Political economics and normative analysis

The approaches and opinions of economists often dominate public policy discussion. Economists have gained this privileged position partly (or perhaps mainly) because of the obvious relevance of their subject matter, but also because of the unified methodology (neo-classical economics) that the vast majority of modern economists bring to their analysis of policy problems and proposed solutions. The idea of Pareto efficiency and its potential trade-off with equity is a central idea that is understood by all economists and this common language provides the economics profession with a powerful voice in public affairs. The purpose of this paper is to review and reflect upon the way in which economists find themselves analysing and providing suggestions for social improvements and how this role has changed over roughly the last 60 years. We focus on the fundamental split in the public economics tradition between those that adhere to public finance and those that adhere to public choice. A pure public finance perspective views failures in society as failures of the market. The solutions are technical, as might be enacted by a benevolent dictator. The pure public choice view accepts (sometimes grudgingly) that markets may fail, but so, it insists, does politics. This signals institutional reforms to constrain the potential for political failure. Certain policy recommendations may be viewed as compatible with both traditions, but other policy proposals will be the opposite of that proposed within the other tradition. In recent years a political economics synthesis emerged. This accepts that institutions are very important and governments require constraints, but that some degree of benevolence on the part of policy makers should not be assumed non-existent. The implications for public policy from this approach are, however, much less clear and perhaps more piecemeal. We also discuss analyses of systematic failure, not so much on the part of markets or politicians, but by voters. Most clearly this could lead to populism and relaxing the idea that voters necessarily choose their interests. The implications for public policy are addressed. Throughout the paper we will relate the discussion to the experience of UK government policy-making.

Demographic Transitions: analyzing the effects of mortality on fertility

The effect of mortality reductions on fertility is one of the main mechanisms stressed by the recent growth literature in order to explain demographic transitions. We analyze the empirical relevance of this mechanism based on the experience of all countries since 1960. We distinguish between the effects on gross and net fertility, take into account the dynamic nature of the relationship and control for alternative explanatory factors and for endogeneity. Our results show that mortality plays a large role in fertility reductions, that the change in fertility behavior comes with a lag of about 10 years and that both net and gross fertility are affected. We find comparatively little support for explanations of the demographic transition based on economic development or technological change.

A Behavioural Model of Choice in the Presence of Decision Conflict

This paper proposes a model of choice that does not assume completeness of the decision maker’s preferences. The model explains in a natural way, and within a unified framework of choice when preference-incomparable options are present, four behavioural phenomena: the attraction effect, choice deferral, the strengthening of the attraction effect when deferral is per-missible, and status quo bias. The key element in the proposed decision rule is that an individual chooses an alternative from a menu if it is worse than no other alternative in that menu and is also better than at least one. Utility-maximising behaviour is included as a special case when preferences are complete. The relevance of the partial dominance idea underlying the proposed choice procedure is illustrated with an intuitive generalisation of weakly dominated strategies and their iterated deletion in games with vector payoffs.