Behavioral Public Economics
B. Douglas Bernheim, Dmitry Taubinsky
Handbook of Behavioral Economics / NBER · 2018
Abstract
A framework for welfare analysis when people make mistakes, developing how to measure the costs and benefits of policy for agents whose choices may not reveal their true interests ('internalities').
Methodology
Theoretical synthesis integrating behavioral models into public-economics tools, deriving sufficient-statistics formulas for optimal taxes and corrective policies under biased decision-making.
Findings
Shows how to justify and calibrate corrective 'sin' taxes and other paternalistic instruments using internalities, while confronting the hard problem of recovering true preferences from biased choices, and clarifies when behavioral policy improves welfare.
Applied nudge
When a behavior harms the actor's own future self (an internality), corrective design is welfare-improving—but calibrate it to the size of the bias, not to a moral prior.
Citation
Bernheim, B. D., & Taubinsky, D. (2018). Behavioral public economics. NBER Working Paper No. 24828. In Handbook of Behavioral Economics.
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