Minimizing Missed Opportunities: A New Model of Choice?

Abstract

Key axioms of the “hard core” of neoclassical theory suggest that there is a solid link between the model of rational choice and the existence of unique, stable and Paretoefficient market equilibrium. The task of this article consists of differentiating two potential sources of sub-optimal outcomes; the first refers to the nature of individual choice, and the second – to interactions between agents, with special emphasis on the latter. Power relationships produce an asymmetrical situation: one side, Principal, tries to realize his or her agenda, whereas the other side, Agent, chooses between suboptimal outcomes. One of the strategies for imposing Principal’s will, domination by virtue of a constellation of interests in the market, is the subject of the present analysis. Max Weber, who first introduced the concept (1968, 943-946), does not explore it in depth – he just mentions that this type of domination is more oppressive to Agent than the will Principal imposed by legitimizing it. Monopoly power illustrates this form of domination. Neoclassical economists show how monopoly leads to sub-optimal outcomes at the macro level. Nevertheless, they appear less interested in modifications in the model of individual choice induced by monopoly and in the interactive side of relationships between Principal (monopolist) and Agent. Part I is devoted to differentiating the two sources of sub-optimal outcomes. Power is considered as one of the coordination mechanisms. A special case of power, domination by virtue of a constellation of interests (DVCI), is discussed in Part II. It involves minimizing Agent’s missed opportunities. Empirical examples considered in Part III illustrate the idea of DVCI. They refer to recent tendencies in emerging markets in post-Soviet countries.