Knowledge that Transforms

textabstractReviews the book Global Capital Flows: Should They Be Regulated?, by Stephany Griffith-Jones

The book begins with a quote from J.H. Dales’ Pollution, Property, and Prices, "If it is feasible to establish a market to implement a policy, no policy-maker can afford to do without one." This book provides important evidence in support of Dales’ statement. The book is a thorough examination of the first several years of the U.S. Acid Rain Program. This innovative program uses a cap-and-trade approach, rather than the traditional command-and-control approach, to reduce sulfur dioxide (SO2) emissions. The book offers substantial evidence of the program’s success. The analysis is of both practical and scientific importance. From a practical viewpoint, the acid rain program is an ambitious effort to reduce a major pollutant. It is important for us to understand whether the program is successful and how it might be improved. From a scientific viewpoint, the authors’ analysis provides a framework and methodology for evaluating similar programs. There is much we can learn about effective regulation from the analysis.

Much of the comparative economic history of the nineteenth century focuses on the spread of the Industrial Revolution from Britain. Incomes converged, in this view, as the transfer of superior technology raised incomes in the periphery. In Globalization and History, Kevin O'Rourke and Jeffrey Williamson challenge this technological approach, arguing that neoclassical effects of trade and factor supply changes provide more insight. Increased trade, stimulated by falling transportation costs, and factor movements caused prices of locally scarce factors to fall and promoted factor price convergence.

Markets for Clean Air is the definitive text on the U.S. acid rain program. This innovative program uses a cap-and-trade approach, rather than the traditional command-and-control approach, to reduce sulfur dioxide emissions. The authors conclude that the program was successful in cutting the costs of SO2 emission reductions by about half, saving tens of billions of dollars. Both scholars and policy makers will have a better sense of the virtues and pitfalls of market-based regulation after reading this.

Although the debate over Affirmative Action is both high-profile and high-intensity, neither side's position is based on a well-established set of research findings. Economics provides an extensive, wellknown literature on which to draw regarding the existence and extent of labor market discrimination against women and minorities, although views may often conflict, and a less extensive but also well-known literature on the effects of Affirmative Action on the employment of women or minorities. However, research by economists provides much less evidence and even less of a consensus on the question of whether Affirmative Action improves or impedes efficiency or performance, which is perhaps the key economic issue in the debate over Affirmative Action. This review focuses on all of these issues regarding Affirmative Action, but the major focus is on the efficiency/performance question.

The last fifteen years have seen an explosion of contributions in the field of political economy. Two new books, Political Economy in Macroeconomics by Allan Drazen and Political Economy: Explaining Economic Policy by Torsten Persson and Guido Tabellini, organize this literature and evaluate what has been learned. Drazen mostly focuses on applications for macroeconomic policy, while Persson and Tabellini focus on the various tools that can be used to analyze the political process, and the institutional details of decision-making.

Statistical and programming techniques are used to examine economics department quality rankings and how resources and research output are related. Four questions are asked using the National Research Council's 1993 survey. Are there significant differences in department quality scores? How are quality scores related to publications, citations and numbers of Ph.D.s produced? What is the relation between research output and department resources? How well do departments generate research in comparison with other departments with similar levels of resources? What I find is that resources determine outputs, outputs determine opinions (which are generally diffuse) and most departments efficiently use their resources.

Natural resources, by their nature, are not readily bent to the status of private property. Efficient resource use is complicated by jurisdictional externalities, public goods, non-use values, and beneficiaries spatially separated from the location of resources. The task is made more challenging by ecological complexity that obscures cause (benefits) and effects (costs), and dramatic time lags between individual actions and subsequent social consequences that, together with substantial uncertainty, introduce the chance of irreversibilities. Resource economists have played a major role in the literature on externalities, the development of individual transferable quotas, non-market valuation techniques and common property management.