Reason Magazine has a great interview with Vernon Smith, a pioneer in experimental economics.
reason: You say you’re a libertarian with a lot of reservations. The experiments you have run and the research you’ve done over the years really argue that institutions create good and bad behavior.
Smith: As a libertarian, I’d like to emphasize the property rights aspect of it. People say what we need is more regulation. All markets are regulated in terms of property rights, the dos and don’ts. The important thing is that those property rights provide people with the right incentives. What was so devastating in the mortgage market is this separation of mortgage originations from the lender without properly incentivizing the mortgage originator. What’s your incentive to do due diligence if you get your fee up front and then it goes out the back door and down the line?
If only empirics were valued by policy-makers…
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