Knowledge that Transforms

This paper documents exploratory drilling activity on offshore wildcat oil and gas leases in the Gulf of Mexico sold between 1954 and 1980. The authors calculate the empirical drilling hazard function for cohorts in specific areas. For each year of the lease, they study the determinants of the decision whether to begin exploratory drilling and their relationship to the outcome of any drilling activity. Their results indicate that equilibrium predictions of plausible noncooperative models are reasonably accurate and more descriptive than those of cooperative models of drilling timing. The authors discuss why noncooperative behavior may occur and the potential gains from coordination.

The double auction trading institution has been highly efficient across diverse marginal-cost market structures, whether human subjects or 'zero-intelligence' robots populated those markets. Accordingly, many researchers suspect that double auction performance transcends market structure and agent strategy. But the authors show that large avoidable costs undermine the efficiency and stability of human subject double auctions and these low human efficiencies are simultaneously well above zero-intelligence efficiencies. Their results dramatically illustrate the potential havoc wrought by highly competitive institutions when they must cope with nonconvex technologies.

It is routine for growth economists to appeal to the British industrial revolution as motivation for their papers. This overview draws implications from this important experience for how economists think about growth, empirical growth economics, and policy based on recent historical research. The update it provides may also help to improve the plausibility of future economic interpretations of early industrialization. Technological change is, of course, central to the years 1760-1830, a period to which Thomas Ashton (1948) attached the label first industrial revolution. Thus, it is not surprising that new growth models of the endogenous-innovation variety are much more helpful for the analysis of this period than those that envisage endogenous growth without explicit reference to total-factor-productivity (TFP) growth (Crafts, 1995). It follows that it is important to consider Britain's social capability for growth (i.e., the impact of institutions and policy choices on TFP growth), rather than simply focusing on investment in human and physical capital.