Knowledge that Transforms

Political Order and Inequality: Their Foundations and Their Consequences argues that geography, technology, and wars determined the formation of a ruling class, inequality, and institutional development, rather than the other way around. Institutions are not a cause but a consequence. This relatively short book covers an enormous amount of material. I have sympathy for the basic idea of the book, but in some parts I would have liked to see more detailed evidence, especially on the more recent history and the Industrial Revolution.

This is a review essay based on a critical assessment of The Ant Trap: Rebuilding the Foundations of the Social Sciences by Brian Epstein. Epstein argues that models in the social sciences are inadequate because they are based on a false ontology of methodological individualism, and proposes a new model of social ontology. I examine this model and point to flaws in it. More generally, I argue against Epstein's methodological approach, which treats social ontology as prior to social scientific modeling and as certifying the “building blocks” that modelers then use. I argue that modelers can legitimately shape the building blocks for their own models.

The role of science and technology in the First Industrial Revolution is still contested. Some scholars, focusing on the textiles sector, argue that skilled and talented artisans with no scientific training were mainly responsible for the key inventions; others, with steam power in mind, hold that the links between science and the crucial inventions of the period were fundamental. Margaret Jacob has been a leading contributor to the debate for nearly four decades. The publication of her The First Knowledge Economy offers an opportunity to review the issues.

Organizations fail due to incentive problems (agents do not want to act in the organization's interests) and bounded rationality problems (agents do not have the necessary information to do so). This survey uses recent advances in organizational economics to illuminate organizational failures along these two dimensions. We combine reviews of the literature with simple models and case discussions. Specifically, we consider failures related to short-termism and the allocation of authority, both of which are instances of “multitasking problems”; communication failures in the presence of both soft and hard information due to incentive misalignments; resistance to change due to vested interests and rigid cultures; and failures related to the allocation of talent and miscommunication due to bounded rationality. We find that the organizational economics literature provides parsimonious explanations for a large range of economically significant failures.

This article surveys the literature on regulatory arbitrage in four settings: labor regulation, environmental protection, corporate governance, and banking and finance. For a regulatory race to occur, firms must migrate across state or country borders in response to geographic differences in the costs and benefits of regulation, and governments must shape their regulatory policies with the aim of affecting those migration flows. We find that both these conditions hold only in rare circumstances. Instead, the much more common outcome is for political pressures within jurisdictions to produce a heterogeneous pattern resembling Tiebout sorting. Such regulatory convergence as occurs is more often the result of deliberate harmonization or imitation.

We review Immigration Economics by George J. Borjas, published in 2014 by Harvard University Press. The book is written as a graduate-level textbook, and summarizes and updates many of Borjas's important contributions to the field over the past thirty years. A key message of the book is that immigration poses significant costs to many members of the host-country labor market. Though the theoretical and econometric approaches presented in the book will be very useful for students and specialists in the field, we argue that the book presents a one-sided view of immigration, with little or no attention to the growing body of work that offers a more nuanced picture of how immigrants fit into the host-country market and affect native workers.

The WTO has delivered policy outcomes that are very different from those likely to emerge out of the recent wave of preferential trade agreements (PTAs). Should economists see this as an efficient institutional hand-off, where the WTO has carried trade liberalization as far as it can manage, and is now passing the baton to PTAs to finish the job? We survey a growing economics literature on international trade agreements and argue on this basis that the WTO is not passé. Rather, and subject to some caveats, our survey of research to date suggests that the WTO warrants strong support while a more cautious view of PTAs seems appropriate.

On the fiftieth birthday of my Foundations of Economic Analysis, a deluxe edition of it was embalmed in the German Klassiker der Nationalokonomie series alongside of Adam Smith, Eugen von Bohm-Bawerk, Irving Fisher, and many other illustrious suspects. With it, as customary, was published a slim volume in German, a Vademecum, with review essays by Jurg Niehans, Carl-Christian von Weizsacker, and a foreword by the editor Bertram Schefold. By invitation, like Tom Sawyer at his own funeral, I provided for German translation my own recollections under the title "How Foundations Came to Be." Here is the English original, slightly abridged; for some technicalities, readers are referred to the full German text. I remembered much, and, with the perspective of time, learned not a little.

Many questions in economics can be fruitfully analyzed in the framework of matching models. Until recently, empirical work has lagged far behind theory in this area. This review reports on recent developments that have considerably expanded the range of matching models that can be taken to the data. A leading theme is that in such two-sided markets, knowing the observable characteristics of partners alone is not enough to credibly identify the relevant parameters. A combination of richer data and robust, theory-driven restrictions is required. We illustrate this on leading applications.

SOCIALISM, according to its proponents, has diverse virtues, but not least is the notable degree of equity that it is seen as assuring in the assignment of claims to the community's income. With the substantial replacement of private by public ownership of the means of production, it is held, a cardinal source of inequity in incomes under capitalism ceases at once to be operative. Under socialism the intimate relation between income and work done that prevails under the rival system supposedly will also give way soon or late to the alternative principle, proclaimed long ago as the only equitable one, of distributing the community's output simply according to need. In the socialist world today, as no one must be told, incomes hardly conform to need anywhere. The question remains, though, as to how far socialist countries may have progressed toward implementation of that norm. That is a matter of interest even to those who do not subscribe to such an egalitarian principle. What is essentially at issue, however, is the extent of income inequality in socialist countries and how such countries compare in that regard with the mixed economy countries of the West. Those are matters on which socialist countries have not always been especially forthright. That is an interesting fact in itself, but it necessarily obstructs accurate appraisal of income inequality. Even where relevant data on incomes are available, their meaning is often obscured by complexities of prevailing commodity distribution arrangements. Pervasive imbalances in the retail market are the best known but not the only example of such complexities. These difficulties are encountered in inquiring into comparative income inequality under socialism everywhere. They seem especially pronounced, however, in the case of the chief country where that system prevails. The USSR, though, is of particular interest as the country where