Ronald Coase

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The Darwin Economy: Liberty, Competition, and the Common Good by Robert H. Frank

carbon footprint, carried interest, Cass Sunstein, clean water, congestion charging, corporate governance, deliberate practice, full employment, income inequality, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Paul Samuelson, plutocrats, Plutocrats, positional goods, profit motive, Ralph Nader, rent control, Richard Thaler, Ronald Coase, Ronald Reagan, sealed-bid auction, smart grid, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, trickle-down economics, ultimatum game, winner-take-all economy

Similarly, a firm is permitted to cut its price and thereby harm its rivals, perhaps even drive them out of business, because failure to allow this would cause even greater harm to consumers. For the harm principle to make any sense at all, it must be understood to mean that the legitimacy of a restriction must be decided by weighing its cost to those being restricted against the harm others would suffer if the behavior weren’t restricted. The Pivotal Contribution of Ronald Coase Ronald Coase (rhymes with “rose”) won the Nobel Prize in economics in 1991 largely on the strength of his contribution to our way of thinking about this delicate balancing act. An economist born and educated in England, Coase spent the latter part of his career on the faculty of the University of Chicago Law School, where he was revered by that university’s free-market 86 CHAPTER SIX enthusiasts as the world’s foremost authority on behavior that causes harm to others.

Coase acknowledged that the wealth levels of the doctor and the factory owner would be affected by liability rules, but he insisted that their decision about how to solve the problem would not be. Never ones to shrink from debate, a group of University of Chicago economists invited Coase, who was then teaching at the University of Virginia, to Chicago to discuss his ideas with them. Twenty economists and Ronald Coase met for dinner at the home of Aaron Director, who was then editor of the Journal of Law and Economics, in which Coase’s paper had appeared. Years later, Stigler offered this recollection of the evening’s conversation: “Milton Friedman did most of the talking, as usual. He also did much of the thinking, as usual. In the course of two hours of argument the vote went from twenty against and one for Coase to twenty-one for Coase.

That is, we must consider the possibility that the most sensible way to define rights in situations like these is, as Coase suggested, to mimic as closely as possible the solutions people would have negotiated on their own if negotiations had been practical. Those solutions would always place the burden of adjusting to externalities on the party for whom that burden was least costly. Sometimes that would entail assigning liability to the party whom most would describe as the perpetrator. But not always. There is a measure of irony in the fact that Ronald Coase quickly emerged as the reigning intellectual hero of free-market conservatives on all matters related to activities that cause harm to others. Their embrace of Coase stems largely from the perception that his framework helped expand the range of problems believed to be soluble without regulatory intervention. That perception is accurate as far as it goes. But again, Coase was never an ideologue.


pages: 453 words: 111,010

Licence to be Bad by Jonathan Aldred

"Robert Solow", Affordable Care Act / Obamacare, Albert Einstein, availability heuristic, Ayatollah Khomeini, Benoit Mandelbrot, Berlin Wall, Black Swan, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, clean water, cognitive dissonance, corporate governance, correlation does not imply causation, cuban missile crisis, Daniel Kahneman / Amos Tversky, Donald Trump, Douglas Engelbart, Douglas Engelbart, Edward Snowden, Fall of the Berlin Wall, falling living standards, feminist movement, framing effect, Frederick Winslow Taylor, From Mathematics to the Technologies of Life and Death, full employment, George Akerlof, glass ceiling, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jeff Bezos, John Nash: game theory, John von Neumann, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, meta analysis, meta-analysis, Mont Pelerin Society, mutually assured destruction, Myron Scholes, Nash equilibrium, Norbert Wiener, nudge unit, obamacare, offshore financial centre, Pareto efficiency, Paul Samuelson, plutocrats, Plutocrats, positional goods, profit maximization, profit motive, race to the bottom, RAND corporation, rent-seeking, Richard Thaler, ride hailing / ride sharing, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Skype, Social Responsibility of Business Is to Increase Its Profits, spectrum auction, The Nature of the Firm, The Wealth of Nations by Adam Smith, transaction costs, trickle-down economics, Vilfredo Pareto, wealth creators, zero-sum game

And yet the impact has not been quite what Hayek might have imagined at that inaugural meeting of the Mont Pèlerin Society, because economics has itself changed greatly since then. The rise of the society turns out to be just a small part of the story. And this is where the conspiracy theories break down. Many of the most influential thinkers behind the triumph of market economics were Mont Pèlerin Society members, including Gary Becker, James Buchanan, Ronald Coase, Milton Friedman, Richard Posner and George Stigler. But they did not always share Hayek’s views. And a few economists, such as Ken Arrow and Tom Schelling, were equally influential yet had a very different political outlook to the Mont Pèlerin gang. In the following chapters I explore how the radical ideas of these thinkers did so much to make modern mainstream economics. It was these new ideas, more than a conspiracy by the rich and powerful, which produced the market-driven world we live in today.

Moreover, the economists seemed unaware that offering your prospective employer a bribe to take you on might be embarrassing or awkward: the information given to participants included specific instructions on how to introduce the $500 offer, as if it were just another piece of advice on what to say in interviews. The economists’ odd view of the world was inspired by the Coase Theorem, a piece of economic theory attributed to the British economist Ronald Coase, who, coincidentally or not, was an Illinois resident. The theorem presumes that everyone, in all aspects of life, is always willing to do a deal: offering cash to get what you want or accepting cash in return for giving someone else what they want. The law, moral rules or social conventions – the social convention against bribing your way into a job, for example – will, ultimately, not get in the way of mutually beneficial deal-making.

More recently, the Coase Theorem has been invoked in proposals for other ‘created’ markets, including an intergovernmental trade in obligations to admit refugees, or population control via a market in procreation permits. Other than introducing markets into areas where they did not previously exist, the Coase Theorem is a do-nothing manifesto: the government should do nothing, it should not intervene, because private deals between affected parties can solve all problems. And all this by accident. THE ACCIDENTAL ECONOMIST AND HIS ACCIDENTAL THEOREM Ronald Coase was born in December 1910, in the north-west London suburb of Willesden. Later, Coase would recollect having a ‘weakness in his legs’ as a child, a condition treated by putting him in leg irons, and his first school was a ‘school for physical defectives’.3 This seems to have led to him entering his next school, Kilburn Grammar, at the age of twelve rather than eleven. Five years later, this delayed entrance affected his choice of university subject.


pages: 242 words: 68,019

Why Information Grows: The Evolution of Order, From Atoms to Economies by Cesar Hidalgo

"Robert Solow", Ada Lovelace, Albert Einstein, Arthur Eddington, assortative mating, business cycle, Claude Shannon: information theory, David Ricardo: comparative advantage, Douglas Hofstadter, Everything should be made as simple as possible, frictionless, frictionless market, George Akerlof, Gödel, Escher, Bach, income inequality, income per capita, industrial cluster, information asymmetry, invention of the telegraph, invisible hand, Isaac Newton, James Watt: steam engine, Jane Jacobs, job satisfaction, John von Neumann, Joi Ito, New Economic Geography, Norbert Wiener, p-value, Paul Samuelson, phenotype, price mechanism, Richard Florida, Ronald Coase, Rubik’s Cube, Silicon Valley, Simon Kuznets, Skype, statistical model, Steve Jobs, Steve Wozniak, Steven Pinker, The Market for Lemons, The Nature of the Firm, The Wealth of Nations by Adam Smith, total factor productivity, transaction costs, working-age population

Transaction cost theory, or new institutional economics, is the branch of economics that studies the costs of transactions and the institutions that people develop to govern them. In simpler terms, it is the branch studying the cost of economic links and the ways in which people organize to deal with commercial interactions. The origins of transaction cost theory can be traced back to a 1937 paper by Ronald Coase, “The Nature of the Firm.”4 As a young scholar, Coase realized that the descriptions of the economy that were prevalent at the time tended to overlook one aspect of the economy that seemed obvious to him: the fact that economic transactions are costly. As a student at the London School of Economics, Coase attended a seminar organized by Arnold Plant, who had been recently appointed as a professor of commerce.5 It was there that Coase heard a description of the economy that contradicted his intuition and would accompany his thoughts throughout his life.

Some firm-to-firm interactions are simple, such as ordering ink cartridges from a catalog, while others are incredibly complex, such as developing a partnership for the construction of a new manufacturing plant. Moreover, many firm interactions are embedded in social networks, which is a fact that we will consider in the next chapter. So talking about the cost of links is not simple, and it makes sense only when we define links narrowly enough. Oliver Williamson, a student of Ronald Coase, understood that commercial links come in different sizes. He wrote extensively about the connection between the cost of firm-to-firm interactions and the institutions that people develop to manage these links.11 Williamson’s classification of links is based on two axes. On the first, he separated transactions by frequency, into recurrent and occasional. On the second, he separated transactions by specificity, from nonspecific to idiosyncratic.12 To understand Williamson’s parsing of the world, think about the amount of paperwork and people needed to establish a commercial link.

For two years our relationship evolved slowly, with a few words exchanged every day. Despite the brevity of our interactions, I drew support from them, and I am also greatly indebted to them for contributing to the environment in which these words took shape. I would be crazy not to thank them. During the summer of 2013 I wrote what became Chapters 6 and 7 at Voltage. I also studied the ideas of Ronald Coase and Oliver Williamson there. This set the foundation for what became Part III. In the fall of 2013 this book was still unfinished, but my daughter was ready to see the light of day. Iris’ birth changed this book. In a previous draft I already had a narrative explaining birth as an alien process—which had been inspired by Anna’s pregnancy—but I was lacking the emotional thrust of the actual event.


pages: 298 words: 95,668

Milton Friedman: A Biography by Lanny Ebenstein

"Robert Solow", affirmative action, banking crisis, Berlin Wall, Bretton Woods, business cycle, Deng Xiaoping, Fall of the Berlin Wall, fiat currency, floating exchange rates, Francis Fukuyama: the end of history, full employment, Hernando de Soto, hiring and firing, inflation targeting, invisible hand, Joseph Schumpeter, Kenneth Arrow, Lao Tzu, liquidity trap, means of production, Mont Pelerin Society, Myron Scholes, Pareto efficiency, Paul Samuelson, Ponzi scheme, price stability, rent control, road to serfdom, Robert Bork, Ronald Coase, Ronald Reagan, Sam Peltzman, school choice, school vouchers, secular stagnation, Simon Kuznets, stem cell, The Chicago School, The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, The Wealth of Nations by Adam Smith, Thorstein Veblen, zero-sum game

Friedman’s longtime secretary, Gloria Valentine, was encouraging and helpful. Others who gave interviews include Gary Becker, Anna Jacobson Schwartz, Lester Telser, Larry Sjaastad, Thomas Sowell, Sam Peltzman, Stephen Stigler, Larry Wimmer, John Turner, and the late D. Gale Johnson. Paul Samuelson sent a useful letter with reactions to some questions. For my biography of Hayek, I had the opportunity to interview W. Allen Wallis, Edwin Meese, and Ronald Coase, among others, and to talk briefly on the phone with Aaron Director. I also thank in particular J. Daniel Hammond, Robert Leeson, and William Frazer for their work on Friedman; the University of California at Santa Barbara for use of its library and interlibrary loan program; the Hoover Institution on War, Revolution and Peace for use of its Friedman archive; the Intercollegiate Studies Institute and Young America’s Foundation for participation in conferences on Friedman; the Liberty Fund for participation in a conference on Frank Knight; Walter Mead for encouragement and assistance; Tom Schrock for continuing advice; Mark Skousen for calling various articles to my attention; Joe Atwill and Curtis Ridling, and Cyndy x Phillips for reviewing the manuscript; and Nik Schiffmann and Lee Gientke for research contributions.

Shultz says that Milton’s “brilliance as an economist is well known but perhaps as important and less exalted is his capacity as an expositor. He has a gift of clarity.... [I]f he winds up talking with someone he thinks is worthwhile he has immense patience, and a willingness to engage and argue. Milton is a great arguer, and we used to say that everyone loved to argue with Milton—when he wasn’t there!”38 Ronald Coase was among the leading economists of the twentieth century, and his influence continues to grow. His best-known contribution is the Coase theorem, essentially the idea that freedom of exchange is the ultimate requirement to reach Pareto optimality, whereby no exchange will increase any party’s welfare. In particular, the initial allocation of legal rights will not affect ultimate economic outcome as long as freedom of exchange is uninhibited.

In “Milton Friedman and the Emergence of the Permanent Income Hypothesis,” History of Political Economy (Spring 2003), Hsiang-Ke Chao traces the development of Friedman’s work on permanent income from the 1940s to the 1960s. Danny Quah, Edmund W. Kitch (ed.), “The Fire of Truth: A Remembrance of Law and Economics at Chicago, 1932–1970,” Journal of Law and Economics (April 1983), is the transcript of an exceptional gathering of thirty former University of Chicago students and former and current faculty focusing on the contributions of Aaron Director and Ronald Coase to the field of law and economics. Among the participants are Milton and Rose Friedman, Stigler, Wallis, Becker, and Robert Bork, in addition to Director and Coase. There is much history and exploration of the development of ideas. A number of obituaries were written on Director’s death in September 2004. These include Richard M. Ebeling, “Aaron Director on the Market for Goods and Ideas,” Freeman (November 2004), and Adam Bernstein, “Aaron Director Dies at 102; Helped Fuse Economics, Law,” Washington Post, September 14, 2004.


pages: 207 words: 52,716

Capitalism 3.0: A Guide to Reclaiming the Commons by Peter Barnes

Albert Einstein, car-free, clean water, collective bargaining, corporate governance, corporate personhood, corporate raider, corporate social responsibility, dark matter, diversified portfolio, en.wikipedia.org, hypertext link, Isaac Newton, James Watt: steam engine, jitney, money market fund, new economy, patent troll, profit maximization, Ronald Coase, telemarketer, The Wealth of Nations by Adam Smith, transaction costs, War on Poverty, Yogi Berra

So, whether they knew it or not, were Dean Baker, Harriet Barlow, Connie Best, James Boyce, Rachel Breen, Marc Breslow, Peter Brown, Chuck Collins, Chris Desser, Peter Dorman, Brett Frischmann, Robert Glennon, Charles Halpern, Ann Hancock, Lewis Hyde, Marjorie Kelly, George Lakoff, Frances and Anna Lappé, Kathleen Maloney, Neil Mendenhall, David Morris, Richard Norgaard, Matt Pawa, Carolyn Raffensperger, Julie Ristau, Mark Sommer, Allen White, Bob Wilkinson, Susan Witt, and Oran Young. T | xvii | xviii | C A P I TA L I S M 3.0 Others whose writings have influenced me include E. F. Schumacher, Herman Daly, John Maynard Keynes, John Kenneth Galbraith, Ronald Coase, Louis Kelso, and Henry George. This entire undertaking would not have been possible without the love and support of my entire family, especially Eli and Zack. Thank you so much. Part 1 THE PROBLEM Chapter 1 Time toUpgrade Society is indeed a contract . . . between those who are living, those who are dead, and those who are to be born. — Edmund Burke (1792) or the first time in history, the natural world we leave our children will be frightfully worse than the one we inherited from our parents.

Free Market Environmentalism One other version of privatism is worth considering. Its premise is that nature can be preserved, and pollution reduced, by expanding private property rights. This line of thought is called free market environmentalism, and it’s favored by libertarian think tanks such as the Cato Institute. The origins of free market environmentalism go back to an influential paper by University of Chicago economist Ronald Coase. Writing in 1960, Coase challenged the then-prevailing orthodoxy that government regulation is the only way to protect nature. In fact, he argued, nature can be protected through property rights, provided they’re clearly defined and the cost of enforcing them is low. In Coase’s model, pollution is a two-sided problem involving a polluter and a pollutee. If one side has clear property rights (for instance, if the polluter has a right to emit, or the pollutee has a right not to be emitted upon), and transaction costs are low, the two sides will come to a deal that reduces pollution.

They’re just there, floating in space, with no connection to humans. What I’m suggesting is that economists treat them as if they were common property held in trust. This simple supposition would not only put 90 | A SOLUTION ecosystems on the books, enabling us to track them better; it would also pave the way to real-world property rights that actually protect those ecosystems. Beyond Coase’s Supposes “Let us suppose,” economist Ronald Coase wrote in 1960, “that a farmer and a cattle-raiser are operating on neighboring properties.” He went on to suppose further that the cattle-raiser’s animals wander onto the farmer’s land and damage his crops. From this hypothetical starting point Coase examined the problem of externalities and proposed a solution—the creation of rights to pollute or not be polluted upon. Today, pollution rights are used throughout the world.


pages: 196 words: 57,974

Company: A Short History of a Revolutionary Idea by John Micklethwait, Adrian Wooldridge

affirmative action, barriers to entry, Bonfire of the Vanities, borderless world, business process, Charles Lindbergh, Corn Laws, corporate governance, corporate raider, corporate social responsibility, creative destruction, credit crunch, crony capitalism, double entry bookkeeping, Etonian, hiring and firing, industrial cluster, invisible hand, James Watt: steam engine, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, knowledge worker, laissez-faire capitalism, manufacturing employment, market bubble, mittelstand, new economy, North Sea oil, race to the bottom, railway mania, Ronald Coase, Silicon Valley, six sigma, South Sea Bubble, Steve Jobs, Steve Wozniak, strikebreaker, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade route, transaction costs, tulip mania, wage slave, William Shockley: the traitorous eight

Although the influence of companies as a species has never been more widespread, the clout of individual big companies has arguably declined. The much-vaunted idea that companies are now bigger than mere governments is, as we shall see, statistically fraudulent. Big companies are giving way to small ones, so much so, in fact, that an old question is now more pressing: What is the point of companies? That question was most succinctly answered back in 1937 by Ronald Coase, a young British economist. In an article called “The Nature of the Firm,” he argued that the main reason why a company exists (as opposed to individual buyers and sellers making ad hoc deals at every stage of production) is because it minimizes the transaction costs of coordinating a particular economic activity. Bring all the people in-house, and you reduce the costs of “negotiating and concluding a separate contract for each exchange transaction.”

THREE DEBATES THAT DEFINED THE COMPANY As the company’s role in society deepened, so did the debate about that role. Three works published in the 1930s and 1940s asked fundamental questions about this awkward institution: Why did companies exist? Whom were they run for? And what about the workers? The most basic of these three works began as a lecture in 1932 to a group of Dundee students by a twenty-one-year-old economist just back from a tour of American industry. Five years later, Ronald Coase published his ideas in a paper in Economica called “The Nature of the Firm.” Coase tried to explain why the economy had moved beyond individuals selling goods and services to each other. The answer, he argued, had to do with the imperfections of the market and particularly to do with transaction costs—the costs sole traders might incur in getting the best deal and coordinating processes such as manufacturing and marketing.

By the end of 2001, General Motors boasted net-book assets (tangible things like factories, cars, and even cash) of $52 billion, but its market value of $30 billion was only a fifth of that of Merck, a drug firm that could muster a balance sheet value of $7 billion, but had a far more valuable trove of knowledge. In 1999, America’s most valuable export was intellectual capital: the country raked in $37 billion in licensing fees and royalties, compared with $29 billion for its main physical export, aircraft.6 The story of the company in the last quarter of the twentieth century is of a structure being unbundled. Companies were gradually forced to focus on their “core competencies.” Ronald Coase’s requirement of the company—it had to do things more efficiently than the open market—was being much more sorely tested. The managers of big companies liked to claim that new technology made it more efficient to bundle things together in a single company. In a few cases, this proved correct. Big media conglomerates were able to sell the same “content” through different channels. New technology to monitor drivers in the trucking industry in the 1980s made it cheaper for shippers to employ them directly, so they got bigger. 7 Yet, for the most part, the world was moving in the opposite direction.


pages: 491 words: 77,650

Humans as a Service: The Promise and Perils of Work in the Gig Economy by Jeremias Prassl

3D printing, Affordable Care Act / Obamacare, Airbnb, Amazon Mechanical Turk, Andrei Shleifer, autonomous vehicles, barriers to entry, call centre, cashless society, Clayton Christensen, collaborative consumption, collaborative economy, collective bargaining, creative destruction, crowdsourcing, disruptive innovation, Donald Trump, Erik Brynjolfsson, full employment, future of work, George Akerlof, gig economy, global supply chain, hiring and firing, income inequality, information asymmetry, invisible hand, Jeff Bezos, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Kickstarter, low skilled workers, Lyft, Mahatma Gandhi, Mark Zuckerberg, market friction, means of production, moral hazard, Network effects, new economy, obamacare, pattern recognition, platform as a service, Productivity paradox, race to the bottom, regulatory arbitrage, remote working, ride hailing / ride sharing, Robert Gordon, Ronald Coase, Rosa Parks, Second Machine Age, secular stagnation, self-driving car, shareholder value, sharing economy, Silicon Valley, Silicon Valley ideology, Simon Singh, software as a service, Steve Jobs, TaskRabbit, The Future of Employment, The Market for Lemons, The Nature of the Firm, The Rise and Fall of American Growth, transaction costs, transportation-network company, Travis Kalanick, two tier labour market, two-sided market, Uber and Lyft, Uber for X, uber lyft, union organizing, working-age population

In an open-market transaction with an independent entrepreneur, consumers would have to spend significant amounts of time and effort to find out information about the service provider’s background and experi- ence, control the quality of the work, and negotiate prices. This is the real value of digital work intermediation: gig-economy operators also provide information about how reliable a worker is, take care of invoicing and pay- ments, and provide a (digital) infrastructure within which the entire exchange can take place. With transaction cost so drastically reduced, the narrative continues, the traditional firm as described by Ronald Coase becomes obsolete; instead, we move into a hybrid world between markets and hierarchies. According to Coase’s theory of the firm, companies exist because the control exercised by an entrepreneur-coordinator over her workforce and other factors of pro- duction is much cheaper than the cost involved in going out to the market and haggling over each individual transaction.31 On the other hand, once an app has taken all of the hassle out of such transactions, Coase’s entrepreneur will no longer need to strike long-term bargains with workers, let alone invest in assets; she can replace her workforce with an external crowd, ready to complete individual tasks as and when required.

Most countries’ employment laws have adopted a version of this ‘binary divide’ model to structure their employment law, tax, and social security systems. If in doubt, workers and their employers can turn to the courts. Through a series of legal tests (often including elements such as control, subordination, and/or eco- nomic dependence), experienced labour judges determine who is a worker— and who is a genuine entrepreneur. Nobel-Prize-winning economist Ronald Coase was amongst the first to develop a theory underpinning this approach. He famously identified the bilateral contract of employment as the secret behind entrepreneurs’ tight control over their workforce: in return for regular wages, employees submit- ted themselves to the employer’s orders.2 Employment and social security law responded to ensure that these powers were exercised responsibly.

., Sunil Rajaraman, ‘The on-demand economy is a bubble—and it’s about to burst’, * * * Notes 147 Quartz (28 April 2017), https://qz.com/967474/the-on-demand-economy-is-a- bubble-and-its-about-to-burst/, archived at https://perma.cc/MTB8-SQYG 30. For an overview, see Christopher Pissarides, ‘Equilibrium in the labor market with search frictions’ (2011) 101(4) American Economic Review 1092. His Nobel lecture is also available at http://www.nobelprize.org/nobel_prizes/ economic-sciences/laureates/2010/pissarides-lecture.pdf, archived at https:// perma.cc/U64H-QRP7 31. Ronald Coase, ‘The nature of the firm’ (1937) 4(16) Economica 386. 32. Julia Tomassetti, ‘Does Uber redefine the firm? The postindustrial corporation and advanced information technology’ (2016) 34(1) Hofstra Labor and Employ- ment Law Journal 1, 17. 33. Ibid., pt IV. 34. Ibid., 34. 35. Victor Fleischer, ‘Regulatory arbitrage’ (2010) 89(2) Texas Law Review 227, 230. Not all commentators agree with the terminology, even though the phenom- enon itself is generally accepted.


pages: 494 words: 142,285

The Future of Ideas: The Fate of the Commons in a Connected World by Lawrence Lessig

AltaVista, Andy Kessler, barriers to entry, business process, Cass Sunstein, commoditize, computer age, creative destruction, dark matter, disintermediation, disruptive innovation, Donald Davies, Erik Brynjolfsson, George Gilder, Hacker Ethic, Hedy Lamarr / George Antheil, Howard Rheingold, Hush-A-Phone, HyperCard, hypertext link, Innovator's Dilemma, invention of hypertext, inventory management, invisible hand, Jean Tirole, Jeff Bezos, Joseph Schumpeter, Kenneth Arrow, Larry Wall, Leonard Kleinrock, linked data, Marc Andreessen, Menlo Park, Mitch Kapor, Network effects, new economy, packet switching, peer-to-peer, peer-to-peer model, price mechanism, profit maximization, RAND corporation, rent control, rent-seeking, RFC: Request For Comment, Richard Stallman, Richard Thaler, Robert Bork, Ronald Coase, Search for Extraterrestrial Intelligence, SETI@home, Silicon Valley, smart grid, software patent, spectrum auction, Steve Crocker, Steven Levy, Stewart Brand, Ted Nelson, Telecommunications Act of 1996, The Chicago School, transaction costs, zero-sum game

The question was which system works best. That war is over. For most resources, most of the time, the market trumps the state. There are exceptions, of course, and dissenters still. But if the twentieth century taught us one lesson, it is the dominance of private over state ordering. Markets work better than Tammany Hall in deciding who should get what, when. Or as Nobel Prize-winning economist Ronald Coase put it, whatever problems there are with the market, the problems with government are far more profound. This, however, is a new century; our questions will be different. The issue for us will not be which system of exclusive control—the government or the market—should govern a given resource. The question for us comes before: not whether the market or the state but, for any given resource, whether that resource should be controlled or free.

Otherwise there would be chaos, and radio's usefulness would be largely destroyed.12 It was in the nature of things, the government argued and the Court agreed, that only if spectrum were controlled by the government would spectrum be usable. Spectrum could not be free. ABOUT THE TIME the Supreme Court came to this conclusion, an English economist was concluding just the opposite. In a review of the FCC's regulation of spectrum, economist Ronald Coase concluded that there was no justification for political regulation of access to spectrum.13 Spectrum was no more “scarce” than land or trees were scarce. Scarcity is the nature of all valuable resources; but not all valuable resources are allocated by the government—at least, not in a free society. 14 Rather than a regime of licensing, Coase argued, spectrum should be allocated into property rights and sold to the highest bidder.15 A market for spectrum would better and more efficiently allocate spectrum than a system of government-granted licenses.

If you want to sell very weird widgets, and only a hundred thousand people are within range, then you're not likely to be able to sell enough widgets to make it worthwhile. But if you had the world as your market—if the code layer facilitated broad distribution of selective information about widgets, thus lowering the cost of information—then you might have a market large enough to make your weird widget factory work. As Ronald Coase puts it: People talk about increases in improvements in technology, but just as important are improvements in the way in which people make contracts and deals. If you can lower the costs there, you can have more specialization and greater production. . . . By improving the way the market works, you can produce immense benefits, not because it invents new technologies, but because it enables new technologies to be used. 28 The net of these layers of control in real space is relatively simple to map.


pages: 350 words: 103,988

Reinventing the Bazaar: A Natural History of Markets by John McMillan

"Robert Solow", accounting loophole / creative accounting, Albert Einstein, Alvin Roth, Andrei Shleifer, Anton Chekhov, Asian financial crisis, congestion charging, corporate governance, corporate raider, crony capitalism, Dava Sobel, Deng Xiaoping, experimental economics, experimental subject, fear of failure, first-price auction, frictionless, frictionless market, George Akerlof, George Gilder, global village, Hernando de Soto, I think there is a world market for maybe five computers, income inequality, income per capita, informal economy, information asymmetry, invisible hand, Isaac Newton, job-hopping, John Harrison: Longitude, John von Neumann, Kenneth Arrow, land reform, lone genius, manufacturing employment, market clearing, market design, market friction, market microstructure, means of production, Network effects, new economy, offshore financial centre, ought to be enough for anybody, pez dispenser, pre–internet, price mechanism, profit maximization, profit motive, proxy bid, purchasing power parity, Ronald Coase, Ronald Reagan, sealed-bid auction, second-price auction, Silicon Valley, spectrum auction, Stewart Brand, The Market for Lemons, The Nature of the Firm, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, War on Poverty, Xiaogang Anhui farmers, yield management

Supply and demand bypasses questions of how buyers and sellers get together, what other dealings they have, how buyers evaluate what they are buying, and how agreements are enforced. Three Nobel laureates noted this oddity. George Stigler found it “a source of embarrassment that so little attention has been paid to the theory of markets.” Douglass North noted the “peculiar fact” that economics “contains so little discussion of the central institution that underlies neoclassical economics—the market.” Ronald Coase complained that the market has a “shadowy role” in economic theory, and “discussion of the market itself has entirely disappeared.” The Nobel laureates’ critique has now been addressed. Modern economics has a lot to say about the workings of markets. Theorists have opened up the black box of supply and demand and peered inside. Game theory has been brought to bear on the processes of exchange.

