Micro-foundations of Economic Behaviour in Islamic Economic Framework

Salman Ahmed SHAIKH

Abstract


This paper discusses Islamic principles and how they can
help in achieving efficiency along with equity in a market
system. We start with the concept of ‘human welfare’ in
Islam and show that how it is distinct from the concept of
welfare in western social sciences. The difference comes
from the worldview. This difference is not trivial. It has
important implications on human behavior and choices.
Belief in perfect accountability and absolute justice helps in
achieving ethical behavior even when it cannot be codified
or made compulsory by law. After presenting the basic
framework of welfare, we present how Islamic principles
can systematically help to achieve equitable distribution of
resources within a market system. We discuss the
institution of Zakat and how it will incorporate
diminishing marginal utility of wealth and also achieve the
objective of circulation of wealth and utilization of idle
resources. We also present labor market dynamics in an
Islamic economic framework. We show how labor force
participation, human capital development and technical
progress can be achieved in an Islamic economic
framework. Lastly, we discuss the effects of Zakat in the
Islamic economic framework.


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Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.