37/2010 Patricio Dalton and Sayantan Ghosal

We study the public policy implications of a model in which agents do not fully internalize all the consequences of their actions. Such a model unifies seemingly disconnected models with behavioural agents. We evaluate the scope of paternalistic and libertarian-paternalistic policies in the light of our model, and propose an alternative type of approach, called soft-libertarian, which guides the decision makers in the internalisation of all the consequences of their actions. Psychotherapy is one example of a soft-libertarian policy. Moreover, we show that in our behavioural framework, policies that increase the set of opportunities or provide more information to the agent may not longer be individual welfare improving.

Behavioural Economics and Wellbeing

CESifo Economic Studies

https://doi.org/10.1093/cesifo/ifr015