ECONOMICS.
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Entrepreneurship in superdiverse societies and the end of one-sizefits-all policy prescriptions
Fellows: David Emanuel Andersson Abstract: Purpose – The purpose of this paper is to explore the entrepreneurial and policy consequences of the structural changes associated with postindustrialization. Design/methodology/approach – The approach uses Schumpeterian and institutional theories to predict the consequences of postindustrialization on four types of innovative markets: global mass markets; global niche markets; local mass markets and local niche markets. Findings – The paper makes two key predictions. First, global mass markets will account for most costcutting process innovations. Second, niche markets, whether global or local, will provide the bulk of product innovations. Opportunities for product innovations in niche markets multiply both as the result of a more complex economy and as the result of heterogeneous preferences of consumers with divergent learning trajectories. Social implications – The key implication of the theoretical pattern prediction of this paper is that there are increasing opportunities for entrepreneurs to introduce novelties that cater to niche demands, and this includes new lifestyle communities. The increasing diversity of values and preferences implies that one-size-fit-all policies are becoming increasingly inimical to the entrepreneurial discovery of higher-valued resource uses. Originality/value – This paper takes a standard prediction of entrepreneurial theories – that innovations become more common with an increase in economy-wide product complexity – and extends this to increasing complexity on the consumption side. With increases in opportunities for learning, consumers diverge and develop disparate lifestyles. The resultant super-diversity, which multiplies consumption niches to a much greater extent than what ethnicity-based diversity indices would imply, makes it more difficult to achieve consensus about the desirability of public policies. Keywords: Mass markets, Niche markets, Globalization, Schumpeter, Connoisseurship |
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Rational expectations equilibria of economies with local interactions
Fellows: Alberto Bisin Abstract: We consider general economies in which rational agents interact locally. The local aspect of the interactions is designed to represent in a simple abstract way social interactions, that is, socioeconomic environments in which markets do not mediate all of agents’ choices, which might be in part determined, for instance, by family, peer group, or ethnic group effects. We study static as well as dynamic infinite horizon economies; we allow for economies with incomplete information, and we consider jointly global and local interactions, to integrate e.g., global externalities and markets with peer and group effects. We provide conditions under which such economies have rational expectations equilibria.We illustrate the effects of local interactions when agents are rational by studying in detail the equilibrium properties of a simple economy with quadratic preferences which captures, in turn, local preferences for conformity, habit persistence, and preferences for status or adherence to aggregate norms of behavior. Keywords: Rational expectations; Local interactions, Existence of equilibria |
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The Economics of Cultural Transmission and the Dynamics of Preferences
Fellows: Alberto Bisin Abstract: This paper studies the population dynamics of preference traits in a model of intergenerational cultural transmission. Parents socialize and transmit their preferences to their offspring, motivated by a form of paternalistic altruism (``imperfect empathy''). In such a setting we study the long run stationary state pattern of preferences in the population, according to various socialization mechanisms and institutions, and identify sufficient conditions for the global stability of an heterogenous stationary distribution of the preference traits. We show that cultural transmission mechanisms have very different implications than evolutionary selection mechanisms with respect to the dynamics of the distribution of the traits in the population, and we study mechanisms which interact evolutionary selection and cultural transmission. |
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On the Joint Evolution of Culture and Institutions: Elites and Civil Society
Fellows: Alberto Bisin Abstract:In this paper we provide an abstract modeling of the interaction between culture and institutions and their e ects on economic variables of interest, notably, e.g., long-run economic activity. We characterize conditions on the socio-economic environment such that culture and institutions complement (resp. substitute) each other, giving rise to a multiplier e ect which ampli es (resp. dampens) their combined ability to spur socio-economic activity. We show how the joint dynamics of culture and institutions may display interesting non-ergodic behavior, hysteresis, oscillations, depending on the form of the interaction between culture and institutions. The model can be specialized to study the political economy of elites and civil society for the determination of long-run socio-economic activity in di erent contexts. We illustrate this by studying the transition away from extractive institutions and the formation of civic capital in two example societies. |
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Smith’s paradox of price and negotiation: Empirical evidence from India
Fellow: Sattwick Dey Biswas Abstract: Diamond-water paradox has enticed the human mind for generations. Adam Smith gave it a new twist in the Wealth of Nations that serves as the basis of all modern valuation theories. This paper goes back to the original writing of Smith to identify paradoxes and then empirical test in the context of land value. The review of original texts and empirical evidence suggests the existence of a third principle, i.e. “riches and poverty of those who demand”. This indication demands a re-evaluation of Smith’s paradox of value and has implication of modern science of valuation. |
