The consistency of market beliefs as a determinant of economic freedom

Abstract

Accepting the view that beliefs about the market determine the policies and institutions of economic freedom, this paper considers the cross-country consequences of the fact that these beliefs are not one-dimensional and they may be inconsistently distributed over these dimensions. The paper asks the question of whether cross-country differences in the consistency of market beliefs help explain the cross-country differences in areas of economic freedom, especially the contrasting cross-country pattern of the size of government and the legal system and property rights area. It shows that under some plausible conditions in a probabilistic voting framework, a higher consistency leads to higher economic freedom in some areas and lower economic freedom in other areas. Therefore, the concept of the consistency of market beliefs helps us understand why countries with higher economic freedom score for legal system and property rights usually have a lower economic freedom score for the size of government. Using Cronbach’s (coefficient) alpha of four different market beliefs as a measure of consistency in cross-country regressions, the paper finds that consistency is an explanatory factor of the two economic freedom areas.