Visible, Invisible, Grabbing, Hidden and Palsied Hand Theories of Social Interaction

1
Visible, Invisible, Grabbing, Hidden and Palsied
Hand Theories of Social Interaction

• Peter Boettke
• Econ 881/Spring 2005
• 18 April

2
Definitional Issues

• Visible
• Individual design of organizational form
• Invisible
• Social institutions that are the result of human
  action, but not of human design
• Grabbing
• Predatory and rent-seeking activity
• Hidden
• Conspiracy theories
• Palsied
• Individual self-seeking behavior generates
  perversities

3
Matrix of Social Theories
DESIRABLE UNDESIRABLE
INTENTIONAL Visible Hand Grabbing Hand Hidden Hand
UNINTENDED Invisible Hand Palsied Hand
4
Invisible Hand Explanations

• Individual Choice
• Rational choice
• Filter Mechanism
• Incentives
• Disciplinary devices
• Unintended Result
• Desirable
• Undesirable

5
From Smith to Hayek ---- the bright side of
rationality

• Individual behavior intended only to benefit your
  own ends
• Directed by the institutional context of private
  property, freedom of contract and consent
• Results which maximize the wealth of society
• Examples outside of the context of property,
  contract and consent (path in the woods, science,
  law, morality)

6
The Dark Side of Rationality and Collective Action

• Tragedy of the Commons
• Individual self-interest generates overuse of
  resources
• Segregation
• Individual self-interest generates a situation
  nobody would want
• Business Cycles
• Individuals pursuing their self-interest, though
  misled by false signals, will result in
  misallocations of resources

7
Politics as a Process
P
Pm
T
MC
H
Pc
D
Q
Qm
Qc
8
Implications for Political Economy of the
Rent-seeking Model

• Costs of Rent-Seeking
• T H
• Transitional Gains Trap
• Romance and Realism
• Status Quo and Compensation Principle

9
Implications of the Grabbing Hand
Private Predation

• Minimize Social Loss Due to Predation
• Movement of the curve
• Movements along the curve

Self-Regulation
Judicial System
Regulation
Socialism
Public Predation
10
Palsied Hand --- Stiglitzian Market Failure Theory

• Walrasian understanding of the invisible hand
  theorem
• First and Second Welfare Theorem and the
  conditions under which they hold
• Stiglitz-Greenwald Theorem
• Presumption is reversed
• Nirvania Fallacy from Arrow to Stiglitz
• Unexamined alternative