Social Planning and Economic Coercion

28 Pages Posted: 6 Nov 2014

See all articles by Beat Hintermann

Beat Hintermann

University of Maryland - Department of Agricultural & Resource Economics

Thomas Rutherford

University of Wisconsin - Madison

Date Written: October 24, 2014

Abstract

We develop a theory of social planning with a concern for economic coercion, which we define as the difference between consumers’ actual utility, and the “counterfactual” utility they expect to obtain if they were able to set policy themselves. Reasons to limit economic coercion include protecting minorities, preventing disenfranchised groups from engaging in socially costly behavior, or political economy considerations. As long as consumers are fully rational, limiting coercion is equivalent to placing more welfare weight on coerced consumers at the expense of others. If, however, consumers are not fully rational and/or informed, counterfactual utility becomes endogenous to current policy, and the welfare loss associated with limiting coercion increases. We set up a numerical version of our model and find that the error-related welfare loss can be substantial.

Keywords: coercion, social planning, public finance, counterfactual utility

JEL Classification: D030, D040, H210, H220, H230, H310, H410

Suggested Citation

Hintermann, Beat and Rutherford, Thomas, Social Planning and Economic Coercion (October 24, 2014). CESifo Working Paper Series No. 5044, Available at SSRN: https://ssrn.com/abstract=2519447 or http://dx.doi.org/10.2139/ssrn.2519447

Beat Hintermann (Contact Author)

University of Maryland - Department of Agricultural & Resource Economics ( email )

Symmons Hall, Rm 2200
University of Maryland
College Park, MD 20742-5535
United States

Thomas Rutherford

University of Wisconsin - Madison ( email )

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