lrrationality

Rational Irrationality: A Framework for the Neoclassical-Behavioral Debate
Published in the Eastern Economic Journal 26(2), Spring 2000, pp.191-211.

Abstract:

Critics of behavioral economics often argue that apparent irrationality arises mainly because test subjects lack adequate incentives; the defenders of behavioral economics typically reply that their findings are robust to this criticism. A simple theoretical model of "rational irrationality" is represented to clarify this debate, reducing the neoclassical-behavioral dispute to a controversy over the shape of agents' wealth/irrationality indifference curves. Many experimental anomalies are consistent with small deviations from polar "neoclassical" preferences, but even mildly relaxing standard assumptions about preferences has strong implications. Rational irrationality can explain both standard, costly biases, as well as wealth-enhancing irrationality, but it remains inconsistent with evidence that intensifying financial incentives for rationality makes biases more pronounced.

When Is Two Better than One?: How Federalism Mitigates and Intensifies Imperfect Political Competition
Published in the Journal of Public Economics 80(1), April 2001, pp.99-119.

Abstract:


Power-maximizing politicians' behavior model is subject to imperfect political competition and perfect citizen mobility - analyzing the welfare implications of federal and non-federal structures. The model abstracts from both heterogeneous preferences (the most common argument in favor of federalism) and externalities (the most common argument against), showing that even in this simplified setting federalism has important welfare implications. There is one class of equilibria in which more federalism has the purely beneficial effect of offsetting imperfections in the political process. However, there is also a second class of equilibria in which citizen mobility makes political imperfections more severe by creating "safe districts" for both political parties.



Rational Ignorance vs. Rational Irrationality
Published in Kyklos 54(1), 2001, pp.3-26.

Abstract:

Beliefs about politics and religion often have three puzzling properties: systematic bias, high certainty, and little informational basis. The theory of rational ignorance (Downs 1957) explains only the low level of information. The current paper presents a general model of "rational irrationality," which explains all three stylized facts. According to the theory of rational irrationality, being irrational - in the sense of deviating from rational expectations - is a good like any other; the lower the private cost, the more agents buy. A peculiar feature of beliefs about politics, religion, etc. is that the private repercussions of error are virtually nonexistent, setting the private cost of irrationality at zero; it is therefore in these areas that irrational views are most apparent. The consumption of irrationality can be optimal, but it will usually not be when the private and the social cost of irrationality differ - for example, in elections.



Has Leviathan Been Bound? A Theory of Imperfectly Constrained Government with Evidence from the States
Published in the Southern Economic Journal 67(4), April 2001, pp.825-847.

Abstract:

This paper develops a formal theory that combines power-maximizing "Leviathan" political parties with well-defined imperfections in the political process. The model implies that both parties tend to make government larger as their likelihood of electoral victory increases. Empirical tests on state-level data confirm this prediction. Racing the Leviathan hypothesis against alternatives theories of party motivation indicates that both the Leviathan and the "contrasting ideologies" views have some degree of validity.

Source: http://www.gmu.edu/departments/
economics/bcaplan/econ.html