DOCSLIB.ORG

Uncorrected Proofs

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Uncorrected Proofs POLITICAL ECONOMY PROOFS UNCORRECTED 9780415576147_vol1_A01.indd 1 2/22/2011 2:13:21 PM Critical Concepts in the Social Sciences Other titles in this series Development Economic Geography Edited with a new introduction by Edited with a new introduction by Stuart Corbridge Ron Martin and Peter Sunley 6 volume set 5 volume set The City Political Geography Edited with a new introduction Edited with a new introduction by Michael Pacione by Kevin Cox 5 volume set 4 volume set Game Theory Nature Edited with a new introduction by Edited by with a new introduction Yanis Varoufakis David Inglis, John Bone and Rhoda Wilkie 4 volume set 4 volume set Consumption Rational Choice Theory Edited with a new introduction Edited with aPROOFS new introduction by by Daniel Miller Michael Allingham 4 volume set 5 volume set Tourism Leisure Studies Edited with a new introduction by Edited with a new introduction by Stephan Williams Stephen J. Page and Joanne Connell 4 volume set 4 volume set Material Culture Sustainable Tourism Edited with a new introduction Edited with a new introduction by by Victor Buchli Stephen J. Page and Joanne Connell 5 volume set 4 volume set Cultural Geography Art and Aesthetics Edited with a new introduction by Edited with a new introduction by Nigel Thrift and Sarah Whatmore David Inglis and Marta Herrero 2 volume set 4 volume set Sustainability Migration Edited with a new introduction Edited with a new introduction by Michael Redclift by Steven Vertovec 4 volume set 5 volume set Animals and Society Social Capital Edited with a new introduction by Edited with a new introduction by Nan Lin David Inglis and Rhoda Wilkie 5 volume set Forthcoming South East Asian Development Poverty Edited with a new introduction Edited with a new introduction by Jonathan Rigg by David Gordon 3 volume set 4 volume set Food Science Studies Edited with a new introduction by Edited with a new introduction by David Inglis, Debra Gimlin and Chris Thorpe Michael Lynch 5 volume set 4 volume set UNCORRECTED 9780415576147_vol1_A01.indd 2 2/22/2011 2:13:21 PM POLITICAL ECONOMY Critical Concepts in the Social Sciences Edited by Norman J. Scho¼eld, Dino FalaschettiPROOFS and Andrew R. Rutten Volume I Social Choice and Elections UNCORRECTED 9780415576147_vol1_A01.indd 3 2/22/2011 2:13:21 PM First published 2011 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2011 Norman J. Scho¼eld, Dino Falaschetti and AndrenPROOFS R. Rutten The right of Norman J. Scho¼eld, Dino Falaschetti and Andren R. Rutten to be identi¼ed as author of this work has been asserted by him/her in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identi¼cation and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data [CIP data] ISBN 978-0-415-57613-0 (Set) ISBN 978-0-415-57614-7 (Volume I) Typeset in 10/12pt Times NR MT by Graphicraft Limited, Hong Kong UNCORRECTED 9780415576147_vol1_A01.indd 4 2/22/2011 2:13:21 PM contents CONTENTS Acknowledgements xiii Chronological table of reprinted articles and chapters xvii General introduction PROOFS1 VOLUME I SOCIAL CHOICE AND ELECTIONS PART 1 Social choice 9 Introduction 11 1 Necessary and suf¼cient conditions for rational choice under majority decision 21 amartya sen and prasanta k. pattanaik 2 Strategy-proofness and Arrow’s conditions: existence and correspondence theorems for voting procedures and social welfare functions 45 mark allen satterthwaite 3 Freedom and social choice: notes in the margin 74 kenneth j. arrow 4 Evolution and utilitarianism: social contract III 83 ken binmore 5 Interpersonal comparison in egalitarian societies 106 ken binmore v UNCORRECTED 9780415576147_vol1_A01.indd 5 2/22/2011 2:13:21 PM contents PART 2 Equilibrium and cycles 121 6 A notion of equilibrium and its possibility under majority rule 123 charles r. plott 7 A dynamic model of political equilibrium 145 gerald h. kramer 8 Intransitivities in multidimensional voting models and some implications for agenda control 170 richard d. mckelvey 9 Instability of simple dynamic games 181 norman schofield 10 Generic instability of majority rule PROOFS212 norman schofield 11 Social equilibrium and cycles on compact sets 226 norman schofield 12 Probability and convergence for supra-majority rule with Euclidean preferences 239 norman schofield and craig a. tovey 13 The instability of instability of centered distributions 266 craig a. tovey 14 The possibility of social choice 298 amartya sen PART 3 Bargaining and electoral competition 343 15 Bargaining theory and portfolio payoffs in European coalition governments 1945–83 345 norman schofield and michael laver 16 