Economics is not only a social science, it is a genuine science. Like the physical sciences, economics uses a methodology that produces refutable implications and tests these implications using solid statistical techniques. In particular, economics stresses three factors that distinguish it from other social sciences. Economists use the construct of rational individuals who engage in maximizing behavior. Economic models adhere strictly to the importance of equilibrium as part of any theory. Finally, a focus on efficiency leads economists to ask questions that other social sciences ignore. These ingredients have allowed economics to invade intellectual territory that was previously deemed to be outside the discipline's realm.

In the field of economics, perhaps the most important break with the past—one that leaves open huge areas for future work—lies in the economics of information. It is now recognized that information is imperfect, obtaining information can be costly, there are important asymmetries of information, and the extent of information asymmetries is affected by actions of firms and individuals. This recognition deeply affects the understanding of wisdom inherited from the past, such as the fundamental welfare theorem and some of the basic characterization of a market economy, and provides explanations of economic and social phenomena that otherwise would be hard to understand.

We exhibit an efficient auction (an auction that maximizes surplus conditional on all available information). For private values, the Vickrey auction (for one good) or its Groves-Clarke extension (for multiple goods) is efficient. We show that the Vickrey and Groves-Clarke auctions can be generalized to attain efficiency when there are common values, if each buyer's information can be represented as a one-dimensional signal. When a buyer's information is multidimensional, no auction is generally efficient. Nevertheless, in a broad class of cases, our auction is constrained-efficient in the sense of being efficient subject to incentive constraints.

This paper considers how identity, a person's sense of self, affects economic outcomes. We incorporate the psychology and sociology of identity into an economic model of behavior. In the utility function we propose, identity is associated with different social categories and how people in these categories should behave. We then construct a simple game-theoretic model showing how identity can affect individual interactions. The paper adapts these models to gender discrimination in the workplace, the economics of poverty and social exclusion, and the household division of labor. In each case, the inclusion of identity substantively changes conclusions of previous economic analysis.

College educated couples are increasingly located in large metropolitan areas. These areas were home to 32 percent of all college educated couples in 1940, 39 percent in 1970, and 50 percent in 1990. We investigate whether this trend can be explained by increasing urbanization of the college educated or the growth of dual career households and the resulting severity of the colocation problem. We argue that the latter explanation is the primary one. Smaller cities may therefore experience reduced inflows of human capital relative to the past and thus become poorer.

We create an environment in which congestion forces agents to match inefficiently early. We then introduce one of two centralized clearinghouse mechanisms. One of these has been successfully used to halt this kind of unraveling in a number of labor markets, while the other has failed. When it is costly for firms and workers to be mismatched compared with the costs of matching early, the experimental observations reproduce the field observations. Furthermore, the experiment permits us to observe the transition between a decentralized and a centralized market, both when the centralized market fails to control unraveling and when it succeeds, at a level of detail unavailable in field data.