Working Paper: CEPR ID: DP7335
Authors: Gilles Saint-Paul
Abstract: Much of the political economy analysis of reform focuses on the conflict of interest between groups that stand to gain or lose from the competing policy proposals. In reality, there is also a lot of disagreement about the working of the policy: in addition to conflicting interests, conflicting views play an important role. Those views are shaped in part by an educational bureaucracy. It is documented that the beliefs of that bureaucracy differ substantially from those of the broader constituency. I analyse a model where this effect originates in the self-selection of workers in the educational occupation, and is partly reinforced by the insulation of the educational profession from the real economy (an effect which had been discussed by Hayek). The bias makes it harder for the population to learn the true parameters of the economy if these are favourable to the market economy. Two parameters that govern this capacity to learn are social entropy and heritability. Social entropy defines how predictable one?s occupation is as a function of one?s beliefs. Heritability is the weight of the family?s beliefs in the determination of the priors of a new generation. Both heritability and social entropy reduce the bias and makes it easier to learn that the market economy is "good", under the assumption that it is. Finally I argue that the capacity to learn from experience is itself affected by economic institutions. A society which does not trust markets is more likely to favour labour market rigidities that in turn reduces the exposure of individuals to the market economy, and thus their ability to learn from experience. This in turn reinforces the weight of the educational system in the formation of beliefs, thus validating the initial presumption against the market economy. This sustains an equilibrium where beliefs and institutions reinforce each other in slowing or preventing people from learning the correct underlying parameters.
Keywords: beliefs; education; educational system; employment protection; ideology; intellectuals; learning; reforms
JEL Codes: I2; J45; P16; P5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Self-selection of workers into educational occupations (J24) | Bias in beliefs about the market economy (D83) |
| Social entropy (Z13) | Learning capacity regarding market dynamics (D83) |
| Heritability (C29) | Learning capacity regarding market dynamics (D83) |
| Insulation of the educational profession from market realities (J45) | Bias in beliefs about the market economy (D83) |
| Economic institutions fostering distrust in markets (D47) | Support for labor market rigidities (J48) |
| Support for labor market rigidities (J48) | Reduced exposure to market experiences (G19) |
| Reduced exposure to market experiences (G19) | Hindered learning (D29) |