Policy and Choice Public Finance through the Lens of Behavioral Economics

by Congdon, William J.; Kling, Jeffrey R.; Mullainathan, Sendhil

• ISBN13: 9780815704980
• ISBN10: 0815704984
• Format: Hardcover
• Copyright: 2011-02-24
• Publisher: Brookings Institution Press

Summary

Behavioral economics --the integration of psychology and economics --has demonstrated a tremendous promise for informing economic policy in recent years. On topics ranging from retirement savings to college financial aid to prescription drug benefits, findings suggest that psychological forces such as procrastination and confusion underlie many policy challenges and influence important policy outcomes. These results have generated a demand for the further application and extension of behavioral insights, even as they have upended the standard economic analysis of government policy.In Policy and Choice, economists William Congdon, Jeffrey Kling, and Sendhil Mullainathan argue that public finance --the study of the government's role in the economy --can incorporate many lessons of behavioral economics and should serve as a framework for applying insights from psychology to questions of economic policy. The authors develop their own approach for thinking about the implications of behavioral economics for public finance. They illustrate how behavioral economics alters our thinking and changes our understanding, sometimes dramatically, of the most basic levers of traditional public finance.The result is a fully behavioral public finance, an integration of psychology and the economics of the public sector that is explicit, systematic, and rigorous. The authors demonstrate how this framework applies to the standard set of topics in public finance, including externalities and public goods, asymmetries of information, poverty and inequality, and taxation and revenue. Their conclusions have direct implications for policy and point to promising directions for future research.ContentsIntroductionI. Psychology and the Foundations of Public Finance1. Psychology and Economics2. Behavioral Economics and Public FinanceII. Behavioral Economics and Public Finance in Practice3. Asymmetric Information4. Poverty and Inequality5. Externalities and Public Goods6. Taxation and RevenueIII. Conclusion

Table of Contents

Acknowledgments	p. vii
Introduction	p. 1
Psychology and the Foundations of Public Finance
Psychology and Economics	p. 17
Behavioral Economics and Public Finance	p. 40
Behavioral Economics and Public Finance in Practice
Asymmetric Information	p. 69
Externalities and Public Goods	p. 107
Poverty and Inequality	p. 140
Taxation and Revenue	p. 173
	p. 201
	p. 205
Notes	p. 209
Index	p. 241
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