Any externality can be viewed as resulting from the incompleteness of property rights. If the air were private property, the owner could charge polluters for the “use” of it, and then there would be no externality. No one can own the air, of course, but in some other cases broadening property rights can be an effective solution. Given clearly defined property rights, individuals may negotiate a mutually beneficial solution to an externality, as Nobel laureate Ronald Coase pointed out. Imagine a cattle rancher who harms his neighbor, a corn grower, by not maintaining the fence, so the cattle wander into the cornfield and damage the crop. Suppose that fixing the fence would create value (since the repair cost is smaller than the cattle’s damage). If the corn grower has recourse to the courts, then the cattle rancher would fix the fence under the threat of being sued.

Why isn’t everyone an independent contractor instead of a hired employee? The answer is that firms exist as a response to market frictions. Sometimes it is less expensive to run a hierarchy than to use the market. Whether a firm produces its inputs in-house or procures them from other firms depends on the relative costs of each form of transaction. One of the factors affecting this comparison, as Ronald Coase wrote in 1937, is the efficiency with which markets work. Where the transaction costs of using the market are high, firms tend to make inputs themselves. Where markets work smoothly, firms contract out much of the work. Firms do not necessarily need their own in-house production capabilities to benefit from economies of scale. Cisco Systems Inc., the market leader in routers (the hardware used for managing the internet’s traffic), is almost a virtual firm.


pages: 247 words: 64,986

Hive Mind: How Your Nation’s IQ Matters So Much More Than Your Own by Garett Jones

centre right, clean water, corporate governance, David Ricardo: comparative advantage, en.wikipedia.org, experimental economics, Flynn Effect, Gordon Gekko, greed is good, hive mind, invisible hand, Kenneth Arrow, law of one price, meta analysis, meta-analysis, prediction markets, Robert Gordon, Ronald Coase, Saturday Night Live, social intelligence, The Bell Curve by Richard Herrnstein and Charles Murray, The Wealth of Nations by Adam Smith, Thorstein Veblen, wikimedia commons, zero-sum game

If I’m right, then countries whose citizens do well on standardized tests will tend to create more secure property rights, have judges who are more honest, and create political regimes in which the key players tend to find win-win solutions to problems rather than descending into a Hobbesian war of all against all. In these countries, governments will tend to be more trustworthy. I’ll provide reasons for thinking that in general, groups with higher average cognitive skills build governments that are better at creating long-term wealth. And economist Ronald Coase, whose Nobel-winning idea, the Coase Theorem, bridges the land of game theory and the land of politics, is a crucial figure in this story. Ronald Coase and the Astonishing Power of Haggling Informally, we can sum up the Coase Theorem this way: if it’s easy for two or more parties to bargain with each other, they can bargain to an efficient, win-win outcome regardless of which party has the most power going in to the negotiation. Here’s an example of the Coase theorem, perhaps the most common one.

., 60 Canada: average cognitive ability score in, 169; average IQ score in, 72, 117, 169; British Columbia, 44; IQ-income relationship in, 32 Caplan, Bryan: on conformity, 73; on immigrants and politics, 162–63; on informed voters, 123–25, 130, 161, 167; on irrational voters, 121; The Myth of the Rational Voter, 121, 123; on pro-market attitudes, 124–25, 129 CEOs, 83 Cesarini, David, 94–95 Chabris, Christopher, 146–47 cheap talk, 147, 149–51 Chile, 67; average cognitive ability score in, 169; average IQ score in, 72, 117 China: average IQ in, 72, 117; average national test scores in, 2, 7, 45, 72; economic conditions in, 2, 45; as lender to U.S., 82; political conditions in, 2; savings rate in, 72, 80 Christiakis, Nicholas: Connected, 59–60 Coase, Ronald/Coase Theorem, 106–13, 118, 166 Cobb-Douglas production function, 153–58 cognitive ability, 2, 10; cross-country comparisons regarding, 7–9, 169, 170, 171n5; of elites, 28–29, 165–66; and human relationships, 147–48; Rindermann on, 7–9, 46, 47, 166, 170, 171n5; skill in one area predicting skill in another, 15–16, 18–20, 22, 23, 28–29, 44, 46–47, 68, 70, 123, 167. See also da Vinci effect Cognitive Reflection Test, 68 collective intelligence/hive mind: defined, 12; poetic summary, 165 Colombia: average cognitive ability score in, 169; average IQ score in, 169 colonialism, 14, 118 common interests, 149–51 common sense, 101–2, 116 computer speed, 17–18, 172n1 conformity, 13, 73–74, 131–36, 162–63, 167 Congressional Budget Office, 80 consumer spending, 73–74 cooperation: Axelrod on, 85, 89–91, 96, 103–4, 167; conditional cooperators, 98–99, 177n13; and conformity, 13; difficulty of, 85–86; relationship to IQ scores, 1, 13, 84, 86, 91–92, 96–102, 150–51; relationship to patience, 91, 92, 96, 110; relationship to pleasantness/generosity, 91, 92–94, 96, 99, 110; relationship to prosperity, 105; relationship to SAT scores, 96–97; relationship to social perceptiveness, 91–92, 96, 110; and repeated prisoner’s dilemmas (RPDs), 88–94, 96–100; and self-interest, 85–87, 89; and tit for tat strategy, 89, 90–91, 98–99, 176n4; and trust, 88–89, 91, 92–93 corporate downsizing, 124 Corruption Perceptions Index, 117 Covey, Steven: on pie-growing vs. pie-grabbing, 2–3; on success, 2–3; on “Think Win-Win” habit, 2–3 Cowen, Tyler: on immigration and good politics, 161 Cowgill, Bo, 134–35 Crawford, Vincent: on theory of cheap talk, 147, 149–51 Croatia: average cognitive ability score in, 169; average IQ score in, 169 cross-country comparisons, 35–48, 50; regarding cognitive ability, 7–9, 169, 170, 171n5; regarding da Vinci Effect, 46–47; regarding education, 122; regarding GDP, 8–9, 10–11, 13–14, 171n5; regarding government corruption, 1–2, 117; regarding IQ scores, 38–44, 46, 48, 117–18, 169, 170; regarding productivity, 7–9, 139–41; regarding savings, 72–73, 80–81; source of IQ scores for, 38–44, 46, 48, 170; regarding standardized test scores, 1–2, 7–9, 10–11, 13–14, 171n5 crystallized intelligence, 58 culture, 14, 36–37, 52, 80 Culture and Children’s Intelligence, 39 Czech Republic: average cognitive ability score in, 169; average IQ score in, 169 da Vinci Effect: and computer speed, 17–18, 172n1; cross-country comparisons regarding, 46–47; defined, 15–16, 22, 44; and emotional/social intelligence, 33–34; regarding IQ and cognitive ability, 15–16, 18–20, 22, 23, 28–29, 44, 46–47, 68, 70, 123, 167; and Raven’s matrices, 23; and Spearman, 18–20; regarding strength, 18, 172n1; regarding teams, 146–47; and wages, 44 Davis, Steven J., 144 debt, corporate, 82–83 debt, international, 77, 78, 81–84; default on, 81, 82 democracy: accountability of politicians, 130–31; and Coase Theorem, 108; informed voters, 122–31, 136–37, 162, 165, 167.


pages: 326 words: 106,053

The Wisdom of Crowds by James Surowiecki

AltaVista, Andrei Shleifer, asset allocation, Cass Sunstein, coronavirus, Daniel Kahneman / Amos Tversky, experimental economics, Frederick Winslow Taylor, George Akerlof, Howard Rheingold, I think there is a world market for maybe five computers, interchangeable parts, Jeff Bezos, John Meriwether, Joseph Schumpeter, knowledge economy, lone genius, Long Term Capital Management, market bubble, market clearing, market design, Monkeys Reject Unequal Pay, moral hazard, Myron Scholes, new economy, offshore financial centre, Picturephone, prediction markets, profit maximization, Richard Feynman, Richard Feynman: Challenger O-ring, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, The Nature of the Firm, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Toyota Production System, transaction costs, ultimatum game, Yogi Berra, zero-sum game

Instead, a group of people comes together: someone writes a script, someone agrees to direct, someone else puts up the money, actors and a production crew get chosen, the film is made, a distributor is found, and then the group disassembles, perhaps never to see each other again. Why not do everything this way? The oldest—and still the best—answer to that question was offered by British economist Ronald Coase in 1937. The problem with the “outsource everything” model, Coase saw, was that setting up and monitoring all those different deals and contracts takes a lot of time and effort. It takes work to find the right people, and to haggle with them over how much you’ll pay them. It takes work to ensure that everyone’s doing what they promised they would do. And it takes work to make sure, after everything’s done, that everyone gets what’s coming to them.

The third model can be found in movies like The Asphalt Jungle and Reservoir Dogs, where a group of individuals comes together to pull off a single job and then disperses, very much the way an independent film gets made. This model allows people to be handpicked for their diverse abilities (planning, safecracking, explosives, etc.), so that the group can have exactly what it needs for the job. And the one-off nature of the project ensures that everyone on the team has an incentive to perform well. The problems with this model, though, are precisely those that Ronald Coase had in mind when he talked about transaction costs. It takes a lot of work to put the group together. It’s difficult to ensure that people are working in the group’s interest and not their own. And when there’s a lack of trust between the members of the group (which isn’t surprising given that they don’t really know each other), considerable energy is wasted trying to determine each other’s bona fides.

But, in general, whatever sacrifice might be entailed in ruling out a possibly brilliant hunch is compensated for by the better-than-average results which can be expected from a policy that can be strongly defended against well-informed and sympathetic criticism.” Similarly, Welch’s most important initiative as CEO of General Electric was his transformation of the company into what he called a “boundaryless corporation.” Harking back to the questions raised by Ronald Coase, Welch tried to make the boundaries between GE and outside markets more permeable. He broke down boundaries between GE’s different divisions, arguing that a more interdisciplinary approach to problems fostered diversity. He sharply reduced the layers of management separating the people at the top from the rest of the company. And by creating what were known as “Work-Out” sessions, where managers were subjected to often stinging public criticism from those they managed, he tried to make the boundaries between bosses and subordinates less rigid.


pages: 330 words: 77,729

Big Three in Economics: Adam Smith, Karl Marx, and John Maynard Keynes by Mark Skousen

"Robert Solow", Albert Einstein, banking crisis, Berlin Wall, Bretton Woods, business climate, business cycle, creative destruction, David Ricardo: comparative advantage, delayed gratification, experimental economics, financial independence, Financial Instability Hypothesis, full employment, Hernando de Soto, housing crisis, Hyman Minsky, inflation targeting, invisible hand, Isaac Newton, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, laissez-faire capitalism, liberation theology, liquidity trap, means of production, microcredit, minimum wage unemployment, money market fund, open economy, paradox of thrift, Pareto efficiency, Paul Samuelson, price stability, pushing on a string, rent control, Richard Thaler, rising living standards, road to serfdom, Robert Shiller, Robert Shiller, rolodex, Ronald Coase, Ronald Reagan, school choice, secular stagnation, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, Tobin tax, unorthodox policies, Vilfredo Pareto, zero-sum game

Moreover, Smith contended that economic progress and surplus wealth were a prerequisite for sympathy and charity. In short, Smith desired to integrate economics and moral behavior (Fitzgibbons 1995, 3-4; Tvede 1997, 29). The Scottish philosopher believed man to be motivated by both self-interest and benevolence, but in a complex market economy, where individuals move away from their closest friends and family, self-interest becomes a more powerful force. In Ronald Coase's interpretation, "The great advantage of the market is that it is able to use the strength of self-interest to offset the weakness and partiality of benevolence, so that those who are unknown, unattractive, and unimportant will have their wants served" (Coase 1976, 544). How Monopoly Hurts the Market System Smith said that competition was absolutely essential to turning self-interest into benevolence in a self-regulating society.

The invisible hand idea, that laissez-faire leads to the common good, has become known as the first fundamental theorem of welfare economics (as noted in chapter 1). Welfare economics deals with the issues of efficiency, justice, economic waste, and the political process in the economy. Since the late 1930s, when welfare economics was popularized by John Hicks, Kenneth Arrow, Paul Samuelson, and Ronald Coase (all of whom became Nobel Prize winners), the technique of welfare economics has been extended to issues of monopoly and government policies. In most cases, the welfare economists have demonstrated that government-imposed monopoly and subsidies lead to inefficiency and waste. Walras, Pareto, and Edgeworth were the first economists to use advanced mathematical formulas and graphic devices to prove certain hypotheses in welfare economics.

But attitudes are quickly changing in the twenty-first century by applying its micro principles of competition, incentives, and opportunity cost to solve a host of public and private problems. In short, twenty-first-century economics is the "imperial science" (Skousen 2001, 7-10). Here are just a few examples of the expanding role of economics in other areas: Gary Becker has been instrumental in applying the principles of supply and demand to the human behavioral sciences in areas such as racial discrimination, crime, and marriage. Ronald Coase, Richard Posner, and Richard Epstein have contributed to the development of law and economics. Harry Markowitz, Merton Miller, William Sharpe, Burton Malkiel, and Fischer Black, among others, have created the field of financial economics, especially the application of efficiency markets to Wall Street. Robert Fogel and Douglass C. North have applied statistical analysis (known as "cliometrics") to a variety of historical events and trends.


The Limits of the Market: The Pendulum Between Government and Market by Paul de Grauwe, Anna Asbury

"Robert Solow", banking crisis, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, conceptual framework, crony capitalism, Erik Brynjolfsson, eurozone crisis, Honoré de Balzac, income inequality, income per capita, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, Kitchen Debate, means of production, moral hazard, Paul Samuelson, price discrimination, price mechanism, profit motive, Robert Gordon, Ronald Coase, Simon Kuznets, The Nature of the Firm, The Rise and Fall of American Growth, too big to fail, transaction costs, trickle-down economics, ultimatum game, very high income

At the same time we see many people working in collaboration. A company is a collaborative venture. There are millions of companies, many more than there are markets. This means that a great many economic decisions are made outside the market, within companies in which cooperation is the rule, not competition. Why do we see so many cooperative relationships within companies? One answer is offered by British economist Ronald Coase, who won the Nobel Prize in Economics in . His answer was as follows. Market transactions lead to transaction costs. The buyers and sellers have to find and trust one another. Contracts must be drawn up and the quality of goods and services evaluated. If contractual terms are not met, action must be taken. All this creates transaction costs. A partnership within one and the same company can reduce or even eliminate a number of these costs.11 Thus companies are formed which arrange a number of transactions internally.

See Alan Greenspan, The Age of Turbulence: Adventures in a New World (London: Allen Lane, ). . Carmen M. Reinhardt and Kenneth S. Rogoff, This Time is Different: Eight Centuries of Financial Folly (Princeton, NJ: Princeton University Press, ). . Michael J. Sandel, What Money Can’t Buy: The Moral Limits of Markets (London: Allen Lane, ). . Kenneth J. Arrow, ‘Gifts and exchanges’, Philosophy and Public Affairs, / (), pp. –. . Ronald Coase, ‘ The Nature of the Firm’, Economica, / (November ), pp. –. . See Frans de Waal, Our Inner Ape: The Best and Worst of Human Nature (London: Granta Books, ). See also Matt Ridley, The Origins of Virtue (London: Penguin Books, ). . Erik Brynjolfsson and Andrew McAfee, Race Against the Machine: How the Digital Revolution is Accelerating Innovation, Driving Productivity, and Irreversibly Transforming Employment and the Economy (Lexington, MA: Digital Frontier Press, ). .


pages: 515 words: 126,820

Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World by Don Tapscott, Alex Tapscott

Airbnb, altcoin, asset-backed security, autonomous vehicles, barriers to entry, bitcoin, blockchain, Blythe Masters, Bretton Woods, business process, buy and hold, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, clean water, cloud computing, cognitive dissonance, commoditize, corporate governance, corporate social responsibility, creative destruction, Credit Default Swap, crowdsourcing, cryptocurrency, disintermediation, disruptive innovation, distributed ledger, Donald Trump, double entry bookkeeping, Edward Snowden, Elon Musk, Erik Brynjolfsson, Ethereum, ethereum blockchain, failed state, fiat currency, financial innovation, Firefox, first square of the chessboard, first square of the chessboard / second half of the chessboard, future of work, Galaxy Zoo, George Gilder, glass ceiling, Google bus, Hernando de Soto, income inequality, informal economy, information asymmetry, intangible asset, interest rate swap, Internet of things, Jeff Bezos, jimmy wales, Kickstarter, knowledge worker, Kodak vs Instagram, Lean Startup, litecoin, Lyft, M-Pesa, Marc Andreessen, Mark Zuckerberg, Marshall McLuhan, means of production, microcredit, mobile money, money market fund, Network effects, new economy, Oculus Rift, off grid, pattern recognition, peer-to-peer, peer-to-peer lending, peer-to-peer model, performance metric, Peter Thiel, planetary scale, Ponzi scheme, prediction markets, price mechanism, Productivity paradox, QR code, quantitative easing, ransomware, Ray Kurzweil, renewable energy credits, rent-seeking, ride hailing / ride sharing, Ronald Coase, Ronald Reagan, Satoshi Nakamoto, Second Machine Age, seigniorage, self-driving car, sharing economy, Silicon Valley, Skype, smart contracts, smart grid, social graph, social intelligence, social software, standardized shipping container, Stephen Hawking, Steve Jobs, Steve Wozniak, Stewart Brand, supply-chain management, TaskRabbit, The Fortune at the Bottom of the Pyramid, The Nature of the Firm, The Wisdom of Crowds, transaction costs, Turing complete, Turing test, Uber and Lyft, uber lyft, unbanked and underbanked, underbanked, unorthodox policies, wealth creators, X Prize, Y2K, Zipcar

Modern accounting sprang from the curious mind of Luca Pacioli in Italy during the fifteenth century. His deceptively simple invention was a formula known as double-entry accounting, where every transaction has two effects on each participant, that is, each must enter both a debit and a credit onto the balance sheet, the ledger of corporate assets and liabilities. By codifying these rules, Pacioli provided order to an otherwise ad hoc practice that prevented enterprises from scaling. Ronald Coase thought accounting was cultlike. While a student at the London School of Economics, Coase saw “aspects of a religion” in the practice. “The books entrusted to the accountants’ keeping were apparently sacred books.” Accounting students deemed his challenges “sacrilegious.”53 How dare he question their “many methods of calculating depreciation, valuing inventories, allocating on-costs, and so on, all of which gave different results but all of which were perfectly acceptable accounting practices,” and other nearly identical practices that were nonetheless deemed entirely “unrespectable.”

So why would any established firm—particularly ones that make their money off other people’s data, operate largely behind closed doors, and suffer surprisingly little in data breach after data breach—want to leverage blockchain technologies to distribute power, increase transparency, respect user privacy and anonymity, and include far more people who can afford far less than those already served? Transaction Costs and the Structure of the Firm Let’s start with a little economics. In 1995, Don used Nobel Prize–winning economist Ronald Coase’s theory of the firm to explain how the Internet would affect the architecture of the corporation. In his 1937 paper “The Nature of the Firm,” Coase identified three types of costs in the economy: the costs of search (finding all the right information, people, resources to create something); coordination (getting all these people to work together efficiently); and contracting (negotiating the costs for labor and materials for every activity in production, keeping trade secrets, and policing and enforcing these agreements).

In summary, these are seven of the emerging business models whereby both companies large and small can make it “rain on the blockchain.” Overall, the open networked enterprise shows profound, even radical potential to supercharge innovation and harness extraordinary capability to create good value for shareholders, customers, and societies as a whole. HACKING YOUR FUTURE: BUSINESS MODEL INNOVATION As for a company managed by software agents, Ronald Coase must be high-fiving up there somewhere in Economists’ Heaven (although some might dispute that such a place exists). Remember the reverse of Coase’s law? A corporation should shrink until the costs of transactions inside are less than the costs of transactions outside its boundaries. As technology continues to drop costs in the market, it’s conceivable that corporations could and should have very little inside—except software and capital.


Termites of the State: Why Complexity Leads to Inequality by Vito Tanzi

"Robert Solow", accounting loophole / creative accounting, Affordable Care Act / Obamacare, Andrei Shleifer, Andrew Keen, Asian financial crisis, asset allocation, barriers to entry, basic income, bitcoin, Black Swan, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, Cass Sunstein, central bank independence, centre right, clean water, crony capitalism, David Graeber, David Ricardo: comparative advantage, deindustrialization, Donald Trump, Double Irish / Dutch Sandwich, experimental economics, financial repression, full employment, George Akerlof, Gini coefficient, Gunnar Myrdal, high net worth, hiring and firing, illegal immigration, income inequality, indoor plumbing, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Jean Tirole, John Maynard Keynes: Economic Possibilities for our Grandchildren, Kenneth Arrow, Kenneth Rogoff, knowledge economy, labor-force participation, libertarian paternalism, Long Term Capital Management, market fundamentalism, means of production, moral hazard, Naomi Klein, New Urbanism, obamacare, offshore financial centre, open economy, Pareto efficiency, Paul Samuelson, price stability, principal–agent problem, profit maximization, pushing on a string, quantitative easing, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Second Machine Age, secular stagnation, self-driving car, Silicon Valley, Simon Kuznets, The Chicago School, The Great Moderation, The Market for Lemons, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, transfer pricing, Tyler Cowen: Great Stagnation, universal basic income, unorthodox policies, urban planning, very high income, Vilfredo Pareto, War on Poverty, Washington Consensus, women in the workforce

As that role, measured by the levels of public spending and taxation into GDPs, grew, the early optimism and the large consensus that had accompanied and had supported that expansion started to be challenged, especially in the United States and in the United Kingdom, but also in some other places such as New Zealand and Ireland. At first it was challenged by a few isolated, conservative critics, and then by an increasing number of economists, political scientists, and plain citizens. Among economists, the earlier challenges had come mainly from conservative, or libertarian, pro-market economists, such as F. A. Hayek, Milton Friedman, George Stigler, James Buchanan, Ronald Coase, Alan Peacock, and a few others, and from some politicians and philosophers, such as Barry Goldwater, Robert Nozick, and others in the United States, and some in the United Kingdom and in other countries. These individuals had followed with alarm, suspicion, and growing concerns the expansion of government activities that had taken place in those years. However, until the second half of the 1970s, their voices had had little impact.

When the externalities become significant, and the scientific consequences are largely settled, it becomes more difficult for governments to ignore them. However, some individuals may claim that dealing with them may be too expensive in terms of reduced economic growth or loss of employment opportunities. These concerns merit attention. What if genetic modifications significantly increase the productivity of a crop but generate a few cases of cancer? This benefit-cost criterion is in part at the base of the argument, promoted by Ronald Coase, about how to deal with externalities. It has been increasingly used in the fields of law and economics. Coase pointed out that just because an externality exists, it may not be, by itself, a sufficient argument to stop the activity that generates it, if that activity has great social value, such as a large increase in productivity. One would not stop planes from flying because their noise disturbs some individuals.

The traditional solution of economists had been to require governmental intervention in dealing with negative externalities that indicate market failure. The traditional solution, largely attributed to the British economist A. C. Pigou (1920), had been that the government should tax those who generate significant negative externalities and subsidize those who are damaged by these externalities. Alternatively, the government could impose regulations to eliminate or to reduce the negative externalities. In 1960, the British economist Ronald Coase, who later earned a Nobel Prize in economics, challenged the Pigouvian view with what came to be called the Coase theorem, which has already been referred to in this book. Coase pointed out that the activity that generates an externality might be important to society, so it might be socially inefficient to stop that activity because of the negative externality. Additionally, the activity that generates the externality might have existed before the activity that was damaged by it was created.


pages: 346 words: 97,330

Ghost Work: How to Stop Silicon Valley From Building a New Global Underclass by Mary L. Gray, Siddharth Suri

Affordable Care Act / Obamacare, Amazon Mechanical Turk, augmented reality, autonomous vehicles, barriers to entry, basic income, big-box store, bitcoin, blue-collar work, business process, business process outsourcing, call centre, Capital in the Twenty-First Century by Thomas Piketty, cloud computing, collaborative consumption, collective bargaining, computer vision, corporate social responsibility, crowdsourcing, data is the new oil, deindustrialization, deskilling, don't be evil, Donald Trump, Elon Musk, employer provided health coverage, en.wikipedia.org, equal pay for equal work, Erik Brynjolfsson, financial independence, Frank Levy and Richard Murnane: The New Division of Labor, future of work, gig economy, glass ceiling, global supply chain, hiring and firing, ImageNet competition, industrial robot, informal economy, information asymmetry, Jeff Bezos, job automation, knowledge economy, low skilled workers, low-wage service sector, market friction, Mars Rover, natural language processing, new economy, passive income, pattern recognition, post-materialism, post-work, race to the bottom, Rana Plaza, recommendation engine, ride hailing / ride sharing, Ronald Coase, Second Machine Age, sentiment analysis, sharing economy, Shoshana Zuboff, side project, Silicon Valley, Silicon Valley startup, Skype, software as a service, speech recognition, spinning jenny, Stephen Hawking, The Future of Employment, The Nature of the Firm, transaction costs, two-sided market, union organizing, universal basic income, Vilfredo Pareto, women in the workforce, Works Progress Administration, Y Combinator

They connect requesters seeking workers, on one side of the platform’s marketplace, and workers seeking jobs, on the other side. And in the absence of set hours, work sites, or agreement about who’s the official boss in charge, it is difficult to gauge how much ghost work is done across this burgeoning industry, who’s paying for it, and which workers are completing the tasks. The transaction costs that economist and Nobel laureate Ronald Coase so long ago identified as the reason for the very existence of firms seemed to melt away with the new on-demand systems. Platforms could keep themselves and requesters at arm’s length from workers, shielded from a formal employer’s legal responsibilities. WHEN YOUR WORK HAS NO CATEGORY The paradox of automation’s last mile suggests that the shift to using ghost work to deliver services is just heating up.32 As of today, there are hundreds of companies offering on-demand ghost work services to evaluate, sort, annotate, and refine the terabytes of “big data” that consumers produce every moment they spend online, and an explosion of companies hosting larger tasks that are, at least in part, managed by APIs.33 Still, treating ghost work as a consumable good drains ghost work jobs of any protections.

So the humans, on both sides of the market, are left with the task of resolving these complexities at their own expense, though the workers bear the heavier brunt of these costs. The Cost of Doing Business At the heart of the on-demand economy is the premise that relying on ghost work cuts transaction costs and, therefore, boosts profits. Transaction costs are those expenses associated with managing the production and exchange of goods or services. Nobel laureate Ronald Coase, a key contributor to modern economic theory, popularized the notion of transaction costs, though he did not coin the phrase itself. His seminal 1937 article “The Nature of the Firm” was published only two years after Wagner passed the National Labor Relations Act. In it, Coase argued that businesses had to coordinate their operations, such as finding, hiring, and training workers, to reduce market frictions.

