Toward a “constitution” for behavioral policy‑making

Fabbri, Marco; Faure, Michael

doi:http://dx.doi.org/10.1007/s12232-018-0296-9

Toward a “constitution” for behavioral policy‑making

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Fabbri M, Faure M. Toward a “constitution” for behavioral policy‑making. Int Rev Econ. 2018 Sep;65(3):241-70. DOI: 10.1007/s12232-018-0296-9

Abstract

Behavioral policy interventions aimed at redirecting individuals’ behavior toward optimal choices are characterized by an important issue which is often overlooked: the lack of an instrument to defne what “optimal” means. If agents are subject to behavioral biases leading them to make “wrong” choices, the policymaker can no longer rely on the revealed preferences approach (e.g., what people choose is what people prefer) for defning a welfare criterion. In this article, we reiterate the argument put forward by some scholars that choosing a suitable welfare criterion once the link between observed choices and individuals’ preferences is broken becomes a problematic task. We review the state of the art in the literature and the possible approaches proposed to overcome the problem, concluding that a solution has not yet been reached. Moreover, we argue that the lack of an established welfare criterion characterizing behavioral policy-making could pave the way to government wanting to restrict individual freedom. In the absence of any legislative constraint for the executive, stating that what individuals choose is not what they prefer in principle justifes any freedom-reducing government intervention, since choices can be arbitrarily labeled “sub-optimal” or “welfare-reducing.” To avoid this risk without turning down the potential of behavioral policy-making, we propose that an independent committee establishes ex ante procedural rules and domains where behavioral policy-making can be implemented. The article suggests some possible examples of normative provisions characterizing this constitution-type document, such as the selective identifcation of the only sectors where behavioral policies could be efectively applied, the periodic evaluation of policy efects, and the use of sunset clauses.