Welfare economics and bounded rationality : The case for model-based approaches

Mariotti gratefully acknowledges financial support through a Leverhulme Fellowship. Both authors acknowledge financial support from the ESRC through grant RES-000-22-3474.In this paper we examine the problems facing a policy maker who observes inconsistent choices made by agents who are boundedly rational. We contrast a model-less and a model-based approach to welfare economics. We make the case for the model-based approach and examine its advantages as well as some problematic issues associated with it.PostprintPeer reviewe