In either case, with fewer hires needed for set, in-house tasks and more talented people necessary for rapid prototyping and testing new product ideas, many companies will have less need for full-time employees and an expanding dependency on an on-demand workforce at the ready for dynamic requests. While some transaction costs for hiring permanent workers will shrink, all businesses will continue to require some organization, at some cost, as Ronald Coase predicted.11 The question is not whether the transaction costs disappear but, rather, who pays for them? We need large corporations, which use vendor management systems to hire ghost work in bulk, to pull ghost work out of the shadows and into the daylight. As noted above, recent economic analyses of contingent labor markets confirm a sharp increase in both the amount and breadth of this type of employment.12 Corporations using an on-demand approach for enterprise-level work have, so far, increased the fissuring of the workplace, driving up the number of self-employed, independent, and vendor-managed workers to meet business-to-business needs and consumer demands for ever-evolving AI-driven products.


pages: 202 words: 62,901

The People's Republic of Walmart: How the World's Biggest Corporations Are Laying the Foundation for Socialism by Leigh Phillips, Michal Rozworski

Berlin Wall, Bernie Sanders, call centre, carbon footprint, central bank independence, Colonization of Mars, combinatorial explosion, complexity theory, computer age, corporate raider, decarbonisation, discovery of penicillin, Elon Musk, G4S, Georg Cantor, germ theory of disease, Gordon Gekko, greed is good, hiring and firing, index fund, Intergovernmental Panel on Climate Change (IPCC), Internet of things, inventory management, invisible hand, Jeff Bezos, Joseph Schumpeter, linear programming, liquidity trap, mass immigration, Mont Pelerin Society, new economy, Norbert Wiener, oil shock, passive investing, Paul Samuelson, post scarcity, profit maximization, profit motive, purchasing power parity, recommendation engine, Ronald Coase, Ronald Reagan, sharing economy, Silicon Valley, Skype, sovereign wealth fund, strikebreaker, supply-chain management, technoutopianism, The Nature of the Firm, The Wealth of Nations by Adam Smith, theory of mind, transaction costs, Turing machine, union organizing

Planning was in fact almost everywhere you looked, even though the discipline of economics had largely spun tales even more fantastical than UFOs visiting Earth: the fairy story of a harmonious and self-regulating market economy. Yet there has always been a minority of economists, like Simon, who have dissented, recognizing the pervasiveness, a few even the promise, of planning. Ronald Coase Asks Around In the Depression year of 1931, a twenty-year-old British economics student arrived in Chicago to pursue an unusual research project. He was there to study something that at first glance appeared utterly obvious; yet in reality it was anything but. Ronald Coase went to the United States to do something that, up to this point, few scholars in the still-young discipline of economics had cared to do: investigate how the firm, the black box at the heart of the economy, actually operated. Coase’s question was a simple one, but one to which the economics he had been taught didn’t yet have an answer: “Why are there these ‘islands of conscious power’?


pages: 606 words: 157,120

To Save Everything, Click Here: The Folly of Technological Solutionism by Evgeny Morozov

3D printing, algorithmic trading, Amazon Mechanical Turk, Andrew Keen, augmented reality, Automated Insights, Berlin Wall, big data - Walmart - Pop Tarts, Buckminster Fuller, call centre, carbon footprint, Cass Sunstein, choice architecture, citizen journalism, cloud computing, cognitive bias, creative destruction, crowdsourcing, data acquisition, Dava Sobel, disintermediation, East Village, en.wikipedia.org, Fall of the Berlin Wall, Filter Bubble, Firefox, Francis Fukuyama: the end of history, frictionless, future of journalism, game design, Gary Taubes, Google Glasses, illegal immigration, income inequality, invention of the printing press, Jane Jacobs, Jean Tirole, Jeff Bezos, jimmy wales, Julian Assange, Kevin Kelly, Kickstarter, license plate recognition, lifelogging, lone genius, Louis Pasteur, Mark Zuckerberg, market fundamentalism, Marshall McLuhan, moral panic, Narrative Science, Nelson Mandela, Nicholas Carr, packet switching, PageRank, Parag Khanna, Paul Graham, peer-to-peer, Peter Singer: altruism, Peter Thiel, pets.com, placebo effect, pre–internet, Ray Kurzweil, recommendation engine, Richard Thaler, Ronald Coase, Rosa Parks, self-driving car, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, Skype, Slavoj Žižek, smart meter, social graph, social web, stakhanovite, Steve Jobs, Steven Levy, Stuxnet, technoutopianism, the built environment, The Chicago School, The Death and Life of Great American Cities, the medium is the message, The Nature of the Firm, the scientific method, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, transaction costs, urban decay, urban planning, urban sprawl, Vannevar Bush, WikiLeaks

Anderson, “The Difference between Online Knowledge and Truly Open Knowledge,” The Atlantic, February 3, 2012, http://www.theatlantic.com/technology/archive/2012/02/the-difference-between-online-knowledge-and-truly-open-knowledge/252516 . 39 “At the very same time [that “the Internet” is blamed]”: Weinberger, Too Big to Know, xii. 40 Here Comes Everybody: Clay Shirky, Here Comes Everybody: The Power of Organizing without Organizations (New York: Penguin, 2009). 40 Susanne Lohmann’s explanation of the 1989 protests in East Germany: Susanne Lohmann, “The Dynamics of Informational Cascades: The Monday Demonstrations in Leipzig, East Germany, 1989–91,” World Politics 47, no. 1 (October 1, 1994): 42–101. 40 Ronald Coase’s theory of the firm: Ronald Coase, “The Nature of the Firm,” Economica, 4 (1937): 386–405. 40 in order to explain the 1989 protests: Lohmann, “The Dynamics of Informational Cascades.” 41 “Generalizing about social movements”: Stephen Kotkin, Uncivil Society: 1989 and the Implosion of the Communist Establishment (New York: Random House Digital, Inc., 2009), 147. 41 “behavior is motivation that has been filtered through opportunity”: Clay Shirky, Cognitive Surplus: How Technology Makes Consumers into Collaborators, reprint ed.

Take Clay Shirky’s Here Comes Everybody, which enjoys a cult status in geek circles as a seemingly original argument about the falling costs of collaboration. For much of his theoretical apparatus, Shirky draws on two sources: Susanne Lohmann’s explanation of the 1989 protests in East Germany by means of rational-choice theory (from which Shirky borrows the notion of information cascades) and Ronald Coase’s theory of the firm (from which Shirky borrows the notion of transaction costs). Alas, neither of them is an unambiguously good or neutral guide to understanding digital technologies once we liberate ourselves from Internet-centrism. Like most scholars in the rational-choice tradition, Lohmann—whom Shirky misidentifies as a historian (she’s a political scientist)—doesn’t explain collective action of East Germany by attending to historical and cultural factors or tracing the emergence of new attitudes or ideologies.

To challenge this ideology and this way of talking and thinking is to be immediately dismissed as too pessimistic or optimistic, as if no other type of critique were even conceivable. It’s one of the hallmarks of Internet-centrism—at least as it manifests itself in the popular debate—that it brooks no debates about methodology, for it presumes that there’s only one way to talk about “the Internet” and its effects. Shirky’s veneration of Ronald Coase’s theory of the firm—and its accompanying discourse on transaction costs—may seem harder to dismiss, not least because Coase is a Nobel Prize–winning economist. References to Coase pop up regularly in the work of our Internet theorists; in addition to Clay Shirky, Yochai Benkler also draws heavily on Coase to discuss the open-source movement. There is nothing wrong with Coase’s theories per se; in the business context, they offer remarkably useful explanations and have even helped spawn a new branch of economics.


pages: 474 words: 120,801

The End of Power: From Boardrooms to Battlefields and Churches to States, Why Being in Charge Isn’t What It Used to Be by Moises Naim

additive manufacturing, barriers to entry, Berlin Wall, bilateral investment treaty, business cycle, business process, business process outsourcing, call centre, citizen journalism, Clayton Christensen, clean water, collapse of Lehman Brothers, collective bargaining, colonial rule, conceptual framework, corporate governance, creative destruction, crony capitalism, deskilling, disintermediation, disruptive innovation, don't be evil, failed state, Fall of the Berlin Wall, financial deregulation, Francis Fukuyama: the end of history, illegal immigration, immigration reform, income inequality, income per capita, intangible asset, intermodal, invisible hand, job-hopping, Joseph Schumpeter, Julian Assange, Kickstarter, liberation theology, Martin Wolf, mega-rich, megacity, Naomi Klein, Nate Silver, new economy, Northern Rock, Occupy movement, open borders, open economy, Peace of Westphalia, plutocrats, Plutocrats, price mechanism, price stability, private military company, profit maximization, Ronald Coase, Ronald Reagan, Silicon Valley, Skype, Steve Jobs, The Nature of the Firm, Thomas Malthus, too big to fail, trade route, transaction costs, Washington Consensus, WikiLeaks, World Values Survey, zero-sum game

Such resources are a necessary precondition of power; but without an effective way of managing them, the power they create is less effective, more transient, or both. Weber’s central message was that without a reliable, well-functioning organization, or, to use his term, without a bureaucracy, power could not be effectively wielded. If Weber helped us understand the rationale and workings of bureaucracy in the exercise of power, the British economist Ronald Coase helped us understand the economic advantages that they conferred on companies. In 1937, Coase produced a conceptual breakthrough that explained why large organizations were not just rational according to a certain theory of profit-maximizing behavior but, indeed, often proved more efficient than the alternatives. It was no coincidence that, while still an undergraduate, in 1931–1932, Coase carried out the research for his seminal paper, “The Nature of the Firm,” in the United States.

Marxists argued that the expansion of capitalism brought with it the reinforcement of class divisions and, through imperialism and the spread of finance capital around the world, the replication of these divisions both within countries and between them. But the rise of large hierarchical organizations focused a very particular critique that owed a debt to Weber, for its focus, and to Marx, for its argument. In 1951, the Columbia University sociologist C. Wright Mills published a study titled White Collar: The American Middle Classes.26 Like Ronald Coase, Mills was fascinated by the rise of large managerial corporations. He argued that these firms, in their pursuit of scale and efficiency, had created a vast tier of workers who carried out repetitive, mechanistic tasks that stifled their imagination and, ultimately, their ability to fully participate in society. In short, Mills argued, the typical corporate worker was alienated. For many, that alienation was captured in the warning printed on the Hollerith punch cards that, thanks to IBM and other data processing firms, became ubiquitous symbols and agents of bureaucratized life during the 1950s and 1960s: “Do Not Fold, Spindle, or Mutilate.”

All of these differences in business scope, resources, and operating environment affect the cost of doing business, decisions to expand, and the choice of whether to take on an activity in-house or to farm it out to a supplier or contractor. In short, they produce the structure of industries. A whole field of economics—industrial organization—arose almost a century ago to make sense of industry structure and explain what made it change, or not change. As discussed in Chapter 3, the field drew on the insight of Ronald Coase, the British economist who in 1937 first propounded the notion that transaction costs helped to explain why firms and industries took particular shapes.22 Individually or together, the companies that dominate a particular industry or marketplace spend a great deal of their energy working to keep things that way. For a company, the aim is to present a unique and attractive selling proposition—one that is hard for any other to imitate, or replicate.


pages: 354 words: 118,970

Transaction Man: The Rise of the Deal and the Decline of the American Dream by Nicholas Lemann

Affordable Care Act / Obamacare, Airbnb, airline deregulation, Albert Einstein, augmented reality, basic income, Bernie Sanders, Black-Scholes formula, buy and hold, capital controls, computerized trading, corporate governance, cryptocurrency, Daniel Kahneman / Amos Tversky, dematerialisation, diversified portfolio, Donald Trump, Elon Musk, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, fixed income, future of work, George Akerlof, gig economy, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, index fund, information asymmetry, invisible hand, Irwin Jacobs, Joi Ito, Joseph Schumpeter, Kenneth Arrow, Kickstarter, life extension, Long Term Capital Management, Mark Zuckerberg, mass immigration, means of production, Metcalfe’s law, money market fund, Mont Pelerin Society, moral hazard, Myron Scholes, new economy, Norman Mailer, obamacare, Paul Samuelson, Peter Thiel, price mechanism, principal–agent problem, profit maximization, quantitative trading / quantitative finance, Ralph Nader, Richard Thaler, road to serfdom, Robert Bork, Robert Metcalfe, rolodex, Ronald Coase, Ronald Reagan, Sand Hill Road, shareholder value, short selling, Silicon Valley, Silicon Valley ideology, Silicon Valley startup, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, TaskRabbit, The Nature of the Firm, the payments system, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, too big to fail, transaction costs, universal basic income, War on Poverty, white flight, working poor

The financial economists had laid waste to the traditional ways of thinking about the financial mechanisms associated with the almighty corporation—stocks and bonds—but what about the corporation itself? Shouldn’t it be subject to the same kind of devastatingly rigorous and unsentimental analysis? An early crack in the intellectual edifice around the corporation appeared way back in 1937, in the form of an article called “The Nature of the Firm,” by Ronald Coase, a twenty-six-year-old British economist who joined the University of Chicago faculty not long after Michael Jensen had arrived there as a graduate student, and who later won the Nobel Prize. “Why is there any organization?” in business, Coase asked. Why not just let the unimpeded market, rather than corporate managers, decide where to build plants, when to launch products, and where to direct workers?

In fact, because corporations were so large, because their chief executives were managers rather than owners, because their boards were made up of cronies of the chief executive, because the shareholders were nowhere in sight, there was nobody in the picture who had an overpowering motive to focus on profits. Corporations were bureaucratic entities, not economic entities, and in that respect they were a black box: nobody really knew what went on inside them. But that could be changed. In 1976 Jensen and Meckling produced a long, detailed, formula-filled paper called “Theory of the Firm” (the title is a tribute to Ronald Coase’s article of forty years earlier) and submitted it to the leading economics journal that focused on organizations. The journal turned it down. (This was to Jensen’s mind, especially later, a badge of honor and a sign that a paradigm shift was arriving; several crucial papers on financial economics had also been turned down by the leading finance journals.) Jensen’s friends Eugene Fama and Robert Merton, hearing about this, decided to publish “Theory of the Firm” in the Journal of Financial Economics, which they had just started with Jensen.

LinkedIn had commissioned a study, by a handpicked economist, that used its trove of private data about the careers of its members. It implied, unsurprisingly, that the Economic Graph the company had been promoting was the key to growth: whether or not it was a direct case of cause and effect, cities with denser networks of LinkedIn connections produced more new jobs than cities with sparser networks. The perpetually exuberant intellectual culture of Silicon Valley had rediscovered Ronald Coase’s old essay “The Nature of the Firm”; the current read of it was that the Internet had reduced transaction costs so radically that conventional business organizations were becoming unnecessary (which of course meant that conventional benefits and pensions would be unnecessary too). Even the most complex projects could be executed by loose, temporary assemblages of talent. Important innovations would come from small new companies, not big old ones.


pages: 50 words: 13,399

The Elements of Data Analytic Style by Jeff Leek

correlation does not imply causation, Netflix Prize, p-value, pattern recognition, Ronald Coase, statistical model

With this kind of data it is possible to describe the person or sample, but generally impossible to infer anything about a population they come from. 2.8.4 Data dredging Interpreting an exploratory analysis as inferential Similar to the idea of overfitting, if you fit a large number of models to a data set, it is generally possible to identify at least one model that will fit the observed data very well. This is especially true if you fit very flexible models that might also capture both signal and noise. Picking any of the single exploratory models and using it to infer something about the whole population will usually lead to mistakes. As Ronald Coase said: “If you torture the data enough, nature will always confess.” This chapter builds on and expands the paper “What is the question?” co-authored by the author of this book. 3. Tidying the data The point of creating a tidy data set is to get the data into a format that can be easily shared, computed on, and analyzed. 3.1 The components of a data set The work of converting the data from raw form to directly analyzable form is the first step of any data analysis.


pages: 504 words: 126,835

The Innovation Illusion: How So Little Is Created by So Many Working So Hard by Fredrik Erixon, Bjorn Weigel

"Robert Solow", Airbnb, Albert Einstein, American ideology, asset allocation, autonomous vehicles, barriers to entry, Basel III, Bernie Madoff, bitcoin, Black Swan, blockchain, BRICs, Burning Man, business cycle, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, Clayton Christensen, Colonization of Mars, commoditize, corporate governance, corporate social responsibility, creative destruction, crony capitalism, dark matter, David Graeber, David Ricardo: comparative advantage, discounted cash flows, distributed ledger, Donald Trump, Elon Musk, Erik Brynjolfsson, fear of failure, first square of the chessboard / second half of the chessboard, Francis Fukuyama: the end of history, George Gilder, global supply chain, global value chain, Google Glasses, Google X / Alphabet X, Gordon Gekko, high net worth, hiring and firing, Hyman Minsky, income inequality, income per capita, index fund, industrial robot, Internet of things, Jeff Bezos, job automation, job satisfaction, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, Joseph Schumpeter, Just-in-time delivery, Kevin Kelly, knowledge economy, laissez-faire capitalism, Lyft, manufacturing employment, Mark Zuckerberg, market design, Martin Wolf, mass affluent, means of production, Mont Pelerin Society, Network effects, new economy, offshore financial centre, pensions crisis, Peter Thiel, Potemkin village, price mechanism, principal–agent problem, Productivity paradox, QWERTY keyboard, RAND corporation, Ray Kurzweil, rent-seeking, risk tolerance, risk/return, Robert Gordon, Ronald Coase, Ronald Reagan, savings glut, Second Machine Age, secular stagnation, Silicon Valley, Silicon Valley startup, Skype, sovereign wealth fund, Steve Ballmer, Steve Jobs, Steve Wozniak, technological singularity, telemarketer, The Chicago School, The Future of Employment, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, too big to fail, total factor productivity, transaction costs, transportation-network company, tulip mania, Tyler Cowen: Great Stagnation, uber lyft, University of East Anglia, unpaid internship, Vanguard fund, Yogi Berra

As in most other companies operating in markets where there are quick product and technology turnover rates, the managements of failing firms also know that over time there is only one question that should keep them awake at night: should we destroy our own offering, or should we let another company do it for us? Still they failed. And to understand the mechanics of failure we need first to understand the firm and why it exists. There is no better starting point than Ronald Coase, the Nobel laureate in economics who rebelled against “blackboard economics” and made the firm the center of economic inquiry. Coase started from a simple, almost banal, observation – surprisingly controversial at the time. Companies, he argued, are not black boxes that cannot be understood by economists. Nor are the successes and failures of firms mysteriously shielded from generalized observations about how economies work.

This is the paradox of globalization: it has raised the efficiency of economies while concurrently reducing the space for contestable innovation. Globalization has moved the boundaries between firm and market In order to understand second-generation globalization and how it could spur efficiency rather than contestable innovation, and generally create markets with managed competition, we need to go back to the basics of industrial organization, and especially Ronald Coase. As companies grew bigger, global, and fragmented they changed their habits but not their character. They still operate, for want of a better word, on “the Coasean principle,” the source code of corporate behavior that we introduced in the previous chapter. The beauty of globalization was that it cut market transaction costs – and, as a consequence, allowed for a reorganization of production.

Countries such as Finland, France, Germany, and the UK are more dependent on larger enterprises (with a workforce in excess of 250 people) than Italy, Portugal, and Spain.60 As we have discussed previously, large firms are closer to the productivity frontier. They help to import new technology and better production processes, partly because they are anchored in international markets to a far greater degree than small firms. Their FDI is a vehicle for raising productivity and prosperity in many parts of the world. Ronald Coase’s simple idea helps us to understand how concentration in recent decades has gone up – and progressively reduced the space for market experimentation and contestability. As market transaction costs were reduced, firms narrowed their ownership advantages and put a lot more effort into raising the boundaries around them and their assets. Globalization offered smart global companies a chance to, first, reinforce the role played by their size and market reach in competition.


pages: 1,136 words: 73,489

Working in Public: The Making and Maintenance of Open Source Software by Nadia Eghbal

Amazon Web Services, barriers to entry, Benevolent Dictator For Life (BDFL), bitcoin, Clayton Christensen, cloud computing, commoditize, continuous integration, crowdsourcing, cryptocurrency, David Heinemeier Hansson, death of newspapers, Debian, disruptive innovation, en.wikipedia.org, Ethereum, Firefox, Guido van Rossum, Hacker Ethic, Induced demand, informal economy, Jane Jacobs, Jean Tirole, Kevin Kelly, Kickstarter, Kubernetes, Mark Zuckerberg, Menlo Park, Network effects, node package manager, Norbert Wiener, pirate software, pull request, RFC: Request For Comment, Richard Stallman, Ronald Coase, Ruby on Rails, side project, Silicon Valley, Snapchat, social graph, software as a service, Steve Jobs, Steve Wozniak, Steven Levy, Stewart Brand, The Death and Life of Great American Cities, The Nature of the Firm, transaction costs, two-sided market, urban planning, web application, wikimedia commons, Zimmermann PGP

Varian’s Information Rules: A Strategic Guide to the Network Economy, a 1999 book widely regarded as the definitive text on the economics of information goods, hardly gives open source software a glance, instead treating software as a commodity to be bought and sold by companies. Once companies started using open source for commercial purposes, and people realized that these “hobby projects” were able to compete with the software made by paid employees, scholars had to come up with a new framework to explain this behavior. Previously, our understanding of how and why people make things was modeled after Ronald Coase’s theory of the firm, which proposes that firms (i.e., companies, organizations, and other institutions with centralized resources) naturally emerge as a way to reduce transaction costs in the market.109 Coase would’ve told us that only companies make software because, from a coordination standpoint, managing the resources required to pull off such a feat would be most efficiently handled within the same organization.

Taylor, Watch Me Play: Twitch and the Rise of Game Live Streaming (Princeton, NJ: Princeton University Press, 2018), 92–93. 102 MacCallum, The Art of Community, 67. 103 Nadia Eghbal, “Emerging Models for Open Source Contributions” (presentation, GitHub CodeConf, Los Angeles, June 29, 2016), https://www.slideshare.net/NadiaEghbal/emerging-models-for-open-source-contributions. 104 Mikeal Rogers, “Healthy Open Source,” Node.js Collection, Medium, February 22, 2016, https://medium.com/the-node-js-collection/healthy-open-source-967fa8be7951. 105 Taylor Wofford, “Fuck You and Die: An Oral History of Something Awful,” Vice, April 5, 2017, https://www.vice.com/amp/en_us/article/nzg4yw/fuck-you-and-die-an-oral-history-of-something-awful. 106 Adam Rowe, “Why Paid Apps Could Be the Future of Online Communities,” Tech.co, November 1, 2019, https://tech.co/news/woolfer-paid-app-online-communities-2019-11. 107 Kevin Simler, “Border Stories,” Melting Asphalt, March 2, 2015, https://meltingasphalt.com/border-stories/. 03 108 Star Simpson (@starsandrobots), “Til recently you were online . . .,” Twitter, November 5, 2017, 6:54 p.m., https://twitter.com/starsandrobots/status/927323260244463616. 109 Ronald Coase, “The Nature of the Firm,” Economica 4, no. 16 (November 1937): 386–405, https://doi.org/10.1017/cbo9780511817410.009. 110 Elinor Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action (Cambridge: Cambridge University Press, 1990), Loc 2053. 111 Yochai Benkler, “Coase’s Penguin, Or, Linux and ‘The Nature of the Firm,’” The Yale Law Journal 112, no. 3 (2002): 369–446, https://doi.org/10.2307/1562247. 112 Benkler, “Coase’s Penguin,” 381. 113 Guido van Rossum, “Foreword for ‘Programming Python’ (1st Ed.),” Python.org, May 1996, https://www.python.org/doc/essays/foreword/. 114 Linus Torvalds, “LINUX’s History,” Carnegie Mellon University School of Computer Science, July 31, 1992, https://www.cs.cmu.edu/~awb/linux.history.html. 115 Linus Torvalds, “Re: Kernel SCM Saga..,” Mailing List ARChive, April 7, 2005, https://marc.info/?


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What's Wrong with Economics? by Robert Skidelsky

"Robert Solow", additive manufacturing, agricultural Revolution, Black Swan, Bretton Woods, business cycle, Cass Sunstein, central bank independence, cognitive bias, conceptual framework, Corn Laws, corporate social responsibility, correlation does not imply causation, creative destruction, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, disruptive innovation, Donald Trump, full employment, George Akerlof, George Santayana, global supply chain, global village, Gunnar Myrdal, happiness index / gross national happiness, hindsight bias, Hyman Minsky, income inequality, index fund, inflation targeting, information asymmetry, Internet Archive, invisible hand, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labour market flexibility, loss aversion, Mark Zuckerberg, market clearing, market friction, market fundamentalism, Martin Wolf, means of production, moral hazard, paradox of thrift, Pareto efficiency, Paul Samuelson, Philip Mirowski, precariat, price anchoring, principal–agent problem, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, shareholder value, Silicon Valley, Simon Kuznets, survivorship bias, technoutopianism, The Chicago School, The Market for Lemons, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, Thorstein Veblen, transaction costs, transfer pricing, Vilfredo Pareto, Washington Consensus, Wolfgang Streeck, zero-sum game

Nor do they normally start with ‘vigilant observation’: numbers arranged as statistical series from which they try to discern patterns and suggestive anomalies. They start with a hypothesis and then try to prove it. The hypothesis is not ‘plucked from the air’. Nor is it based on systematic observation, even though economists often appeal to the ‘indisputable facts of experience’. Rather, it is based on the claim to ‘direct acquaintance’ or ‘intuitive’ knowledge of how humans think. Ronald Coase (1910–2013) recalled the English economist Ely Devons (1913–1967) saying to him, ‘If economists wished to study the horse, they wouldn’t go and look at horses. They’d sit in their studies and say to themselves, “What would I do if I were a horse?” And they would soon discover that they would maximise their utilities.’7 This joke gives a profound insight into the economic method. Economists see themselves as forming their theories by looking into the minds of their subjects and seeing how they think.

‘Neoclassical’ institutionalism With the ‘new’ institutional economics of the 1980s, institutionalism collapsed back into neoclassical economics. Its main idea was that individuals form institutions to reduce the ‘transaction’, especially ‘information’, costs of trading individually in markets. The neoclassical logic remains intact: individuals create institutions to maximise their utilities. The father of this approach was Nobel Laureate Ronald Coase (1910–2013), whose seminal article on the firm appeared in 1937, in reaction against the then prevalent theories of oligopolistic competition. It took the overthrow of Keynesianism by the new classical economics in the 1970s and 1980s for his ideas to gain currency. Today they comprise the orthodox microeconomics of institutions. Why do firms exist? Coase’s answer is that they exist to reduce the costs to individuals of doing business separately.


pages: 503 words: 131,064

Liars and Outliers: How Security Holds Society Together by Bruce Schneier

airport security, barriers to entry, Berlin Wall, Bernie Madoff, Bernie Sanders, Brian Krebs, Broken windows theory, carried interest, Cass Sunstein, Chelsea Manning, commoditize, corporate governance, crack epidemic, credit crunch, crowdsourcing, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Graeber, desegregation, don't be evil, Double Irish / Dutch Sandwich, Douglas Hofstadter, experimental economics, Fall of the Berlin Wall, financial deregulation, George Akerlof, hydraulic fracturing, impulse control, income inequality, invention of agriculture, invention of gunpowder, iterative process, Jean Tirole, John Nash: game theory, joint-stock company, Julian Assange, longitudinal study, mass incarceration, meta analysis, meta-analysis, microcredit, moral hazard, mutually assured destruction, Nate Silver, Network effects, Nick Leeson, offshore financial centre, patent troll, phenotype, pre–internet, principal–agent problem, prisoner's dilemma, profit maximization, profit motive, race to the bottom, Ralph Waldo Emerson, RAND corporation, rent-seeking, RFID, Richard Thaler, risk tolerance, Ronald Coase, security theater, shareholder value, slashdot, statistical model, Steven Pinker, Stuxnet, technological singularity, The Market for Lemons, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, too big to fail, traffic fines, transaction costs, ultimatum game, UNCLOS, union organizing, Vernor Vinge, WikiLeaks, World Values Survey, Y2K, zero-sum game

Smith (2010), “Hydraulic Fracturing: History of an Enduring Technology,” Journal of Petroleum Technology, 62:26–41. shoddy building practices Heather Timmons (25 Apr 2003), “Shoddy Building in the Housing Boom?” Bloomberg BusinessWeek. used to be smaller John Stopford (1998), “Multinational Corporations,” Foreign Policy, 113:12–24. Gardiner C. Means (1931), “The Growth in the Relative Importance of the Large Corporation in American Economic Life,” The American Economic Review, 21:10–42. Ronald Coase first Ronald Coase (1937), “The Nature of the Firm,” Economica, 4:386–405. Nick Leeson's Richard W. Stevenson (28 Feb 1995), “The Collapse of Barings: The Overview: Young Trader's $29 Billion Bet Brings down a Venerable Firm,” New York Times. Erik Ipsen (19 Jul 1995), “Bank of England Cites Fraud in Barings Collapse,” New York Times. Peter Culshaw (8 Jan 2009), “Nick Leeson: How the Original Rogue Trader at Barings Bank Is Thriving in the Credit Crunch,” The Telegraph.

