Knowledge that Transforms

Conventional wisdom will have it that Poland opted for a dramatic, compressed dash towards market capitalism-a Big Bang that in one stroke shed central planning and dismantled bureaucratic interference in large areas of economic decision making. Hungary, it is believed, has taken a more gradual, time-consuming, less forced approach towards the same end. These perceived contrasts in strategy (shock therapy vs. gradualism) are keenly debated in policy reform circles throughout the region, both with respect to necessity as well as to feasibility. The conventional wisdom greatly simplifies the contrast between the two countries. Recent political developments in Hungary have generated a substantial acceleration of reform efforts. The Hungarian reform program now operates on as broad a front as the Polish program: abandonment of central controls, price liberalization, introduction of competition, privatization, financial and fiscal system modernization, development of social safety nets, legal, regulatory and institutional reform, and so on. It seeks a no less fundamental and far-reaching change. The perception of gradualism probably has more to do with the past 20 years of Hungarian experimentation with piecemeal modifications to the economic mechanism (Janos Kornai, 1986) than to the present reality. That past experience certainly suggests that without genuine political commitment to a market economy, and particularly to a broad-based system of private property rights, systemic reforms in formerly socialist economies will not succeed. Once these precepts are accepted, the specific agenda items for reform appear to take on the same character in all reforming economies. The pace and sequencing of economic and institutional changes are then dictated by initial starting conditions that differ greatly between countries (Stanley Fischer and Alan Gelb, 1990). Price liberalization and the dismantling of central coordination can be accomplished overnight; the establishment of new legal systems, privatization, the restructuring of enterprises, generating attitudinal and behavioral changes in populations, all perforce take much longer. As a result, it may be expected that the ambit for genuine choices on pace and sequencing on policy and institutional change will narrow over time and that the content of reforms in Hungary and Poland and other countries will increasingly resemble one another.

Although it has vanished from the front pages, the still continues to occupy the attention of policymakers, the business community, and consumers. Indeed, many states have responded to the crisis by enacting reforms to make it more difficult for accident victims to sue and, if they win, to recover large awards. Manufacturers and insurers have supported these efforts because they believe that the tort system has become so expensive and uncertain that is overdeterring, discouraging the production of valuable products and the of many more. Plaintiffs' lawyers and consumers groups vigorously disagree, arguing that current liability law provides important incentives for private actors to make safer products and to conduct their activities in a less risky fashion. Given the significant impacts of the tort system (by one recent estimate, gross liability expenditures in the United States amounted to $117 billion in 1987, see Tillinghast, 1989), it is somewhat surprising that there is so little empirical research to settle this debate. In fact, there even is a lack of consensus on liability trends. Although there are no comprehensive nationwide data on the numbers of nonautomobile tort suits, verdicts, and settlements, by all available measures, total liability costs (primarily insurance premiums, but also estimates of self-insurance payouts) have been rising during the last 30 years, and especially rapidly in the 1980's (U.S. Department of Justice, 1986; Mark Peterson; 1987). In 1989, the Brookings Institution launched a major study designed to determine the and innovation impacts of this expansion in the tort system on five sectors of the U.S. economy; the private aircraft, automobile, chemical and pharmaceutical industries, and the medical profession. As project directors, Peter Huber and I commissioned experts to address each side of the debate for each of these sectors, deliberately seeking individuals who were not economists. As discussed below, it is extremely difficult (some would say impossible) to establish through standard econometric techniques the linkages, if any, between liability law and safety and/or innovation. Accordingly, we believed the project could shed more light on the subject by engaging individuals with scientific or practical backgrounds in the specific sectors they were asked to study; in a few cases, economists met these criteria and they participated. This article summarizes some of the key findings from this effort (1991).

William Henry Dean, Jr. was born in 1910 and died in 1952. He was the only son, and third of four children, of Reverend William Henry Dean and the former Ella Cornelia Green. His father was a Methodist minister, and the family lived in the cities in which he pastored churches: Lynchburg, VA; Washington, D.C.; Baltimore, MD; and Pittsburgh, PA. The son graduated from Frederick Douglass High School in Baltimore in 1926 as valedictorian of his class. He attended Bowdoin College in Maine, graduating summa cum laude in 1930. He then entered Harvard University, where he earned the M.A. and the Ph.D. in economics in 1932 and 1938, respectively. His subsequent career included stays with Atlanta University, 1933-42; City College of New York, summer 1939; U.S. National Resources Planning Board, 1940-42; U.S. Office of Price Administration, Virgin Islands, 1942-44; National Urban League, 1944-46; and United Nations, 1946-52 (Rayford Logan and Michael Winston, 1982). This paper examines briefly the sources of location theory in the mathematics and astronomy of the day, and Dean's application of results from these fields to economic location theory in his doctoral dissertation at Harvard University in 1938.

Is it feasible to trade rights to use orbital slots and associated satellite frequencies in a market? Can such rights be delimited today? What is the role of international organs like the International Telecommunications Union (ITU), national agencies like the Federal Communications Commission (FCC), or the United Kingdom's Frequency Planning Organs (FPOs)? What evidence is there that such rights or assignments are in fact configured now and do indeed exist? Are they frequently traded in international as well as domestic broadcast and mobile radio services? Even if practical and viable, what economic policy or equity purposes are served by configuring actual markets for transferable or exchangeable orbit spectrum assignments? Or for schemes where national or international authorities distribute such assignments under competition or specifically by auction to the highest bidder? That is, through public as well as private auctions? Do auctions in any case further distributive equity and not just economic efficiency?'

We welcome John Quiggin's (1991) comment and the opportunity to reply. While we deny that Quiggin has done any damage to the argument of our article (Hoehn and Randall, 1989), his comment provides an opportunity for us to clarify and extend our argument in useful ways. We first address Quiggin's main points. He asserts that our first result is unrelated to the supporting verbal argument. He then argues that our second result is invalid as stated and can be rescued only by imposing unrealistic restrictions on the nature of the policy agenda. Thus, it is impossible to determine a priori whether too many proposals pass the benefit-cost test as the number of proposals becomes large. In short, Quiggin claims, our theorem 1 is not about what we said it was about, and theorem 2 is wrong.