational realism” resembled critical realism, but with main two differences: Tilly did not fully embrace critical realism’s argument that social mechanisms are always co-constituted by social meaning or its normative program of explanatory critique. In order to continue developing Tilly’s ideas it is crucial to connect them to the epistemological ideas that governed the first wave of historicist sociology in Weimar Germany and to a version of philosophical realism that is interpretivist and critical.     

‘One and a Half Dimensional’ Preferences and Majority Rule

I examine a model of majority rule in which alternatives are described by two characteristics: (1) their position in a standard, left-right dimension, and (2) their position in a good-bad dimension, over which voters have identical preferences. I show that when voters’ preferences are single-peaked and concave over the first dimension, majority rule is transitive, and the majority’s preferences are identical to the median voter’s. Thus, Black’s (The theory of committees and elections, 1958) theorem extends to such a “one and a half” dimensional framework. Meanwhile, another well-known result of majority rule, Downs’ (An economic theory of democracy, 1957) electoral competition model, does not extend to the framework. The condition that preferences can be represented in a one-and-a-half-dimensional framework is strictly weaker than the condition that preferences be single-peaked and symmetric. The condition is strictly stronger than the condition that preferences be order-restricted, as defined by Rothstein (Soc Choice Welf 7:331–342;1990).     

Public expenditure: Perceptions and preferences

Public preferences for government expenditure form an important part of the literature in public sector economics. However, in the academic literature these preferences have been largely considered as “given”. Exceptions to this are where public preferences expressed referenda (e.g. in California) can directly influence tax revenue and public expenditure levels. The present study follows an earlier one in using a questionnaire to ask individuals directly about their perceptions of and preferences for public spending. Replies from 50 respondents were analysed using multiple regression and analysis of variance techniques in order to ascertain whether public expenditure perceptions and preferences showed consistent and predictable patterns among young individuals with little or no experience of paying tax. The results showed that both perceptions and preferences for a series of seven macro-expenditure items were significantly different from one another and broadly predictable from individuals' self reported positions on ‘left/right’ scales. It is concluded that views about public expenditure may often form part of integrated attitudes with both perceptual and preferential components.     

The division problem with voluntary participation

The division problem consists of allocating a given amount of a homogeneous and perfectly divisible good among a group of agents with single-peaked preferences on the set of their potential shares. A rule proposes a vector of shares for each division problem. The literature has implicitly assumed that agents will find acceptable any share they are assigned to. In this article we consider the division problem when agents’ participation is voluntary. Each agent has an idiosyncratic interval of acceptable shares where his preferences are single-peaked. A rule has to propose to each agent either to not participate or an acceptable share because otherwise he would opt out and this would require to reassign some of the remaining agents’ shares. We study a subclass of efficient and consistent rules and characterize extensions of the uniform rule that deal explicitly with agents’ voluntary participation.     

Consistency between tastes and values: A universalization approach

The object of this paper is to propose a consistency test for an individual involved in collective choice process. Collective choice processes considered in the paper are those that transform individuals ‘tastes’– which reflect the self-interested view point of the individuals – into (social) ranking of alternatives. In addition to her tastes, an individual has values about the way by which collective decision should be made. We distinguish two categories of such values. First, there are end-values that restrict the class of social rankings that the individual considers ethically acceptable. Second there are aggregation-values that specify the way by which the social ranking should depend upon the individuals tastes. The consistency test stands on an hypothetical operation of universalization of the individual tastes to everyone. Five illustrations of the potential usefulness of our approach for interpreting social choice theory and welfare economics are proposed. These illustrations deal with utilitarian aggregation in the presence of income inequality aversion, the so-called ‘ethics of responsibility’ and the aggregation of individual ranking of opportunity sets based on their freedom of choice. A discussion of the relevance of the consistency test for addressing the problem of ‘laundering’ individual preferences is also provided. Received: 25 June 1998/Accepted: 16 March 1999     

The specific value of freedom

This article examines the question of how to assess our overall freedom in terms of its so-called specific value, i.e., the part of its value that can be reduced to the value of the various specific things we are free to do or be. It is argued that existing preference-based freedom rankings may fail to capture this value adequately and, drawing on earlier work by Puppe (J Econ Theory 68:174–199, 1996; in: Laslier et al. (eds.) Freedom in economics. New perspectives in normative analysis, 1998) and Puppe and Xu (Soc Choice Welf, this issue, 2010), an alternative, more general framework is proposed. Two rankings of freedom’s specific value are axiomatically characterized. The article concludes with a discussion of possible extensions of the framework.     

Reaching a consensus

This paper explores some aspects of the relation between aggregation and deliberation as ways of achieving a consensus amongst a group of indviduals on some set of issues. I argue firstly that the framing of an aggregation problem itself generates information about the judgements of others that individuals are rationally obliged to take into account. And secondly that the constraints which aggregation theories typically place on consensual or collective judgements need not be consistent with the outcomes of rational deliberative processes driven by individuals’ attempts to update on this information. The paper focuses on the particular case of allocation problems, for which there are established results both in aggregation theory and deliberation theory, to make this claim.     

Approval Voting on Dichotomous Preferences

The aim of this paper is to find normative foundations of Approval Voting when individuals have dichotomous preferences. We show that a social choice function is anonymous, neutral, strategy-proof and strictly monotone if and only if it is Approval Voting and interpret this result as an extension of May’s theorem (Econometrica 20:680–684, 1952). Then, we show that Approval Voting is the only strictly symmetric, neutral and efficient social choice function. This result is related to a characterization of Baigent and Xu (Math Soc Sci 21:21–29, 1991).     

Characterizing how to aggregate the individuals�� deprivations in a multidimensional framework

Most of the existing multidimensional poverty indices are constructed in two steps. First, the deprivation felt by each individual with respect to each attribute is computed. Then, these deprivations are aggregated to form a summary index of the overall deprivation. This paper explores properties for the aggregation stage and analyzes their implications. The axioms we propose are necessary and sufficient to characterize a procedure to aggregate the different individuals’ deprivations in order to measure the extent of deprivation in society.     

Flexibility of choice versus reduction of ambiguity

This paper explores the problem of a social planner willing to improve the welfare of individuals who are unable to compare all available alternatives. The optimal decision trades off the individuals’ desire for flexibility versus their aversion towards ambiguous choice situations. We introduce an axiom system that formalizes this idea. Our main result characterizes the preference maximizing opportunity set. It is a maximal set that consists of mutually comparable alternatives. It also has the property that it maximizes the sum of the distances between its ordered elements for some appropriate pseudometric imposed on the set of possible choices.     

The Liberal Paradox: A generalisation

A largely unsolved problem in economics is what criteria should an economic policy satisfy to be desirable. The Pareto principle is the most widely used normative criterion in economics. Some recent criticisms have suggested that it is not compatible with other objectives of economic policy, most significantly that the Pareto principle conflicts with the respect of individual rights. This paper argues that the Pareto principle is not a significant cause of this conflict. Our argument is based upon a simple generalisation of the Liberal Paradox.For Comments I would like to thank Ruvin Gekker, Kevin Lang, Yew-Kwang Ng, Prasanta Pattanaik, Amartya Sen, John Wriglesworth, the referee, and the editor of this journal