Different people within, and different parts of, an organization need to communicate with each other; and the larger an organization, the harder that is to do. Most organizations are hierarchical, making communications easier. And militaries have generally been examples of the largest-sized organization a particular technological level can produce. But there's a limit where the costs of communications outweigh the value of being part of one organization. Economist Ronald Coase first pointed this out in 1937. Called “Coase's limit” or “Coase's ceiling,” it's the point of diminishing returns for a company: where adding another person to an organization doesn't actually add any value to the organization. You can think of an employee inside of an organization having two parts to his job: coordinating with people inside the organization and doing actual work that makes the company money.


The Armchair Economist: Economics and Everyday Life by Steven E. Landsburg

Albert Einstein, Arthur Eddington, business cycle, diversified portfolio, first-price auction, German hyperinflation, Golden Gate Park, information asymmetry, invisible hand, Kenneth Arrow, means of production, price discrimination, profit maximization, Ralph Nader, random walk, Ronald Coase, Sam Peltzman, sealed-bid auction, second-price auction, second-price sealed-bid, statistical model, the scientific method, Unsafe at Any Speed

But whoever controls the resource, and however his control is protected, he will find it to his private advantage to direct the resource to its most profitable use, regardless of whether that use is by him or by his neighbor. The court cannot affect the profitability of either enterprise and therefore cannot control how the resource is employed. This startling observation about the impotence of judges was made in 1961 by Professor Ronald Coase of the University of Chicago Law School. While it is obvious once stated, it seems to have come as a revelation to economists, jurists, and legal scholars. It also marked the birth of a new academic specialty: the economic analysis of law. In Coase's honor, his observation has come to be called the Coase Theorem. It applies whenever the parties to a dispute are able to negotiate, to strike bargains, and to be confident that 86 GOOD AND EVIL their bargains are enforceable.

Why Taxes Are Bad: The story of the lost dollar bill is a fiction but could have been a truth. When I presented David Friedman with the airline ticket conundrum from the end of the chapter, he immediately responded by telling me that if I believed in an efficiency standard for personal conduct, I was honor-bound not to retrieve the next dollar bill that I dropped. Of Medicine and Candy, Trains and Sparks: The entire chapter is inspired by Ronald Coase's article on social cost, published in the Journal of Law and Economics in 1960. Sound and Fury: James Kahn pointed out to me the irony of Al Gore's timing. How Statistics Lie: The observation about Star Market's misleading advertising is due to Walter Oi. The Policy Vice: The observation that the possibility of "scoops" might justify either taxing or subsidizing inventors is due to Marvin Goodfriend.


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Big Business: A Love Letter to an American Anti-Hero by Tyler Cowen

23andMe, Affordable Care Act / Obamacare, augmented reality, barriers to entry, Bernie Sanders, bitcoin, blockchain, Bretton Woods, cloud computing, cognitive dissonance, corporate governance, corporate social responsibility, correlation coefficient, creative destruction, crony capitalism, cryptocurrency, dark matter, David Brooks, David Graeber, don't be evil, Donald Trump, Elon Musk, employer provided health coverage, experimental economics, Filter Bubble, financial innovation, financial intermediation, global reserve currency, global supply chain, Google Glasses, income inequality, Internet of things, invisible hand, Jeff Bezos, late fees, Mark Zuckerberg, mobile money, money market fund, mortgage debt, Network effects, new economy, Nicholas Carr, obamacare, offshore financial centre, passive investing, payday loans, peer-to-peer lending, Peter Thiel, pre–internet, price discrimination, profit maximization, profit motive, RAND corporation, rent-seeking, reserve currency, ride hailing / ride sharing, risk tolerance, Ronald Coase, shareholder value, Silicon Valley, Silicon Valley startup, Skype, Snapchat, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Nature of the Firm, Tim Cook: Apple, too big to fail, transaction costs, Tyler Cowen: Great Stagnation, ultimatum game, WikiLeaks, women in the workforce, World Values Survey, Y Combinator

I’ve found that over time my views on exactly what a corporation is and what it does have evolved away from the economics mainstream. I’m more likely to think of a corporation as a carrier of reputation and a kind of metaphorical personhood, and less likely to think of a corporation as a means of minimizing transactions costs, as many mainstream economists have suggested. In a famous 1937 article, “The Nature of the Firm,” the economist and Nobel laureate Ronald Coase defined the nature of economic thought about the corporation for many decades to come. In that piece, he described the corporation as essentially a means of reducing transactions costs. It’s not always easy to hire the worker you want just by going out into spot labor markets, not to mention get that worker to do your bidding. Or you may extend the size of the firm to ensure the quality of an asset you need for your production plans.

At the same time, those bureaucracies keep some of the employees from “going off the reservation,” or make it harder for the boss to play favorites or for shareholders to use the company for personal purposes. So corporate bureaucracy is necessary. Still, because of bureaucracy, corporate life can be tough and also deeply unfair at times. And that too is “the nature of the firm,” to refer back to Ronald Coase’s title. ACKNOWLEDGMENTS The author wishes to thank Tim Bartlett, Christina Cacioppo, Bryan Caplan, Natasha Cowen, Teresa Hartnett, Daniel Klein, Ezra Klein, Randall Kroszner, Timothy Lee, Hollis Robbins, Alex Tabarrok, and Dillon Tauzin for useful comments and discussions and assistance. I am especially thankful to Tim Bartlett for his useful and comprehensive edits, and also for seeing this book through the publication process, and Teresa Hartnett for her services as agent.


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Exponential Organizations: Why New Organizations Are Ten Times Better, Faster, and Cheaper Than Yours (And What to Do About It) by Salim Ismail, Yuri van Geest

23andMe, 3D printing, Airbnb, Amazon Mechanical Turk, Amazon Web Services, augmented reality, autonomous vehicles, Baxter: Rethink Robotics, Ben Horowitz, bioinformatics, bitcoin, Black Swan, blockchain, Burning Man, business intelligence, business process, call centre, chief data officer, Chris Wanstrath, Clayton Christensen, clean water, cloud computing, cognitive bias, collaborative consumption, collaborative economy, commoditize, corporate social responsibility, cross-subsidies, crowdsourcing, cryptocurrency, dark matter, Dean Kamen, dematerialisation, discounted cash flows, disruptive innovation, distributed ledger, Edward Snowden, Elon Musk, en.wikipedia.org, Ethereum, ethereum blockchain, game design, Google Glasses, Google Hangouts, Google X / Alphabet X, gravity well, hiring and firing, Hyperloop, industrial robot, Innovator's Dilemma, intangible asset, Internet of things, Iridium satellite, Isaac Newton, Jeff Bezos, Joi Ito, Kevin Kelly, Kickstarter, knowledge worker, Kodak vs Instagram, Law of Accelerating Returns, Lean Startup, life extension, lifelogging, loose coupling, loss aversion, low earth orbit, Lyft, Marc Andreessen, Mark Zuckerberg, market design, means of production, minimum viable product, natural language processing, Netflix Prize, NetJets, Network effects, new economy, Oculus Rift, offshore financial centre, PageRank, pattern recognition, Paul Graham, paypal mafia, peer-to-peer, peer-to-peer model, Peter H. Diamandis: Planetary Resources, Peter Thiel, prediction markets, profit motive, publish or perish, Ray Kurzweil, recommendation engine, RFID, ride hailing / ride sharing, risk tolerance, Ronald Coase, Second Machine Age, self-driving car, sharing economy, Silicon Valley, skunkworks, Skype, smart contracts, Snapchat, social software, software is eating the world, speech recognition, stealth mode startup, Stephen Hawking, Steve Jobs, subscription business, supply-chain management, TaskRabbit, telepresence, telepresence robot, Tony Hsieh, transaction costs, Travis Kalanick, Tyler Cowen: Great Stagnation, uber lyft, urban planning, WikiLeaks, winner-take-all economy, X Prize, Y Combinator, zero-sum game

As John Seely Brown has noted, the half-life of a learned skill used to be about thirty years. Today it’s down to about five years. In his recent book, The Startup of You, LinkedIn founder Reid Hoffman notes that individuals will increasingly learn to manage themselves as companies, with brand management (MTP!), and marketing and sales functions all brought down to the individual. Similarly, Ronald Coase, who won the Nobel Prize in Economics in 1991, noted that enterprises are more like families than industries, and that corporations are more of a sociological construct than an economic one. For any company today, having a permanent, full-time workforce is fraught with growing peril as employees fail to keep their skills up to date, resulting in personnel in need of greater management. In our fast-changing global and Internet-driven marketplace, increasingly desperate organizations are turning to external and temporary workforces to fill their expertise gaps.

Replacing five-year plans with these new, real time elements can be scary but it’s also liberating, and the rewards for those willing to stay on the ride will be both decisive and astonishing. Besides, being eaten alive by an upstart competitor is anything but relaxing. This shift will, of course, be quite challenging for large organizations, which rely on drawn-out projections and tracking for planning and control purposes. 6. Smaller Beats Bigger (aka Size Does Matter, Just not the Way You Think) Ronald Coase won the 1991 Nobel Prize in Economics for his theory that larger companies do better because they aggregate assets under one roof and, as a result, enjoy lower transaction costs. Two decades later, the reach delivered by the information revolution has negated the need to aggregate assets in the first place. For decades, scale and size have been desirable traits in an enterprise. A bigger company could do more, the argument went, because it could leverage economies of scale and negotiate from strength.


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How Capitalism Saved America: The Untold History of Our Country, From the Pilgrims to the Present by Thomas J. Dilorenzo

banking crisis, British Empire, business cycle, collective bargaining, corporate governance, corporate social responsibility, financial deregulation, Fractional reserve banking, Hernando de Soto, income inequality, invisible hand, Joseph Schumpeter, laissez-faire capitalism, means of production, medical malpractice, Menlo Park, minimum wage unemployment, Norman Mailer, plutocrats, Plutocrats, price stability, profit maximization, profit motive, Ralph Nader, rent control, rent-seeking, Robert Bork, Ronald Coase, Ronald Reagan, Silicon Valley, statistical model, The Wealth of Nations by Adam Smith, transcontinental railway, union organizing, Upton Sinclair, wealth creators, working poor, Works Progress Administration, zero-sum game

But there have been hundreds—probably thousands—of scholarly studies of the effectiveness of government regulation, and these studies show that usually regulation either is ineffective or makes a problem worse. Many of these studies have been published in the prestigious, peer-reviewed Journal of Law and Economics, published by the University of Chicago Law School. The onetime-editor of the Journal, Nobel laureate Ronald Coase, summed it up: There have been more serious studies made of government regulation of industry in the last fifteen years or so, particularly in the United States, than in the whole preceding period. These studies have been both quantitative and nonquantitative. . . . The main lesson to be drawn from these studies is clear: they all tend to suggest that the regulation is either ineffective or that when it has a noticeable impact, on balance, the effect is bad, so that consumers obtain a worse product or a higher-priced product or both as a result of regulation.

John Kerry, meanwhile, condemned the Bush administration for its “obsession with giveaways to their friends in the oil business” and declared that “these blackouts also expose some of the failures of this administration’s energy policies” (quoted on Meet the Press, NBC, August 17, 2003). CONCLUSION: THE NEVER-ENDING WAR ON CAPITALISM 1. Michel Jensen and William Meckling, “The Future of Capitalism,” Financial Analyst’s Journal, May 1978, 1. 2. Ludwig von Mises, Liberalism: In the Classical Tradition (Irvington, NY: Foundation for Economic Education, 1985), 102. 3. Ronald Coase, “Economists and Public Policy,” in J. Fred Weston, ed., Large Corporations in a Changing Society (New York: New York University Press, 1975). 4. Fred S. McChesney, Money for Nothing: Politicians, Rent Extraction, and Political Extortion (Cambridge: Harvard University Press, 1997). 5. Ibid., inside cover. 6. Ibid., 57. 7. Ibid., 63. 8. Stanley J. Liebowitz and Stephen E. Margolis, Winners, Losers, and Microsoft: Competition and Antitrust in High Technology (Oakland, CA: Independent Institute, 1999). 9.


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What They Do With Your Money: How the Financial System Fails Us, and How to Fix It by Stephen Davis, Jon Lukomnik, David Pitt-Watson

activist fund / activist shareholder / activist investor, Admiral Zheng, banking crisis, Basel III, Bernie Madoff, Black Swan, buy and hold, centralized clearinghouse, clean water, computerized trading, corporate governance, correlation does not imply causation, credit crunch, Credit Default Swap, crowdsourcing, David Brooks, Dissolution of the Soviet Union, diversification, diversified portfolio, en.wikipedia.org, financial innovation, financial intermediation, fixed income, Flash crash, income inequality, index fund, information asymmetry, invisible hand, Kenneth Arrow, Kickstarter, light touch regulation, London Whale, Long Term Capital Management, moral hazard, Myron Scholes, Northern Rock, passive investing, performance metric, Ponzi scheme, post-work, principal–agent problem, rent-seeking, Ronald Coase, shareholder value, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, Steve Jobs, the market place, The Wealth of Nations by Adam Smith, transaction costs, Upton Sinclair, value at risk, WikiLeaks

These are the costs involved in ensuring that the buyer gets the service he requires and that the supplier receives proper compensation. Where transaction costs are high, it is difficult to get markets to work. For example, lighthouses find it hard to charge passing ships for their service. Traditional economists had bundled these into a separate sort of product, known as “public goods,” where markets will fail and the goods must be purchased by the state. But as the Chicago economist Ronald Coase pointed out, the difference between the transaction costs involved in the provision of lighthouses and other goods is one of degree, not of quality. He noted that the first lighthouses were privately provided by the operators of nearby ports, and concluded that by dividing the world into “private goods,” where markets would regulate prices effectively, and “public goods,” where they would not, economists had posed the wrong question.30 The issue was not about whether there should be state or private provision, but how best to manage transaction costs so that the buyer and seller could easily strike a good deal.

Merriam-Webster.com defines capitalism as “an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.” Other dictionaries similarly cite private ownership as central to the definition of capitalism. www.merriam-webster.com/dictionary/capitalism, accessed September 27, 2013. Indeed, for economists such as Ronald Coase and Friedrich Hayek, the marriage of ownership and control rights is essential to the effective working of the system. 3. Warren Buffett, letter in 2002 Annual Report of Berkshire Hathaway. 4. James Saft, “The Wisdom of Exercising Patience in Investing” (Reuters, March 2, 2012). This is not a new phenomenon. The average duration of mutual fund holdings has not changed much in a quarter of a century, averaging about 1.2 to 1.5 years, according to University of Notre Dame research professor Martijn Cremers.


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The Sovereign Individual: How to Survive and Thrive During the Collapse of the Welfare State by James Dale Davidson, Rees Mogg

affirmative action, agricultural Revolution, bank run, barriers to entry, Berlin Wall, borderless world, British Empire, California gold rush, clean water, colonial rule, Columbine, compound rate of return, creative destruction, Danny Hillis, debt deflation, ending welfare as we know it, epigenetics, Fall of the Berlin Wall, falling living standards, feminist movement, financial independence, Francis Fukuyama: the end of history, full employment, George Gilder, Hernando de Soto, illegal immigration, income inequality, informal economy, information retrieval, Isaac Newton, Kevin Kelly, market clearing, Martin Wolf, Menlo Park, money: store of value / unit of account / medium of exchange, new economy, New Urbanism, Norman Macrae, offshore financial centre, Parkinson's law, pattern recognition, phenotype, price mechanism, profit maximization, rent-seeking, reserve currency, road to serfdom, Ronald Coase, Sam Peltzman, school vouchers, seigniorage, Silicon Valley, spice trade, statistical model, telepresence, The Nature of the Firm, the scientific method, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, trade route, transaction costs, Turing machine, union organizing, very high income, Vilfredo Pareto

187 The classical economists like Adam Smith were almost silent on the question of firm size. They did not address what influences the optimal size of firms, why firms take the form they do, or even why firms exist at all. Why do entrepreneurs hire employees, rather than placing every task that needs doing out to bid among independent contractors in the auction market? Nobel Prize-winning economist Ronald Coase helped launch a new direction in economics by asking some of these important questions. The answers he helped to frame hint at the revolutionary consequences of information technology for the structure of business. Coase argued that firms were an efficient way to overcome information deficits and high transaction costs.26 Information and Transaction Costs To see why, consider the obstacles you would have faced in trying to operate an industrial-era assembly line without a single firm to coordinate its activities.

"Competitive Territorial Clubs" This is more than merely a theory, as articulated first by economist Charles Tiebout in 1956.30 As economist Fred Foldvary has documented in Public Goods and Private Communities: The Market Provision of Social Services, there is no essential reason that social services and many public goods must be provided by political means. 274 Foldvary's examples, among others, also confirm the controversial theorem of Nobel Prize~winning economist Ronald Coase that "government intervention is not needed to resolve externality issues," such as problems of pollution.31 Entrepreneurs can provide collective goods by market means. Many already do so now in real world communities. Foldvary's case studies show how the privatization of communities can result in new mechanisms for providing and financing public goods and services.32 The Road to Prosperity Microtechnology itself will facilitate new means of financing and regulating the provision of goods heretofore treated as public goods.

Hirschman, Exit, Voice, and Loyalty (Cambridge: Harvard University Press, 1969), p.81. 17. Tom Peters and George Gilder, "City vs. Country: Tom Peters & George Gilder Debate the Impact of Technology on Location," Forbes, February 1995. 18. Weber, op. cit., p.21. 19. Ibid., p.46 for London, p.73 for Paris. 20. Ibid., p.120. 21. Ibid., p.95. 22. Ibid., p.84. 23. Ibid., p.119. 24. Ibid., p.101. 25. Ibid., p.5. 26. See Ronald Coase, "The Nature of the Firm," reprinted in Louis Putterman and Randall S. Kroszner, eds., The Economic Nature of the Firm: A Reader 2nd ed. (Cambridge: Cambridge University Press, 1996), pp.89-104. 27. Quoted by West, op. cit., p.58; see also Oliver E. Williamson, "The Organization of Work: A Comparative Insititutional Assessment," Journal of Economic Behaviour and Organisation, vol.1, no.1. 28.


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Radical Uncertainty: Decision-Making for an Unknowable Future by Mervyn King, John Kay

"Robert Solow", Airbus A320, Albert Einstein, Albert Michelson, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Arthur Eddington, autonomous vehicles, availability heuristic, banking crisis, Barry Marshall: ulcers, battle of ideas, Benoit Mandelbrot, bitcoin, Black Swan, Bonfire of the Vanities, Brownian motion, business cycle, business process, capital asset pricing model, central bank independence, collapse of Lehman Brothers, correlation does not imply causation, credit crunch, cryptocurrency, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, demographic transition, discounted cash flows, disruptive innovation, diversification, diversified portfolio, Donald Trump, easy for humans, difficult for computers, Edmond Halley, Edward Lloyd's coffeehouse, Edward Thorp, Elon Musk, Ethereum, Eugene Fama: efficient market hypothesis, experimental economics, experimental subject, fear of failure, feminist movement, financial deregulation, George Akerlof, germ theory of disease, Hans Rosling, Ignaz Semmelweis: hand washing, income per capita, incomplete markets, inflation targeting, information asymmetry, invention of the wheel, invisible hand, Jeff Bezos, Johannes Kepler, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Snow's cholera map, John von Neumann, Kenneth Arrow, Long Term Capital Management, loss aversion, Louis Pasteur, mandelbrot fractal, market bubble, market fundamentalism, Moneyball by Michael Lewis explains big data, Nash equilibrium, Nate Silver, new economy, Nick Leeson, Northern Rock, oil shock, Paul Samuelson, peak oil, Peter Thiel, Philip Mirowski, Pierre-Simon Laplace, popular electronics, price mechanism, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, railway mania, RAND corporation, rent-seeking, Richard Feynman, Richard Thaler, risk tolerance, risk-adjusted returns, Robert Shiller, Robert Shiller, Ronald Coase, sealed-bid auction, shareholder value, Silicon Valley, Simon Kuznets, Socratic dialogue, South Sea Bubble, spectrum auction, Steve Ballmer, Steve Jobs, Steve Wozniak, Tacoma Narrows Bridge, Thales and the olive presses, Thales of Miletus, The Chicago School, the map is not the territory, The Market for Lemons, The Nature of the Firm, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Bayes, Thomas Davenport, Thomas Malthus, Toyota Production System, transaction costs, ultimatum game, urban planning, value at risk, World Values Survey, Yom Kippur War, zero-sum game

They cited not only the osotua practices of those Maa speakers in Africa, but the potlatches of native tribes in the American north-west (ceremonies involving massive and sometimes destructive exchanges of gifts), and the modern American – and European – practice of marking a proposal of marriage with a costly engagement ring. The economists found an altogether different explanation for a round of drinks. The practice minimised transaction costs, reducing the number of occasions on which money needed to be handed across the bar, and the frequency with which the bartender made change. They drew an analogy with Ronald Coase’s famous analysis of when it made sense to deal through markets and when it was better to internalise the transaction within the firm. 6 It was an economist, of course, who proposed an empirical test of the alternative hypotheses. What happened if you bought more drinks than had been bought for you? The anthropological explanation suggested that you should feel pleased, as does the happy groom-to-be when his gift is accepted, in anticipation of future mutual exchange of favours.

Peter Drucker’s 1946 Concept of the Corporation was the first bestselling business book and is still in print and widely read; Alfred Chandler’s Strategy and Structure transformed business history from the hagiographic portrayal of companies and the heroic individuals who led them into the serious academic discipline it is today; and Sloan’s own My Years with General Motors is one of the few autobiographies by a senior executive worth reading. Ronald Coase’s depiction of the theory of the firm, for which he received the Nobel Prize in Economics in 1991, is a thinly disguised account of the General Motors of the inter-war period. The essence of Sloan’s management style was a mixture of a closely knit senior executive group with considerable organisational decentralisation. On taking control of the corporation, Sloan replaced many of the senior executives with a group of his own choosing, and these individuals continued to be dominant throughout the heyday of the corporation.

An obvious means of responding to the prior neglect of expectations would have been to undertake empirical work on the beliefs about the future which consumers and those engaged in business and finance actually held, and the processes by which they established and changed such beliefs. But little such research was undertaken. The new macroeconomic theorists instead followed a different approach; Chicago economist Ronald Coase attributed a satirical description of it to the English economist Ely Devons: ‘If economists wished to study the horse, they wouldn’t go and look at horses. They’d sit in their studies and say to themselves, “What would I do if I were a horse?”’ 7 These theorists – Chicago was and remains a centre of their thinking – followed the dominant paradigm of the universal applicability of subjective probability.


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The Wealth of Networks: How Social Production Transforms Markets and Freedom by Yochai Benkler

affirmative action, barriers to entry, bioinformatics, Brownian motion, call centre, Cass Sunstein, centre right, clean water, commoditize, dark matter, desegregation, East Village, fear of failure, Firefox, game design, George Gilder, hiring and firing, Howard Rheingold, informal economy, information asymmetry, invention of radio, Isaac Newton, iterative process, Jean Tirole, jimmy wales, John Markoff, Kenneth Arrow, longitudinal study, market bubble, market clearing, Marshall McLuhan, Mitch Kapor, New Journalism, optical character recognition, pattern recognition, peer-to-peer, pre–internet, price discrimination, profit maximization, profit motive, random walk, recommendation engine, regulatory arbitrage, rent-seeking, RFID, Richard Stallman, Ronald Coase, Search for Extraterrestrial Intelligence, SETI@home, shareholder value, Silicon Valley, Skype, slashdot, social software, software patent, spectrum auction, technoutopianism, The Fortune at the Bottom of the Pyramid, The Nature of the Firm, transaction costs, Vilfredo Pareto

It should not, the intuitions of the late-twentieth-century American would say, be the case that thousands of volunteers will come together to collaborate on a complex economic project. It certainly should not be that these volunteers will beat the largest and best-financed business enterprises in the world at their own game. And yet, this is precisely what is happening in the software world. 120 Industrial organization literature provides a prominent place for the transaction costs view of markets and firms, based on insights of Ronald Coase and Oliver Williamson. On this view, people use markets when the gains from doing so, net of transaction costs, exceed the gains from doing the same thing in a managed firm, net of the costs of organizing and managing a firm. Firms emerge when the opposite is true, and transaction costs can best be reduced by [pg 60] bringing an activity into a managed context that requires no individual transactions to allocate this resource or that effort.

This engineering technique, adopted by Marconi in 1900, formed the basis of our notion of "spectrum": the range of frequencies at which we know how to generate electromagnetic waves with sufficient control and predictability that we can encode and decode information with them, as well as the notion that there are "channels" of spectrum that are "used" by a communication. For more than half a century, radio communications regulation was thought necessary because spectrum was scarce, and unless regulated, everyone would transmit at all frequencies causing chaos and an inability to send messages. From 1959, when Ronald Coase first published his critique of this regulatory approach, until the early 1990s, when spectrum auctions began, the terms of the debate over "spectrum policy," or wireless communications regulation, revolved around whether the exclusive right to transmit radio signals in a given geographic area should be granted as a regulatory license or a tradable property right. In the 1990s, with the introduction of auctions, we began to see the adoption of a primitive version of a property-based system through "spectrum auctions."

Brand X Internet Services (decided June 27, 2005). 163. Turner Broad. Sys. v. FCC, 512 U.S. 622 (1994) and Turner Broad. Sys. v. FCC, 520 U.S. 180 (1997). 164. Chesapeake & Potomac Tel. Co. v. United States, 42 F.3d 181 (4th Cir. 1994); Comcast Cablevision of Broward County, Inc. v. Broward County, 124 F. Supp. 2d 685, 698 (D. Fla., 2000). 165. The locus classicus of the economists' critique was Ronald Coase, "The Federal Communications Commission," Journal of Law and Economics 2 (1959): 1. The best worked-out version of how these property rights would look remains Arthur S. De Vany et al., "A Property System for Market Allocation of the Electromagnetic Spectrum: A Legal-Economic-Engineering Study," Stanford Law Review 21 (1969): 1499. 166. City of Abilene, Texas v. Federal Communications Commission, 164 F3d 49 (1999). 167.


