Knowledge that Transforms

The fact that John Maynard Keynes had made a distinguished contribution to the theory of probability (1921) no doubt predisposed many of his readers to imbue with great significance his subsequent remarks on the related topic of uncertainty in economic decision making. Among those who have provided commentaries on his work, there are those who have singled out this uncertainty theme not only for its special importance, but also for its potential for analytical subversion. The purpose of this paper is to scrutinize the ideas involved in this particular aspect of Keynes' work, together with the lines of argument that have emerged from those commentators who have pursued it. The result of this scrutiny will be to call into question the idea that there is anything peculiarly subversive in the analytical consequences of broaching problems of uncertainty in economic decision making. I shall argue, rather, that as an analytical issue it is -depending on how it is handled-either innocuous or else quite indiscriminately destructive.

This paper attempts to show that it is useful to view productivity as a prisoners' dilemma problem, that conventions are alternative solutions to the prisoners' dilemma, that effort conventions are usually nonoptimal, and that a shock is necessary in order to shift from one nonoptimal solution to another. Within this framework the invisible hand does not produce a Pareto optimal result. It is consistent with any number of nonoptimal effort conventions.

Neoclassical models of the banking firm (for example, Michael Klein, 1971) treat all deposit liabilities as fully variable factors of production. Banks then maximize profits (minimize liability costs) by equating the marginal costs of all liability types during each period. The empirical relevance of these models is difficult to establish because binding deposit rate ceilings (Regulation Q) force bank competition for many retail deposits into implicit interest channels that are not readily measured. It is therefore noteworthy that during two recent periods when deposit rate ceilings were not binding, banks paid retail deposit rates considerably in excess of the rate at which they could borrow via large, unregulated certificates of deposit. Such behavior seems inconsistent with the cost minimization prescribed by neoclassical bank models. However, if retail deposit accounts are interpreted as quasi fixed (Gary Becker, 1962; Walter Oi, 1962; Donald Parsons, 1972; Sherwin Rosen, 1968) inputs to the banking firm, these important historical observations can be reconciled with bank profit maximization. This paper first describes two historical episodes during which the bank retail deposit rate exceeded the negotiable certificate of deposit rate for substantial periods of time. While no profit-maximizing (cost-minimizing) bank would pay such a rate differential if retail deposit quantities are costlessly variable, interpreting retail deposit accounts as quasi-fixed inputs to the bank explains the peculiar rate structures. A simple two-period model of bank liability selection formalizes the analysis. I. Two Puzzling Historical Episodes

Economists participated in the promotion of time-of-use (TOU) pricing during the 1970s, but analysis and evaluation of the role they played indicate that their contribution fell short of their potential influence. The study examines how economists compiled, analyzed, and evaluated electric-utility rate structures to determine how effectively they presented arguments supporting the idea that TOU pricing would alter energy-use patterns and would have a desirable cost-benefit effect. While TOU now permeates US utility rate structures, the author feels that professional economists could have presented more-forceful arguments, and should now be preparing to participate in the next step of rate decisions. 14 references. (DCK)

Focuses on the relationship between market structure and monopoly power. Durability models; New-used goods model; Durability and monopoly in the new-used model; Interdependence between market structure and durability. (Из Ebsco)

The available empirical evidence does not provide a very convincing case that mandatory appliance-efficiency standards will increase economic efficiency or reduce energy consumption significantly. There is a real chance that such standards could actually reduce economic efficiency and possibly lead to an increase in energy use. A broader use of programs to provide consumers with better information seems to represent the most-productive short-run strategy. Consumer education would not only help to improve decisions, but it will also provide time to better assess consumer behavior, allow the market to reveal the technical and economic possibilities for appliance-efficiency improvements, and ultimately allow public policies to be based on more than guesswork. 12 references.