Bargaining and agenda formation in legislatures 366 david p. baron and john ferejohn 17 Legislature bargaining under weighted voting 376 james m. snyder, jr., michael m. ting and stephen ansolabehere vi UNCORRECTED 9780415576147_vol1_A01.indd 6 2/22/2011 2:13:21 PM contents 18 A theory of voting in large elections 411 richard d. mckelvey and john w. patty 19 The mean voter theorem: necessary and suf¼cient conditions for convergent equilibrium 442 norman schofield 20 A theory of participation in elections 464 timothy feddersen and alvaro sandroni VOLUME II POLITICAL INSTITUTIONS Acknowledgements PROOFSvii Introduction 1 PART 4 Legislatures and voting 5 21 The hunt for party discipline in Congress 7 nolan mccarty, keith t. poole and howard rosenthal 22 Activists and partisan realignment in the United States 37 gary miller and norman schofield 23 Party polarization in American politics: characteristics, causes, and consequences 67 geoffrey c. layman, thomas m. carsey and juliana menasce horowitz 24 Cycles in American national electoral politics, 1854–2006: statistical evidence and an explanatory model 98 samuel merrill, iii, bernard grofman and thomas l. brunell 25 A model of farsighted voting 130 elizabeth maggie penn vii UNCORRECTED 9780415576147_vol1_A01.indd 7 2/22/2011 2:13:21 PM contents 26 Are niche parties fundamentally different from mainstream parties? The causes and the electoral consequences of Western European parties’ policy shifts, 1976–1998 163 james adams, michael clark, lawrence ezrow and garrett glasgow PART 5 Historical accounts 193 27 Constitutions and commitment: the evolution of institutions governing public choice in seventeenth-century England 195 douglass c. north and barry r. weingast 28 Credible commitment in early modern Europe: North and Weingast revisited 224 david stasavage PROOFS 29 Violence and the rise of open-access orders 258 douglass c. north, john joseph wallis and barry r. weingast 30 Social orders 272 norman schofield 31 Institutions, factor endowments, and paths of development in the New World 311 kenneth l. sokoloff and stanley l. engerman 32 What does political economy tell us about economic development—and vice versa? 328 philip keefer PART 6 Autocracy and new or partial democracies 357 33 Authoritarian institutions and the survival of autocrats 359 jennifer gandhi and adam przeworski 34 Modeling authoritarian regimes 381 norman schofield and micah levinson 35 Democratic transitions 423 david l. epstein, robert bates, jack goldstone, ida kristensen and sharyn o’halloran viii UNCORRECTED 9780415576147_vol1_A01.indd 8 2/22/2011 2:13:21 PM contents VOLUME III POLITICS, LAW AND DEVELOPMENT Acknowledgements vii Introduction 1 PART 7 Economic growth and business cycles 3 36 A contribution to the theory of economic growth 5 robert m. solow 37 Some macroeconomics for the 21st century 33 robert e. lucas, jr. PROOFS 38 Increasing returns and long-run growth 44 paul m. romer 39 Natural selection and the origin of economic growth 78 oded galor and omer moav 40 What do we know about macroeconomics that Fisher and Wicksell did not? 130 olivier blanchard 41 The limited in½uence of unemployment on the wage bargain 161 robert e. hall and paul r. milgrom PART 8 The political economy of growth 191 42 Economic performance through time 193 douglass c. north 43 Why do some countries produce so much more output per worker than others? 206 robert e. hall and charles i. jones 44 The colonial origins of comparative development: an empirical investigation 237 daron acemoglu, simon johnson and james a. robinson ix UNCORRECTED 9780415576147_vol1_A01.indd 9 2/22/2011 2:13:21 PM contents 45 Institutions versus policies: a tale of two islands 289 peter blair henry and conrad miller 46 Why not a political Coase theorem? Social con½ict, commitment, and politics 299 daron acemoglu 47 Voter in½uence and big policy change: the positive political economy of the New Deal 338 robert k. fleck VOLUME IV GOVERNANCE Acknowledgements PROOFSvii Introduction 1 PART 9 Democracy and macroeconomics 3 48 Democracy and growth 5 robert j. barro 49 Democracy and development: the devil in the details 35 torsten persson and
Load more

Recommended publications
  • The Principles of Economics Textbook
