KNAW - Markets serving the good society

This question forms part of the Dutch Research Agenda, which was composed in 2011. Question 36 of that Agenda reads “Hoe moeten we markten inrichten en bewaken?”. The project aims to contribute to answering this question. It primarily takes an economic approach, but also links up with insights from other disciplines wherever possible (sociology, philosophy, ethics, psychology, law).

Project description

Economics is silent on the question of what constitutes a good society: it is for the individuals constituting the society to decide upon this. Hence, different societies can provide different answers, depending on the values of its members. Economics is not a normative science which dictates what should be done; it is a positive science that aims at understanding how (parts of) society work. As such it aims to serve society. If the members of society can agree on what they want to achieve, then they can turn to the economist with the questions “Can we achieve what we want? If so, how can we achieve this?”

It should be clear that the economist will not necessarily have answers at hand, but at least he will agree that questions like these belong to his field. In trying to provide answers, the economist will, naturally, look at markets, hence, he will end up at our grand question. However, an economist should not be viewed as an advocate of markets, but as an expert who knows what markets can or cannot do. Economics is a social science, and other social sciences, and philosophy, also provide insights into the “grand question”. In this project, we aim to integrate these insights in order to arrive at an overall assessment. Economics distinguishes it itself from the other social sciences not by its emphasis on markets (which are just one institution), but by its approach. Economists incessantly assume that people are goal directed, that they are rational. For us, this assumption provides an adequate starting point, but we are well aware of its limitations, and will deal with these. If we take “bounded rationality” seriously, how does this change our assessment of markets?

The project aims to contribute both to the advancement of science and to the improvement of society. From the scientific point of view, we aim to provide an overview of what is known about the pros and cons of the market, and to outline a research agenda related to the things that are still insufficiently understood. We hope that such an overview will also be useful in societal and political discussions about the role of the market in reaching goals of public policy. The discussion on the question “what can be the role of the market?” is naturally connected to the discussion on the question “what is the role of the state?” Both are aspects of the even grander question “how should society be organized?” Of course, when the question is posed this way, we realize –if we did not already do that- that there is more than state and market. In this project, the focus is on the market, as that is already a large enough topic in itself.

This project does not only provide an overview of what we know and do not yet know, but also creates and tests new knowledge. In more technical terms, the aim is to initiate a program of “behavioral mechanism design” in relation to some key policy areas in the Netherlands. In non-technical terms: given a policy question, how should the institutions be designed in order to best achieve the policy objectives? The specific policy questions still have to be identified. In order to answer these questions, we will not just develop theory and apply that theory, but we will also test it by means of experiments. The idea is that in these experiments, industry experts, public decision makers and the general public will all be able to participate. The results of these experiments can subsequently fuel the public debate.

Project Coordination

Events KNAW

2016

• International workshop on the  New Roles of the Consumers in the Energy Market 
  Organized by the Tilburg Law and Economics Center (TILEC) together with the Benelux Association of Energy (BAEE). The workshop will take place at the Royal Netherlands Academy of arts in Amsterdam.

2015

• Conference on “Shifting Preferences” at the KNAW (Royal Netherlands Academy of Arts and Sciences)
  This conference (of which attendance was by invitation only) was devoted to discussing the question how competition changes life. Conventional economics assumes that preferences are stable and can be taken as exogenous. However, more and more evidence is mounting that preferences are shaped and remain flexible. For example, experiments in “nudging” have shown that the situational focus on certain preferences may depend on situational cues. Framing effects have also been shown to be robust and it has been shown that framing a situation as a competitive one may change the resulting behavior. A question then is: how does competition shape preferences? In what domain or under which circumstances is competition appropriate taking these effects into account? In broad terms we may state that humans strive to develop themselves and aim to obtain subjective well-being (SWB). It is known that competition may influence SWB positively or negatively, depending on the side of the market one is on. It is also known that the experience of competition may influence the attitude towards others. How robust are these findings and what do they entail? 
• Seminar
  In this seminar prof. Eric van Damme presented a vision on human beings in politics.

2014

• Meeting
  In this first meeting, the main questions and goals of the research project were discussed.
  | (In Dutch)  Discussion paper |