MULTIPLE ASSUMPTIONS

There are three broad reasons that the robust political economist needs to consider multiple states of the world when evaluating institutions or policies: the empirically most likely state of the world is

seldom certain; the world can change in ways which void prior analyses; and reasonable people can disagree on what constitutes the worst case.

5.2.1. Uncertainty

Social-scientific analysis will often produce incorrect conclusions, even when based on sound principles of reasoning. Economic theory told us that lighthouses could not be produced privately, whereas Ronald Coase (1974) showed that they had been in reality.⁵⁴ The problem is not simply that the economic theory which produced this conclusion was mistaken but that the constructivist social scientist can never foresee all the creative solutions ecologically rational agents can devise in order to solve social problems. Theory is no substitute for social experimentation (Hayek 1973; Smith 2003, 2008).

Society is a complex system in which the interaction of individuals with diverse goals and capacities produce an emergent result no participant intends nor fully understands (Hayek 1945; Schelling 1978). Subtle changes at the individual level can have profound impacts at the social level, and there will often be significant uncertainty as to which model of the world actually reflects reality. If there are multiple possibilities, it would be sensible to consider alternative institutions under each set of assumptions and make a holistic evaluation of their merits. Many of the assumptions we should be thinking about are multifaceted and subject to Knightian uncertainty (Knight 1921), making it impossible to come up with any sort of weighted average of harm as Brennan and Buchanan do with respect to the knavishness of the monopolist.

More fundamentally, the available data will always allow multiple interpretations of reality (Hume 1748: Section 4; Duhem 1954; Quine 1951, 1975). Given the unbounded nature of theoretical possibility-space, every theory will be empirically equivalent to, but logically inconsistent with, another (Quine 1975). Further, empirical tests can never be performed on a single hypothesis, since it

54 Some have questioned Coase‘s analysis, however. Van Zandt (1993) and Bertrand (2006) argue that government did in fact play a significant role in lighthouse provision. A number of other goods for which private provision would be deemed impossible by public goods theory seem to have been produced by markets, however, including radio and television broadcasts (Holcombe 2000:277-279), policing, highways (Benson 1994), and prisons (D‘Amico, forthcoming).

is the entire theoretical edifice which jointly makes observational predictions. As such, adverse observations can always be made consistent with any hypothesis by modifying surrounding

hypotheses (Duhem 1954). This uncertainty and holism makes scientific knowledge much less certain and suggests that the robust political economist should evaluate institutions under multiple states of the world whenever a high degree of uncertainty can be expected. The sheer complexity of social interaction makes the limits of human knowledge particularly pronounced in the social realm (Hayek 1952).

5.2.2. Change

Closely related to the problem of uncertainty is that of change. Even if we are confident that our positive analysis is correct presently, the world can change in ways which void our prior analyses.

Societies, economies, and cultures evolve over time in directions often unpredictable and path-dependent (North 1990, 2005; Nelson & Winter 1982; David 1985; Arthur 1989; Pierson 2000).

The outcome of arguments over whether voluntary institutions or government will best provide a particular service, for example, often depend on the current state of technology. The essays in Foldvary and Klein (2003) demonstrate that in several policy areas, technology has undermined previous policy rationales: RFID technology allows us to operate toll booths on roads more conveniently, bolstering the case for privatisation; information technology undermines the

informational case for safety regulation; and the advertising-avoidance technologies of the internet and TiVo go some way towards undermining the solution broadcasters found to the non-excludability problem.

Given that institutions, and especially constitutional rules, are meant to last for long periods of time, it would be wise for political economists to consider the possibility that the world will change in

relevant ways and factor this into their policy recommendations.

5.2.3. What is the Worst Case?

The pioneers of robust political economy treat the worst-case set of assumptions as visible at first glance. While it is unreasonable to expect early expositional analyses to lay out the processes of a new approach in full, this is something we need to do if we are to make practical use of robust political economy for institutional choice. If the worst case is to be judged in terms of outcomes, it will often not be obvious which case is, in fact, the worst until we perform the analysis. Should we be more fearful of knaves or misguided altruists? Brennan and Buchanan (1983: 103-104) point out that the zealot is more fearsome than the knave, but both zealotry and knavery come in multiple flavours.

Which case really is the worst is seldom obvious and will likely depend on the particular institution we are considering (Taylor & Crampton 2009). If we take the now well-accepted public choice view that people behave more rationally and seek more information in the marketplace than in the voting booth, it is plausible that self-interest will be preferable to altruism in situations of democratic

totalism, while altruism will be preferable to self-interest in a liberal market society. If this is so, there is no single worst case set of assumptions relevant to both institutions. Further complicating matters is the fact that we need to consider the interactions among independent variables. The normative

implications of certain factors can be altered or reversed when other factors are in play (Crampton &

Farrant 2006, 2008).

Even after overcoming these problems of complexity, the problem of value pluralism remains. There are many possible dystopias and the subjective weight we put on various values will determine which is worse. This means that any serious robustness analysis will likely have to consider multiple cases as plausible candidates for the worst.

5.2.4. Implications

To deal with the limits of human knowledge, the dynamic nature of the world, and the slipperiness of normative judgement, comparative institutional analysis needs to become more complicated. Instead of choosing a single metric of goodness, a single factor which can affect that metric, and a single

model of how the world works, we need to admit that there are multiple dependent and independent variables and models of the world which deserve our attention. The weight we put on each of these variables and models depends on a number of factors, many of which are subject to reasonable disagreement. As such, no scientific answer can be reached on normative questions. Social science cannot simply turn the crank of objective analysis and produce an evaluation of the best set of institutions.