ABSTRACT
This chapter outlines the core tools and concepts that we draw upon when studying specific societal problems. We adopt a macro-micro-macro framework, whereby we take individual actors as the starting point for explanations of phenomena at the societal level. According to this framework, understanding the behaviour of micro-level actors requires us to study the macro-level contexts in which they are embedded and how these contexts shape the incentives and constraints that they face: the macro-to-micro link. Based on certain assumptions on human behaviour, we can subsequently predict how individual actors will behave in concrete micro-level situations. As a final step we can then consider the macro-level outcomes that will result from the aggregation of these micro-level actions: the micro-to-macro link. To further illuminate this framework, we discuss different models of human behaviour as well as the role of social mechanisms in linking the components of the macro-micro-macro model. In particular, we distinguish three types of mechanisms: situational mechanisms, action-forming mechanisms, and transformation mechanisms. We also discuss the principal-agent model and how information asymmetries can lead to moral hazard and adverse selection. Throughout the chapter we demonstrate that individually rational choices do not necessarily lead to desirable outcomes at the society level. We explain this, among other things, with reference to the prisoner’s dilemma and the notion of free-riding.