    The Principles of Economics Textbook: An Analysis of Its Past, Present & Future by Vitali Bourchtein An honors thesis submitted in partial fulfillment of the requirements for the degree of Bachelor of Science Undergraduate College Leonard N. Stern School of Business New York University May 2011 Professor Marti G. Subrahmanyam Professor Simon Bowmaker Faculty Advisor Thesis Advisor Bourchtein 1 Table of Contents Abstract ............................................................................................................................................4 Thank You .......................................................................................................................................4 Introduction ......................................................................................................................................5 Summary ..........................................................................................................................................5 Part I: Literature Review ..................................................................................................................6 David Colander – What Economists Do and What Economists Teach .......................................6 David Colander – The Art of Teaching Economics .....................................................................8 David Colander – What We Taught and What We Did: The Evolution of US Economic Textbooks (1830-1930) ..............................................................................................................10
    [Show full text]
  • Flat Tax: an Overview of the Hall-Rabushka Proposal
    . Flat Tax: An Overview of the Hall-Rabushka Proposal James M. Bickley Specialist in Public Finance November 29, 2011 Congressional Research Service 7-5700 www.crs.gov 98-529 CRS Report for Congress Prepared for Members and Committees of Congress c11173008 . Flat Tax: An Overview of the Hall-Rabushka Proposal Summary The President and leading Members of Congress have stated that fundamental tax reform is a major policy objective for the 112th Congress. The concept of replacing individual and corporate income taxes and estate and gift taxes with a flat rate consumption tax is one option to reform the U.S. tax system. The term “flat tax” is often associated with a proposal formulated by Robert E. Hall and Alvin Rabushka (H-R), two senior fellows at the Hoover Institution. In the 112th Congress, two bills have been introduced that included a flat tax based on the concepts of Hall- Rabushka: the Freedom Flat Tax Act (H.R. 1040) and the Simplified, Manageable, and Responsible Tax Act (S. 820). In addition, Republican presidential candidate Herman Cain has proposed a tax reform plan that includes a modified H-R flat tax. This report analyzes the Hall- Rabushka flat tax concept. Although the current tax structure is referred to as an income tax, it actually contains elements of both an income and a consumption-based tax. A consumption base is neither inherently superior nor inherently inferior to an income base. The combined individual and business taxes proposed by H-R can be viewed as a modified value- added tax (VAT). The individual wage tax would be imposed on wages (and salaries) and pension receipts.
    [Show full text]
  • CURRICULUM VITAE August, 2015
    CURRICULUM VITAE August, 2015 Robert James Shiller Current Position Sterling Professor of Economics Yale University Cowles Foundation for Research in Economics P.O. Box 208281 New Haven, Connecticut 06520-8281 Delivery Address Cowles Foundation for Research in Economics 30 Hillhouse Avenue, Room 11a New Haven, CT 06520 Home Address 201 Everit Street New Haven, CT 06511 Telephone 203-432-3708 Office 203-432-6167 Fax 203-787-2182 Home [email protected] E-mail http://www.econ.yale.edu/~shiller Home Page Date of Birth March 29, 1946, Detroit, Michigan Marital Status Married, two grown children Education 1967 B.A. University of Michigan 1968 S.M. Massachusetts Institute of Technology 1972 Ph.D. Massachusetts Institute of Technology Employment Sterling Professor of Economics, Yale University, 2013- Arthur M. Okun Professor of Economics, Yale University 2008-13 Stanley B. Resor Professor of Economics Yale University 1989-2008 Professor of Economics, Yale University, 1982-, with joint appointment with Yale School of Management 2006-, Professor Adjunct of Law in semesters starting 2006 Visiting Professor, Department of Economics, Massachusetts Institute of Technology, 1981-82. Professor of Economics, University of Pennsylvania, and Professor of Finance, The Wharton School, 1981-82. Visitor, National Bureau of Economic Research, Cambridge, Massachusetts, and Visiting Scholar, Department of Economics, Harvard University, 1980-81. Associate Professor, Department of Economics, University of Pennsylvania, 1974-81. 1 Research Fellow, National Bureau of Economic Research, Research Center for Economics and Management Science, Cambridge; and Visiting Scholar, Department of Economics, Massachusetts Institute of Technology, 1974-75. Assistant Professor, Department of Economics, University of Minnesota, 1972-74.
