Knowledge that Transforms

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.

Economists were among the many scholars uprooted following Hitler's rise to power in 1933. This article reviews a series of books edited by Harald Hagemann and others which provide extensive biographical information on 314 German-speaking economists whose professional opportunities were shattered by Nazi policies. It evaluates the impact of the massive emigration on economic research and teaching in Germany and Austria and in the nations to which most of the economists emigrated. An analysis of 1966-70 data reveals that the emigres' cited publication counts were equivalent to the citations of three leading U.S. economics departments.

This paper begins by systematically developing the “static” theory of preferential trade areas (PTAs) and showing that neither a large volume of initial intra-union trade nor geographical proximity can serve as a guide to welfare enhancing PTAs. The paper then discusses the modern literature addressing welfare effects of simultaneous division of the world into many PTAs, the impact of the decision to form a PTA on external tariffs and the “dynamic” time-path question of whether PTAs are building blocks or stumbling blocks towards multilateral freeing of trade. A final section discusses key theoretical considerations in the empirical evaluation of PTAs.

The recent literature exploiting natural events as “natural experiment” instruments is reviewed to assess to what extent it has advanced empirical knowledge. A weakness of the studies that adopt this approach is that the necessary set of behavioral, market, and technological assumptions made by the authors in justifying their interpretations of the estimates is often absent. The methodology and findings from twenty studies are summarized and simple economic models are used to elucidate the implicit assumptions made by the authors and to demonstrate the sensitivity of the interpretations of the findings to the relaxation of some of these assumptions.

This article surveys the theory of the public enforcement of law—the use of public agents (inspectors, tax auditors, police, prosecutors) to detect and to sanction violators of legal rules. We first present the basic elements of the theory, focusing on the probability of imposition of sanctions, the magnitude and form of sanctions, and the rule of liability. We then examine a variety of extensions of the central theory, concerning accidental harms, costs of imposing fines, errors, general enforcement, marginal deterrence, the principal-agent relationship, settlements, self-reporting, repeat offenders, imperfect knowledge about the probability and magnitude of fines, and incapacitation.

The manufacturing sectors of developing countries have traditionally been relatively protected. They have also been subject to heavy regulation, much of which has favored large firms. Accordingly, it is often argued that in these countries: (1) markets tolerate inefficient firms, so cross-firm productivity dispersion is high; (2) small groups of entrenched oligopolists exploit monopoly power in product markets; and (3) many small firms are unable or unwilling to grow, so important scale economies go unexploited. Drawing on plant and firm level studies, I assess each of these conjectures and find none to be systematically supported. However, many open issues remain.

This paper reviews research that uses longitudinal microdata to document productivity movements and to examine factors behind productivity growth. The research explores the dispersion of productivity across firms and establishments, the persistence of productivity differentials, the consequences of entry and exit, and the contribution of resource reallocation across firms to aggregate productivity growth. The research also reveals important factors correlated with productivity growth, such as managerial ability, technology use, human capital, and regulation. The more advanced literature in the field has begun to address the more difficult questions of the causality between these factors and productivity growth.

This article reviews recent developments in the economic theory of individual decision making under risk. Since the 1950s it has been known that individual choices violate the standard model of expected utility in predictable ways. Considerable research effort has now been devoted to the project of developing a superior descriptive model. Following an overview of non-expected utility theories which distinguishes between “conventional” and “non-conventional” approaches, the paper seeks to assess these alternative models in terms of empirical success (using laboratory and field data) and theoretical usefulness. The closing sections reflect on some new directions emerging in this literature.

Using various methods, the size of the shadow economy in 76 developing, transition, and OECD countries is estimated. Average size varies from 12 percent of GDP for OECD countries, to 23 percent for transition countries and 39 percent for developing countries. Increasing taxation and social security contributions combined with rising state regulations are driving forces for the increase of the shadow economy, especially in OECD countries. According to some findings, corruption has a positive impact on the size of the shadow economy, and a growing shadow economy has a negative effect on official GDP growth.