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Economic Rewards to Motivate Blood Donations
Fellow: Mario Macis Abstract: The position and guidelines of the World Health Organization (WHO) and several national blood collection agencies for nearly 40 years have been based on the view that offering economic incentives to blood donors is detrimental to the quantity and safety of the blood supply (1). The guidelines suggest that blood should be obtained from unpaid volunteers only (2). However, whether economic incentives positively or negatively affect blood donations (and other prosocial activities) has remained the subject of debate since the positions were established (2–8). Evidence consistent with the WHO position came originally from uncontrolled studies using nonrandom samples and, subsequently, from surveys and laboratory studies indicating that economic incentives can “crowd out” (decrease) intrinsic motivations to donate and can attract “worse” donors (9). This evidence arguably affected policies, such as bans on compensation for blood and organ donations in many countries. Surveys allow for a variety of hypothetical manipulations on large samples, and laboratory experiments parallel laboratory health research methods by enabling researchers to carefully control the setting, randomize the assignment of treatment, and identify causal effects. Because compensation is illegal in many countries and observing blood donations is often costly (as only a small share of subjects invited to donate actually do so), surveys and laboratory studies retain an important role for addressing many questions (10). Yet it is unusual for health policy to rely only on such evidence. Complementary, randomized field trials are the norm and are recommended before policies are affected (11). With a few early exceptions based on small, nonrepresentative samples (12), field trial evidence on how economic incentives affect blood donations has been absent. But field-based evidence from large, representative samples has recently emerged. The results are clear and, on important questions, opposite to the uncontrolled studies, surveys, and laboratory evidence preceding them. |
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Paying for Kidneys? A Randomized Survey and Choice Experiment
Fellow: Mario Macis Abstract: We conducted a randomized survey with 2,666 US residents to study preferences for legalizing payments to kidney donors. We found strong polarization, with many participants supporting or opposing payments regardless of potential transplant gains. However, about 18 percent of respondents would switch to favoring payments for sufficiently large increases in transplants. Preferences for compensation have strong moral foundations; participants especially reject direct payments by patients, which they find would violate principles of fairness. We corroborate the interpretation of our findings with a choice experiment of a costly decision to donate money to a foundation that supports donor compensation. |
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Sacred Values? The Effect of Information on Attitudes toward Payments for Human Organs
Fellow: Mario Macis Abstract: Are attitudes about morally controversial (and often prohibited) market transactions affected by information about their costs and benefits? We address this question for the case of payments for human organs. We find in a survey experiment with US residents (N=3,417) that providing information on the potential efficiency benefits of a regulated price mechanism for organs significantly increased support for payments from a baseline of 52 percent to 71 percent. The survey was devised to minimize social desirability biases in responses, and additional analyses validate the interpretation that subjects were reflecting on the case-specific details provided, rather than just reacting to any information. |
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The Contemporary Economic Costs of Spatial Chaos: Evidence from Poland
Fellow: Maciej Nowak Abstract: This paper is based on the results of an extensive (840-page) report of the Committee on National Spatial Development of the Polish Academy of Sciences, entitled Studies on Spatial Chaos (edited by A. Kowalewski, T, Markowski and P. ´Sleszy ´nski—Studia KPZK PAN, vol. 182,Warsaw 2018—in Polish). Its aim was to conduct a comprehensive and detailed study on the problem of spatial chaos (spatial disorder), including an estimate of economic costs in Poland. For this purpose, literature was queried (articles and reports, etc.) and special analyses were prepared for this purpose. The total annual costs of spatial chaos were estimated at not less than 20 billion euros per year. The conclusions also proposed solutions and suggestions (for the government and local governments), which may reduce the acute costs of spatial chaos in society and economy. Keywords: spatial chaos; spatial disorder; costs of spatial chaos; quality of life; Poland |
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Investments in Renewable Energy Sources in the Concepts of Local Spatial Policy: The Case of Poland
Fellow: Maciej Nowak Abstract: The paper aims to determine the role and formula of investments in renewable energy sources in Poland’s concepts of local spatial policies. It analyses 12,777 planning documents of local spatial policy (these are resolutions adopted by municipalities—in Poland there are two types of these instruments: studies of spatial development conditions and directions and local spatial development plans) in Poland enacted in 2005–2020. On this basis, local concepts were classified and related to the geographical and functional characteristics of municipalities. Poland is an interesting case study in this respect, providing a good reference point for broader international considerations. It was found that only 58.4% of Polish municipalities include renewable energy sources in their spatial policy concept. These are definitely more often urbanised municipalities. The degree of approach to renewable energy sources is also determined by the location of the municipality in the given province. The authors diagnose serious weaknesses in the Polish spatial planning system, consisting in the lack of skilful implementation of renewable energy sources into it. This is one of the reasons for the weaker development of renewable energy sources in the country. The authors consider as an innovative element of the research the analysis of the content of all spatial policy instruments in a given country, from the perspective of renewable energy sources, including proposing a way to verify these instruments. Keywords: renewable energy sources; spatial policy; spatial policy tools; investment efficiency |