    [Show full text]
  • Turnover in the Labor Force
    ROBERT E. HALL* MassachusettsInstitute of Technology Turnover in the Labor Force EVERY MONTH, AN IMPORTANT FRACTION of the populationmoves from one economicactivity to another:Some are laid off and mustseek work, or they quit to take newjobs; young people leave school and look for work; workersleave the labor force becauseof disabilityor duties at home. The continualprocess of turnoverseems to be the characteristicof the modern Americaneconomy that distinguishesit from those of other developed countries,where the experienceof individualworkers appears to be much more stableover time. Is high turnoverinevitable in a postindustrialecon- omy?How do the variousdemographic groups in the laborforce differ with respectto turnover?What is the relationbetween turnover and unemploy- ment?What are the social benefitsand costs of turnoverand unemploy- ment?These are some of the criticalquestions that I addressin this paper. Any moderntreatment of turnoverand unemploymentmust distinguish betweenthe role of eventsoutside the controlof the individualand the role of his responseto his economicenvironment. Fluctuations in the demand for labor are the most importantexternal source of disturbancesin an in- dividual'scareer, so it is conventionalto distinguishbetween the demand side of the problemand the supplyside. Turnover among jobs wasthe tradi- tional explanationof the frictionalunemployment that exists to some ex- tent in everyeconomy, but until recently,it receivedlittle discussion.Even ten yearsago, economistsconsidered unemployment a simpleshortage of * I am gratefulto Zvi Body, RichardKasten, Meir Kohn, and Steven Shavellfor able assistance.This researchwas supportedby the National Science Foundation. 709 710 Brookings Papers on Economic Activity, 3:1972 jobs, withoutasking how the distributionof the laborforce among the jobs changesfrom month to month. The federalgovernment's accidental experimentation with a high-pres- sure economy startingin 1965 broughtabout two importantshifts in the thinkingof economistsabout unemployment.
    [Show full text]
  • Mario Crucini
    A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Jones, Charles I. Article Life and growth NBER Reporter Provided in Cooperation with: National Bureau of Economic Research (NBER), Cambridge, Mass. Suggested Citation: Jones, Charles I. (2013) : Life and growth, NBER Reporter, National Bureau of Economic Research (NBER), Cambridge, MA, Iss. 2, pp. 17-19 This Version is available at: http://hdl.handle.net/10419/103247 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu Life and Growth Charles I. Jones* During the twentieth century, life functions — of the kind that economists After all, some new technologies save expectancy in the United States rose use to study asset pricing, the labor-lei- lives — new vaccines, new surgical tech- from less than 50 years to 77 years, sure tradeoff, and macroeconomic fluc- niques, anti-lock brakes, and pollution while average incomes rose by about tuations — already contain a key ingredi- scrubbers.
    [Show full text]
  • The Time Series Consumption Function Revisited
    ALAN S. BLINDER Brookings Institution and Princeton University ANGUS DEATON Princeton University The Time Series Consumption Function Revisited THERELATIONSHIP between consumer spending and income is one of the oldest statistical regularitiesof macroeconomics-and one of the stur- diest. Like the aging movie star, it needs a little touching up now and again, but always seems to come bouncingback. A dozen yearsago, boththe theoreticalderivation and the econometric form of the aggregateconsumption function were considered settled. Most economists adheredto one of two ways of puttingFisher's theory of intertemporaloptimization into operation: Milton Friedman's per- manent income hypothesis (henceforth, PIH) or Franco Modigliani's life-cycle hypothesis (henceforth,LCH). ' Since each variantseemed to have sound theoretical underpinnings,and since the two had similar econometricforms that explainedthe data well and had similarimplica- tions for policy, there was not a greatdeal to quarrelabout. Perhapsthe most contentious empirical issue was the apparently large marginal This paperhas benefitedfrom the commentsand suggestionsof AlbertAndo, Whitney Newey, and members of the Brookings Panel and from seminar presentationsat the Universityof Warwick,Princeton University, and Johns Hopkins University.We thank Peter Rathjensand Lori Gruninfor researchassistance and the National Science Foun- dationfor financialsupport. 1. Milton Friedman, A Theory of the Consumption Function (Princeton University Press, 1957); Franco Modigliani and Richard Brumberg,
    [Show full text]
  • Massachusetts Institute of Technology Department of Economics Working Paper Series
    Massachusetts Institute of Technology Department of Economics Working Paper Series The Rise and Fall of Economic History at MIT Peter Temin Working Paper 13-11 June 5, 2013 Rev: December 9, 2013 Room E52-251 50 Memorial Drive Cambridge, MA 02142 This paper can be downloaded without charge from the Social Science Research Network Paper Collection at http://ssrn.com/abstract=2274908 The Rise and Fall of Economic History at MIT Peter Temin MIT Abstract This paper recalls the unity of economics and history at MIT before the Second World War, and their divergence thereafter. Economic history at MIT reached its peak in the 1970s with three teachers of the subject to graduates and undergraduates alike. It declined until economic history vanished both from the faculty and the graduate program around 2010. The cost of this decline to current education and scholarship is suggested at the end of the narrative. Key words: economic history, MIT economics, Kindleberger, Domar, Costa, Acemoglu JEL codes: B250, N12 Author contact: [email protected] 1 The Rise and Fall of Economic History at MIT Peter Temin This paper tells the story of economic history at MIT during the twentieth century, even though roughly half the century precedes the formation of the MIT Economics Department. Economic history was central in the development of economics at the start of the century, but it lost its primary position rapidly after the Second World War, disappearing entirely a decade after the end of the twentieth century. I taught economic history to MIT graduate students in economics for 45 years during this long decline, and my account consequently contains an autobiographical bias.
