FEW WOULD DISAGREE that Adam Smith's invisible-hand theorem is the heart of the economist's Weltanschauung. Ask whether trade barriers should be lowered, the spread of multinational corporations restrained, oil prices deregulated, cartels dissolved, or more fundamentally whether a market-based capitalist system is economically superior to a state-run socialist system, and economists almost certainly will begin to answer the question by trying to apply the theorem. Every student knows that the theorem depends on the assumption of atomistic competition, which in turn assumes that the system is decentralized and that no competitor is large relatively to others. There is another crucial assumption, however, that is often ignored and usually underemphasized, namely that all competition is price competition. In reality one of the most distinctive features of capitalism-one that is most often raised in lay discussions of its merits and demerits-is the prevalence of other forms of competition, such as competition in research, development, and advertising; competition to obtain and hold monopoly; and competition for corporate growth. These various forms of competition, we shall aim to show, are not clearly analogous with the theory of price competition: more non-price competition, rather than less, is not necessarily Pareto optimal. Self-evidently, the production side of a market economy is decentralized only to a limited degree, i.e., to the level of a decision-making unit composed of more than one human. Such a unit-playing Neuron to the Invisible Hand-is typically called a firm. It is in fact a team. Rather than remaining small, firms are in practice composed of any number of individuals from a handful on to half a million. Some

In very large measure, issues of structure in metropolitan area governance can be characterized by a basic organization choice: consolidation or diversity. Along several dimensions, a basic policy variable is whether public decisions are to be made by a few large organizations or units of government, or many small ones. Two key dimensions are spatial and vertical organization. Spatial organization refers to the drawing of political boundary lines over urban space, dividing population groups into separate political constituencies. The

Having discovered and neatly portrayed the conditions for efficient provision of public goods, Paul Samuelson concluded that there was no viable mechanism for eliciting the information about preferences required to determine optimal public goods supply. Much subsequent theorizing about public finance decisions may be viewed as a quest for some demand-revealing mechanism which would refute Samuelson's assertion. Charles Tiebout, in particular, countered with the claim that a viable mechanism did exist for determining the optimal supply of local public goods. In his view, selfinterested individuals reveal their preferences for local public goods by their choice of jurisdiction. Tiebout reasoned that each individual adopts, from the menu of local fiscal environments, that local community which most closely reflects his preferences. He further argued that the greater the number and variety of communities, the more efficient would the public goods provision be. Without empirical support, this ingenious idea lay dormant for several years. The question remained as to whether the mechanism described by Tiebout, even if it existed, operated so that local jurisdictions effectively elicited and satisfied preferences for local public goods. Fundamental to answering this question was the necessity of designing an experiment which would reveal the result of voting with one's feet. No such experiment existed until Wallace Oates (1969) reasoned that operation of the Tiebout mechanism would result in the capitalization of differentials in fiscal variables into property values. His test findings indicated that indeed such capitalization was evident. At first, the results obtained by others who repeated and extended his experiment were generally consistent with his findings and hence his interpretation of the link between the Tiebout mechanism and the capitalization of fiscal variables. It was not long, however, before an alternative interpretation was suggested by Matthew Edel and Elliot Sclar, who argued that in the long run the Tiebout mechanism would result in no capitalization of differentials in taxes and public service levels. Their interpretation was precisely the opposite of that offered by Oates, and their empirical work -which indicated little evidence of capitalization-supported their interpretation. In retrospect, conflicting interpretations of the Tiebout hypothesis were almost inevitable given the absence of a formal model embodying the Tiebout mechanism. In an earlier paper with Michael Visscher, we argue that Tiebout's hypothesis is as follows: If individuals are able to choose from among a multiplicity of local jurisdictions, the result will be a Pareto-efficient provision of local public goods. We present two alternative models which differ in the technology for production of local public goods. One embodies the efficiency properties claimed by Tiebout, the other does not. Using these models we demonstrate that 1) Tax capitalization cannot be tested by the procedure proposed by Oates because the tax capitalization parameter is not econometrically identified-a possible reason for the contradictory empirical findings of Oates and of Edel and Sclar, and 2) A test of capitali*Associate professor, Carnegie-Mellon University, and assistant professor, Tulane University, respectively.

This paper seeks to extend the domain of identity economics by exploring motivational foundations of in-group cooperation and out-group competition. On this basis, we explore the reflexive interaction between individual economic decisions and social identities in response to technological change in market economies. Our analysis explores how technological change falling on marketable goods and services, rather than non-market caring relationships, leads to a restructuring of identities, which increases the scope of individualism and promotes positional competition at the expense of caring activities. Since positional competition generates negative externalities while caring activities create positive ones, these developments have important welfare implications.

Public policy in modern India features affirmative action programs intended to reduce inequality that stems from a centuries-old caste structure and history of disparate treatment by gender. We study the effects of one such affirmative action program: an admissions policy that fixes percentage quotas, common across more than 200 engineering colleges, for disadvantaged castes and for women. We show that the program increases college attendance of targeted students, particularly at relatively higher-quality institutions. An important concern is that affirmative action might harm intended beneficiaries by placing them in academic programs for which they are ill-prepared. We find no evidence of such adverse impacts.