Although Friedrich A. von Hayek, Leonid Hurwicz, and others stressed how the price system communicates private information (on preferences, technology, and endowments), our main means of communication is surely words. But it is unclear whether mere words can be trusted: absent outside sanctions for lying (such as perjury law or a valuable reputation for honesty), talk is cheap. The perspective of the standard theory of signaling seems to suggest that cheap talk should be uninformative, but this is misleading: cheap talk can sometimes convey information and affect real (payoffrelevant) actions. Yet cheap talk's power is limited: for example, even given an unlimited chance to talk, rational people may not reach an equilibrium, or may not escape a bad one. A growing literature in game theory, political science, and economics, which I cannot survey here, studies what cheap talk can and cannot do. Here, I merely sketch some themes.

A central problem in organization of society is to choose rules for making choices when people's interests conflict. Economists have had much to say about such problems when compensating payments are possible. In practice, however, such payments are often not made, and decisions are either rigidly imposed by a central authority or taken unilaterally by one of parties concerned, who we say has the to choose outcome. In this paper, without asking why these rules are common, I ask which is most efficient. I assume that interested parties know more about their preferences than does central authority (the government). This is a reason to give one of them right to decide outcome: in this model, rights are a decentralization device (see Partha Dasgupta, 1980), and since I assume a benevolent government, there is no role for decentralization without private information. But, while this private information can make delegated decision more efficient than an undelegated and rigid central decision, there is a countervailing problem: an interested party chooses selfishly and ignores even what is common knowledge about others' preferences, which benevolent though ignorant government would take into account. Thus we find that giving an interested party right to choose is more desirable when he has important private information, but less desirable when he and others are very much in conflict.

Physical telecom networks are costly and few, traditionally to the point of monopoly. Innovation thrives with many independent minds. So one might hope independent innovators, not only its proprietor M, can offer innovative services on a network, as has been true on the Internet. This issue is central in telecom policy; it also arises elsewhere, including complaints about Microsoft. I try to expound the following key points. Often an unregulated M has ex ante incentives to organize service innovation efficiently. But this incentive breaks down ex post as M can extract an independent J’s quasi-rents (Farrell and Michael Katz 2000). Even ex ante, the one monopoly rent theorem (Ward Bowman 1957) fails when M’s bottleneck access business is more regulated than its competitive services (e.g., Jean-Jacques Laffont and Jean Tirole 2000). This tempts M to sabotage J’s innovations. Quarantining M from the service sector solves these problems, but excludes the firm with (often) the best opportunities and the strongest incentives to innovate. Parity pricing or ECPR (Robert Willig 1979) purports to get the best of both worlds (BoBW). But it seems so hard to implement in innovation markets that one might construe ECPR analysis as reductio ad absurdum for BoBW.

A partnership is a coalition that divides its output equally. We show that when partnerships can form freely, a stable or "core" partition into partnerships always exists and is generically unique. When people differ in ability, the equal-sharing constraint inefficiently limits the size of partnerships. We give conditions under which partnerships containing abler people will be larger, and show that if the population is replicated, partnerships may become more or less homogeneous, depending on an elasticity condition. We also examine when the equal-sharing inefficiency vanishes in the limit.

X-inefficiency is surely among the most important topics in microeconomics. Yet, economists have found it difficult to study. If a given level of X-inefficiency were inevitable and changeless, it would be of little interest (indeed, would not really deserve to be called X-inefficiency at all). So our attention should focus on actual and potential changes in X-inefficiency: that is, on causes of changes, internal to a firm, that shift the firm's cost function. We explore the use of firms ' “cost-cutting” announcements to study the causes of changes in X-inefficiency. Cost cutting announcements by large corporations are made frequently and are reported in the business press. One might be tempted to interpret these announcements as indicating efforts to reduce X-inefficiency, and indeed we

We study the welfare economics of probabilistic patents that are licensed without a full determination of validity. We examine the social value of instead determining patent validity before licensing to downstream technology users, in terms of deadweight loss (ex post) and innovation incentives (ex ante). We relate the value of such pre-licensing review to the patent's strength, i.e., the probability it would hold up in court, and to the per-unit royalty at which it would be licensed. We then apply these results using a game-theoretic model of licensing to downstream oligopolists, in which we show that determining patent validity prior to licensing is socially beneficial. (JEL D82, K11, L24, O34)

The authors argue that, although decentralization has advantages in finding low-cost solutions, these advantages are accompanied by coordination problems, which lead to delay or duplication of effort or both. Consequently, decentralization is desirable when there is little urgency or a great deal of private information, but it is strictly undesirable in urgent problems when private information is less important. The authors also examine the effect of large numbers and find that coordination problems disappear in the limit if distributions are common knowledge. Copyright 1990 by University of Chicago Press.

the 1970s there was no organized effort to keep Kiss, or other immigrant-headed bands such as Abba or the Village People, out of the United States.) In a similar fashion, pressure from U.S. farmers and other employers may account for why it is that each year 300,000 illegal immigrants succeed in entering and finding work in the United States (Passel, Capps, and Fix 2004). For any presidential administration, globalization is likely to be a tricky subject. The gains from international economic integration are spread among a diffuse group of consumers, while the losses are concentrated in specific industries and regions. Into the debate, economists can interject dispassionate analysis of the costs and benefits associated with cross-border flows of goods, capital, and labor. On immigration and trade, the ERP gets many things right, but it falters when discussing the distributional consequences of globalization. This may be driven in part by the report's predictable but still discomforting tendency to cheerlead for the president's policy proposals. In the end, we are left with a discussion of globalization's consequences that is less balanced and complete than one might have hoped. REFERENCES