This article reviews Daron Acemoglu and James Robinson’s book The Narrow Corridor. They depict a constant tussle between “society,” which wants liberty but cannot sustain order, and “state,” which maintains order but grows oppressive. I argue that the book has a huge theme and an impressive historical sweep of supportive examples, but leaves many open questions. The two conceptual categories should be unpacked to examine complex interactions within and across them, and other examples that counter the authors’ thesis should be reckoned with. However, the authors deserve congratulations for a brilliantly written and thought-provoking book that will inspire much future research.

This essay reviews Lawrence Freedman's book Strategy: A History. The main themes—definitions, strategies in war, business, politics, and revolutions—are overviewed. The value of game-theoretic thinking for practical strategy is assessed. A critical discussion of some concepts and dichotomies emphasized by Freedman, e.g., strategy is governed by the starting point, not the end point, and of the role of stories and scripts in strategy, follows.

Decisions made under ongoing uncertainty and costly reversibility entail a range of the state variable where inaction is optimal, which in turn produces hysteresis--permanent effects of temporary shifts. The range is usually defined by nonlinear equations that need numerical solutions. In this paper, a technique of analytical approximations is developed and applied to two models--menu costs and investment. The resulting explicit solutions help clarify why hysteresis is important even for small irreversibility. In the menu cost model, hysteresis is two orders of magnitude larger than under the Akerlof-Yellen or Mankiw assumptions.

This paper considers a small open economy with a safe sector and a risky sector. The probability of success in the risky activity differs across individuals, and is private information. It is shown that policies that sustain informationally constrained Pareto optima should not include tariffs. A laissez-faire competitive equilibrium, if it exists, is Pareto optimal. These results contrast with previous literature on the role of tariffs as insurance, where private risk markets are assumed away in an ad hoc manner.

Journal Article Quality and Quantity Competition Get access Avinash Dixit Avinash Dixit University of Warwick Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 46, Issue 4, October 1979, Pages 587–599, https://doi.org/10.2307/2297029 Published: 01 October 1979 Article history Received: 01 September 1977 Accepted: 01 November 1978 Published: 01 October 1979

Journal Article Trade and Insurance with Imperfectly Observed Outcomes Get access Avinash Dixit Avinash Dixit Princeton University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 104, Issue 1, February 1989, Pages 195–203, https://doi.org/10.2307/2937842 Published: 01 February 1989

A competitive industry has established home firms, and foreign firms with entry and exit costs. The real exchange rate follows a Brownian motion. Industry equilibrium is determined using methods of option pricing. Entry requires the operating profit to exceed the interest on the entry cost, and similarly for exit. The middle band of rates without entry or exit yields hysteresis; it is found to be very wide for plausible parameter values. The exchange rate pass-through to domestic prices is found to be close to one in the phases where foreign firms enter or exit, and near zero otherwise.

In my 1987 paper, I modeled contests where the probability of each player winning a prize depends on all players’ efforts, and examined the first-order benefits to one player of making a commitment to a strategy slightly different from his Nash equilibrium strategy. In the special case of a two-player symmetric contest, I found that this first-order effect was zero. Michael R. Baye and Onsong Shin (1999) have taken the useful further step of finding the second-order conditions which ensure that the local stationary point is a local maximum. They also find an example where such a commitment has a third-order benefit. Whether this is of any substantive economic interest remains to be seen. I used the phrase “no local effect” to mean zero first-order effect, which was clearly a sloppy use of language. But some such restriction on the use of “local” is essential. If the phrase “x has no local effect on f (x) at x 5 a” were to mean that all derivatives f (a) are zero, then a Taylor series expansion would show that f (x) 5 f (a) for all x, and “no local effect” would be the same as “no global effect.” Most importantly, symmetric contests were only a very special case of my model. The focus was on the much more interesting and more general situation of asymmetry among the players, where one player’s commitment to a strategy different from his Nash equilibrium strategy does bring him a first-order benefit— the favorite benefits by committing to excessive effort, and the underdog from committing to too little. Others, for example, Kyung H. Baik and Jason F. Shogren (1992), have extended the analysis to endogenize the order of moves and found that it can be in the interests of both contestants to let the underdog make the commitment. In my view these are the more interesting economic issues to do with contests than are third-order effects in the symmetric case.