Samuel DeCanio and the Future of Public Choice

|Peter Boettke|

Close to 20 years ago, Vincent Ostrom declared that if the field of public choice was to remain a progressive research program it would have to move beyond being merely an appendage to neoclassical price theory, and instead embrace the epistemic turn in the social and policy sciences.  Ostrom's call was in part a call for future scholars to engage in the comparative institutional analysis of the learning properties of different political/legal/economic systems.  Holding questions of motivations aside for sake of analysis, the question becomes how do the different institutional arrangements produce and communicate information to the relevant actors, and provide the necessary feedback for learning among the different actors.  How, in essence, do different political/legal/economic institutional arrangements transform the bits of information scattered throughout the system into useful knowledge for individual decision makers to act upon.

This call for embracing the epistemic turn by Ostrom was of course pre-dated by F. A. Hayek as early as 1937, when in his essay "Economics and Knowledge" he explicitly calls for economists to assess political-economic systems based on their learning capabilities.  A simple -- perhaps even simplistic -- way to communicate Hayek's insight, is to think about classroom environments and their impact on student learning.  A dark room, with a blackboard, and dark colored chalk, might still have all the information going up on the board, but the students will not be able to absorb that information and turn it into useful knowledge in the same way the would in a well lit classroom with a blackboard but with white chalk.  Socialism with collective ownership and administered pricing and central direction would be analogous to the dimly lit classroom whereas capitalism with private property and the price system would be analogous to the well lit classroom.  The stark contrasts between the blackboard and the white chalk presents the relevant information to the students clearly, and thus they can process that information and translate it into useful knowledge through the learning process.  Entrepreneurs in the market economy confront the array of relative prices on the market that guide their decisions within their resource constraints, and the lure of pure profit and the penalty of loss either relaxes those constraints or makes them more binding.  Each individual in the system doesn't have to learn the right lesson, but the weeding out role of a hard-budget constraint does the job of muting or even eliminating from the discussion those who don't learn effectively.  The capitalist order works because of the constant learning that goes on, the socialist order fails because the environment is not conducive to learning that which must be learned for the social system to realize the gains from social cooperation under the division of labor.

Hayek would move from a rather technical economic theorist focused on problems of imputation theory, monetary theory, capital theory and price theory to a broader social theorist focused on philosophy of science, political theory, legal philosophy, and philosophical anthropology all because he embraced this epistemic turn.  Many economists -- particularly those focused in the field of mechanism design theory -- tried to address Hayek's claim about the informational efficiency of the private property market economy, but they tended to underemphasize the learning properties as opposed to questions of information aggregation.  Whereas Hayek was concerned with both discovery and utlization of information, and in particular, the error detection and correction processes required in a dynamic system, the literature more or less focused on the claim about relative prices being a sufficient statistic for the efficient utilization of resources at any point in time.

Pursuing these different lines of thought is a very useful exercise for the aspiring social theorist, and to understand the subtle differences and nuanced positions that have developed over the past 70+ years.  But as Vincent Ostrom's call indicates, most political economist did not take the broader implications of Hayek's epistemic turn, and instead pursued the narrower and more technical path of the mechanism design theorists.  Knowledge and learning were collapsed into information and efficient use.

The last decade has seen that change -- and not just in economics.  Technical work on knowledge within economics (see for example Larry Samuelson's 2004 survy on modeling knowledge) is moving in the direction of Hayek rather than away --- though I would argue not quite there yet.  Vernon Smith's work is an extremely important bridge from the mechanism design literature to Hayek's broader work on the context and epistemics.  But one of the most promising developments is the rise of several young scholars in fields such as political science who are embracing this epistemic turn in the social and policy sciences.  

The literature on epistemic democracy has opened the door, see for example my discussion of the recent book by Jack Knight and Jim Johnson, The Priority of Democracy and their reply.  The particulars of that debate do not matter for what I am saying today, all that matters is that the discussion be framed along epistemic dimension lines along with the recognition of questions concerning incentive compatibilities. And that it is accomplishing.

Among the brightest spots in this emerging turn is a recent paper by Samuel DeCanio.  Sam's paper "Demoracy, the Market, and the Logic of Social Choice," is forthcoming in the AJPS and should be most welcomed by readers of this blog. {Note to readers: the linked version is an older working paper that hasn't been updated yet}  But the abstract of the revised version should suffice to peak your intellectual interests:

This paper compares the types of knowledge democracy and the market require to rationally allocate resources. I argue that high levels of public ignorance, and voters’ inability to compare the effects of different parties’ policies, make it difficult for parties and elections to rationally allocate resources. Markets mitigate these problems because the simultaneous existence of multiple firms’ products facilitates comparisons that mimic the conditions of scientific experimentation. The economy of knowledge involved in such comparisons indicates there are epistemic advantages to using firms and markets, instead of political parties and elections, to allocate scarce resources. However, in contrast to arguments that markets merely provide better information than political decisions, I argue markets’ epistemic advantages are derived from the way they facilitate comparisons that minimize decision-makers’ need for knowledge or understanding.