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Economic Consequences of Adopting Local Spatial Development Plans for the Spatial Management System: The Case of Poland
Fellow: Maciej Nowak Abstract: The spatial management system in Poland struggles with serious costs as a consequence of local planning. The problem is the lack of appropriate value capturing mechanisms and cost compensation for municipalities, along with significant burdens. Private property is subject to special protection, but the public good is less valued. The article attempts to assess the situation in Poland, recalling also the experiences of spatial management systems from other European countries. It combines legal, economic, and geographical perspectives. The specific objectives were demonstration of geographical (interregional and functional) regularities related to the economic (financial) consequences of adopting local plans and identification of financial effects resulting from the implementation of local plans in communes, i.e., in particular, their size, structure of revenues (income), and expenditures, in relations with the budgets of municipalities and the population living in communes. First, the determinants of spatial policy were defined in the context of institutional economics and the real estate market. Then, a unique database of forecasted and realized budgetary revenues and expenditures of 2477 communes in Poland related to spatial development (infrastructure construction, land transformation, purchase, etc.) was analyzed statistically. Additionally, for five selected communes of different functional types, this issue was examined in detail. It has been shown that municipalities do not derive adequate income from spatial development, and improper policy of local self-governments results in heavy burdens, threatening to disturb their financial balance. The formulated conclusions regarding the legal, economic, and spatial mechanisms may contribute to building tools (instruments) for more effective spatial management in various countries. Keywords: local development; local law; budgets of local units; financial consequences of spatial chaos |
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Foucault and Hayek on public health and the road to serfdom
Fellow: Mark Pennington Abstract: This paper draws on the work of Michel Foucault and Friedrich Hayek to understand threats to personal and enterprise freedom, arising from public health governance. Whereas public choice theory examines the incentives these institutions provide to agents, the analysis here understands those incentives as framed by discursive social constructions that affect the identity, power, and positionality of different actors. It shows how overlapping discourses of scientific rationalism may generate a ‘road to serfdom’ narrowing freedom of action and expression across an expanding terrain. As such, the paper contributes to the growing literature emphasising the importance of narratives, stories and metaphors as shaping political economic action in ways feeding through to outcomes and institutions. Keywords: Foucault, Hayek, Public health, Social constructionism, Narrative political economy |
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Hayek on complexity, uncertainty and pandemic response
Fellow: Mark Pennington Abstract: This paper draws on Hayek’s distinction between simple and complex phenomena to understand the nature of the challenge facing policymakers in responding to the new coronavirus pandemic. It shows that while government action is justifiable there may be few systemic mechanisms that enable policymakers to distinguish better from worse policy responses, or to make such distinctions in sufficient time. It then argues that this may be a more general characteristic of large-scale public policy making procedures and illustrates the importance of returning to a market-based political economy at the earliest convenience. Keywords: Hayek, Pandemics, Complexity, Uncertainty, Public policy |
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Robust Political Economy and the Priority of Markets
Fellow: Mark Pennington Abstract: This essay offers a “nonideal” case for giving institutional priority to markets and private contracting in the basic structure of society. It sets out a “robust political economy” framework to examine how different political economic regime types cope with frictions generated by the epistemic limitations of decision-makers and problems of incentive incompatibility. Focusing on both efficiency arguments and distributive justice concerns the essay suggests that a constitutional structure that prioritizes consensual exchange is more likely to sustain a cooperative venture for mutual advantage. Keywords: Nonideal theory, robust political economy, markets, democracy, comparative institutions |
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Hayekian Political Economy and the
Limits of Deliberative Democracy Fellow: Mark Pennington Abstract: Inspired by Habermasian critiques of liberalism, supporters of deliberative democracy seek an extension of social democratic institutions to further a reinvigorated communicative rationality against the ‘atomism’ of market processes. This paper offers a critique of deliberative democratic theory from a Hayekian perspective. For Hayek, the case against the social democratic state rests with the superior capacity of markets to extend communicative rationality beyond the realm of verbal discourse. |