All economists should buy and read The Moral Economy by Samuel Bowles. The book challenges basic premises of economic theory and questions policies based on monetary incentives. Incentives not only crowd out intrinsic motivations, they erode the ethical and moral codes necessary for the workings of markets. Bowles boldly suggests that successful policies must combine incentives and moral messages, exploiting complementarities between the two. This essay argues that to achieve this objective, economists must study the local institutions and social context and engage untraditional data to uncover the interplay of incentives and identity.

Identity economics provides a framework to analyze economic outcomes by establishing people's identities--not just pecuniary incentives--as primary motivations for choice. The heart of the framework is social difference and norms. This paper engages the emerging economic research into sources of divisions and norms: individuals, families, schools, governments, and social movements. The task at hand is to further to develop the micro-foundations of identity, in order to build a socially framed understandings of human motivation that will yield more robust accounts of behavior and institutions and yet better predictions of the implications of policy.

Reciprocal exchange, or gift exchange, remains a widespread means of obtaining goods and services. This paper examines the persistence of reciprocal exchange by formalizing the interaction between self-enforcing exchange agreements and monetary market exchange. When more people engage in reciprocal exchange, market search costs increase, reciprocity is easier to enforce and yields higher utility. Thus, personalized exchange can persist even when it is inefficient. Conversely, large markets can destroy reciprocity when reciprocal exchange is efficient. The results characterize the use of personal "connections" as a system of reciprocal exchange and explain the disappearance of reciprocity when tribes encounter markets.

This paper studies cross-community risk sharing. There is now a large body of theoretical and empirical work on informal insurance, where people mitigate risk by sharing income. A consistent empirical finding is that risk-sharing is not complete within villages, often the observed sets of individuals.2 One reason, researchers suspect, is that risk-sharing does not take place at the village level, but between individuals and families.3 We build a theoretical model where risk-sharing takes place between pairs of agents. There are idiosyncratic shocks to individual income and community-level shocks. We consider how the opportunity for cross-community links affects the shape and efficiency of risk sharing arrangements. We find that when links across villages form, there can be less risk sharing within a village. Welfare is higher for those directly or indirectly connected across villages, but lower for those with no path connecting them to the other village. Overall, welfare can be higher. Thus, empirical findings that insurance within a village is not complete is not necessarily evidence of an inefficient pattern of risk-sharing relations. Rather, the finding is consistent with risk-sharing patterns that involve cross-community relations, and such patterns may yield higher aggregate welfare despite incomplete insurance within a village.

Trade and export, it is argued, spur economic growth. This paper studies the microeconomics of exporting. We build a heuristic model of transactions between exporters and producers and relate it to East India Company (EIC) operations in colonial Bengal. Our model and the historical record stress two difficulties: the exporter and its agents might not uphold payment agreements, and producers might not honor sales contracts. The model shows when procurement succeeds or fails, highlighting the tension between these two hold-up problems. We analyze several cases, including the EIC's cotton textile venture, the famous Opium Monopoly, and present-day contract farming.

This paper introduces a new model of exchange: networks, rather than markets, of buyers and sellers. It begins with the empirically motivated premise that a buyer and seller must have a relationship, a “link,” to exchange goods. Networks—buyers, sellers, and the pattern of links connecting them—are common exchange environments. This paper develops a methodology to study network structures and explains why agents may form networks. In a model that captures characteristics of a variety of industries, the paper shows that buyers and sellers, acting strategically in their own self-interests, can form the network structures that maximize overall welfare.

Geography and social links shape economic interactions. In industries, schools, and markets, the entire network determines outcomes. This paper analyzes a large class of games and obtains a striking result. Equilibria depend on a single network measure: the lowest eigenvalue. This paper is the first to uncover the importance of the lowest eigenvalue to economic and social outcomes. It captures how much the network amplifies agents' actions. The paper combines new tools—potential games, optimization, and spectral graph theory—to solve for all Nash and stable equilibria and applies the results to R&D, crime, and the econometrics of peer effects.

This review culls noneconomic literature on education--by sociologists, anthropologists, and practitioners to present a new economic theory of students and schools. This theory elaborates two themes that have eluded economic analysis. First is the student as decision-maker whose primary motivation is her identity. Second is a conception of the school as a social institution. This framework suggests a new perspective on questions such as resource allocation and school reform. It explains why some educational policies succeed and others fail. We show how sociological variables may affect outcomes, and suggest ways economists can incorporate them into theoretical and empirical research.