Back to the BOG, Austrian-style

Back to the BOG, Austrian-style Robust political economy begins with assumptions of self-interested planners who lack perfect information. In such a world, the social planner does not necessarily outperform the decentralized outcome. Crampton and Farrant (2005) argue that the inability to engage in economic calculation reduces the ability of social planner to extract consumer surplus. Thus, the lack of calculation improves the welfare of the median citizen which contrasts with conventional wisdom. We argue that they overstate their results. First, the calculation argument fails because of its underdevelopment, not because of the empirical record. Second, the welfare implications cannot be adequately addressed by assuming diminishing marginal utility of income or using the median welfare standard. Third, robust political economy has not developed a model that yields meaningful welfare comparisons. Thus, robust political economy remains in its early stages. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Austrian Economics Springer Journals

Back to the BOG, Austrian-style

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2006 by Springer Science + Business Media, Inc.
Subject
Economics; Public Finance; Political Science; History of Economic Thought/Methodology
ISSN
0889-3047
eISSN
1573-7128
D.O.I.
10.1007/s11138-006-6096-6
Publisher site
See Article on Publisher Site

Abstract

Robust political economy begins with assumptions of self-interested planners who lack perfect information. In such a world, the social planner does not necessarily outperform the decentralized outcome. Crampton and Farrant (2005) argue that the inability to engage in economic calculation reduces the ability of social planner to extract consumer surplus. Thus, the lack of calculation improves the welfare of the median citizen which contrasts with conventional wisdom. We argue that they overstate their results. First, the calculation argument fails because of its underdevelopment, not because of the empirical record. Second, the welfare implications cannot be adequately addressed by assuming diminishing marginal utility of income or using the median welfare standard. Third, robust political economy has not developed a model that yields meaningful welfare comparisons. Thus, robust political economy remains in its early stages.

Journal

The Review of Austrian EconomicsSpringer Journals

Published: Jan 1, 2006

References

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