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The Power of Pull: How Small Moves, Smartly Made, Can Set Big Things in Motion by John Hagel Iii, John Seely Brown

Albert Einstein, Andrew Keen, barriers to entry, Black Swan, business process, call centre, Clayton Christensen, cleantech, cloud computing, commoditize, corporate governance, creative destruction, disruptive innovation, Elon Musk, en.wikipedia.org, future of work, game design, George Gilder, intangible asset, Isaac Newton, job satisfaction, Joi Ito, knowledge economy, knowledge worker, loose coupling, Louis Pasteur, Malcom McLean invented shipping containers, Maui Hawaii, medical residency, Network effects, old-boy network, packet switching, pattern recognition, peer-to-peer, pre–internet, profit motive, recommendation engine, Ronald Coase, shareholder value, Silicon Valley, Skype, smart transportation, software as a service, supply-chain management, The Nature of the Firm, the new new thing, too big to fail, trade liberalization, transaction costs

First, during the Depression in the 1930s, business leaders in major developed economies around the world were motivated to exploit the capabilities of new communication and transportation infrastructures more effectively to harness scalable efficiency and compete during a period of stagnant or declining demand. Second, during the 1950s, another generation of business leaders broadened their horizons to scale push programs beyond national boundaries to take advantage of trade liberalization and to serve global markets. It is no coincidence that the famous British economist Ronald Coase wrote his path-breaking essay, “The Nature of the Firm,” in 1937.4 He effectively captured the primary thrust of institution-building during this period, arguing that firms existed to reduce the transaction costs that made coordinating activity across independent entities difficult. For this insight, he won the Nobel Prize in Economics. As firms deployed these new push-based approaches, other institutions underwent similar transformations.

Chapter 1 1 Timothy Ferris, The Four-Hour Work Week (New York: Crown, 2007). 2 A Gallup poll found that 55 percent of all U.S. employees are bored at least part of the time they’re at work. See Heath Row, “Yawn and Guarded,” Fast Company Member Blog, February 8, 2008, http://www.fastcompany.com/blog/heath-row/yawn-and-guarded. 3 See for instance, Alfred D. Chandler Jr., Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge: Harvard University Press, 1994). 4 Ronald Coase, “The Nature of the Firm,” Economica 4, no. 16 (November 1937): 386-405. 5 For more about the role of real-time information in the Saffron Revolution, as well as in other political crises, see Nik Gowing, “‘Skyful of Lies’ and Black Swans: The New Tyranny of Shifting Information Power in Crises,” Reuters Institute for the Study of Journalism, May 2009, http://reutersinstitute.politics.ox.ac.uk/fileadmin/documents/Publications/Skyful_of_Lies.pdf. 6 Ibid. 7 See, for instance, “‘Neda’ Becomes Rallying Cry for Iranian Protests,” CNN, June 22, 2009, http://www.cnn.com/2009/WORLD/meast/06/21/iran.woman.twitter/index.html?


pages: 336 words: 90,749

How to Fix Copyright by William Patry

A Declaration of the Independence of Cyberspace, barriers to entry, big-box store, borderless world, business cycle, business intelligence, citizen journalism, cloud computing, commoditize, creative destruction, crowdsourcing, death of newspapers, en.wikipedia.org, facts on the ground, Frederick Winslow Taylor, George Akerlof, Gordon Gekko, haute cuisine, informal economy, invisible hand, Joseph Schumpeter, Kickstarter, knowledge economy, lone genius, means of production, moral panic, new economy, road to serfdom, Ronald Coase, Ronald Reagan, semantic web, shareholder value, Silicon Valley, The Chicago School, The Wealth of Nations by Adam Smith, trade route, transaction costs, trickle-down economics, winner-take-all economy, zero-sum game

See a number highlighted by Glyn Moody in “Submission to UK Independent Review of ‘IP’ and Growth,” February 24, 2011, available at: http://blogs.computerworlduk.com/open-enterprise/2011/02/ submission-to-uk-independent-review-of-ip-and-growth/index.htm. 51. Ian Hargreaves, Digital Opportunity: A Review of Intellectual Property and Growth, Executive Summary (May 2011). 52. Id. Chapter 10, paragraph 10.7. 53. Id., paragraph 10.10. 54. Id., paragraph 10.6. 55. Media Piracy in Emerging Economies at 16. Ronald Coase similarly pointed out the proper approach is to “compare the total social product yielded by ...different arrangements,” Ronald Coase, The Problem of Social Cost, 3 Journal of Law and Economics 1, 34 (1960). 56. Both charts are taken from this source: http://theunderstatement. com/post/3362645556/the-real-death-of-the-music-industry. 57. Available at: http://yarchive.net/macaulay/copyright.html. He also pointed out that the rights would have been owned by a publisher who would have pocketed all the royalties anyway. 58.


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The Fourth Revolution: The Global Race to Reinvent the State by John Micklethwait, Adrian Wooldridge

Admiral Zheng, affirmative action, Affordable Care Act / Obamacare, Asian financial crisis, assortative mating, banking crisis, barriers to entry, battle of ideas, Berlin Wall, Bernie Madoff, Boris Johnson, Bretton Woods, British Empire, cashless society, central bank independence, Chelsea Manning, circulation of elites, Clayton Christensen, Corn Laws, corporate governance, credit crunch, crony capitalism, Deng Xiaoping, Detroit bankruptcy, disintermediation, Edward Snowden, Etonian, failed state, Francis Fukuyama: the end of history, full employment, Gunnar Myrdal, income inequality, Khan Academy, Kickstarter, knowledge economy, Kodak vs Instagram, labor-force participation, laissez-faire capitalism, land reform, liberal capitalism, Martin Wolf, means of production, minimum wage unemployment, mittelstand, mobile money, Mont Pelerin Society, Nelson Mandela, night-watchman state, Norman Macrae, obamacare, oil shale / tar sands, old age dependency ratio, open economy, Parag Khanna, Peace of Westphalia, pension reform, pensions crisis, personalized medicine, Peter Thiel, plutocrats, Plutocrats, popular capitalism, profit maximization, rent control, rent-seeking, ride hailing / ride sharing, road to serfdom, Ronald Coase, Ronald Reagan, school choice, school vouchers, Silicon Valley, Skype, special economic zone, too big to fail, total factor productivity, War on Poverty, Washington Consensus, Winter of Discontent, working-age population, zero-sum game

The Road to Serfdom sold better in the United States than anywhere else—indeed, the Reader’s Digest condensed and serialized it—and in 1950 Hayek moved from the London School of Economics to the University of Chicago. Oddly, he was employed there by an esoteric outfit called the Committee on Social Thought, but the real center of the counterrevolution against Keynesianism was the economics department. A stream of luminaries hacked away at the status quo: Frank Knight demonstrated that social reform was often counterproductive; Ronald Coase (another LSE import) and George Stigler argued that regulators were frequently captured by the people whom they regulated; Gary Becker invented the economics of human capital; James Buchanan and Gordon Tullock demonstrated that bureaucrats were motivated by the same profit-maximizing instincts as businesspeople.4 But nobody wielded the ax more vigorously than Friedman. Few academics have had Friedman’s gift for evangelism.

This has practical consequences. So many of the things that the state does badly are ones where it is charged with pursuing impossible dreams. The more it fails to meet its impossible targets, the more it resorts to micromanagement to make up for its failures. Examining the problem of why so many government programs are either ineffective or counterproductive, one of the twentieth century’s greatest economists, Ronald Coase, put it this way: An important reason may be that government at the present time is so large that it has reached the stage of negative marginal productivity, which means that any additional function it takes on will probably result in more harm than good. . . . If a federal program were established to give financial assistance to Boy Scouts to enable them to help old ladies cross busy intersections, we could be sure that not all the money would go to Boy Scouts, that some of those they helped would be neither old nor ladies, that part of the program would be devoted to preventing old ladies from crossing busy intersections, and that many of them would be killed because they would now cross at places where, unsupervised, they were at least permitted to cross.


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Peers Inc: How People and Platforms Are Inventing the Collaborative Economy and Reinventing Capitalism by Robin Chase

Airbnb, Amazon Web Services, Andy Kessler, banking crisis, barriers to entry, basic income, Benevolent Dictator For Life (BDFL), bitcoin, blockchain, Burning Man, business climate, call centre, car-free, cloud computing, collaborative consumption, collaborative economy, collective bargaining, commoditize, congestion charging, creative destruction, crowdsourcing, cryptocurrency, decarbonisation, different worldview, do-ocracy, don't be evil, Elon Musk, en.wikipedia.org, Ethereum, ethereum blockchain, Ferguson, Missouri, Firefox, frictionless, Gini coefficient, hive mind, income inequality, index fund, informal economy, Intergovernmental Panel on Climate Change (IPCC), Internet of things, Jane Jacobs, Jeff Bezos, jimmy wales, job satisfaction, Kickstarter, Lean Startup, Lyft, means of production, megacity, Minecraft, minimum viable product, Network effects, new economy, Oculus Rift, openstreetmap, optical character recognition, pattern recognition, peer-to-peer, peer-to-peer lending, peer-to-peer model, Richard Stallman, ride hailing / ride sharing, Ronald Coase, Ronald Reagan, Satoshi Nakamoto, Search for Extraterrestrial Intelligence, self-driving car, shareholder value, sharing economy, Silicon Valley, six sigma, Skype, smart cities, smart grid, Snapchat, sovereign wealth fund, Steve Crocker, Steve Jobs, Steven Levy, TaskRabbit, The Death and Life of Great American Cities, The Future of Employment, The Nature of the Firm, transaction costs, Turing test, turn-by-turn navigation, Uber and Lyft, uber lyft, Zipcar

In total, companies building platforms to tap into excess capacity raised more than $5.5 billion that year, which was close to four times what had been raised by similar companies in 2013, which was again more than double what had been raised in 2012.5 What is happening? The Internet has eliminated a key corporate competitive advantage. In 1937, in the influential essay “The Nature of the Firm,” British economist Ronald Coase wrote that the corporation was invented to do things that individuals and small companies couldn’t do. In particular, small companies would choose to become larger companies whenever it was cheaper to hire than to outsource. What would make hiring cheaper than outsourcing? Transaction costs (a term Coase invented). Finding, monitoring the quality of, and managing many discrete individuals was expensive.

Both business and labor would gain from the new fluidity and responsiveness. Employers could respond more rapidly to market forces; workers could diversify their income streams and transition from dying industries or boring jobs in an adaptive way that was much more in their control. The “job for life” that was the hallmark of corporate America in the 1950s has been gone for close to two generations. Way back in Chapter 1, I talked about the economist Ronald Coase and his work showing that companies grew bigger in order to avoid transaction costs grounded in lack of information. The corollary to this insight was his prediction that as markets become more efficient because of better information flow, companies will tend to get smaller and smaller. Our platforms are such places, where tiny little companies (often independent contractors) find each other and interact, together creating larger economic processes But in a genuinely efficient platform economy, in which assets and labor flow to the most productive uses, the job-for-life benefits package provided by private companies evaporates.


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Bourgeois Dignity: Why Economics Can't Explain the Modern World by Deirdre N. McCloskey

Airbnb, Akira Okazaki, big-box store, Black Swan, book scanning, British Empire, business cycle, buy low sell high, Capital in the Twenty-First Century by Thomas Piketty, clean water, Columbian Exchange, conceptual framework, correlation does not imply causation, Costa Concordia, creative destruction, crony capitalism, dark matter, Dava Sobel, David Graeber, David Ricardo: comparative advantage, deindustrialization, demographic transition, Deng Xiaoping, Donald Trump, double entry bookkeeping, en.wikipedia.org, epigenetics, Erik Brynjolfsson, experimental economics, Ferguson, Missouri, fundamental attribution error, Georg Cantor, George Akerlof, George Gilder, germ theory of disease, Gini coefficient, God and Mammon, greed is good, Gunnar Myrdal, Hans Rosling, Henry Ford's grandson gave labor union leader Walter Reuther a tour of the company’s new, automated factory…, Hernando de Soto, immigration reform, income inequality, interchangeable parts, invention of agriculture, invention of writing, invisible hand, Isaac Newton, Islamic Golden Age, James Watt: steam engine, Jane Jacobs, John Harrison: Longitude, John Maynard Keynes: technological unemployment, Joseph Schumpeter, Kenneth Arrow, knowledge economy, labor-force participation, lake wobegon effect, land reform, liberation theology, lone genius, Lyft, Mahatma Gandhi, Mark Zuckerberg, market fundamentalism, means of production, Naomi Klein, new economy, North Sea oil, Occupy movement, open economy, out of africa, Pareto efficiency, Paul Samuelson, Pax Mongolica, Peace of Westphalia, peak oil, Peter Singer: altruism, Philip Mirowski, pink-collar, plutocrats, Plutocrats, positional goods, profit maximization, profit motive, purchasing power parity, race to the bottom, refrigerator car, rent control, rent-seeking, Republic of Letters, road to serfdom, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Scientific racism, Scramble for Africa, Second Machine Age, secular stagnation, Simon Kuznets, Social Responsibility of Business Is to Increase Its Profits, spinning jenny, stakhanovite, Steve Jobs, The Chicago School, The Market for Lemons, the rule of 72, The Spirit Level, The Wealth of Nations by Adam Smith, Thomas Malthus, Thorstein Veblen, total factor productivity, Toyota Production System, transaction costs, transatlantic slave trade, Tyler Cowen: Great Stagnation, uber lyft, union organizing, very high income, wage slave, Washington Consensus, working poor, Yogi Berra

Samuelsonian thought describes modern economists of the so-called mainstream—modeling exclusively with “constrained maximization,” in which the only virtue acknowledged is prudence.9 Not every worthy economist is Samuelsonian. An embattled countersquad of economic thinkers, with quite varied politics, has in the twentieth century included Joseph Schumpeter, Ludwig von Mises, Friedrich Hayek, Thorstein Veblen, John R. Commons, John Maynard Keynes, John H. Clapham, Frank Knight, Eli Heckscher, Gunnar Myrdal, Antonio Gramsci, Luigi Einaudi, Joan Robinson, Kenneth Boulding, Ronald Coase, Paul Sweezy, Alexander Gerschenkron, John Kenneth Galbraith, George Shackle, Robert Heilbroner, Theodore Schultz, Albert Hirschman, Bert Hoselitz, Bruno Leoni, Noel Butlin, James Buchanan, Thomas Schelling, Robert Fogel, Amartya Sen, Elinor Ostrom, Israel Kirzner, and Vernon Smith. They practice what could be called (Adam) Smithian economics, or what has lately been called “humanomics.” It posits merely a mild tendency to enter on a new project when there might be a net benefit to be earned, leaving plenty of space for the practice also of love, justice, courage, hope, faith, and temperance.

Like most Americans, most Swedish people live in big towns, though decamping to red-painted shacks in the woods for their long summer vacations. Swedes are honest and bourgeois. And they are, conservatively measured, thirty times richer than their ancestors were in what was in 1800 one of the poorest countries in Europe.11 * Material growth in goods and services is not the only relevant sign of allocates the Great Enrichment. The word “enrichment” has a highly relevant secondary meaning of spiritual growth.12 As the economists Ronald Coase and Ning Wang put it in their peroration to How China Became Capitalist (2013), “When the markets for goods and the market for ideas are together in full swing, each supporting, augmenting, and strengthening the other, human creativity and happiness stand the best chance to prevail, and the material and spiritual civilizations march on firm ground, side by side.”13 Many of the clerisy on the left and on the right lament the mass character of modern society, agreeing for example with the leftish Australian economist Geoffrey Harcourt, who wrote in 1994 that trade-tested betterment has stunted “the Christian (and humanist) virtues of altruism, cooperation, tolerance, compassion.”

As Montesquieu put it in 1748, “Other nations have made the interests of commerce yield to those of politics; the English, on the contrary, have ever made their political interests give way to those of commerce.”8 In truth not “ever,” but by 1748, often. The Chinese nowadays say that before 1978 the Communist cadres talked only of class war, but after 1978 they talked only of economic success. “‘Seeking truth from facts’ became the Party’s new guideline,” Ronald Coase and Ning Wang observe. “Getting rich became glorious.”9 The post-1978 mottoes of the Chinese Communist Party echo in a discordant key the empiricism, liberty, and dignity that was newly popular in northwestern Europe after about 1700. Europe went from talking only about God and hierarchy to talking only about the economy and national strength. In both cases the change was made possible by political competition.


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The Quest: Energy, Security, and the Remaking of the Modern World by Daniel Yergin

"Robert Solow", addicted to oil, Albert Einstein, Asian financial crisis, Ayatollah Khomeini, banking crisis, Berlin Wall, bioinformatics, borderless world, BRICs, business climate, carbon footprint, Carmen Reinhart, cleantech, Climategate, Climatic Research Unit, colonial rule, Colonization of Mars, corporate governance, cuban missile crisis, data acquisition, decarbonisation, Deng Xiaoping, Dissolution of the Soviet Union, diversification, diversified portfolio, Elon Musk, energy security, energy transition, Exxon Valdez, facts on the ground, Fall of the Berlin Wall, fear of failure, financial innovation, flex fuel, global supply chain, global village, high net worth, hydraulic fracturing, income inequality, index fund, informal economy, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), James Watt: steam engine, John von Neumann, Kenneth Rogoff, life extension, Long Term Capital Management, Malacca Straits, market design, means of production, megacity, Menlo Park, Mikhail Gorbachev, Mohammed Bouazizi, mutually assured destruction, new economy, Norman Macrae, North Sea oil, nuclear winter, off grid, oil rush, oil shale / tar sands, oil shock, Paul Samuelson, peak oil, Piper Alpha, price mechanism, purchasing power parity, rent-seeking, rising living standards, Robert Metcalfe, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Sand Hill Road, shareholder value, Silicon Valley, Silicon Valley startup, smart grid, smart meter, South China Sea, sovereign wealth fund, special economic zone, Stuxnet, technology bubble, the built environment, The Nature of the Firm, the new new thing, trade route, transaction costs, unemployed young men, University of East Anglia, uranium enrichment, William Langewiesche, Yom Kippur War

., Negotiating Climate Change: The Inside Story of the Rio Convention (Cambridge: Cambridge University Press, 1994), ch. 1, appendix (“dangerous anthropogenic interference”). 28 Interview with William Reilly. Chapter 24: Making a Market 1 Michael Sandel, “It’s Immoral to Buy the Right to Pollute,” op-ed, New York Times, December 17, 1997; interview with Fred Krupp. 2 Ronald Coase autobiography, Nobel Prize Web site (“underrate your abilities”). 3 Ronald Coase, “The Problem of Social Cost,” Journal of Law and Economics, vol. 3, (1960), pp. 1–44 (“externalities”). 4 John H. Dales, Pollution, Property & Prices: An Essay in Policy-making and Economics (Toronto: University of Toronto Press, 1968), ch. 6; David Montgomery, “Markets in Licenses and Efficient Pollution Control Programs,” Journal of Economic Theory 5, no. 3 (1972), pp. 395–418. 5 Richard Nixon, “Message to the Congress,” August 10, 1970 (“war on pollution”); Robert W.

The ambitions held for it were breathtakingly large; it was intended to do nothing less than remake the world’s energy marketplace and the character of energy in every person’s life and thus many of the daily choices that we make. How did this come about? It goes back to what John Maynard Keynes called the “academic scribblers”—those who come to influence subsequent politicians and lawmakers and “practical men” in general—none of whom have any idea that they are channeling thinkers they had never heard of in the first place. THE “SCRIBBLER IN CHIEF” In this case, there was even a “scribbler in chief”—Ronald Coase. Yet Coase would have seemed a most unlikely candidate for this post. Born in 1910, he suffered as a child from “weakness” in his legs, thought to be polio, as a result of which he had initially been put into classes for physically and mentally handicapped children. He managed to learn to read only by studying the labels on bottles of medicine. But, at age 11, his father, a postal worker, took him to a phrenologist, who, seeking to bolster his confidence, said, “You may be inclined to underrate your abilities.”

“Or,” he added, “we can have an historic agreement.” Prescott recognized that Eizenstat would not budge, and reluctantly agreed to the central role of trading. With that, the Kyoto Protocol was effectively done and negotiated, the carpenters could continue, and the follow-on conference could move into the hall.27 And that it is how, in the little green room on the last day in Kyoto, “markets” became embedded in climate change. Ronald Coase’s theorem, and John Dales’s refining of it into a “market for pollution rights,” had become international policy. And, if one were looking for confirmation of Keynes’s theory about the impact of “scribblers” on people who had never heard of them, then Kyoto—including the deal made in the green room—was a prime example. HOW REALISTIC? The agreement at Kyoto, Bert Bolin later wrote, marked “the first steps toward actually creating a political regime for preventing a human-induced climate change.”


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A Pelican Introduction Economics: A User's Guide by Ha-Joon Chang

Affordable Care Act / Obamacare, Albert Einstein, Asian financial crisis, asset-backed security, bank run, banking crisis, banks create money, Berlin Wall, bilateral investment treaty, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collateralized debt obligation, colonial rule, Corn Laws, corporate governance, corporate raider, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, David Ricardo: comparative advantage, deindustrialization, discovery of the americas, Eugene Fama: efficient market hypothesis, eurozone crisis, experimental economics, Fall of the Berlin Wall, falling living standards, financial deregulation, financial innovation, Francis Fukuyama: the end of history, Frederick Winslow Taylor, full employment, George Akerlof, Gini coefficient, global value chain, Goldman Sachs: Vampire Squid, Gordon Gekko, greed is good, Gunnar Myrdal, Haber-Bosch Process, happiness index / gross national happiness, high net worth, income inequality, income per capita, information asymmetry, intangible asset, interchangeable parts, interest rate swap, inventory management, invisible hand, Isaac Newton, James Watt: steam engine, Johann Wolfgang von Goethe, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, knowledge economy, laissez-faire capitalism, land reform, liberation theology, manufacturing employment, Mark Zuckerberg, market clearing, market fundamentalism, Martin Wolf, means of production, Mexican peso crisis / tequila crisis, Nelson Mandela, Northern Rock, obamacare, offshore financial centre, oil shock, open borders, Pareto efficiency, Paul Samuelson, post-industrial society, precariat, principal–agent problem, profit maximization, profit motive, purchasing power parity, quantitative easing, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, Scramble for Africa, shareholder value, Silicon Valley, Simon Kuznets, sovereign wealth fund, spinning jenny, structural adjustment programs, The Great Moderation, The Market for Lemons, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade liberalization, transaction costs, transfer pricing, trickle-down economics, Vilfredo Pareto, Washington Consensus, working-age population, World Values Survey

With new labour laws that strengthen worker rights, land reform that reduces the supply of cheap labour to factories (as more people stay in the countryside) or industrial policies that create high-skilled jobs, the choice for workers can be between low-wage jobs and higher-wage ones, rather than between low-wage jobs and no jobs. The Neoclassical school’s focus on exchange and consumption makes it neglect the sphere of production, which is a large – and the most important, according to many other schools of economics – part of our economy. Commenting on this deficiency, Ronald Coase, the Institutionalist economist, in his 1992 Nobel Economics Prize lecture, disparagingly described Neoclassical economics as a theory fit only for the analysis of ‘lone individuals exchanging nuts and berries on the edge of the forest’. The Marxist School One-sentence summary: Capitalism is a powerful vehicle for economic progress, but it will collapse, as private property ownership becomes an obstacle to further progress.

Social institutions and the structure they create were everything; individuals were seen as being totally determined by the society they live in – ‘there is no such thing as an individual’, infamously declared Clarence Ayres, who dominated the (declining) Institutionalist school in the US in the early post-Second World War period. Transaction costs and institutions: the rise of the New Institutional Economics From the 1980s, a group of economists with Neoclassical and Austrian leanings – led by Douglass North, Ronald Coase and Oliver Williamson – started a new school of institutional economics, known as the New Institutional Economics (NIE).23 By calling themselves institutional economists, the New Institutionalist economists made it clear that they were not typical Neoclassical economists, who looked at only individuals but not the institutions that affect their behaviour. However, by emphasizing the adjective new, this group clearly dissociated itself from the original Institutionalist school – now called the Old Institutional Economics (OIE).


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Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown by Philip Mirowski

"Robert Solow", Alvin Roth, Andrei Shleifer, asset-backed security, bank run, barriers to entry, Basel III, Berlin Wall, Bernie Madoff, Bernie Sanders, Black Swan, blue-collar work, Bretton Woods, Brownian motion, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, central bank independence, cognitive dissonance, collapse of Lehman Brothers, collateralized debt obligation, complexity theory, constrained optimization, creative destruction, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, dark matter, David Brooks, David Graeber, debt deflation, deindustrialization, do-ocracy, Edward Glaeser, Eugene Fama: efficient market hypothesis, experimental economics, facts on the ground, Fall of the Berlin Wall, financial deregulation, financial innovation, Flash crash, full employment, George Akerlof, Goldman Sachs: Vampire Squid, Hernando de Soto, housing crisis, Hyman Minsky, illegal immigration, income inequality, incomplete markets, information asymmetry, invisible hand, Jean Tirole, joint-stock company, Kenneth Arrow, Kenneth Rogoff, Kickstarter, knowledge economy, l'esprit de l'escalier, labor-force participation, liberal capitalism, liquidity trap, loose coupling, manufacturing employment, market clearing, market design, market fundamentalism, Martin Wolf, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Naomi Klein, Nash equilibrium, night-watchman state, Northern Rock, Occupy movement, offshore financial centre, oil shock, Pareto efficiency, Paul Samuelson, payday loans, Philip Mirowski, Ponzi scheme, precariat, prediction markets, price mechanism, profit motive, quantitative easing, race to the bottom, random walk, rent-seeking, Richard Thaler, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, savings glut, school choice, sealed-bid auction, Silicon Valley, South Sea Bubble, Steven Levy, technoutopianism, The Chicago School, The Great Moderation, the map is not the territory, The Myth of the Rational Market, the scientific method, The Wisdom of Crowds, theory of mind, Thomas Kuhn: the structure of scientific revolutions, Thorstein Veblen, Tobin tax, too big to fail, transaction costs, Vilfredo Pareto, War on Poverty, Washington Consensus, We are the 99%, working poor

However, the drive to offshore outsource manufacturing in the advanced economies, which was mutually symbiotic with the frustration of capital controls, was clearly a function of neoliberal doctrines concerning the unbounded benefits of freedom of international trade, combined with neoliberal projects to reengineer the corporation as an arbitrary nexus of contractual obligations, rather than as a repository of production expertise. The MPS member Anne Krueger was brought into dialogue with her fellow member Ronald Coase, and the offspring was the flight of capital to countries such as China, India, and the Cayman Islands. The role of China as beneficiary, but simultaneously as part-time repudiator of the neoliberal globalized financial system, is a question that bedevils all concerned. While freedom of capital flows have not generally been stressed by neoliberals as salient causes of the crisis, they do manage to unite in opposition to capital controls as one reaction to the crisis

In effect, this strategy is an elaborate bait-and-switch, where political actors originally bent upon using state power to curb emissions are instead diverted into the endless technicalities of the institution and maintenance of novel markets for carbon permits, with the not unintended consequence that the level of emissions continues to grow apace in the interim. Furthermore, professional economists are brought in to shill for this strategy, largely because they enjoy conflicts of interest in this area of a magnitude commensurate with those they have nurtured with the financial sector in general. The neoliberal genealogy of this approach is conventionally traced back to the MPS member Ronald Coase, who first proposed that pollution could be optimized by submitting it to a market calculus.22 The chequered history of traded carbon permits and their mind-numbing technicalities of the ways in which these markets were foisted upon well-meaning reformers has been explained in a number of excellent papers by Larry Lohmann, which deserve to be much better known among environmentalists and the left in general.

