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Robert F. Salvino Jr. and Michael Latta

Morality and economic actions may converge, but for this to be so over the long run, economic institutions, policies, and their desired outcomes cannot violate human nature—not simply because it is unjust, but because it is unnatural. Economists have grappled with incorporating human nature or behavior into their models, and economists are good at identifying incentives; but sometimes behavioral tendencies and incentives at play in everyday life do not make it into the models. We present a two-nation, two time-period model in which individual agents strive for happiness and prosperity under conditions of uncertainty regarding the behavior of unfamiliar domestic and foreign agents. We allow certain institutions to evolve over time and others individuals create through direct intention, both affecting behavior and the average level of wealth and happiness in society. We show how, in an open society with narrow institutional powers, seemingly conflicting ideals do not dominate moral and economic outcomes. The general premise of our model extends to policymaking and intended outcomes. Keywords: Morality, entrepreneurship, human nature