New Frontiers in Economics

Cover......Page 1
Half-title......Page 3
Title......Page 5
Copyright......Page 6
Dedication......Page 7
Contents......Page 9
Contributors......Page 11
Foreword: Eavesdropping on the Future?......Page 13
Preface......Page 15
Acknowledgments......Page 17
Introduction......Page 21
ANALYTIC AND SYNTHETIC ASPECTS OF NEW DIRECTIONS......Page 23
FROM KUHN TO LAKATOS: “PARADIGM SHIFT” VS. “PROBLEM SHIFT”......Page 26
IMPLICATIONS OF PARADIGMS......Page 28
A. Informational Implications......Page 29
B. Behavioral Implications......Page 30
C. Experimental Implications......Page 32
D. Strategic Implications......Page 33
JOSEPH E. STIGLITZ, INFORMATION AND THE CHANGE IN THE PARADIGM IN ECONOMICS......Page 34
PETER BOSSAERTS, EXPERIMENTS WITH FINANCIAL MARKETS: IMPLICATIONS FOR ASSET PRICING THEORY......Page 35
PERRY MEHRLING, WHITHER MACRO?......Page 36
KYLE BAGWELL AND ROBERT W. STAIGER, ECONOMIC THEORY AND THE INTERPRETATION OF GATT/WTO......Page 38
MICHELLE GARFINKEL AND STERGIOS SKAPERDAS, CONTRACT OR WAR? ON THE CONSEQUENCES OF A BROADER VIEW OF SELF-INTEREST IN ECONOMICS......Page 39
ALAN O. SYKES, NEW DIRECTIONS IN LAW AND ECONOMICS......Page 40
REFERENCES......Page 41
PART I INFORMATIONAL BEHAVIORAL ECONOMICS AND FINANCE......Page 45
INTRODUCTION......Page 47
THE HISTORICAL SETTING......Page 49
Education as a Screening Device......Page 51
Efficiency Wage Theory......Page 52
Sharecropping and the General Theory of Incentives......Page 54
FROM THE COMPETITIVE EQUILIBRIUM PARADIGM TO THE INFORMATION PARADIGM......Page 55
Some Problems in Constructing an Alternative Paradigm......Page 58
Creating Asymmetries and Imperfections of Information......Page 60
Mechanisms for Elimination or Reducing Information Asymmetries......Page 61
The Simplest Adverse Selection Model......Page 62
The Simplest Adverse Incentive Model......Page 63
Conveying Information through Actions......Page 64
Monopoly and Self-Selection......Page 66
Self-Selection and Competitive Equilibrium......Page 67
THEORY OF CONTRACTS AND INCENTIVES......Page 68
Incentives in Market Equilibrium......Page 69
EQUILIBRIUM WAGE AND PRICE DISTRIBUTIONS......Page 70
EFFICIENCY OF THE MARKET EQUILIBRIUM AND THE ROLE OF THE STATE......Page 71
Dysfunctional Institutions......Page 74
The Theory of Corporate Finance......Page 75
Corporate Governance......Page 76
Macroeconomics......Page 77
Theory of Money......Page 78
POLICY FRAMEWORKS......Page 79
Pareto Efficient Taxation......Page 80
Bankruptcy, Aggregate Supply, and the East Asia Crisis......Page 81
Corporate Governance, Open Capital Markets, and the Transition to a Market Economy......Page 82
BEYOND INFORMATION ECONOMICS......Page 83
THE POLITICAL ECONOMY OF INFORMATION......Page 84
CONCLUDING REMARKS......Page 86
SELECTED REFERENCES......Page 87
INTRODUCTION......Page 88
Reference Levels, Adaptation, and Losses......Page 91
Social Preferences and Fair Allocations......Page 93
Reciprocity and Attribution......Page 96
Biases in Judgment......Page 99
The Law of Small Numbers......Page 102
Belief Perseverance and Confirmatory Bias......Page 104
Do We Know What Makes Us Happy?......Page 107
Framing Effects......Page 110
Present-Biased Preferences......Page 113
Prognosis......Page 117
REFERENCES......Page 118
1. INTRODUCTION......Page 123
2. ANATOMY OF A TYPICAL (LARGE-SCALE) EXPERIMENT......Page 127
3. EXPERIMENTAL EVIDENCE ON THE PRICING OF RISK......Page 131
4. EXPERIMENTS ON INFORMATION AGGREGATION......Page 136