Bernanke, Ben on asset purchase program Brunnermeier on as Chairman of Federal Reserve Bank Board on CRA on economic crisis as economic influence on EMH on Friedman on Great Moderation on Great Recession “hold-to-maturity” prices Kestenbaum on on Lehman failure Mirowski on on mortgage market on “Panic of 2007” paper pronounced absolution upon orthodox economics profession shadow banking on TARP testimony before FCIC Bernard, Andrew Bernstein, Jared Bertelsmann AG Besley, Tim Bhagwati, Jagdish Big Lie The Big Short (Lewis) The Birth of Biopolitics (Foucault) Black Rock Black-Scholes option pricing Blackstone Group Blackwater (Scahill) Blanchard, Olivier Blinder, Alan Bloomberg, Michael Bockman, Johanna, Markets in the Name of Socialism Body Alteration Boettke, Peter Bookstaber, Richard Bootle, Roger Born, Brooksley Boskin, Michael Bradley Foundation “Break the Glass: Bank Recapitalization Plan” (Swagel) Brenner, Robert Bretton Woods Bristol University British Academy British National Health Service British Royal Society Brookings Institution Brooks, David Brown, Gordon Brown, Wendy Brunnermeier, Markus Buchanan, James Buiter, Willem Bulow, Jeremy Bush, George Business Week Buycott C Calabria, Mark Caldwell, Bruce Calomiris, Charles Calvo, Guillermo Cambridge University Cameron, David Campbell, John Capitalism and Freedom (Friedman) Carbon emission permits Cassano, Joseph Cassidy, John Cato Institute CDS (Credit Default Swap) Center for Audit Quality Center for Market Processes at GMU Center for the Dissemination of Economic Information CETUSA (Council for Educational Travel in the USA) CFPB (Consumer Financial Protection Bureau) Change.org Chari, V. V. Charles G. Koch Charitable Foundation Check ’n’ Go Chicago Law School Chicago Mercantile Exchange Chicago School, China Christian Scientists Citigroup Clarida, Richard Clark, Greg Class denial Clemson Clinton, Bill Clower, Robert Coase, Ronald Coase Theorem Cochrane, John CoCo bonds Coffee Colander, David Colbert, Stephen The Colbert Report (TV show) Cold War Columbia University Comitato Addiopizzo Commodities Corporation Commons, John Community Reinvestment Act (1977) Competitive Enterprise Institute Complexity Conflicts of interest in economics Congress Congressional Budget Office Constant, Benjamin The Constitution of Liberty (Hayek) Consumer, Credit and Neoliberalism (Payne) Consumer Financial Protection Bureau (CFPB) Cooper, Melinda Corporate Warriors (Singer) Council for Educational Travel in the USA (CETUSA) Council of Economic Advisors Council of Trent Council on Foreign Relations Countrywide Cowen, Tyler Cox, Christopher Craigslist Cramton, Peter, “Credit Scores,” Credit Suisse Crisis as intellectual disarray Crooked Timber (blog) Crouch, Colin Cuomo, Andrew Curtis, Adam D “Dahlem report,” Daly, Herman Dark Pools (Patterson) Darwinism Davidson, Paul Davidson, Peter Davies, Will Davis, Jared D.C.


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With Liberty and Dividends for All: How to Save Our Middle Class When Jobs Don't Pay Enough by Peter Barnes

Alfred Russel Wallace, banks create money, basic income, Buckminster Fuller, collective bargaining, computerized trading, creative destruction, David Ricardo: comparative advantage, declining real wages, deindustrialization, diversified portfolio, en.wikipedia.org, Fractional reserve banking, full employment, hydraulic fracturing, income inequality, Jaron Lanier, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph Schumpeter, land reform, Mark Zuckerberg, Network effects, oil shale / tar sands, Paul Samuelson, profit maximization, quantitative easing, rent-seeking, Ronald Coase, Ronald Reagan, Silicon Valley, sovereign wealth fund, the map is not the territory, The Spirit Level, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, Tyler Cowen: Great Stagnation, Upton Sinclair, Vilfredo Pareto, wealth creators, winner-take-all economy

Some farmers could reduce their pollution more efficiently than others. If a declining quantity of pollution rights were issued and farmers could trade them, Dales argued, farmers themselves would find the cheapest ways to cut their pollution. Economists, if not farmers, picked up the idea and started applying it, conceptually, to other forms of pollution. In doing this, they were influenced not just by Dales but also by Nobel Prize—winning economist Ronald Coase, who in an oft-quoted paper, “The Problem of Social Cost,” argued that property rights could solve the problem of externalities without government regulation.2 (Coase was part of the University of Chicago school of thought, which holds that markets do almost everything better than government.) In 1990, the idea made its way into national legislation. That year’s amendments to the Clean Air Act created a cap-and-trade system to reduce sulfur dioxide emissions from coal-burning power plants, a major cause of acid rain.


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Seasteading: How Floating Nations Will Restore the Environment, Enrich the Poor, Cure the Sick, and Liberate Humanity From Politicians by Joe Quirk, Patri Friedman

3D printing, access to a mobile phone, addicted to oil, Affordable Care Act / Obamacare, agricultural Revolution, Albert Einstein, barriers to entry, Branko Milanovic, British Empire, Buckminster Fuller, Burning Man, business climate, business cycle, business process, California gold rush, Celtic Tiger, Charles Lindbergh, clean water, Colonization of Mars, Dean Kamen, Deng Xiaoping, drone strike, Elon Musk, en.wikipedia.org, failed state, financial intermediation, Gini coefficient, happiness index / gross national happiness, income inequality, Intergovernmental Panel on Climate Change (IPCC), joint-stock company, joint-stock limited liability company, Kickstarter, low skilled workers, Machinery of Freedom by David Friedman, Mark Zuckerberg, megacity, minimum wage unemployment, Network effects, new economy, obamacare, offshore financial centre, open borders, paypal mafia, peak oil, Peter H. Diamandis: Planetary Resources, Peter Thiel, price stability, profit motive, Ronald Coase, Ronald Reagan, Shenzhen was a fishing village, Silicon Valley, special economic zone, standardized shipping container, stem cell, trade route, UNCLOS, UNCLOS, undersea cable, young professional

The Ming dynasty fortified the Great Wall to keep out foreigners, created a new capital known as “the Forbidden City” to keep out its own people, and ordered that the most advanced fleet of ships in the world be burned, enforcing a self-serving siege mentality that cemented Chinese stagnation. By 1961, tens of millions had starved to death. How did China reverse this trend and become an economic powerhouse? Nobel laureate Ronald Coase and Ning Wang, in their essay “How China Became Capitalist,” suggest that once the monopoly held by central planners was broken, the solution arose from a vast market of competitive governance: “When China’s 32 provinces, 282 municipalities, 2,862 counties, 19,522 towns, and 14,677 villages threw themselves into an open competition for investment and for good ideas of developing the local economy, China became a gigantic laboratory where many different economic experiments were tried simultaneously.

The Shapes of the Continents,” on the website of PBS, accessed October 6, 2016, www.pbs.org/gunsgermssteel/variables/continents.html. See also P. Turchin, “Why Europe Is Not China,” September 29, 2012, https://evolution-institute.org/blog/why-europe-is-not-china. “Any man of genius is paralyzed”: D. S. Landes, The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor (New York: W. W. Norton, 1998), 342. “When China’s 32 provinces, 282 municipalities”: Ronald Coase and Ning Wang, “Policy Report: How China Became Capitalist,” on the website of the Cato Institute, February 15, 2013, www.cato.org/policy-report/januaryfebruary-2013/how-china-became-capitalist. Chapter 10. FLOW STATES: How to Double Global Wealth Trade carried by sea has quadrupled since 1970: International Maritime Organization, International Shipping, Carrier of World Trade, background paper, 2005.


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Smarter Than You Think: How Technology Is Changing Our Minds for the Better by Clive Thompson

4chan, A Declaration of the Independence of Cyberspace, augmented reality, barriers to entry, Benjamin Mako Hill, butterfly effect, citizen journalism, Claude Shannon: information theory, conceptual framework, corporate governance, crowdsourcing, Deng Xiaoping, discovery of penicillin, disruptive innovation, Douglas Engelbart, Douglas Engelbart, drone strike, Edward Glaeser, Edward Thorp, en.wikipedia.org, experimental subject, Filter Bubble, Freestyle chess, Galaxy Zoo, Google Earth, Google Glasses, Gunnar Myrdal, Henri Poincaré, hindsight bias, hive mind, Howard Rheingold, information retrieval, iterative process, jimmy wales, Kevin Kelly, Khan Academy, knowledge worker, lifelogging, Mark Zuckerberg, Marshall McLuhan, Menlo Park, Netflix Prize, Nicholas Carr, Panopticon Jeremy Bentham, patent troll, pattern recognition, pre–internet, Richard Feynman, Ronald Coase, Ronald Reagan, Rubik’s Cube, sentiment analysis, Silicon Valley, Skype, Snapchat, Socratic dialogue, spaced repetition, superconnector, telepresence, telepresence robot, The Nature of the Firm, the scientific method, The Wisdom of Crowds, theory of mind, transaction costs, Vannevar Bush, Watson beat the top human players on Jeopardy!, WikiLeaks, X Prize, éminence grise

To organize a widespread group around a task in the pre-Internet period, you needed a central office, staff devoted to coordinating efforts, expensive forms of long-distance communication (telegraphs, phone lines, trains), somebody to buy pencils and paper clips and to manage inventory. These are known as transaction costs, and they’re huge. But there was no way around them. As Shirky points out, following the analysis of economist Ronald Coase’s 1937 article “The Nature of the Firm,” you either paid the heavy costs of organizing or you didn’t organize at all and got nothing done. And so for centuries, people collaborated massively only on tasks that would make enough money to afford those costs. You could work together globally at building and selling profitable cars (like the Ford Motor Company) or running a world religion (like the Catholic Church), or even running a big nonprofit that could solicit mass donations (like UNICEF).

When a dozen friends spread across a city use a Facebook thread and a cute little voting app to pick which film they’ll see on Friday night—“vote for your favorite!”—they are engaging in the same collective decision making that was previously available only to well-funded organizations. This, again, is basic behavioral economics: If you make it easier for people to do something, they’ll do more of it. Finding your way around Skyrim or resolving conundrums like “Which movie are we seeing tonight?” are problems that traditionally couldn’t afford Ronald Coase–style transactional costs—they fell “under the Coasean floor,” as Shirky puts it. But things have decisively changed. “Because we can now reach beneath the Coasean floor,” he writes, “we can have groups that operate with a birthday party’s informality and a multinational’s scope. . . . Now that group-forming has gone from hard to ridiculously easy, we are seeing an explosion of experiments with new groups and new kinds of groups.”


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Six Degrees: The Science of a Connected Age by Duncan J. Watts

Berlin Wall, Bretton Woods, business process, corporate governance, Drosophila, Erdős number, experimental subject, fixed income, Frank Gehry, Geoffrey West, Santa Fe Institute, industrial cluster, invisible hand, Long Term Capital Management, market bubble, Milgram experiment, MITM: man-in-the-middle, Murray Gell-Mann, Network effects, new economy, Norbert Wiener, Paul Erdős, peer-to-peer, rolodex, Ronald Coase, scientific worldview, Silicon Valley, supply-chain management, The Nature of the Firm, The Wealth of Nations by Adam Smith, Toyota Production System, transaction costs, transcontinental railway, Vilfredo Pareto, Y2K

Nevertheless, because many firms after the Industrial Revolution were actually organized in just this way, the consensus of economic theory for much of the last century has been that the optimal form of industrial organization, and, by association, the internal architecture of a business firm, is a hierarchy. To cut a (very) long story short, the most generally agreed-upon economic theory of industrial organization essentially divides the world between hierarchies and markets. Firms, it claims, exist because markets in the real world suffer from a set of imperfections that the Nobel Prize–winning economist Ronald Coase called transaction costs. If everyone could discover, draw up, and enforce market-based contracts with everyone else (if we could all be independent contractors, for example), then the immense flexibility of market forces would effectively eliminate the need for firms entirely. But in the real world, as we have already seen in a number of contexts, information is costly to discover and hard to process.

Markets and Hierarchies The original text—and still one of the greatest—on industrial organization is Smith, A. The Wealth of Nations (University of Chicago Press, Chicago, 1976). A precursor to Coase’s theory of transaction costs was Frank Knight’s claim that firms exist to reduce uncertainty: Knight, F. H. Risk, Uncertainty, and Profit (London School of Economics and Political Science, London, 1933). And Ronald Coase’s original argument of transaction costs as the basis for the firm is explicated in Coase, R. The nature of the firm. Economica, n.s., 4 (November 1937). Several decades later, Coase is still trying to get his ideas accepted by mainstream economics. His latest attempt is Coase, R. The Nature of the Firm (Oxford University Press, Oxford, 1991). The chief proponent of the hierarchical structure of firms is Oliver Williamson, whose views are expressed comprehensively in Williamson, O.


State-Building: Governance and World Order in the 21st Century by Francis Fukuyama

Asian financial crisis, Berlin Wall, Bretton Woods, centre right, corporate governance, demand response, Doha Development Round, European colonialism, failed state, Fall of the Berlin Wall, Francis Fukuyama: the end of history, George Akerlof, Hernando de Soto, information asymmetry, liberal world order, Live Aid, Nick Leeson, Pareto efficiency, Potemkin village, price stability, principal–agent problem, rent-seeking, road to serfdom, Ronald Coase, structural adjustment programs, technology bubble, The Market for Lemons, The Nature of the Firm, transaction costs, Washington Consensus, Westphalian system

Some economists, recognizing the limitations of their approach, are now returning to these earlier theories and trying to restate them in terms of their own methodological assumptions. They are in effect reinventing a forty- to fifty-year-old wheel, which they were responsible for forgetting how to use. Institutional Economics and the Theory of Organizations Economic theories about organizations1 begin with Ronald Coase’s (1937) theory of the firm, which established the basic For overviews of the intellectual history of the economists’s approach to organizational theory, see Furubotn and Richter (1997, chapter 8) and Moe (1984). 1 46 state-building distinction between markets and hierarchies and argued that certain resource allocation decisions were made within hierarchical organizations because of a need to economize on transaction costs.


pages: 316 words: 117,228

The Code of Capital: How the Law Creates Wealth and Inequality by Katharina Pistor

"Robert Solow", Andrei Shleifer, Asian financial crisis, asset-backed security, barriers to entry, Bernie Madoff, bilateral investment treaty, bitcoin, blockchain, Bretton Woods, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, collateralized debt obligation, colonial rule, conceptual framework, Corn Laws, corporate governance, creative destruction, Credit Default Swap, credit default swaps / collateralized debt obligations, cryptocurrency, Donald Trump, double helix, Edward Glaeser, Ethereum, ethereum blockchain, facts on the ground, financial innovation, financial intermediation, fixed income, Francis Fukuyama: the end of history, full employment, global reserve currency, Hernando de Soto, income inequality, intangible asset, investor state dispute settlement, invisible hand, joint-stock company, joint-stock limited liability company, Joseph Schumpeter, Kenneth Rogoff, land reform, land tenure, London Interbank Offered Rate, Long Term Capital Management, means of production, money market fund, moral hazard, offshore financial centre, phenotype, Ponzi scheme, price mechanism, price stability, profit maximization, railway mania, regulatory arbitrage, reserve currency, Ronald Coase, Satoshi Nakamoto, secular stagnation, self-driving car, shareholder value, Silicon Valley, smart contracts, software patent, sovereign wealth fund, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, time value of money, too big to fail, trade route, transaction costs, Wolfgang Streeck

Finally, when courts sanctioned the possibility that the beneficiary could not be only one person, but many different investors, it became the go-to vehicle for pooling and securitizing assets, as we will discuss in chapter 4. Made in Law The account of how land has been coded as capital offered here differs from conventional accounts that portray property rights as the quintessential institution for economic prosperity.75 For economists, the major purpose of property rights is to align the interests of the owner with the most cost-efficient use of the asset. Optimizing the use of assets was what animated Ronald Coase’s famous example of two neighboring farmers, one herding cows, the other trying to grow crops, which of course the cows eat or trample over.76 There are many solutions to this problem of conflicting interests; one of the two farmers might build a fence, move the crops elsewhere, start herding cows, or the other might pay for damages or switch from cattle to crops himself. If property rights have been clearly allocated, that is, if the two parties know what their respective rights are and what they are worth in monetary terms, they can calculate the costs each would have to incur, enabling them to resolve their dispute and reach an optimal solution through negotiation.

Nick Szabo, a prominent voice in the world of cryptocurrency, who may be best known for his work on digital contracts, explored how to create property rights in the digital space.21 He explained that property rights are “a defined space, whether a namespace or physical space,” that marks the scope of control rights an owner can exercise. Once the initial allocation is coded in digits, there will no longer be any doubt as to who owns what, because all claims will be recorded on tamper-proof digital code. This demonstrates how important the initial allocation of property rights is, a point Ronald Coase made half a century ago.22 Szabo restates Coase’s insight by emphasizing that it is critical to “agree on simple attributes of or rights to control subdivisions of that space.”23 Only after this initial allocation has been made can transactions occur and blockchain (or similar) technology be used to verify each subsequent transaction. This then once again poses the “genesis question”: How should the initial allocation of property rights in the digital world be achieved, and who is in charge?


pages: 418 words: 128,965

The Master Switch: The Rise and Fall of Information Empires by Tim Wu

accounting loophole / creative accounting, Alfred Russel Wallace, Apple II, barriers to entry, British Empire, Burning Man, business cycle, Cass Sunstein, Clayton Christensen, commoditize, corporate raider, creative destruction, disruptive innovation, don't be evil, Douglas Engelbart, Douglas Engelbart, Howard Rheingold, Hush-A-Phone, informal economy, intermodal, Internet Archive, invention of movable type, invention of the telephone, invisible hand, Jane Jacobs, John Markoff, Joseph Schumpeter, Menlo Park, open economy, packet switching, PageRank, profit motive, road to serfdom, Robert Bork, Robert Metcalfe, Ronald Coase, sexual politics, shareholder value, Silicon Valley, Skype, Steve Jobs, Steve Wozniak, Telecommunications Act of 1996, The Chicago School, The Death and Life of Great American Cities, the market place, The Wisdom of Crowds, too big to fail, Upton Sinclair, urban planning, zero-sum game

By combining related functions, the integrated entity can prevent rivals from depriving it of some essential component, as for instance when the Hollywood studios acquired movie theaters to prevent theater owners from shutting out studio products. Interesting, but beyond the scope of this book, is whether this defense function suggests an alternative explanation to the prevailing theory of the firm as shaped by the relative efficiency of internal and external contracting, which the economist Ronald Coase articulated in 1937. † Technically, this is achieved by placing a “robots.txt” file on the root directory of the Web server in question. Google, for its part, could ignore the robots.txt files; in the United States that would foreground an unsettled copyright question, namely, whether expressly involuntary indexing is copyright infringement. * At the time, it went by the name “BackRub.” * Notable members of the alliance at its launch included China Mobile, Intel, NTT DOCOMO, Sprint/Nextel, T-Mobile, HTC, LG, Samsung, and Motorola

Rosen believes that Hoover and the broadcasters agreed on the need for more federal power, but that Congress refused to vest that power in the executive branch and instead created an independent agency. 22. The issues surrounding the Zenith decision and the subsequent formation of the FRC in 1927 are highly contested and subject to numerous interpretations. In contemporary accounts the Radio Act was promoted as a beneficent government response to industry “chaos”; the first to challenge this view, as a normative matter, was the economist Ronald Coase. R. H. Coase, Journal of Law and Economics vol. 2 (October 1959), 1–40. As a descriptive matter, the communications historian Robert McChesney’s groundbreaking 1993 book Telecommunications, Mass Media, and Democracy was among the first to present a highly critical history of the 1927 act, General Order 40, and all that followed—presenting the act as essentially a triumph of large corporate broadcasters.


pages: 545 words: 137,789

How Markets Fail: The Logic of Economic Calamities by John Cassidy

"Robert Solow", Albert Einstein, Andrei Shleifer, anti-communist, asset allocation, asset-backed security, availability heuristic, bank run, banking crisis, Benoit Mandelbrot, Berlin Wall, Bernie Madoff, Black-Scholes formula, Blythe Masters, Bretton Woods, British Empire, business cycle, capital asset pricing model, centralized clearinghouse, collateralized debt obligation, Columbine, conceptual framework, Corn Laws, corporate raider, correlation coefficient, credit crunch, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, Daniel Kahneman / Amos Tversky, debt deflation, different worldview, diversification, Elliott wave, Eugene Fama: efficient market hypothesis, financial deregulation, financial innovation, Financial Instability Hypothesis, financial intermediation, full employment, George Akerlof, global supply chain, Gunnar Myrdal, Haight Ashbury, hiring and firing, Hyman Minsky, income per capita, incomplete markets, index fund, information asymmetry, Intergovernmental Panel on Climate Change (IPCC), invisible hand, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, Kickstarter, laissez-faire capitalism, Landlord’s Game, liquidity trap, London Interbank Offered Rate, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, margin call, market bubble, market clearing, mental accounting, Mikhail Gorbachev, money market fund, Mont Pelerin Society, moral hazard, mortgage debt, Myron Scholes, Naomi Klein, negative equity, Network effects, Nick Leeson, Northern Rock, paradox of thrift, Pareto efficiency, Paul Samuelson, Ponzi scheme, price discrimination, price stability, principal–agent problem, profit maximization, quantitative trading / quantitative finance, race to the bottom, Ralph Nader, RAND corporation, random walk, Renaissance Technologies, rent control, Richard Thaler, risk tolerance, risk-adjusted returns, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, shareholder value, short selling, Silicon Valley, South Sea Bubble, sovereign wealth fund, statistical model, technology bubble, The Chicago School, The Great Moderation, The Market for Lemons, The Wealth of Nations by Adam Smith, too big to fail, transaction costs, unorthodox policies, value at risk, Vanguard fund, Vilfredo Pareto, wealth creators, zero-sum game

The success of The General Theory turned its author into an international celebrity and Pigou, once a great prodigy, into something of a museum piece. Thereafter, he retreated into pure theory, publishing articles and books at regular intervals, but largely withholding public comment on the progress of the Keynesian revolution. In 1943, Pigou gave up his university professorship, retaining his fellowship at King’s. Thereafter, he retreated to his rooms and books, emerging rarely. In 1960, a year after Pigou’s death, Ronald Coase, a conservatively inclined British economist who had moved to the University of Chicago, questioned whether the presence of spillovers justified government intervention. In a paper entitled “The Problem of Social Cost,” Coase pointed out that, in most cases, the problem came down to an issue of conflicting property rights. If a chemical factory releases noxious fumes into a nearby housing development, the factory’s “right” to carry out its legitimate business is ranged against the “right” of the people who live nearby to breathe clean air.

Citigroup Associated First Capital purchased by compensation of CEOs of credit default swaps of dereguation and disaster myopia of Federal Reserve and government safety net for reduction in assets of risk-management system at shadow banking system and suprime mortgage securities issued by Citron, Bob City College classical economics new Clayton Antitrust Act (1914) climate change Clinton, Bill CLSA Emerging Markets CNBC television network Coase, Ronald Coase theorem Cobden, Richard Coca-Cola Corporation Cohen, Jonathan collateralized debt obligations (CDOs) collateralized mortgage obligations (CMOs) Columbia Broadcasting System (CBS) Columbia University Earth Institute Columbine massacre Columbus, Christopher Commerce Department, U.S. Commodity Futures Trading Commission (CFTC) communism collapse of Community Reinvestment Act (1977) Comptroller of the Currency, Office of Congress, U.S.


Adam Smith: Father of Economics by Jesse Norman

"Robert Solow", active measures, Andrei Shleifer, balance sheet recession, bank run, banking crisis, Basel III, Berlin Wall, Black Swan, Branko Milanovic, Bretton Woods, British Empire, Broken windows theory, business cycle, business process, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, centre right, cognitive dissonance, collateralized debt obligation, colonial exploitation, Corn Laws, Credit Default Swap, credit default swaps / collateralized debt obligations, crony capitalism, David Brooks, David Ricardo: comparative advantage, deindustrialization, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, Fellow of the Royal Society, financial intermediation, frictionless, frictionless market, future of work, George Akerlof, Hyman Minsky, income inequality, incomplete markets, information asymmetry, intangible asset, invention of the telescope, invisible hand, Isaac Newton, Jean Tirole, John Nash: game theory, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kenneth Rogoff, lateral thinking, loss aversion, market bubble, market fundamentalism, Martin Wolf, means of production, money market fund, Mont Pelerin Society, moral hazard, moral panic, Naomi Klein, negative equity, Network effects, new economy, non-tariff barriers, Northern Rock, Pareto efficiency, Paul Samuelson, Peter Thiel, Philip Mirowski, price mechanism, principal–agent problem, profit maximization, purchasing power parity, random walk, rent-seeking, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, scientific worldview, seigniorage, Socratic dialogue, South Sea Bubble, special economic zone, speech recognition, Steven Pinker, The Chicago School, The Myth of the Rational Market, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Thomas Malthus, Thorstein Veblen, time value of money, transaction costs, transfer pricing, Veblen good, Vilfredo Pareto, Washington Consensus, working poor, zero-sum game

A further apocryphal story in The Bee, or Literary Weekly Intelligencer for 11 May 1791 hints at Smith’s view of Burke: ‘I mentioned a story I had read of Mr Burke having seduced and dishonoured a young lady, under promise of marriage. “I imagine,” said [Smith], “that you have got that fine story out of some of the magazines. If any thing can be lower than the Reviews, they are so… As to Mr. Burke, he is a worthy honest man. He married an accomplished girl, without a shilling of fortune.”’ Smith as the hinge of economic modernity: compare Ronald Coase in his bicentennial lecture: ‘What Adam Smith did was to give economics its shape… From one point of view the last two hundred years of economics have been little more than a vast “mopping up operation” in which economists have filled in the gaps, corrected the errors and refined the analysis of The Wealth of Nations’. Essays on Economics and Economists, University of Chicago Press 1994, p. 78 CHAPTER 1: KIRKCALDY BOY, 1723–1746 For detailed citations supporting the facts of Adam Smith’s life, see in particular Ian Simpson Ross, LAS Gipsy encounter: John Rae, LAS Ch. 1 ‘Preserving to the world a genius’: Stewart, LAS Section 1 Boswell on Smith’s supposed military ambitions: James Boswell, London Journal 1762–3, William Heinemann 1950, entry for 25 April 1763 Infant mortality: Ian D.

Minsky in John Maynard Keynes, McGraw-Hill [1975] 2008 Different definitions of economics: as ‘the science which studies human behaviour as a relationship between given ends and scarce means’, see Lionel Robbins, An Essay on the Nature and Significance of Economic Science, Macmillan 1932; as the study of incentives, see Steve Levitt and Stephen Dubner, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, HarperCollins 2005 Centrality of institutions to economic life: for the firm as economic institution, see Ronald Coase, ‘The Nature of the Firm’, Economica, 4.16, 1937. More widely, see e.g. Douglass North, ‘Institutions’, Journal of Economic Perspectives, 5.1, Winter 1991, which includes North’s own sketch of a stadial history of market evolution, and analysis of non-evolution. For an argument that economic ideology has corrosive effects on institutions, see Stephen Marglin, The Dismal Science: How Thinking Like an Economist Undermines Community, Harvard University Press 2008 Smith and Marx: see e.g.


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The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas by Janek Wasserman

Albert Einstein, American Legislative Exchange Council, anti-communist, battle of ideas, Berlin Wall, Bretton Woods, business cycle, collective bargaining, Corn Laws, correlation does not imply causation, creative destruction, David Ricardo: comparative advantage, different worldview, Donald Trump, experimental economics, Fall of the Berlin Wall, floating exchange rates, Fractional reserve banking, Francis Fukuyama: the end of history, full employment, Gunnar Myrdal, housing crisis, Internet Archive, invisible hand, John von Neumann, Joseph Schumpeter, laissez-faire capitalism, liberal capitalism, market fundamentalism, mass immigration, means of production, Menlo Park, Mont Pelerin Society, New Journalism, New Urbanism, old-boy network, Paul Samuelson, Philip Mirowski, price mechanism, price stability, RAND corporation, random walk, rent control, road to serfdom, Robert Bork, rolodex, Ronald Coase, Ronald Reagan, Silicon Valley, Simon Kuznets, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, Thomas Malthus, trade liberalization, union organizing, urban planning, Vilfredo Pareto, Washington Consensus, zero-sum game, éminence grise

It pointed to the partisan tendencies of the key figure on the selection committee, Assar Lindbeck, a staunch opponent of social democracy and an advocate of Hayek’s philosophy. Lindbeck’s intervention on the Nobel committee ushered in a more ideological phase in the prize’s history, during which neoliberal economists, many associated with the MPS, received a large number of the prizes. These included Hayek, Milton Friedman (1976), George Stigler (1982), James Buchanan (1986), Maurice Allais (1988), Ronald Coase (1991), and Gary Becker (1992).6 Even if 1974 was a remarkable year, we should not overstate its singularity. Hayek’s reputation in economics may have stood at low ebb with professional economists, but his general intellectual reputation was sound. The Nobel press release belied the narrative of neglect and rediscovery: “Hayek’s ideas and his analysis of the competence of economic systems were published in a number of works during the forties and fifties and have, without doubt, provided significant impulses to this extensive and growing field of research in comparative economic systems.

