10 February 2010

why i research politico-econ

econ is aimed at trying to find efficient allocations of goods.

we know how to efficiently allocate private goods: markets.
[private goods = rival (one's consumption prevents another) and excludable (the seller can exclude non-paying consumers, free-riders). example = chewing gum].

we know how to efficiently allocated common goods; ascribe property rights and they can also be efficiently allocated by markets (coase thm).
[common goods = rival, but non-excludable. ie, boston commons. these are goods generally susceptible to externalities, hence the application of coase's thm].

the jury is still out on club goods (goods susceptible to market power, p>mc).
becker is confident that the costs of govt intervention are larger than the benefits because dynamic competition on that good brings p closer to mc without the dwl of govt intervention.
also, was just watching one of milton friedman's last interviews, and he said his biggest mistake was being such a proponent of anti-trust regulation in his younger years.
[club goods = non-rival, excludable. roads, golf course, cable networks].

thus, the last type of good, public goods, are the only type of goods that all economists, except for the extreme anarcho-capitalists, trust should be allocated by the government, and can be done so efficiently through a vcg mechanism.
[public goods = nonrival, nonexcludable. ie national defense. protecting one does not prevent the protection of another. if someone doesn't pay taxes, we can not prevent their protection. think missile defense].

other market failures, ie asymmetric info, can be handled by markets too. introduction of a new information resolving service market. how carmax is making money in the lemon market.

macro-economists are probably pointing at the potential of curing inefficiencies in dynamic environments or by manipulating aggregates.

with dynamics there as some additional games you could play like Shell and passing forward a generation to make the old better and hurt no one else because of infinity, but that's kind of lame.
manipulating aggregates, let's not go there. see any hayek vs. keynes discussion.

point is, we're at a time, when the standard econ game might be closing down.
overall this is good because it means we know how to efficiently allocate many things.

to me, the questions with the biggest remaining welfare implications have to do with positively characterizing inefficiencies in our political process. the efficiency of current political resource allocations in our grab bag system.

many facets of our system are very good and have lasted a long time, but are they optimal? are there welfare gains that could be had from minor modifications?

i keep my research at
(but it is in need of some maintenance and paper version updates)

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