Knowledge that Transforms

This is a review article of Foundations of Human Sociality: Economic Experiments and Ethnographic Evidence from Fifteen Small-Scale Societies (Oxford University Press 2004) edited by Joseph Henrich, Robert Boyd, Samuel Bowles, Colin Camerer, Ernst Fehr, and Herbert Gintis.

Jared Diamond’s Collapse: How Societies Choose to Fail or Succeed (Viking Penguin, 2005), tells the dramatic decline of past civilizations—the Easter Islanders, the Anasazi in the Southwestern United States, the Mayans in Central America, the Norse Vinland settlement in Greenland. These civilizations did not slowly fall apart; they suffered drastic reductions in population and productivity. In Diamond's account, their collapses result from mismanaged resources, lost friends, gained enemies, climate changes, and most tellingly, their cultures and beliefs. Diamond provides captivating histories and an engaging explanation of the sciences required to piece those histories together, but his logic and his prescriptions would benefit from greater familiarity with some basic principles of economics and a richer understanding of human nature.

This is a review article of Interests and Prices: Foundations of a Theory of Monetary Policy (Princeton University Press 2003) by Michael Woodford.

This is a review article of Lawlessness and Economics: Alternative Modes of Governance (Princeton University Press 2004) by Avinash K. Dixit.

The theory of monotone comparative statics and supermodular games is presented as the appropriate tool to model complementarities. The approach, which has not yet been fully incorporated into the standard toolbox of researchers, makes the analysis intuitive and simple, helps in deriving new results and in casting new light on old ones. The paper takes stock of recent contributions and develops applications to industrial organization (oligopoly, R&D, and dynamics), finance (currency and banking crisis) and macroeconomics (adjustment and menu costs). Particular attention is devoted to Markov games and to games of incomplete information (including global games).

This paper reviews the growth experience of U.S. agriculture over the past two centuries in consonance with the view that growth is determined by the economic environment, which consists of the available technology, incentives, constraints, and institutions. Within this framework, the implemented technology is determined jointly with the resource allocation. The review covers the role played by resource endowment, resource flow, technical change and its factor bias, and product demand. It highlights the importance of the income elasticity of demand and the labor augmentation of the technical change. The total factor productivity (TFP) was almost nil at the beginning of the nineteenth century, increasing gradually to the point where it exhausted output growth in the latter part of the twentieth century. This pattern is consistent with the postulate emerging from this framework, where the TFP is endogenous and determined jointly with growth rather than determining it. The more recent performance of U.S. agriculture is placed within a global perspective in order to generalize the discussion.

The present article introduces Development, a new, unpublished and hitherto unknown article by Joseph A. Schumpeter from 1932. Development is remarkable because it significantly adds to Schumpeter's known works on a number of issues that were central to his theory of economic development. Development shows that Schumpeter considered the explanation of novelty as the most important unsolved scientific problem. Schumpeter doubts the explanatory value of entrepreneurship and indicates that theoretical advances might be forthcoming that can help a better understanding of the social dynamics which gives rise to novelty.

This paper explores the questions of how economic theory can be used to design and interpret experiments and how experimental results can be used to construct and interpret economic theories. The relationship between economic theory and experiments is modeled and illustrated with examples from both theoretical and experimental work. The emphasis is on combing theory and experiment to the benefit of both.