    [Show full text]
  • Improvements in Macroeconomic Stability: the Role of Wages and Prices
    This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: The American Business Cycle: Continuity and Change Volume Author/Editor: Robert J. Gordon, ed. Volume Publisher: University of Chicago Press Volume ISBN: 0-226-30452-3 Volume URL: http://www.nber.org/books/gord86-1 Publication Date: 1986 Chapter Title: Improvements in Macroeconomic Stability: The Role of Wages and Prices Chapter Author: John B. Taylor Chapter URL: http://www.nber.org/chapters/c10033 Chapter pages in book: (p. 639 - 678) 11 Improvements in Macroeconomic Stability: The Role of Wages and Prices John B. Taylor Macroeconomic fluctuations have been less severe in the past thirty years than in the period before World War II. Although the recessions in the 1970s and 1980s have been large and have been associated with big swings in inflation, the average amplitude of cyclical fluctuations is still smaller than in the prewar period. This improvement in macroeconomic performance was already ev- ident to most economists by the end ofthe 1950s. It served as the focal point of Arthur Bums's 1959 presidential address before the American Economic Association. Bums contrasted the milder postwar fluctua- tions with those he studied with Wesley Clair Mitchell at the National Bureau of Economic Research. He attributed the improvement to countercyclical fiscal and monetary policy as well as to structural changes in the economy: more stable corporate dividends, steadier employment practices, better inventory controls, and greater financial stability ow- ing to deposit insurance. The improvement in economic performance still deserves the atten- tion of macroeconomists.
    [Show full text]
  • Alternative Responses of Policy to External Supply Shocks
    ROBERT J. GORDON NorthwesternUniversity Alternative Responses of Policy to External Supply Shocks DURING 1973 and 1974 reductionsin suppliesof food (throughnatural causes)and of oil (throughunnatural causes) simultaneously lowered the real incomeof U.S. nonfarmworkers and raisedthe rate of inflation.An inflation-cum-recessioninduced by lowersupplies of rawmaterials may call for a policyresponse different from the traditionaltonic of demandrestric- tion calledfor by a "garden-variety"inflation generated by excessdemand. In lightof the noveltyof the 1974situation, the sharpdivergence of policy recommendationsamong economists is not surprising.Some analyzedthe episodewithin the context of standardmacroeconomic demand analysis, treatingthe 1973-74acceleration of inflationas a delayedconsequence of the accelerationin monetarygrowth during 1972, and the 1974-75recession as a delayedconsequence of the sharpdeceleration in monetarygrowth that beganin June 1974.The policy advice of this group, consistinglargely of economistsgenerally identified as "monetarists,"was to maintaina con- stantor even slightlyreduced rate of growthof the moneysupply.' Arthur Note: This paper was supportedby National Science Foundation Grant GS-39701. It was inspired,as was a previous paper in another area, as an attempt to reconcilethe views of Milton Friedman and Arthur Okun. I am grateful to Michael Parkin and participantsin the Brookingspanel for helpful suggestions. 1. See Allan Meltzer,"A Plan for SubduingInflation" (a dialoguebetween Allan H. Meltzerand two editorialstaff
    [Show full text]
  • The Macroeconomist As Scientist and Engineer
    The Macroeconomist as Scientist and Engineer N. Gregory Mankiw Harvard University May 2006 N. Gregory Mankiw is the Robert M. Beren Professor of Economics, Harvard University, Cambridge, MA. I am grateful to Steven Braun, James Hines, Donald Marron, David Romer, Andrei Shleifer, Timothy Taylor, Michael Waldman, and Noam Yuchtman for helpful comments. Economists like to strike the pose of a scientist. I know, because I often do it myself. When I teach undergraduates, I very consciously describe the field of economics as a science, so no student would start the course thinking he was embarking on some squishy academic endeavor. Our colleagues in the physics department across campus may find it amusing that we view them as close cousins, but we are quick to remind anyone who will listen that economists formulate theories with mathematical precision, collect huge data sets on individual and aggregate behavior, and exploit the most sophisticated statistical techniques to reach empirical judgments that are free of bias and ideology (or so we like to think). Having recently spent two years in Washington as an economic adviser at a time when the U.S. economy was struggling to pull out of a recession, I am reminded that the subfield of macroeconomics was born not as a science but more as a type of engineering. God put macroeconomists on earth not to propose and test elegant theories but to solve practical problems. The problems He gave us, moreover, were not modest in dimension. The problem that gave birth to our field—the Great Depression of the 1930s— was an economic downturn of unprecedented scale, including incomes so depressed and unemployment so widespread that it is no exaggeration to say that the viability of the capitalist system was called in question.