As Steven Horwitz has put it, Austrians always “took account of the puzzles that were of interest to the economics profession and aimed their explanations of those puzzles at that audience of their professional peers.” The first issue of RAE addressed monetarism and Keynesianism. In subsequent years, discussions on public choice, macroeconomics, game theory, and experimental economics filled the pages of RAE and Advances in Austrian Economics. Austrians sparred with Nobelists like Milton Friedman, Ronald Coase, James Buchanan, and Douglass North. They reveled in taking apart the arguments of intellectual allies and opponents alike. As the economist Deirdre McCloskey has noted, her conversion to an appreciation of the role of rhetoric in economic thought had a Viennese accent: “I learned from Don [Lavoie] and Karen Vaughn and Jack High as exemplars that Austrian economics was not merely a pointlessly vicious doctrinal war against one’s natural allies carried out on the field of German texts. . . .


American Secession: The Looming Threat of a National Breakup by F. H. Buckley

Affordable Care Act / Obamacare, Andrei Shleifer, Bernie Sanders, British Empire, Cass Sunstein, colonial rule, crony capitalism, desegregation, diversified portfolio, Donald Trump, Francis Fukuyama: the end of history, hindsight bias, illegal immigration, immigration reform, income inequality, old-boy network, race to the bottom, Republic of Letters, reserve currency, Ronald Coase, transaction costs, Washington Consensus, wealth creators

From 1964 to 1996, constitutional reform was usually at the top of the agenda of Canada’s annual First Ministers Conference, involving the prime minister and the ten provincial premiers. For half of the last forty years, a separatist government has been in power in Quebec. The issue is off the table for the moment, in large part because Canadians are good and sick of it. But it has diverted attention from other things the government might have been doing, and that’s a cost. The same kind of cost arises in private law bargaining, and the Nobel laureate Ronald Coase gave it a name: transaction costs. These are the costs, in both the direct expenses of bargaining and the distraction from other opportunities, incurred when the parties negotiate to reach an agreement. The costs are greater when more parties must be joined in the agreement, because there will generally be a few malcontents and holdouts when the number of parties exceeds five or six. In Canada, the Meech Lake Accord of Brian Mulroney, the Tory prime minister, might finally have resolved the Quebec crisis, but it fell apart when a single Manitoba legislator objected that aboriginal groups had not been separately consulted.


pages: 565 words: 151,129

The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism by Jeremy Rifkin

"Robert Solow", 3D printing, active measures, additive manufacturing, Airbnb, autonomous vehicles, back-to-the-land, big-box store, bioinformatics, bitcoin, business process, Chris Urmson, clean water, cleantech, cloud computing, collaborative consumption, collaborative economy, Community Supported Agriculture, Computer Numeric Control, computer vision, crowdsourcing, demographic transition, distributed generation, en.wikipedia.org, Frederick Winslow Taylor, global supply chain, global village, Hacker Ethic, industrial robot, informal economy, Intergovernmental Panel on Climate Change (IPCC), intermodal, Internet of things, invisible hand, Isaac Newton, James Watt: steam engine, job automation, John Markoff, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, Julian Assange, Kickstarter, knowledge worker, longitudinal study, Mahatma Gandhi, manufacturing employment, Mark Zuckerberg, market design, mass immigration, means of production, meta analysis, meta-analysis, natural language processing, new economy, New Urbanism, nuclear winter, Occupy movement, off grid, oil shale / tar sands, pattern recognition, peer-to-peer, peer-to-peer lending, personalized medicine, phenotype, planetary scale, price discrimination, profit motive, QR code, RAND corporation, randomized controlled trial, Ray Kurzweil, RFID, Richard Stallman, risk/return, Ronald Coase, search inside the book, self-driving car, shareholder value, sharing economy, Silicon Valley, Skype, smart cities, smart grid, smart meter, social web, software as a service, spectrum auction, Steve Jobs, Stewart Brand, the built environment, The Nature of the Firm, The Structural Transformation of the Public Sphere, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, Thomas L Friedman, too big to fail, transaction costs, urban planning, Watson beat the top human players on Jeopardy!, web application, Whole Earth Catalog, Whole Earth Review, WikiLeaks, working poor, zero-sum game, Zipcar

More traditional advocates of free enterprise recognized that public goods—especially those that constitute infrastructure—were non-rivalrous, and in those instances the average cost of bringing additional units to market continued to decline with prolonged demand. Charging for “declining average cost,” they argued, was more sensible, allowing firms to recoup their investment while keeping the government’s hands off the economic life of the nation. In 1946, economist Ronald Coase stepped into the fray, taking exception to Hotelling’s thesis by arguing that the social subsidies Hotelling advocated “would bring about a maldistribution of the factors of production, a maldistribution of income, and probably a loss similar to that which the scheme was designed to avoid.”5 Coase did not disagree with Hotelling that price should equal marginal cost, but he also believed that the total cost needed to be covered.

He reasoned that a government willing to undertake such an enterprise is, for the same reasons, ready to build other dams in other and widely scattered places, and to construct a great variety of public works. Each of these entails benefits which are diffused widely among all classes. A rough randomness in distribution should be ample to ensure such a distribution of benefits that most persons in every part of the country would be better off by reason of the program as a whole.45 Ronald Coase didn’t buy Hotelling’s arguments. Recall that Coase, a free-market advocate, didn’t think government was a good prognosticator of consumer demand, even in the case where the public good or service in question was undeniably something everybody needed. He wrote, “I do not myself believe that a government could make accurate estimates of individual demand in a regime in which all prices were based on marginal costs.”46 Coase’s first argument, on closer scrutiny, appears rather spurious.


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The Finance Curse: How Global Finance Is Making Us All Poorer by Nicholas Shaxson

activist fund / activist shareholder / activist investor, Airbnb, airline deregulation, anti-communist, bank run, banking crisis, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, Blythe Masters, Boris Johnson, Bretton Woods, British Empire, business climate, business cycle, capital controls, carried interest, Cass Sunstein, Celtic Tiger, central bank independence, centre right, Clayton Christensen, cloud computing, corporate governance, corporate raider, creative destruction, Credit Default Swap, cross-subsidies, David Ricardo: comparative advantage, demographic dividend, Deng Xiaoping, desegregation, Donald Trump, Etonian, failed state, falling living standards, family office, financial deregulation, financial innovation, forensic accounting, Francis Fukuyama: the end of history, full employment, gig economy, Gini coefficient, global supply chain, high net worth, income inequality, index fund, invisible hand, Jeff Bezos, Kickstarter, land value tax, late capitalism, light touch regulation, London Whale, Long Term Capital Management, low skilled workers, manufacturing employment, Mark Zuckerberg, Martin Wolf, Mont Pelerin Society, moral hazard, neoliberal agenda, Network effects, new economy, Northern Rock, offshore financial centre, old-boy network, out of africa, Paul Samuelson, plutocrats, Plutocrats, Ponzi scheme, price mechanism, purchasing power parity, pushing on a string, race to the bottom, regulatory arbitrage, rent-seeking, road to serfdom, Robert Bork, Ronald Coase, Ronald Reagan, shareholder value, sharing economy, Silicon Valley, Skype, smart grid, Social Responsibility of Business Is to Increase Its Profits, South Sea Bubble, sovereign wealth fund, special economic zone, Steve Ballmer, Steve Jobs, The Chicago School, Thorstein Veblen, too big to fail, transfer pricing, wealth creators, white picket fence, women in the workforce, zero-sum game

‘Family dinners at the Friedmans’ house must have been a bundle of laughs,’ says Watson. ‘There can’t have been many house guests where Milton would have been accused of being too pro-government and too left wing.’ That particular night Director hosted twenty dinner guests, largely conservative thinkers, including not just Friedman but George Stigler, who would go on to make a name for himself attacking government regulation, the British economist Ronald Coase and a fire-breathing conservative lawyer called Robert Bork.1 The University of Chicago in those days was a bear pit, an arena of intense macho intellectual combat where academics were constantly struggling to outdo each other with clever theories about efficient markets – theories that often perched on toe-curling assumptions – to adopt unconventional, even anti-social positions usually supporting big business and attacking big government.

Director himself was one of the truest of true believers in neoliberalism: that pretty much anything worthwhile could and should be shoehorned into the price mechanism in the interests of ‘efficiency’. His messianic zeal mesmerised many of his students. One was Bork, who commented, ‘Aaron gradually destroyed my dreams of socialism with price theory,’ adding that many of his colleagues ‘underwent what can only be called a religious conversion’.2 The guests that evening were there to listen to Ronald Coase present a draft paper, The Problem of Social Cost. At the start of the evening Coase summarised his argument and a vote was taken. All twenty guests opposed him, and Stigler remembered wondering ‘how so fine an economist could make such an obvious mistake’. Coase deployed a novel argument. Corporations in those days were supposed to be subject to the law – or at least the law came first. If a corporation was pumping illegal pollutants into a river, you went out and found the pipe or some incriminating documents, then went to the law.


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The Problem of Political Authority: An Examination of the Right to Coerce and the Duty to Obey by Michael Huemer

Cass Sunstein, Chelsea Manning, cognitive dissonance, cuban missile crisis, Daniel Kahneman / Amos Tversky, en.wikipedia.org, Eratosthenes, experimental subject, framing effect, Gini coefficient, illegal immigration, impulse control, Isaac Newton, Julian Assange, laissez-faire capitalism, Machinery of Freedom by David Friedman, Milgram experiment, moral hazard, Phillip Zimbardo, profit maximization, profit motive, Ralph Nader, RAND corporation, rent-seeking, Ronald Coase, Stanford prison experiment, The Wealth of Nations by Adam Smith, unbiased observer, uranium enrichment, WikiLeaks

One may, for example, chance upon a paragraph describing the spacing of spark plug gaps, another prescribing the use of the expression ‘all day protection’ in antiperspirant labels, another describing the signing of documents related to excise taxes on structured settlement factoring transactions, and so on.14 What is objectionable about such overprovision of law? The first objection is that it represents an excessive reliance on coercion. Each of these regulations is a command backed up by a threat of force issued by the state against its citizens. While some of these threats may be justified, those that are not constitute a violation of the rights of all those who are thereby coerced. Second, a surplus of laws can have large economic costs. Ronald Coase, Nobel laureate and former editor of the Journal of Law and Economics, reports that his journal published a series of empirical studies of the effects of a wide variety of regulations, in which it turned out that every regulation studied had overall negative effects on society.15 The Small Business Administration of the U.S. government has estimated the annual cost of federal regulations to the U.S. economy at $1.75 trillion, a burden that they find falls disproportionately on small businesses.16 Third, an excessive quantity of law, as well as an excessively complex and technical body of law, renders it unreasonable to demand that citizens know, understand, and follow all laws.

‘Can the Maximin Principle Serve as a Basis for Morality? A Critique of John Rawls’s Theory’, American Political Science Review 69: 594–606. Hart, H. L. A. 1955. ‘Are There Any Natural Rights?’ Philosophical Review 64: 175–91. ——. 1958. ‘Legal and Moral Obligation’ in Essays in Moral Philosophy, ed. A. I. Melden. Seattle: University of Washington Press. Hazlett, Thomas W. 1997. ‘Looking for Results’ (interview with Ronald Coase), Reason 28, 8: 40–6. Henig, Ruth. 1995. Versailles and After: 1919–1933, second edition. London: Routledge. Herring, George C. 2002. America’s Longest War: The United States and Vietnam, 1950–1975, fourth edition. Boston: McGraw-Hill. Heywood, Andrew. 1992. Political Ideologies: An Introduction. New York: Saint Martin’s Press. Hobbes, Thomas. 1996. Leviathan, ed. Richard Tuck. Cambridge: Cambridge University Press.


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The Case Against Education: Why the Education System Is a Waste of Time and Money by Bryan Caplan

affirmative action, Affordable Care Act / Obamacare, assortative mating, conceptual framework, correlation does not imply causation, deliberate practice, deskilling, disruptive innovation, en.wikipedia.org, endogenous growth, experimental subject, fear of failure, Flynn Effect, future of work, George Akerlof, ghettoisation, hive mind, job satisfaction, Kenneth Arrow, Khan Academy, labor-force participation, longitudinal study, low skilled workers, market bubble, mass incarceration, meta analysis, meta-analysis, Peter Thiel, price discrimination, profit maximization, publication bias, risk tolerance, Robert Gordon, Ronald Coase, school choice, selection bias, Silicon Valley, statistical model, Steven Pinker, The Bell Curve by Richard Herrnstein and Charles Murray, the scientific method, The Wisdom of Crowds, trickle-down economics, twin studies, unpaid internship, upwardly mobile, women in the workforce, yield curve, zero-sum game

Government Education Spending in Perspective Sources: Figure 7.1, and Office of Management and Budget 2014, pp. 57–58. Cutting Education: Why, Where, How When once asked at a public lecture in St. Louis how large the state should be, Coase answered: “If you see a man who weighs over 400 pounds, and you ask me how much he should weigh, my answer would be . . . less.” John Nye, “Ronald Coase: An Appreciation”18 When I argue education is largely wasteful signaling, most listeners yield. Popular resistance doesn’t kick in until I add, “Let’s waste less by cutting government spending on education.” You might think conceding the wastefulness of education spending would automatically entail support for austerity, but it doesn’t. The typical reaction is to confidently state, “Education budgets should be redirected, not reduced.”

Niskanen, William. 1997. “R&D and Economic Growth—Cautionary Thoughts.” In Science for the Twenty-First Century: The Bush Report Revisited, edited by Claude Barfield, 81–94. Washington, DC: American Enterprise Institute. Nobel Prize. 2015. “A. Michael Spence—Facts.” Accessed November 15. http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/2001/spence-facts.html. Nye, John. 2014. “Ronald Coase: An Appreciation.” Independent Review 19 (1): 101–8. Obukhova, Elena. 2012. “Motivation vs. Relevance: Using Strong Ties to Find a Job in Urban China.” Social Science Research 41 (3): 570–80. Obukhova, Elena, and George Lan. 2013. “Do Job Seekers Benefit from Contacts? A Direct Test with Contemporaneous Searches.” Management Science 59 (10): 2204–16. OECD. 2014. Education at a Glance 2014: OECD Indicators.


pages: 205 words: 58,054

Private Government: How Employers Rule Our Lives (And Why We Don't Talk About It) by Elizabeth S. Anderson

Affordable Care Act / Obamacare, barriers to entry, call centre, collective bargaining, corporate governance, correlation does not imply causation, declining real wages, deskilling, feminist movement, Frederick Winslow Taylor, full employment, invisible hand, manufacturing employment, means of production, Panopticon Jeremy Bentham, principal–agent problem, profit motive, Ronald Coase, shareholder value, Socratic dialogue, spinning jenny, The Nature of the Firm, The Wealth of Nations by Adam Smith, trickle-down economics

It does not explain, for example, why employers continue to have authority over workers’ off-duty lives, given that their choice of sexual partner, political candidate, or Facebook posting has nothing to do with productive efficiency. Even worse, theorists of the firm appear not to even recognize how authoritarian firm governance is. Major theorists soft-pedal or even deny the very authority they are supposed to be trying to explain. Consider Ronald Coase, the originator of the theory of the firm. He acknowledges that firms are “islands of conscious power.”16 The employment contract is one in which the worker “agrees to obey the directions of an entrepreneur.” But, he insists, “the essence of the contract is that it should only state the limits to the powers of the entrepreneur.”17 This suggests that the limits of the employer’s powers are an object of negotiation or at least communication between the parties.


pages: 164 words: 57,068

The Second Curve: Thoughts on Reinventing Society by Charles Handy

"Robert Solow", Airbnb, basic income, Bernie Madoff, bitcoin, bonus culture, British Empire, call centre, Clayton Christensen, corporate governance, delayed gratification, Diane Coyle, disruptive innovation, Edward Snowden, falling living standards, future of work, G4S, greed is good, informal economy, Internet of things, invisible hand, joint-stock company, joint-stock limited liability company, Kickstarter, Kodak vs Instagram, late capitalism, mass immigration, megacity, mittelstand, Occupy movement, payday loans, peer-to-peer lending, plutocrats, Plutocrats, Ponzi scheme, Ronald Coase, shareholder value, sharing economy, Skype, Social Responsibility of Business Is to Increase Its Profits, Stanford marshmallow experiment, Steve Jobs, The Wealth of Nations by Adam Smith, Thorstein Veblen, too big to fail, transaction costs, Veblen good, Walter Mischel

One feature of the new information-based industries, such as Google or Facebook, which are financed mainly if not exclusively by advertising, is the user-takes-all phenomenon. Size is all-important so the leader effectively freezes out, or buys out, all would-be competing businesses. Anti-trust laws do not seem to apply where there are no competitors to collude with and regulators seem reluctant or unable to interfere. In America the government once split up AT&T. Why not the new giants? Big may be seductive but is it necessary or sensible? Back in the 1930s Ronald Coase argued the case for the large corporation. Keeping everything in-house, he suggested, lowered the transaction costs when compared with negotiating with separate outside businesses. Put simply, if you employed them you could tell them what to do. The result of applying the Coase argument was the integrated organisation, where everything connected with the output of the organisation was both owned and managed by it.


pages: 215 words: 59,188

Seriously Curious: The Facts and Figures That Turn Our World Upside Down by Tom Standage

agricultural Revolution, augmented reality, autonomous vehicles, blood diamonds, corporate governance, Deng Xiaoping, Donald Trump, Elon Musk, failed state, financial independence, gender pay gap, gig economy, Gini coefficient, high net worth, income inequality, index fund, industrial robot, Internet of things, invisible hand, job-hopping, Julian Assange, life extension, Lyft, M-Pesa, Mahatma Gandhi, manufacturing employment, mega-rich, megacity, Minecraft, mobile money, natural language processing, Nelson Mandela, plutocrats, Plutocrats, price mechanism, purchasing power parity, ransomware, reshoring, ride hailing / ride sharing, Ronald Coase, self-driving car, Silicon Valley, Snapchat, South China Sea, speech recognition, stem cell, supply-chain management, transaction costs, Uber and Lyft, uber lyft, undersea cable, US Airways Flight 1549, WikiLeaks

That may not extend lifespans, but it can help people make the most of their remaining years. Why do companies exist? The idea of the price mechanism is central to the study of economics. Market prices convey information about what people want to buy and what others want to sell. Adam Smith used the metaphor of the “invisible hand” to describe how the economy is governed by price signals. In 1937 a paper published by Ronald Coase, a British economist, pointed out a flaw in this view: it did not explain what goes on within firms. When employees switch from one division to another, for instance, they do not do so in response to higher wages, but because they are ordered to. The question posed by Coase was a profound, if awkward, one for economics. Why do firms exist? His answer was that firms are a response to the high cost of using markets.


Speaking Code: Coding as Aesthetic and Political Expression by Geoff Cox, Alex McLean

4chan, Amazon Mechanical Turk, augmented reality, bash_history, bitcoin, cloud computing, computer age, computer vision, crowdsourcing, dematerialisation, Donald Knuth, Douglas Hofstadter, en.wikipedia.org, Everything should be made as simple as possible, finite state, Gödel, Escher, Bach, Jacques de Vaucanson, Larry Wall, late capitalism, means of production, natural language processing, new economy, Norbert Wiener, Occupy movement, packet switching, peer-to-peer, Richard Stallman, Ronald Coase, Slavoj Žižek, social software, social web, software studies, speech recognition, stem cell, Stewart Brand, The Nature of the Firm, Turing machine, Turing test, Vilfredo Pareto, We are Anonymous. We are Legion, We are the 99%, WikiLeaks

James Leach, “Modes of Creativity and the Register of Ownership,” in Ghosh, Code. 39. Ibid., 33–34. 40. Ibid., 35. 41. GNU General Public License; available at http://www.gnu.org/copyleft/gpl.html. 42. Leach, “Modes of Creativity and the Register of Ownership,” 41. 43. Yochai Benkler, “Coase’s Penguin, or, Linux and the Nature of the Firm,” in Ghosh, Code, 169. He is referring to the economist Ronald Coase’s essay “The Nature of the Firm,” of 1937. 44. Michel Bauwens, “The Social Web and Its Social Contracts: Some Notes on Social Antagonism in Netarchical Capitalism,” Re-Public (2008; available at http://www.re-public.gr/en/?p=261). 45. Ibid. 46. Ibid. 47. Virno, A Grammar of the Multitude, 110. 48. Christopher M. Kelty, Two Bits: The Cultural Significance of Free Software (Durham: Duke University Press, 2008), 143–178. 128 Notes to Pages 77–79 49.


pages: 566 words: 163,322

The Rise and Fall of Nations: Forces of Change in the Post-Crisis World by Ruchir Sharma

Asian financial crisis, backtesting, bank run, banking crisis, Berlin Wall, Bernie Sanders, BRICs, business climate, business cycle, business process, call centre, capital controls, Capital in the Twenty-First Century by Thomas Piketty, Carmen Reinhart, central bank independence, centre right, colonial rule, Commodity Super-Cycle, corporate governance, creative destruction, crony capitalism, currency peg, dark matter, debt deflation, deglobalization, deindustrialization, demographic dividend, demographic transition, Deng Xiaoping, Doha Development Round, Donald Trump, Edward Glaeser, Elon Musk, eurozone crisis, failed state, Fall of the Berlin Wall, falling living standards, Francis Fukuyama: the end of history, Freestyle chess, Gini coefficient, hiring and firing, income inequality, indoor plumbing, industrial robot, inflation targeting, Internet of things, Jeff Bezos, job automation, John Markoff, Joseph Schumpeter, Kenneth Rogoff, Kickstarter, knowledge economy, labor-force participation, lateral thinking, liberal capitalism, Malacca Straits, Mark Zuckerberg, market bubble, mass immigration, megacity, Mexican peso crisis / tequila crisis, mittelstand, moral hazard, New Economic Geography, North Sea oil, oil rush, oil shale / tar sands, oil shock, pattern recognition, Paul Samuelson, Peter Thiel, pets.com, plutocrats, Plutocrats, Ponzi scheme, price stability, Productivity paradox, purchasing power parity, quantitative easing, Ralph Waldo Emerson, random walk, rent-seeking, reserve currency, Ronald Coase, Ronald Reagan, savings glut, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Silicon Valley startup, Simon Kuznets, smart cities, Snapchat, South China Sea, sovereign wealth fund, special economic zone, spectrum auction, Steve Jobs, The Future of Employment, The Wisdom of Crowds, Thomas Malthus, total factor productivity, trade liberalization, trade route, tulip mania, Tyler Cowen: Great Stagnation, unorthodox policies, Washington Consensus, WikiLeaks, women in the workforce, working-age population

Rather than just favoring certain business allies, he also set up a competition among leading tycoons that would ultimately produce a few national industrial champions, companies like Samsung that made South Korea a leading export power. However, no new important emerging nation has achieved this kind of success—growing rapidly thanks largely to the guiding hand of an activist state—in recent decades. Of course, many will respond, what about China? As the Nobel Prize–winning economist Ronald Coase has pointed out, the conventional story about China gets the narrative wrong. China started on the road to becoming an industrial superpower only after the all-encompassing state started to interfere less in the economy. Around 1980 the Chinese government began to ease its grip, one step at a time and always in response to pressure from below. Initially, peasants demanded to sell more of their own produce, then villages sought to run their own local enterprises, and finally individuals pressed for the right to own and run those enterprises. 3 Since the early 1980s, the output of private companies in China has risen by 300 times, or five times faster than the output of state companies, according to Deutsche Bank research.

IMF Staff Discussion Note, 2011. 5 Bradford Johnson, “Retail: The Wal-Mart Effect; Information Technology Isn’t the Whole Story Behind Productivity,” McKinsey Quarterly (Winter 2002). 6 Robert Peston, “Inequality Is Bad for Growth, Says OECD,” BBC News, May 21, 2015. Chapter 4: Perils of the State 1 Roger Altman, “Blame Bond Markets, Not Politicians, for Austerity,” Financial Times, May 8, 2013. 2 Ahmed Feteha, “Welcome to Egypt’s Fake Weddings: Get High, Leave Lots of Cash,” Bloomberg News, June 23, 2015. 3 Ronald Coase and Ning Wang, How China Became Capitalist (London: Palgrave Macmillan, 2013). 4 Jun Ma, Audrey Shi, and Shan Lan, “Deregulation and Private Sector Growth,” Deutsche Bank Research Report, September 13, 2013. 5 Anders Aslund, “How Russia Mismanaged the Financial Crisis,” Moscow Times, February 27, 2013. 6 Amy Li, “Premier Li Keqiang Makes Case for Deeper Economic Reforms over Stimulus,” South China Morning Post, May 1, 2014. 7 Liz Matthew, “Manmohan Singh Should Have Put Foot Down, Cancelled 2G Licences,” Indian Express, November 8, 2014. 8 Yannis Palaiologos, “Syriza Must Let Markets and Meritocracy Rule,” Financial Times, May 12, 2015.


Order Without Design: How Markets Shape Cities by Alain Bertaud

autonomous vehicles, call centre, colonial rule, congestion charging, creative destruction, cross-subsidies, Deng Xiaoping, discounted cash flows, Donald Trump, Edward Glaeser, en.wikipedia.org, extreme commuting, garden city movement, Google Earth, Jane Jacobs, job satisfaction, Joseph Schumpeter, land tenure, manufacturing employment, market design, market fragmentation, megacity, new economy, New Urbanism, openstreetmap, Pearl River Delta, price mechanism, rent control, Right to Buy, Ronald Coase, self-driving car, Silicon Valley, special economic zone, the built environment, trade route, transaction costs, transit-oriented development, trickle-down economics, urban planning, urban sprawl, zero-sum game

It resulted in a rapid and opaque privatization of many state enterprises that produced oligopolies that only remotely resemble markets. Some Russian cities have real land market; in others the system of land allocation is less clear. Under Deng Xiaoping, China chose a different path. It gradually reformed its system until it made a progressive, orderly transition from a command to a market economy. However, the shift of the system in China was not due to an ideological conversion. As Ronald Coase and Ning Wang explained in their book on China’s reform, “China became capitalist while it was trying to modernize socialism.”5 Indeed, the Chinese government allowed cities to experiment with small-scale labor and land market liberalization before expanding successful experiments to the entire country. It was only in 2013 that the Central Committee of the Chinese Communist Party declared that: The basic economic system should evolve on the decisive role of the market in resource allocation.6 Urban planners, who still dream about the wonderful cities that they could design without the hindrance of land markets, should get acquainted with the experiments made by the Communist Party of China, whose results drove them to decide that using market prices was a good way to allocate resources.

