Preferences, Altruism, Technocracy, & Power Grabbing: Cumulative Effects on Equilibriums induced by Ability and `Doubtfulness'

Abstract

Suppose an economy within which rational expectations equilibriums (REE) are predicated on the distribution of ability, and the extent to which economic agents are doubtful (`doubtfulness') as to true realizations of their ability. Let a `societal REE' denote an REE that, simultaneously constitutes a dominant equilibrium for each of individual economic agents, and society. This study provides formal theoretical evidence that cumulative layering of each of risk preferences (risk aversion or risk seeking) and heterogeneity as to altruism on economic agents does not induce any alterations to societal REE that are predicated on ability and doubtfulness. Layering of heterogeneity with respect to preference for a (professional) Technocracy on all of the preceding factors induces a societal REE that Pareto Dominates all preceding REE. Suppose technocrats that are appointees of politicians (`political technocrats') coexist with professional technocrats and do not practice `power grabbing', that is, arrive at policy decisions on basis of scientific, as opposed to political merits of alternate courses for action. In presence of stated coexistence, there is arrival at a societal REE, which Pareto Dominates the societal REE that is induced by presence only of professional technocrats. In this respect, presence of political technocrats who act on scientific merits induces unilateral increase to incomes of professional technocrats. In the societal REE in context of which political technocrats practice power grabbing, resources of society are sub-optimally directed away from efforts at generation and implementation of innovations. There is arrival then at an economy that revolves around government. Consistent with sub-optimality of a `power grabbing' economy, while government consists of three-tenths of the workforce in context of political technocrats who act on scientific merits, introduction of power grabbing induces allocation of five-sixths of the workforce to the government sector.