    [Show full text]
  • Gamma Discounting
    Gamma Discounting By MARTIN L. WEITZMAN* By incorporating the probability distributiondirectly into the analysis, this paper proposes a new theoretical approach to resolving the perennial dilemma of being uncertain about what discount rate to use in cost-benefit analysis. A numerical example is constructedfrom the results of a survey based on the opinions of 2,160 economists. The mainfinding is that even if every individual believes in a constant discount rate, the wide spread of opinion on what it should be makes the effective social discount rate decline significantly over time. Implications and ramifications of this proposed "gamma-discounting"approach are discussed. (JEL H43) The concept of a "discountrate" is central to Economic opinion is divided on a number of economic analysis, as it allows effects occurring fundamentalaspects, including what is the ap- at different future times to be compared by propriatevalue of an uncertainfuture "marginal converting each future dollar amount into product of capital," what are the relevant effi- equivalentpresent dollars. Because of this cen- ciency distortions and how are they possibly trality, the choice of an appropriatediscount magnifiedby public-sectorprojects, how should rate is one of the most criticalproblems in all of large long-termpublic investmentsbe placed in economics. And yet, to be perfectly honest, a the framework of the capital-asset-pricing great deal of uncertainty beclouds this very model, how are we to view intergenerational issue. transferswhen future generations are not pres- The problem of the unsure discount rate has ently represented,how do we account for equity long bedeviled benefit-cost analysis but has ac- and other distributionaleffects in aggregating quired renewed relevance lately because econ- costs, benefits, and discount rates over individ- omists are now being asked to analyze uals or across countries or over time-and so environmentalprojects or activities the effects forth, and so on.
    [Show full text]
  • Case and Shiller
    KARL E. CASE Wellesley College ROBERT J. SHILLER Yale University ANNE K. THOMPSON McGraw-Hill Construction What Have They Been Thinking? Homebuyer Behavior in Hot and Cold Markets ABSTRACT Questionnaire surveys undertaken in 1988 and annually from 2003 through 2012 of recent homebuyers in each of four U.S. metropoli- tan areas shed light on their expectations and reasons for buying during the recent housing boom and subsequent collapse. They also provide insight into the reasons for the housing crisis that initiated the current financial malaise. We find that homebuyers were generally well informed, and that their short- run expectations if anything underreacted to the year-to-year change in actual home prices. More of the root causes of the housing bubble can be seen in their long-term (10-year) home price expectations, which reached abnormally high levels relative to mortgage rates at the peak of the boom and have declined sharply since. The downward turning point, around 2005, of the long boom that preceded the crisis was associated with changing public understanding of speculative bubbles. etween the end of World War II and the early 2000s, the U.S. hous- Bing market contributed much to the strength of the macroeconomy. It was a major source of jobs, produced consistently rising home equity, and served as perhaps the most significant channel from monetary policy to the real economy. But starting with a drop in the S&P/Case-Shiller Home Price Index for Boston in September 2005, home prices began to fall in city after city. By the time the slump was over, prices were down almost 32 per- cent on a national basis, with many cities down by more than 50 percent, 265 266 Brookings Papers on Economic Activity, Fall 2012 wiping nearly $7 trillion in equity off household balance sheets.
    [Show full text]