Constitutional interests in the face of innovations: how much do we need to know about risk preferences?

Abstract

In constitutional political economy, the citizens' constitutional interests determine the social contract that is binding for the post-constitutional market game. However, following traditional preference subjectivism, it is left open what the constitutional interests are. Using the example of risk attitudes, we argue that this approach is too parsimonious with regard to the behavioral foundations to support a calculus of consent. In face of innovative activities with pecuniary and technological externalities in the post-constitutional phase, the citizens' constitutional interests vary with their risk preferences. To determine what kind of social contract is generally agreeable, specific assumptions about risk preferences are needed.

Competition as an Ambiguous Discovery Procedure: A Reappraisal of F. A. Hayek's Epistemic Market Liberalism

“…The political process is then expected to generate alternative proposals which do, or do not, mandate restrictions on innovation competition or provide compensation for suffering pecuniary externalities. In this vein, the actual distribution of the risk preferences of the members of society can be inferred from the ballots going to the rivalling proposals (Witt and Schubert 2008). The democratic process thus accounts for the actual risk preferences of a majority of voters.…”

Measuring Economic Insecurity in Rich and Poor Nations

“…National political systems have to make a social decision on how much insurance coverage should be on offer, but individuals have differing risk preferences and will choose how much personal risk to assume, given their available insurance options. As Witt and Schubert () note, when risk preferences are heterogeneous and innovations come with expected gains but unknowable chances of adverse external effects, some form of social insurance for losses inflicted and some “limited liability” for innovators will dominate extreme liability regimes, such as “no liability” or “strict liability.” However, given any specific level of limited liability and social insurance, individuals choose their personal risk exposure by choosing their own level of consumption of risky commodities/activities.…”

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“…Moreover, they know that their own wants and preferences will change in the course of the post-constitutional market game. With respect to a corresponding assumption about their risk preferences, this can already be shown to have significant implications in terms of the policy recommendations of a veil of ignorance-argument (Witt and Schubert 2008). Behind the veil, it may also make sense to endow agents with general theoretical knowledge about the learning mechanisms involved.…”