Interactive Economic Policy: Toward a Cooperative Policy Approach for a Negotiated Economy

By Elsner, Wolfram | Journal of Economic Issues, March 2001 | Go to article overview

Interactive Economic Policy: Toward a Cooperative Policy Approach for a Negotiated Economy


Elsner, Wolfram, Journal of Economic Issues


The present article is about deficient markets and a new approach to policy intervention that responds to them. This approach, in turn, is meant to underpin the broader institutionalist negotiated-economy conception.

The paper proceeds from a typical market-based economic problem (such as job losses, or income decreases), which it interprets as a lock-in (or blockage) of agents in a typical social situation. In an evolutionary process entailing social learning, interactive private agents may form social institutions of cooperation to overcome such lock-ins. This is, at least, a widely shared "new evolutionary" expectation. This process, however, turns out to be highly fragile and time-consuming, Therefore, a specific type of public policy intervention is called for to stabilize and accelerate the learning process of the private agents.

The learning process will be interpreted here as a social production process, which indeed can be improved by a specific type of economic-policy intervention. It thus requires a certain social valuation, or what often has been called a (de)meritorization, of the "good" produced in the market. This valuation will have to consider the stability and the time span of that production process. In terms of "goods," the social valuation transforms what is seen as a private good into what may be called a merit good. Through this valuation the public policy agent embeds the private decentralized mechanism which is called a market in a broader sociopolitical mechanism.

Economic-policy intervention will be specified as the public promotion of co-operative action among private agents with specific economic policy instruments. In promoting cooperation the public policy agent can utilize the individual interests of the private agents in the merit good in order to sway private agents to contribute more to its production. In contrast to policy conceptions based upon the conventional "collective good" argument, this basically allows also for a leaner policy approach.

The argument here, however, will not simply be that public authorities can sway private individuals to contribute to commonly valued goals through a set of subsidies or similar incentives. This has indeed been widely recognized in a variety of approaches. What will be argued here is that a closer analysis of the interactive process among private agents allows for a specification of the policy approach and its instruments. This will also be concerned with the degree of certainty and the relevance of the common future for the private agents. Even conventional instruments such as subsidies or infrastructural projects are given new significance in this context and can be redesigned to better fulfill their functions. This also applies to networking, which can be justified and redesigned on new grounds. The nature of this process will be explained below.

Because traditional financial instruments (subsidies) will have a significantly smaller role to play (compared with non-pecuniary instruments) in inducing the intended effects and they can be smaller than is usually expected, this policy approach allows for a lean economic policy. Within this new framework, new instruments can also be designed.

Throughout this paper there are references to conventional private, collective, and merit good reasoning and to game-theoretic reasoning, and an attempt is made to integrate these forms of reasoning into an institutionalist framework, specifically, into the broader conception of a negotiated economy. I will also employ some simple formalism, which will help to analyze the argument and to design the interactive approach while at the same time substantiating its instruments. At the outset a critical discussion will thus have to address the neoclassical aspects of this setting.

The Economic Problem and Its Theoretical Representation

Economic Problems as Coordination Failures

Many economic problems can be represented as coordination problems in institutional settings that we usually call markets. …

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