Beyond homo oeconomicus
In the context of public economics the importance of studying actual individual behaviour and motivations as opposed to the ideal type of homo oeconomicus is clear from early on.
For Hume, the motivational mix of selfishness, limited generosity, limited foresight, and reciprocity is the key to understanding the basic architecture of the public realm. From Friedrich Benedikt Wilhelm Hermann (1832) onwards, German- language public economists stressed the role of communal preferences and fellow-feeling (Gemeinsinn) as a motivational ingredient in the public economy, complementing the selfishness dominating the marketplace. Eminent theorists such as Pareto suggested an explanatory sociology of fiscal decisions in which power and patron-client relations are looming large, thus establishing a kind of fiscal sociology explicitly transcending the methodological boundaries of individualistic economics (McLure 2003). This includes the sociology of taxation in the context of modern statehood as pursued by Rudolf Goldscheid, Schumpeter and Mann. Again, all this is not limited to the (pre)history of modern public economics: in the wake of the recent boom in behavioural and experimental economics, much of the interesting work is related to issues of public economics, notably to public good provision (see Fehr and Gachter 2000). Further behavioural and experimental work is dealing with issues of distribution and social security, regulation, and labour market institutions (see Shafir 2013). Experimental studies are providing evidence regarding systematic failures of individual rationality in choice settings such as the purchase of pension plans. This is relevant for assessing alternative frameworks of social insurance and the regulation of private insurance and retail finance. In general terms, this kind of work provides systematic evidence supporting conjectures that played a key role in Mill’s (1848, bk V) arguments justifying public education and in Musgrave’s (1959) “merit wants”: some of the most important functions of the public sector are related to behavioural contexts where consumer sovereignty is not a credible assumption.