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Volume 16, Number 2, Spring 2002
Articles
Distinguished Lecture on Economics in Government: The New Economy: Post Mortem or Second Wind? by Martin Neil Baily
There was an acceleration of U.S. productivity after 1995. Investment in information technology hardware and software contributed importantly to this, but was not its sole cause. In part, heavy IT investment, perhaps overinvestment, was the result of the booming economy and cheap capital. Besides IT, the expansion of productive firms boosted productivity, together with the competitive pressure this put on other firms to innovate and improve. Productivity growth has been surprisingly strong in 2001, and the likely trend for the future is in the range of 2.2 to 2.7 percent a year. The economy should get a second wind.
Evolutionary Theorizing in Economics by Richard R. Nelson and Sidney G. Winter
This paper reviews the case for an evolutionary approach to problems of economic analysis, ranging from the details of individual firm behavior in the short run through industrial dynamics to the historical evolution of institutions and technologies. We draw upon a substantial body of recent research contributions. We characterize micro behavior as governed by skills and routines that are shaped by learning and selection. We then consider major areas of application of evolutionary thinking, including the analysis of competitive processes in technologically dynamic industries and the evolution of institutions and technologies.
Evolution and Game Theory by Larry Samuelson
Research in noncooperative game theory has focused attention on two questions: Should we expect equilibrium play? If so, which of the multiple equilibria that arise in many games should we expect? This paper summarizes recent approaches to these questions that have been based on evolutionary models.
Evolution of Social Behavior: Individual and Group Selection by Theodore C. Bergstrom
How selfish does our evolutionary history suggest that humans will be? We explore models in which groups are formed and dissolved and where reproduction of individuals is determined by their payoffs in a game played within groups. If groups are formed “randomly” and reproductive success of group founders is determined by a multiperson prisoners’ dilemma game, then selfish behavior will prevail over maximization of group payoffs. However, interesting models exist in which “group selection”sustains cooperative behavior. Forces that support cooperative behavior include assortative matching in groups, group longevity and punishment-based group norms.
Evolution and Human Nature by Arthur J. Robson
This paper considers how biological evolution shaped the elements of a simple but complete model of economic decision making. These elements are preferences, beliefs and rationality. Whereas Nature might impose preferences over consumption on the individual, Nature might optimally allow beliefs to be influenced by local knowledge and final choice to be flexible. This reinforces the usual approach. On the one hand, evolution also suggests that some extensions of this model are implausible; on the other, it suggests unexpected directions of generalization. In any case, evolution provides a basis for an overarching economic theory and maintains restrictions on this theory.
The Role of Economics in Climate Change Policy by Warwick J. McKibbin and Peter J. Wilcoxen
The most important characteristic of climate change as a policy problem is uncertainty. From climatology to economics, uncertainties are pervasive, large and difficult to resolve. However, the economic theory of environmental policy under uncertainty provides a clear guide to the design of an appropriate policy. An efficient and practical approach would be a hybrid that incorporates the best features of tradable permits and emissions taxes. Unfortunately, international negotiations have taken a different approach, focusing on rigid targets and timetables for emissions reductions. The result has been the Kyoto Protocol, an agreement with no real chance of reducing greenhouse gas emissions.
The Economics of Patents: Lessons from Recent U.S. Patent Reform by Nancy T. Gallini
U.S. patent reform over the past two decades has strengthened the legal enforcement of patent rights and has extended protection to new subject matter, such as genetically engineered life forms and business methods. This paper highlights these and other policy changes and the debate that this apparent increase in protection has sparked. While the case for stronger patents as a spur to innovation is a weak one, as revealed by recent theoretical and empirical research, evidence that they encourage disclosure and technology transfer is persuasive. The paper discusses the social costs and benefits of these effects from the policy changes and proposals for alleviating the costs through further patent reform.
Oligopsony and Monopsonistic Competition in Labor Markets by V. Bhaskar, Alan Manning and Ted To
We argue that models of oligopsony or monopsonistic competition provide insights and explanation for many empirical phenomena in labor markets. Using a simple model with job differentiation and preference heterogeneity, we illustrate how such models can be employed to explain the existence of wage dispersion, the persistence of labor market discrimination, market failures in the provision of training and the anomalous employment effects of minimum wages.
Deposit Insurance Around the Globe: Where Does It Work? by Ash Demirgüç-Kunt and Edward J. Kane
Explicit deposit insurance has been spreading rapidly in recent years, even to countries with low levels of financial and institutional development. This paper documents the extent of cross-country differences in deposit insurance design and reviews empirical evidence on how particular design features affect private market discipline, banking stability, financial development and the effectiveness of crisis resolution. This evidence challenges the wisdom of encouraging countries to adopt explicit deposit insurance without first stopping to assess and remedy weaknesses in their informational and supervisory environments.
Retrospectives: Captains of Industry by Robert Dixon
This paper traces the origin and use of the term “captains of industry.” Introduced by the Scottish historian and essayist Thomas Carlyle in the mid-nineteenth century, its meanings and associations were very different from today. For Carlyle, they were ferocious instruments of social control who would force the unemployed and idle to work and, if necessary, discipline them. The term, if not the meaning, rapidly entered the popular lexicon. It was brought into economics by Francis Walker, the first president of the AEA, who argued that the captain of industry was a fourth factor of production and the engine of industrial progress. While many other writers shared this view, Veblen did not.
Policy Watch: The Federal Employees Health Benefits Plan by Roger Feldman, Kenneth E. Thorpe and Bradley Gray
Features
Recommendations for Further Reading
Comments: Richard Watt, Matthew Rabin and Richard H. Thaler
Notes