What DeCanio is doing, though that is not his explicit intent, is taking Vincent Ostrom's call for a revision of public choice scholarship to take the epistemic turn seriously.  If you read Ostrom carefully, he has a broader agenda in mind -- which includes the careful study of language, the relationship of language to beliefs, and the connection between beliefs and actions.  But there is also the straightforward call to move public choice from being a mere appendage to neoclassical price theory to grappling with the social dilemmas and paradoxes that addressing the context of epistemic choice forces us to deal with.  In the comparative institutional analysis of democracy and the market, Sam DeCanio is moving the intellectual ball down the field.  One possible very promising future of public choice analysis lies in this direction of theoretical inquiry into the epistemic properties of alternative political/legal, social/cultural, and economic/financial institutional arrangements.  If young scholars choose to go down this path, DeCanio's paper will be the modern starting point.

Comments

[FriedrichHayek]

Understanding doesn't come in bits -- read Kuhn or Wittgenstein or Hayek.

The metaphor of bits and "items of information" is destructive of understanding of how understanding is generated and passed on from one person to another.

Spend some time reading Kuhn on how science is generated and transmitted to get some sense of how "bits of information" has nothing to do with it.

Or read Wittenstein on how language competen d is passed from one person to another, or Hayek on the transmission of rules and the how they evolve.

The "bits of information" metaphor is pernicious and blinds our understanding of how institutions are transmitted, grow, solve problesm, and evolve.

[FriedrichHayek]

Hayek repeatedly -- and from 1929 -- pointed out that formal Econ constructions built out of bits of "given" information fails to capture the non-fixed, non-given, open-ended character of price signals. Actors in the market come to the world with constantly adapting and changing *rival* understanding of their unique situation in the nexus of local conditions and changing relative prices.

The metaphor of "bits of information" deeply falsifies this situation and this causal process (even if Hayek himself once of twice uses the problematic and I many ways misleading and unhelpful metaphor of 'information').

[FriedrichHayek]

Kuhn's exploding of the "given bits of information" tied to a formal construction picture of science and knowledge is parallel to Hayek's exploding of the "given bits of information" tied to a formal construct picture of the economic & socialism and Wittgenstein's exploding of the "given bits of information" toes to a formal construction picture of language.

The "given bits of information" tied to a formal construction model of language, science & the economy gave us a false picture, a failed and pathological science of language, science and market -- but that professors won't give up this false and false science, because this false model produces endless formal puzzles that provide objective standards for "excellence" in the processes of teaching, giving out PhDs, publication, and tenure.

[FriedrichHayek]

But the professors won't give up this false picture and false science, because this false model produces endless formal puzzles that provide objective formal standards for "excellence" and "smarts" in the processes of teaching, giving out PhDs, publication filtering, and tenure.

[Xerographica]

Thanks so much for sharing DeCanio's paper! It's really quite excellent. There are a few areas where I disagree with him, but I can't think of a better paper on the topic of dollar voting versus ballot voting. His paper really attacks the wide-spread assumption that the political process adequately conveys information about citizens' preferences.

If anybody wants to help combat this misconception...

http://forum.nationstates.net/viewtopic.php?f=20&t=261357

[Trentjmacdonald]

This is truly a wonderful paper. (I should be a bit bitter that he is gazumping my phd research, but I enjoyed it too much!)

My take is that it's a kind of epistemological justification for what I call 'laboratory panarchism.' It would seem that the upshot of DeCanio's paper is that we want a political-institutional system composed as some combination of parallel governance (i.e., non-territorial federalism, a la Renner, Bauer, and now Nimni and Long) and unbundled governance (i.e., functional federalism, a la Frey, Hooghe & Marks, and Kling). At least from a knowledge problem perspective.

Where that combination is set, and how far this is from the traditional, territorially-monopolistic state, we don't know, but it would seem the design space should be composed of 'extent of exclusivity' and 'extent of bundledness' dimensions. Would love to hear thoughts.

As a 'young scholar,' I do wonder what sort of impact it will have, and if indeed it will come to be thought of as 'the modern starting point' for evolutionary-epistemological public choice/comparative institutional analysis. Exciting times.