Abstract
Just as in life “he who lives by the sword shall die by the sword,” in economics “he who lives by rationality shall die by rationality.” The very individual rationality that makes the market work so well often destroys the optimality of its results. In this chapter we will review cases illustrating this phenomenon. By focusing on rationality as the Achilles heel of the free market argument, we will shed new light on traditional laissez-faire arguments.
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Notes
R. Hardin, “Collective Action as an Agreeable n-Prisoner’s Dilemma,” Behavioral Science, 16, September 1971, pp. 472–481.
Ronald Coase, “The Problem of Special Cost,” Journal of Law and Economics, 3, 1960, pp. 1–44.
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© 1985 St. Martin’s Press, Inc.
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Schotter, A. (1985). Rationality and Market Failure. In: Free Market Economics. Palgrave, London. https://doi.org/10.1007/978-1-349-08128-8_4
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DOI: https://doi.org/10.1007/978-1-349-08128-8_4
Publisher Name: Palgrave, London
Print ISBN: 978-1-349-08130-1
Online ISBN: 978-1-349-08128-8
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