【正文】 i l l i o n s o f T o n s )020040060080010001 7 5 5 1 8 3 0 1 9 0 5 1 9 8 0 A R e v o l u t i o n i n G l o b a l C l i m a t e : F o s s i l F u e l s a n d G l o b a l W a r m i n g From Bowles, Edwards and Roosevelt, Understanding Capitalism: Competition, Command, and Change, Oxford U Press, 2022 G row i n g W o rl d I n e q u a l i t y1020304050601820 1850 1870 1900 1929 1950 1960 1970 1980 1992Percent of World39。 and this is it which gives to economic studies their chief and their highest interest. Alfred Marshall, Principles of Economics, 1890 Has neoclassical economics provided an answer to Marshall? PostWalrasian economics differs from Walrasian (neoclassical) economics in its representation of ? Social interactions (inplete contracts) ? Preferences (endogenous, not entirely self regarding) ? The importance of increasing returns (positive feedbacks) ? … and more (for a summary, see figure ) Walrasian and evolutionary economics (Figure ) Precursors of PostWalrasian economics ? Not everything in the contract is contractual. Emile Durkheim De la division du travail social. 1902 ? How selfish soever man may be supposed, there are evidently some principles in his nature which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it. Adam Smith, The theory of moral sentiments, 1759 ? Only by misuse could …the appropriation of labor by capital be called any kind of exchange at all. Karl Marx, The Grundrisse ? PostWalrasian economics addresses themes stressed prior to the advent of neoclassical economics using contemporary mathematical tools. The emergence of post Walrasian economics: Hobbes to Hayek, a brief history ? The classical constitutional conundrum, again ? Hobbes ? Mandeville ? Smith ? Property and markets as a form of constitution ? Markets vs planning: the great debate ? Why markets won and Walrasian economics lost ? Which of these systems [central planning or petition] is likely to be more efficient depends on the question under which of them can we expect that fuller use will be made of the existing knowledge. And this, in turn, depends on whether we are more likely to succeed in putting at the disposal of a single central authority all the knowledge which ought to be used but which is initially dispersed among many different individuals, or in conveying to the individuals such additional information as they need in order to enable them to fit their plans in with those of others. . Hayek, “The Use of Knowledge in Society” 1945 The Walrasian detour ? Virtually all of the main ideas making up the post Walrasian paradigm were developed more than 4 decades ago by highly recognized scholars. – Nash, Zeuthen, VNM (game theory, including evolutionary, bargaining) – Simon, Schelling (non market social interactions) – Coase (transactions costs, authority in the firm) – Alchian, Becker (evoutionary modeling zero intelligence age) – Duesenbery, Leibenstein (endogenous preferences, state dependent preferences) – Myrdal (multiple equilibria) ? Why did these ideas proliferate in the 1990s and not the 1960s? ? Time for a break? Lecture 1, part 2 Institutions and Games Coordination failures and the classical constitutional conundrum? ? The study of institutions is motivated by the importance of coordination failures as a cause of human suffering ? Coordination failure: non cooperative interaction leading to a result that is not Pefficient. ? The conundrum: How can social interactions be structured so that people are free to choose their own actions while avoiding outes that none would have chosen? ? Modern fields of econ addressing this question: welfare economics, implementation theory, optimal contract theory ? Game theory is the fundamental analytical tool for the study of economic institutions. Why do coordination failures occur, generically? ? The reason why uncoordinated activities of individuals pursuing their own ends often produce outes that all would seek to avoid is that each person?s actions affect the wellbeing of others and these effects are often not included in whatever optimizing process or rule of thumb which results in the actions taken by the relevant actors. ? More simply: actors to not take appropriate account of the effects of their actions on others. ? Inplete contracts are one of the reasons why this happpens ? The problem thus concerns both preferences and constraints (. people do not care about others, and they are not constrained to act as if they did care) Institutions ? Institutions: the laws, informal rules, and conventions which give a durable structure to social interactions among the members of a population based on – centrally deployed coercion (laws), – social sanction (informal rules) and – mutual expectations (conventions) which make conforming to the institution a best response for virtually all members of the relevant group, given individual beliefs and preferences. Preferences, beliefs and constraints (defined in ch 3) ? NB institutions are group level phenomena, while preferences and beliefs are facts about individuals: – Beliefs: an individual?s understanding of the relationship between her actions and consequent outes. – Preferences: an individual?s evaluation of the outes. – Constraints: define the set of feasible actions ? Institutions constitute part of the constraints (you have