THE NEW PALGRAVE DICTIONARY OF ECONOMICS SECOND EDITION THE NEW PALGRAVE DICTIONARY OF ECONOMICS SECOND EDITION Edited by Steven N. Durlauf and Lawrence E. Blume Volume 1 Abramovitz- collusion palgrave macmillan © Macmillan Publishers Ltd. 2008 Softcover reprint of the hardcover 2nd edition 2008978-0-333-78676-5 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the * Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London WlT 4LP. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. 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Library of Congress Cataloging-in-Publication Data The new Palgrave dictionary of economics / edited by Steven N. Durlauf and Lawrence E. Blume. - 2nd ed. v. cm. Rev. ed. of: The New Palgrave : a dictionary of economics. 1987. Includes bibliographical references. 1. Economics - Dictionaries. I. Durlauf, Steven N. II. Blume, Lawrence. III. New Palgrave. HB61.N492008 330.Q3-dc22 2007047205 10 9 8 7 6 5 4 3 2 1 17 16 15 14 13 12 11 10 09 08 Typesetting and XML coding by Macmillan Publishing Solutions, Bangalore, India Contents Publishing history vi Editorial advisory board Vll Associate editors Vlll Preface ix Preface to the First Edition of The New Palgrave: A Dictionary of Economics xi Introduction to the First Edition of the Dictionary of Political Economy Xlll List of entries A-Z XV The dictionary, volume 1 v Publishing history First edition of Dictionary of Political Economy, edited by Robert Harry Inglis Palgrave, in three volumes: Volume I, printed 1894. Reprinted pages 1-256 with corrections, 1901, 1909. Reprinted with corrections, 1915, 1919. Volume II, printed 1896. Reprinted 1900. Reprinted with corrections, 1910, 1915. Volume III, printed 1899. Reprinted 1901. Corrected with appendix, 1908. Reprinted with corrections, 1910, 1913. Reprinted, 1918. New edition, retitled Palgrave's Dictionary of Political Economy, edited by Henry Higgs, in three volumes: Volume I, printed 1925. Reprinted 1926. Volume II, printed 1923. Reprinted 1925, 1926. Volume III, printed February 1926. Reprinted May 1926. The New Palgrave: A Dictionary of Economics, edited by John Eatwell, Murray Milgate and Peter Newman. Published in four volumes. First published 1987. Reprinted 1988 (twice). Reprinted with corrections 1991. Reprinted 1994, 1996. First published in paperback 1998. Reprinted 1999, 2003, 2004. The New Palgrave Dictionary of Economics 2nd edition, edited by Steven N. Durlauf and Lawrence E. Blume. Published in eight volumes vi Editorial advisory board Kenneth Arrow, Emeritus Professor of Economics, Stanford University, USA Sir Tony Atkinson, Professor of Economics, Nuffield College, University of Oxford, UK Richard Blundell, Professor of Economics, University College London, UK William Brock, Vilas Research Professor of Economics, University of Wisconsin, Madison, USA Sir Partha Dasgupta, Professor of Economics, University of Cambridge, UK Peter Diamond, Institute Professor, Massachusetts Institute of Technology, USA Roger Guesnerie, Delta, PARIS-Jourdan, France James J. Heckman, Henry Schultz Distinguished Service Professor of Economics, University of Chicago, USA Elhanan Helpman, Galen L. Stone Professor of International Trade, Harvard University, USA Takatoshi Ito, Professor of Economics, University of Tokyo, Japan Andreu Mas-Colell, Societat de la Informaci6/Universitat Pompeu Fabra, Spain Peter Phillips, Sterling Professor of Economics and Professor of Statistics, Yale University, USA Thomas Sargent, Senior Fellow, Hoover Institution and W.R. Berkeley Professor, New York University, USA Peter Temin, Economics Professor, Massachusetts Institute of Technology, USA vii Associate editors Roger Backhouse, University of Birmingham, UK Mark Bils, University of Rochester, USA Moshe Buchinsky, University of California, Los Angeles, USA Gregory Clark, University of California, Davis, USA Catherine Eckel, University of Texas at Dallas, USA Marcel Fafchamps, Oxford University, UK David Genesove, Hebrew University of Jerusalem, Israel James Hines, University of Michigan, USA Barry Ickes, Pennsylvania State University, USA Yannis M. Ioannides, Tufts University, USA Eckhard Janeba, University of Mannheim, Germany Shelly Lundberg, University of Washington, USA John Nachbar, Washington University (StLouis), USA Lee Ohanian, University of California, Los Angeles, USA Joon Park, Texas A&M University, USA John Karl Scholz, University of Wisconsin, Madison, USA Christopher Taber, University of Wisconsin, Madison, USA Bruce Weinberg, Ohio State University, USA viii Preface The second edition of The New Palgrave: A Dictionary equally on what those methods have found. It places of Economics shares R.H. Inglis Palgrave's original goal, more emphasis on empirical work than have any of its ' ... to provide the student with such assistance as may predecessors, reflecting the significant empirical enable him to understand the position of economic advances that have occurred in the microeconomic thought at the present time'. That goal was certainly fields in particular. But a static snapshot could not within reach (and achieved) in Palgrave's time and pretend to be contemporary for long. Our publishers that of his successor, Henry Higgs. Some 60 years have recognized not just the magnitude of the change later it was a much more daunting achievement in the stock of knowledge between the last edition and for John Eatwell, Murray Milgate and Peter Newman, the present, but also the increased growth rate of the editors of The New Palgrave: A Dictionary of economics' intellectual capital. They have made the Economics. A mere 21 years later, the task is nearly Dictionary dynamic. With this edition, The New insuperable. When Eatwell, Milgate and Newman Palgrave Dictionary of Economics moves online, with began commissioning entries for their Dictionary in the expectation of regular updates to keep the 1983, the IBM PC with 16K of ram was two years old. Dictionary current in 'real time'. Econometrics was still largely the estimation of linear It is no longer possible to produce a reference work models on mainframe computers. Sequential equili­ that aspires to be comprehensive on the small editorial brium had been formally introduced to the profession scale of the lone Palgrave or the Eatwell-Milgate­ only the year before, and the Bayesian revolution, Newman trio. The present edition has benefitted from indeed the modern revival of game theory, had just two editorial boards. We were pleased to have access to begun. Economists and psychologists had already been a board of advisory editors, many of whose members' talking for some time, but the field of behavioral work has defined the methodological and subject­ economics was still in gestation. Only a few farsighted matter transformation of the last 20 years. A board of economists saw anything more to sociology than area editors took on the responsibility of constructing James Duesenberry's famous quip, that 'Economics is large parts of the Dictionary, choosing topics, all about how people make choices; sociology is all commissioning writers and editing the entries. This about how they don't have any choices to make.'' edition simply could not have been produced without Since the appearance of the The New Palgrave: A their expertise and efforts. By any measure of sweat­ Dictionary of Economics in 1987, the discipline of equity, they own much of this book. economics has grown enormously both in analytical This edition of the Dictionary has come to print and technical sophistication and in the scope of the only through the efforts of people too numerous to subject. properly acknowledge, but some names must be The growth of economics is reflected in the celebrated. In particular, we cannot thank enough expansion of the Dictionary. This edition has grown Ruth Lefevre in London and Susan Nelson in to eight volumes from the four of its predecessor, Madison, who organized every nut and bolt of this although many entries from the previous edition were project, and kept track of manuscripts on five either removed or electronically archived. Further­ continents. Economists do not write as well as our more, the Dictionary has shed much of its historical Dictionary entries suggest. Every author benefitted character: from providing a record of the development