CAREER: Intergenerational and Behavioral Issues in Public Economics

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This CAREER project proposes to analyze the role that intergenerational and behavioral issues play on the design and analysis of public policy. The project has three components. The first component studies what types of institutions, existing or not, are able to generate optimal investment in future generations, and to protect them from expropriation. It includes the development of theoretical models to understand how to design fiscal constitutions that generate optimal investment in intergenerational public goods, such as the environment, and protect future generations from expropriation through fiscal policy. The key question is: How can we design institutions that give a "voice" to the interests of people who have not been born yet. We plan to test empirically this theory by using the last 200 years of American history to study the extent to which American institutions have generated "good" intergenerational outcomes. This includes the development of a new database on the finances of the Federal Government from 1820 to the present. The second component develops a new model of decision-making and welfare that uses as primitives brain structures and their operations, instead of preferences and preference maximization. The model incorporates important insights from psychology and neuro-science, and has the potential to explain why agents engage in self-defeating behaviors such as under-saving and addiction. Also, and most importantly for Public Economics, the model generates well-defined welfare evaluations that can be used to evaluate public policy. This theory will be used to improve our understanding of advertisement, savings policy, drug policy, health policy, and risky behaviors. Finally, the third component of the project is the career educational plan on Public and Behavioral Economics that includes, among others, the development of a behavioral economics research group at Stanford University, and the development of a new graduate textbook in Public Economics.Intergenerational and behavioral issues lie at the center of some of the most important current debates in public policy. Examples of intergenerational policy problems include Global Warming, R&D, and the AIDS epidemic. These problems are difficult to handle because the generations that would benefit most from these policies are not the ones paying for them. Examples of behavioral policy problems include the design of social insurance programs, crime, and addiction. Behaviors such as systematic financial mismanagement and the consumption of addictive substances challenge the predictions and the policy prescriptions of standard economic analysis, which presupposes that agents are quite "rational." The basic motivation for this research is that an improved understanding of these issues will allow us to design better public policies and ultimately better institutions.