5. INFORMATION MIRAGES......Page 138
6. CONCLUSION......Page 143
REFERENCES......Page 145
1. INTRODUCTION......Page 148
2. THE EQUITY PREMIUM PUZZLE AND THE EQUITY VOLATILITY PUZZLE......Page 150
2.1. The Equity Premium Puzzle and Consumption-Based Asset Pricing......Page 153
2.2. Could the Equity Premium Puzzle Be Spurious?......Page 157
2.3. Could Risk Aversion Be Higher Than We Thought?......Page 158
2.4. The Equity Volatility Puzzle......Page 161
2.5. Do Stock Prices Forecast Dividend or Earnings Growth?......Page 164
3. EXPLAINING EQUITY VOLATILITY......Page 168
3.1. Habit Formation......Page 172
3.2. Heterogeneous Labor Income......Page 175
3.3. Irrational Expectations......Page 178
4. IMPLICATIONS FOR PORTFOLIO CHOICE......Page 180
5. CONCLUSION......Page 185
REFERENCES......Page 186
PART II MACROECONOMICS AND PUBLIC POLICIES......Page 191
I......Page 193
II......Page 198
III......Page 201
IV......Page 202
REFERENCES......Page 203
6 Recent Developments in and Future Prospects for Public Economics......Page 205
The Effect of Income Taxation on Household Behavior......Page 206
The Incentive Effects of Social Insurance Programs......Page 208
The Efficiency and Incidence of Taxes on Capital Income......Page 210
Deficits and Intertemporal Fiscal Policy......Page 211
Positive Political Economy Models of Fiscal Outcomes......Page 212
Optimal Income Taxation and the Design of Tax and Transfer Programs......Page 213
2. PROMISING RESEARCH DIRECTIONS FOR THE FUTURE......Page 214
The Economics of Aging......Page 215
“Privatization” and the Scope of Government......Page 216
Optimal Social Insurance Program Design......Page 218
Taxation and the Behavior of Households and Firms......Page 219
Tax and Expenditure Programs in a Life Cycle Perspective......Page 220
3. CONCLUSION......Page 221
REFERENCES......Page 222
PART III INTERNATIONAL TRADE AND DEVELOPMENT......Page 223
1. INTRODUCTION......Page 225
2.1. The General Equilibrium Model......Page 228
2.2. Government Preferences......Page 230
2.3. Unilateral Trade Policies......Page 232
2.4. The Value of a Trade Agreement......Page 233
2.5. The Interpretation of the Terms-of-Trade Externality......Page 237
2.6. Rules versus Power......Page 238
3.1. The Origin of GATT and the WTO......Page 239
3.2. The Rules of GATT/WTO......Page 241
4. THE THEORY OF GATT/WTO......Page 243
4.1. Enforcement......Page 248
5. CONCLUSION......Page 250
REFERENCES......Page 253
1. INTRODUCTION......Page 255
2. A TRADITIONAL VIEW......Page 256
3.1. Multiple Equilibria......Page 259
3.2. Policy Implications......Page 262
3.3. Transitions......Page 264
4.1. Historical Legacies......Page 265
4.2. Inequality......Page 266
4.3. Policy Revisited......Page 272
4.4. Concluding Remarks......Page 274
REFERENCES......Page 276
PART IV CONTRACTS, LAW, AND GAMING......Page 279
1. INTRODUCTION......Page 281
2. THE DARK SIDE OF THE ECONOMY......Page 283
3. HOW INCORPORATING DARKNESS MAKES A DIFFERENCE......Page 285
3.1. Conflict and Output Losses......Page 288
3.2. Differences in Productivity and Distributive Asymmetries......Page 289
3.3. Prospects for “Cooperation” in a Noncooperative Equilibrium......Page 293
4. MANAGING CONFLICT......Page 296
REFERENCES......Page 298
10 New Directions in Law and Economics......Page 301
1. CRIMINAL LAW......Page 302
2. INTERNATIONAL LAW......Page 310
3. INSURANCE LAW......Page 315
REFERENCES......Page 319
Author Index......Page 323
Subject Index......Page 329