Rational choice theory is a controversial basis for institutional design. Dire warnings have been issued about its potential effects. This paper examines in detail a single example of rational-choice-based institutional design in light of these warnings. The conclusions are that these warnings are ill-founded because they are based on an inaccurate or incomplete understanding of rational choice analysis, that rational choice can serve as a basis for effective and humane institutional design, and that rational choice has features that make it suitable for policy analysis.
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