Alain Bertaud and Bertrand Renaud, “Socialist Cities without Land Markets,” Journal of Urban Economics 41, no. 1 (1997): 137–151. 4. Kombinats in the Soviet Union and Eastern Europe were large vertical monopolies that usually spanned one industrial sector. For instance, the kombinat in this story operated sand quarries, cement factories, concrete panel factories, and housing construction for a region. Sometimes the kombinat also extended horizontally, operating farms to provide food to its workers. 5. Ronald Coase and Ning Wang, How China Became Capitalist (London: Palgrave Macmillan, 2012), 154. 6. China Daily (Beijing), November 16, 2013, “Decisions on Major Issues Concerning Comprehensively Deepening Reforms,” adopted during the Third Plenary Session of the eighteenth meeting of the Communist Party of China Central Committee on November 12, 2013. 2 Cities as Labor Markets The Efficiency of Large Labor Markets Is the Main Cause of Ever-Growing Cities Cities Are Primarily Labor Markets Cities are primarily labor markets.


pages: 614 words: 174,226

The Economists' Hour: How the False Prophets of Free Markets Fractured Our Society by Binyamin Appelbaum

"Robert Solow", airline deregulation, Alvin Roth, Andrei Shleifer, anti-communist, battle of ideas, Benoit Mandelbrot, Big bang: deregulation of the City of London, Bretton Woods, British Empire, business cycle, capital controls, Carmen Reinhart, Cass Sunstein, Celtic Tiger, central bank independence, clean water, collective bargaining, Corn Laws, correlation does not imply causation, Credit Default Swap, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, Deng Xiaoping, desegregation, Diane Coyle, Donald Trump, ending welfare as we know it, financial deregulation, financial innovation, fixed income, floating exchange rates, full employment, George Akerlof, George Gilder, Gini coefficient, greed is good, Growth in a Time of Debt, income inequality, income per capita, index fund, inflation targeting, invisible hand, Isaac Newton, Jean Tirole, John Markoff, Kenneth Arrow, Kenneth Rogoff, land reform, Long Term Capital Management, low cost airline, manufacturing employment, means of production, Menlo Park, minimum wage unemployment, Mohammed Bouazizi, money market fund, Mont Pelerin Society, Network effects, new economy, oil shock, Paul Samuelson, Philip Mirowski, plutocrats, Plutocrats, price stability, profit motive, Ralph Nader, RAND corporation, rent control, rent-seeking, Richard Thaler, road to serfdom, Robert Bork, Robert Gordon, Ronald Coase, Ronald Reagan, Sam Peltzman, Silicon Valley, Simon Kuznets, starchitect, Steve Jobs, supply-chain management, The Chicago School, The Great Moderation, The Myth of the Rational Market, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, trickle-down economics, ultimatum game, Unsafe at Any Speed, urban renewal, War on Poverty, Washington Consensus

Stigler liked to argue that the work of academic economists had little impact on public policy and that Friedman was wasting his time by trying to teach economics to the general public. “Milton wants to change the world; I only want to understand it,” Stigler said.23 But those who knew Stigler marked the scope of his ambition. “He thought he was going to change the world,” said his longtime colleague Ronald Coase.24 The real difference was that Stigler focused on winning over his fellow economists. He continued to produce significant work, and to battle academic opponents with gusto, long after Friedman had turned to a life as a public intellectual. “A scholar is an evangelist seeking to convert his learned brethren to the new enlightenment he is preaching,” Stigler wrote in his memoirs. “A new idea proposed in a halfhearted and casual way is almost certainly consigned to oblivion.”25 Fittingly, Stigler launched his defense of markets in 1948 with a scathing attack on a fellow economist delivered in a series of lectures at the London School of Economics.

Levi, later U.S. attorney general under President Ford. Levi would give four lectures, and then Director would give one. “Aaron Director would tell us that everything that Levi had told us the preceding four days was nonsense,” recalled one student. For some it was a religious experience. “We became Janissaries,” said Robert Bork, an early student who was one of the most influential popularizers of Director’s ideas.* Ronald Coase, a colleague who later won the Nobel Prize in economics for his work integrating economics into legal theory, also counted himself a disciple of Director, saying, “I regarded my role as that of Saint Paul to Aaron Director’s Christ. He got the doctrine going and what I had to do was bring it to the gentiles.”36 Director’s trademark was his skepticism that corporate behavior was anticompetitive.


The Ethical Algorithm: The Science of Socially Aware Algorithm Design by Michael Kearns, Aaron Roth

23andMe, affirmative action, algorithmic trading, Alvin Roth, Bayesian statistics, bitcoin, cloud computing, computer vision, crowdsourcing, Edward Snowden, Elon Musk, Filter Bubble, general-purpose programming language, Google Chrome, ImageNet competition, Lyft, medical residency, Nash equilibrium, Netflix Prize, p-value, Pareto efficiency, performance metric, personalized medicine, pre–internet, profit motive, quantitative trading / quantitative finance, RAND corporation, recommendation engine, replication crisis, ride hailing / ride sharing, Robert Bork, Ronald Coase, self-driving car, short selling, sorting algorithm, speech recognition, statistical model, Stephen Hawking, superintelligent machines, telemarketer, Turing machine, two-sided market, Vilfredo Pareto

.), and then go on a fishing expedition by making queries on that data. After these practices were revealed, intense scrutiny of Wansink’s research led to retractions of seventeen published papers, another fifteen “corrections,” and a Cornell investigation that found scientific misconduct. He resigned from the university effective June 2019. But these cases are really just an acceleration of an old phenomenon. As Ronald Coase, a Nobel Prize‒winning British economist, put it in the 1960s, “If you torture the data for long enough, it will confess to anything.” Tending the Garden of the Forking Paths Andrew Gelman and Eric Loken, statisticians who have studied the proliferation of published but false findings in the social sciences, have a colorful name for the phenomenon of adaptivity: the “garden of the forking paths.”


pages: 239 words: 69,496

The Wisdom of Finance: Discovering Humanity in the World of Risk and Return by Mihir Desai

activist fund / activist shareholder / activist investor, Albert Einstein, Andrei Shleifer, assortative mating, Benoit Mandelbrot, Brownian motion, capital asset pricing model, carried interest, Charles Lindbergh, collective bargaining, corporate governance, corporate raider, discounted cash flows, diversified portfolio, Eugene Fama: efficient market hypothesis, financial innovation, follow your passion, George Akerlof, Gordon Gekko, greed is good, housing crisis, income inequality, information asymmetry, Isaac Newton, Jony Ive, Kenneth Rogoff, longitudinal study, Louis Bachelier, moral hazard, Myron Scholes, new economy, out of africa, Paul Samuelson, Pierre-Simon Laplace, principal–agent problem, Ralph Waldo Emerson, random walk, risk/return, Robert Shiller, Robert Shiller, Ronald Coase, Silicon Valley, Steve Jobs, Thales and the olive presses, Thales of Miletus, The Market for Lemons, The Nature of the Firm, The Wealth of Nations by Adam Smith, Tim Cook: Apple, transaction costs, zero-sum game

Indeed, the Journal of Law and Economics dedicated a special issue to alternative accounts and interpretations of this merger—a remarkable fact given economists’ skepticism about anecdotes. While there are innumerable variants, there are two primary interpretations of this romance that progresses from spot market transaction to long-term contractual arrangements and then all the way to merger. Each of these interpretations—the transaction cost approach and the property rights approach—is associated with a Nobel Prize (Ronald Coase in 1991 and Oliver Hart and Bengt Holmström in 2016), so, by academic standards, this is a prize fight. The considerably less romantic interpretation is that GM merged with Fisher in 1926 because the ongoing costs of contracting with each other just became too high. Yes, they could have stayed separate and just kept contracting and renegotiating contracts, but it’s so costly to write these contracts, and if they merged, they wouldn’t have to keep writing new contracts all the time.


pages: 218 words: 68,648

Confessions of a Crypto Millionaire: My Unlikely Escape From Corporate America by Dan Conway

Affordable Care Act / Obamacare, Airbnb, bank run, basic income, bitcoin, blockchain, buy and hold, cloud computing, cognitive dissonance, corporate governance, crowdsourcing, cryptocurrency, disruptive innovation, distributed ledger, double entry bookkeeping, Ethereum, ethereum blockchain, fault tolerance, financial independence, gig economy, Gordon Gekko, Haight Ashbury, high net worth, job satisfaction, litecoin, Marc Andreessen, Mitch Kapor, obamacare, offshore financial centre, Ponzi scheme, prediction markets, rent control, reserve currency, Ronald Coase, Satoshi Nakamoto, Silicon Valley, smart contracts, Steve Jobs, supercomputer in your pocket, Turing complete, Uber for X, universal basic income, upwardly mobile

It felt like the end-stage of a dystopian corporate nightmare path many large companies might follow as they aged over the decades. I honestly didn’t give it too much thought other than constantly thinking, What a hassle. If I was ever going to escape, I first needed to survive and ultimately climb this ladder, no matter how badly it was shaking. Chapter Six Ethereum, a New Kind of Machine In his famous 1937 book The Modern Firm, economist Ronald Coase Noah explains why corporations have run the world economy for so long. They allow contracts to be settled, and they make it possible for people to work together to get things done. By and large, people have been working under this template for generations. The litany of complaints at your local watering hole are the bedrock of the corporation: chains of command, bureaucracy, and a culture that values polished professionals with similar temperaments and few rough edges.


Work in the Future The Automation Revolution-Palgrave MacMillan (2019) by Robert Skidelsky Nan Craig

3D printing, Airbnb, algorithmic trading, Amazon Web Services, anti-work, artificial general intelligence, autonomous vehicles, basic income, business cycle, cloud computing, collective bargaining, correlation does not imply causation, creative destruction, data is the new oil, David Graeber, David Ricardo: comparative advantage, deindustrialization, deskilling, disintermediation, Donald Trump, Erik Brynjolfsson, feminist movement, Frederick Winslow Taylor, future of work, gig economy, global supply chain, income inequality, informal economy, Internet of things, Jarndyce and Jarndyce, Jarndyce and Jarndyce, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, John Maynard Keynes: technological unemployment, John von Neumann, Joseph Schumpeter, knowledge economy, Loebner Prize, low skilled workers, Lyft, Mark Zuckerberg, means of production, moral panic, Network effects, new economy, off grid, pattern recognition, post-work, Ronald Coase, Second Machine Age, self-driving car, sharing economy, Steve Jobs, strong AI, technoutopianism, The Chicago School, The Future of Employment, the market place, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thorstein Veblen, Turing test, Uber for X, uber lyft, universal basic income, wealth creators, working poor

The aim is to pragmatically confront the challenges set at the same time by the labour market polarisation, the digital revolution and the preservation of a European—or we could now better say continental—welfarist model. The challenge is to escape the curse of high employment rates, as well as the pitfalls of the working poor, entrepreneurs or self-employed. Instead of adjusting the existing tools to a rapidly shifting technological and globally competitive environment, one could design a totally new scenario. New? Maybe not that much. Remember that Ronald Coase, a very long time ago, asked why not nexuses of bilateral contract work negotiations instead of firms (Coase 1937)? What would a flexible welfare state look like? It could be based on so-­ called social drawing rights (Supiot et al. 2001). The drawing rights framework might build on various existing social rights: assistance for the unemployed in creating or taking over businesses, training leave, training vouchers, special leave, time save accounts, universal basic income, in order to extend them and, more importantly, better manage their allocation, combination and interaction.


pages: 238 words: 73,824

Makers by Chris Anderson

3D printing, Airbnb, Any sufficiently advanced technology is indistinguishable from magic, Apple II, autonomous vehicles, barriers to entry, Buckminster Fuller, Build a better mousetrap, business process, commoditize, Computer Numeric Control, crowdsourcing, dark matter, David Ricardo: comparative advantage, death of newspapers, dematerialisation, Elon Musk, factory automation, Firefox, future of work, global supply chain, global village, IKEA effect, industrial robot, interchangeable parts, Internet of things, inventory management, James Hargreaves, James Watt: steam engine, Jeff Bezos, job automation, Joseph Schumpeter, Kickstarter, Lean Startup, manufacturing employment, Mark Zuckerberg, means of production, Menlo Park, Network effects, private space industry, profit maximization, QR code, race to the bottom, Richard Feynman, Ronald Coase, Rubik’s Cube, self-driving car, side project, Silicon Valley, Silicon Valley startup, Skype, slashdot, South of Market, San Francisco, spinning jenny, Startup school, stem cell, Steve Jobs, Steve Wozniak, Steven Levy, Stewart Brand, supply-chain management, The Nature of the Firm, The Wealth of Nations by Adam Smith, transaction costs, trickle-down economics, Whole Earth Catalog, X Prize, Y Combinator

Infinitely flexible and adaptable, general-purpose industrial robots can be combined to create the universal Making Machine. And like computers, they work at any scale, from the mile-long NUMMI plant to your desktop. That—not just the rise of advanced technology, but also its democratization—is the real revolution. Chapter 9 The Open Organization To make things a new way, you need to make companies a new way, too. In the mid-1930s, Ronald Coase, then a recent London School of Economics graduate, was musing over what to many people might have seemed a silly question: Why do companies exist? Why do we pledge our allegiance to an institution and gather in the same building to get things done? His eventual answer, which he published in his landmark 1937 article “The Nature of the Firm,”33 was this: companies exist to minimize “transaction costs”—time, hassle, confusion, mistakes.


pages: 183 words: 17,571

Broken Markets: A User's Guide to the Post-Finance Economy by Kevin Mellyn

banking crisis, banks create money, Basel III, Bernie Madoff, Big bang: deregulation of the City of London, Bonfire of the Vanities, bonus culture, Bretton Woods, BRICs, British Empire, business cycle, buy and hold, call centre, Carmen Reinhart, central bank independence, centre right, cloud computing, collapse of Lehman Brothers, collateralized debt obligation, corporate governance, corporate raider, creative destruction, credit crunch, crony capitalism, currency manipulation / currency intervention, disintermediation, eurozone crisis, fiat currency, financial innovation, financial repression, floating exchange rates, Fractional reserve banking, global reserve currency, global supply chain, Home mortgage interest deduction, index fund, information asymmetry, joint-stock company, Joseph Schumpeter, labor-force participation, light touch regulation, liquidity trap, London Interbank Offered Rate, market bubble, market clearing, Martin Wolf, means of production, mobile money, money market fund, moral hazard, mortgage debt, mortgage tax deduction, negative equity, Ponzi scheme, profit motive, quantitative easing, Real Time Gross Settlement, regulatory arbitrage, reserve currency, rising living standards, Ronald Coase, seigniorage, shareholder value, Silicon Valley, statistical model, Steve Jobs, The Great Moderation, the payments system, Tobin tax, too big to fail, transaction costs, underbanked, Works Progress Administration, yield curve, Yogi Berra, zero-sum game

However, everyone had cheerfully lived with this way of settling foreign exchange trades for generations up to 1971.There just wasn’t that much business under the stable rates of Bretton Woods or the gold standard before. Then, overnight, the global foreign exchange market grew by leaps and bounds as currencies were allowed to float against each other in market trading. This is where the revolution in technology comes into play. If there is a great deal of friction in making a market transaction, as Nobel Prize–winning economist Ronald Coase pointed out 80 years ago, it will tend to be replaced by bureaucratic command and control or not occur at all. This is why so much “business” takes place within huge corporations instead of free markets. Bretton Woods was very much a bureaucratic solution worked out between governments. Ending it opened up a huge scope for market transactions overnight, but the friction encountered was monumental.The key steps in a market transaction are finding a counterparty to take the other side of the trade; qualifying the counterparty as trustworthy; price discovery, which is essentially using the market to determine if the counterparty is offering or taking a fair price; executing the trade—essentially making a contract; and settling the trade (i.e., paying or getting paid).


pages: 288 words: 76,343

The Plundered Planet: Why We Must--And How We Can--Manage Nature for Global Prosperity by Paul Collier

agricultural Revolution, Berlin Wall, business climate, Doha Development Round, energy security, food miles, G4S, information asymmetry, Kenneth Arrow, megacity, new economy, offshore financial centre, oil shock, profit maximization, rent-seeking, Ronald Coase, Scramble for Africa, sovereign wealth fund, stem cell, Stewart Brand

It is that the world should adjust as efficiently as possible—which, remember, means at the least possible cost—to a low-carbon future. The issue of who compensates whom is completely independent of this problem and, as with all natural assets and liabilities, has no clear guiding principles by which ownership of carbon liabilities can be assigned. Indeed, there is a famous economic theorem by the Nobel Laureate Ronald Coase which makes precisely this point. The efficient outcome is independent of how the property rights are assigned. Because international cap-and-trade creates national property rights for emissions, it provokes an intense international struggle over how these rights should be assigned. The alternative that I have suggested is that governments should agree to a common set of taxes-cum-regulation that curb global emissions to safe levels and do not induce activities to relocate to evade facing social costs.


pages: 254 words: 76,064

Whiplash: How to Survive Our Faster Future by Joi Ito, Jeff Howe

3D printing, Albert Michelson, Amazon Web Services, artificial general intelligence, basic income, Bernie Sanders, bitcoin, Black Swan, blockchain, Burning Man, buy low sell high, Claude Shannon: information theory, cloud computing, Computer Numeric Control, conceptual framework, crowdsourcing, cryptocurrency, data acquisition, disruptive innovation, Donald Trump, double helix, Edward Snowden, Elon Musk, Ferguson, Missouri, fiat currency, financial innovation, Flash crash, frictionless, game design, Gerolamo Cardano, informal economy, interchangeable parts, Internet Archive, Internet of things, Isaac Newton, Jeff Bezos, John Harrison: Longitude, Joi Ito, Khan Academy, Kickstarter, Mark Zuckerberg, microbiome, Nate Silver, Network effects, neurotypical, Oculus Rift, pattern recognition, peer-to-peer, pirate software, pre–internet, prisoner's dilemma, Productivity paradox, race to the bottom, RAND corporation, random walk, Ray Kurzweil, Ronald Coase, Ross Ulbricht, Satoshi Nakamoto, self-driving car, SETI@home, side project, Silicon Valley, Silicon Valley startup, Simon Singh, Singularitarianism, Skype, slashdot, smart contracts, Steve Ballmer, Steve Jobs, Steven Levy, Stewart Brand, Stuxnet, supply-chain management, technological singularity, technoutopianism, The Nature of the Firm, the scientific method, The Signal and the Noise by Nate Silver, There's no reason for any individual to have a computer in his home - Ken Olsen, Thomas Kuhn: the structure of scientific revolutions, universal basic income, unpaid internship, uranium enrichment, urban planning, WikiLeaks

Instead, we think it requires a deeper, more fundamental shift: an entirely new mode of thinking—a cognitive evolution on the scale of a quadruped learning to stand on its hind two feet. One way of thinking of these principles is that they’re observations of how two simple but profound developments initiated a powerful change in how humans interact with the world. The first, obviously, is the development of the Internet, which unlike any previous communication technology provided connections from many-to-many as well as one-to-many. The British economist Ronald Coase famously described how the firm could allocate and manage resources better than independent agents in an open market—in “Coase’s Penguin, or Linux and the Nature of the Firm,” Yochai Benkler shows that when collaboration costs are reduced, as in projects like Linux and Wikipedia, allowing people to allocate themselves to projects can create assets and organizations more effectively than top-down and structured companies.


pages: 252 words: 73,131

The Inner Lives of Markets: How People Shape Them—And They Shape Us by Tim Sullivan

"Robert Solow", Airbnb, airport security, Al Roth, Alvin Roth, Andrei Shleifer, attribution theory, autonomous vehicles, barriers to entry, Brownian motion, business cycle, buy and hold, centralized clearinghouse, Chuck Templeton: OpenTable:, clean water, conceptual framework, constrained optimization, continuous double auction, creative destruction, deferred acceptance, Donald Trump, Edward Glaeser, experimental subject, first-price auction, framing effect, frictionless, fundamental attribution error, George Akerlof, Goldman Sachs: Vampire Squid, Gunnar Myrdal, helicopter parent, information asymmetry, Internet of things, invisible hand, Isaac Newton, iterative process, Jean Tirole, Jeff Bezos, Johann Wolfgang von Goethe, John Nash: game theory, John von Neumann, Joseph Schumpeter, Kenneth Arrow, late fees, linear programming, Lyft, market clearing, market design, market friction, medical residency, multi-sided market, mutually assured destruction, Nash equilibrium, Occupy movement, Pareto efficiency, Paul Samuelson, Peter Thiel, pets.com, pez dispenser, pre–internet, price mechanism, price stability, prisoner's dilemma, profit motive, proxy bid, RAND corporation, ride hailing / ride sharing, Robert Shiller, Robert Shiller, Ronald Coase, school choice, school vouchers, sealed-bid auction, second-price auction, second-price sealed-bid, sharing economy, Silicon Valley, spectrum auction, Steve Jobs, Tacoma Narrows Bridge, technoutopianism, telemarketer, The Market for Lemons, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade route, transaction costs, two-sided market, uber lyft, uranium enrichment, Vickrey auction, Vilfredo Pareto, winner-take-all economy

We haven’t looked at the contracts that food producers have with grocery chains, but we’d bet that they lead both parties to care how many boxes of cereal or cans of beans get sold. Even if it’s not specified in the contract, you can be sure it’d come up the next time the grocer and its suppliers get together to do business. 6. Jean Tirole and Jean-Charles Rochet convey this point more precisely in a 2006 article where they show that two-sided markets are only necessary when the Coase Theorem fails. This theorem, more a conjecture provided by economist Ronald Coase, essentially argues that free markets maximize efficiency in the absence of externalities or transaction costs. Andrei Hagiu and Julian Wright explore the continuum of reseller and pure marketplace in “Do You Really Want to Be an eBay?” Harvard Business Review, March 2013. 7. We thank Pierre Azoulay for this. 8. David S. Evans and Richard Schmalensee, “Markets with Two-Sided Platforms,” Issues in Competition Law and Policy (ABA Section of Antitrust Law) 1, chap. 28 (2008); Joe Nocera, A Piece of the Action: How the Middle Class Joined the Moneyed Class (New York: Simon & Schuster, 1994).


pages: 636 words: 202,284

Piracy : The Intellectual Property Wars from Gutenberg to Gates by Adrian Johns

active measures, banking crisis, Berlin Wall, British Empire, Buckminster Fuller, business intelligence, commoditize, Corn Laws, demand response, distributed generation, Douglas Engelbart, Douglas Engelbart, Edmond Halley, Ernest Rutherford, Fellow of the Royal Society, full employment, Hacker Ethic, Howard Rheingold, informal economy, invention of the printing press, Isaac Newton, James Watt: steam engine, John Harrison: Longitude, Marshall McLuhan, Mont Pelerin Society, new economy, New Journalism, Norbert Wiener, pirate software, Republic of Letters, Richard Stallman, road to serfdom, Ronald Coase, software patent, South Sea Bubble, Steven Levy, Stewart Brand, Ted Nelson, the scientific method, traveling salesman, Whole Earth Catalog

The BBC’s first chief engineer, Peter Eckersley, championed a grand national scheme for wired broadcasting after he was forced from the corporation for being cited in a divorce – a scheme that was inspired in part by Secret Wireless’s ambitions in the twenties. But he did so in hopes of providing a media vehicle for the British fascist Sir Oswald Mosley, who was secretly his employer. At any rate, the practices of pirate listening undermined the BBC’s prized concept of “balance,” which, as the economist Ronald Coase demonstrated in his powerful midcentury critique, had always been its real raison d’être. That put in question the nature of broadcasting as a medium. In a realm of listener piracy, the messages put out might differ radically from those being received. Pirate listening threatened to create a nation of autonomous, individualized agents – modern Menocchios, as it were, ready and able to listen as unpredictably as the nowfamous Italian miller had read in the sixteenth century.

It was nowhere more so than at the institutional home of 1930s economic liberalism, the London School of Economics. Probably the prime mover there of this kind of argument was Arnold Plant (1898–1978), an engineerturnedeconomist. Plant never published very much by the standards of professional economists, and most of his later career was spent as a Whitehall apparatchik. He has been far less renowned than colleagues of the time like Friedrich von Hayek and his own onetime assistant Ronald Coase. But he was extremely influential behind the scenes, not least by virtue of being personally associated with many of the economists who chafed at Keynesian orthodoxy after the war. In papers that he did publish on copyright and patents in the 1930s, and in later ones addressing public broadcasting, Plant laid out a template for their attack. He did so on the basis of what was, in fact, an extensive and intensive excavation of the archival and statistical evidence on the history of copyrights and patents.


pages: 411 words: 80,925

What's Mine Is Yours: How Collaborative Consumption Is Changing the Way We Live by Rachel Botsman, Roo Rogers

Airbnb, barriers to entry, Bernie Madoff, bike sharing scheme, Buckminster Fuller, buy and hold, carbon footprint, Cass Sunstein, collaborative consumption, collaborative economy, commoditize, Community Supported Agriculture, credit crunch, crowdsourcing, dematerialisation, disintermediation, en.wikipedia.org, experimental economics, George Akerlof, global village, hedonic treadmill, Hugh Fearnley-Whittingstall, information retrieval, iterative process, Kevin Kelly, Kickstarter, late fees, Mark Zuckerberg, market design, Menlo Park, Network effects, new economy, new new economy, out of africa, Parkinson's law, peer-to-peer, peer-to-peer lending, peer-to-peer rental, Ponzi scheme, pre–internet, recommendation engine, RFID, Richard Stallman, ride hailing / ride sharing, Robert Shiller, Robert Shiller, Ronald Coase, Search for Extraterrestrial Intelligence, SETI@home, Simon Kuznets, Skype, slashdot, smart grid, South of Market, San Francisco, Stewart Brand, The Nature of the Firm, The Spirit Level, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thorstein Veblen, Torches of Freedom, transaction costs, traveling salesman, ultimatum game, Victor Gruen, web of trust, women in the workforce, Zipcar

Collapse of “Transaction Costs” When we asked Beal which are the most commonly listed items on Freecycle, he explained that “there isn’t one particular thing” but instead massive categories of “inconvenient things” (old pianos, sofas, and televisions) and “unusual items” (disco balls, fish tanks, and even stuffed animals). These are the items that would have been a pain to lug to the dump (and sometimes you would even have to pay to dispose of them) or tricky to unload on a neighbor. The transaction costs to ensure they were kept in use, not in landfill, would have been high. In his paper “The Nature of the Firm,” economist and Nobel laureate Ronald Coase coined the term “transaction costs” to refer to the cost of making any form of exchange or participating in a market.3 If you go to the supermarket, for example, and buy some groceries, your costs are not just the price of the groceries but the energy, time, and effort required to write your list, travel to and from the store, wheel around your cart and choose your products, wait in the checkout line, and unpack and put away the groceries when you get back home.


pages: 791 words: 85,159

Social Life of Information by John Seely Brown, Paul Duguid

business process, Claude Shannon: information theory, computer age, cross-subsidies, disintermediation, double entry bookkeeping, Frank Gehry, frictionless, frictionless market, future of work, George Gilder, George Santayana, global village, Howard Rheingold, informal economy, information retrieval, invisible hand, Isaac Newton, John Markoff, Just-in-time delivery, Kenneth Arrow, Kevin Kelly, knowledge economy, knowledge worker, lateral thinking, loose coupling, Marshall McLuhan, medical malpractice, moral hazard, Network effects, new economy, Productivity paradox, Robert Metcalfe, rolodex, Ronald Coase, shareholder value, Shoshana Zuboff, Silicon Valley, Steve Jobs, Superbowl ad, Ted Nelson, telepresence, the medium is the message, The Nature of the Firm, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, Turing test, Vannevar Bush, Y2K

The difference is stark. Not, though, stark enough to step from here to what the business writers Larry Downes and Chunka Mui call the "Law of Diminishing Firms." After all, it's GM that's shrinking. Microsoft continues to grow while other high-tech start-ups compete for the title of "fastest growing ever." 22 Downes and Mui draw on the theory of the firm proposed by the Nobel Prize-winning economist Ronald Coase. Coase developed the notion of transaction costs. These are the costs of using the marketplace, of searching, evaluating, contracting, and enforcing. When it is cheaper to do these as an organization than as an individual, organizations will form. Conversely, as transaction costs fall, this glue dissolves and firms and organizations break apart. Ultimately, the theory suggests, if transaction costs become low enough, there will be no formal organizations, but only individuals in market relations.


pages: 317 words: 87,566

The Happiness Industry: How the Government and Big Business Sold Us Well-Being by William Davies

1960s counterculture, Airbnb, business intelligence, corporate governance, dematerialisation, experimental subject, Exxon Valdez, Frederick Winslow Taylor, Gini coefficient, income inequality, intangible asset, invisible hand, joint-stock company, lifelogging, market bubble, mental accounting, nudge unit, Panopticon Jeremy Bentham, Philip Mirowski, profit maximization, randomized controlled trial, Richard Thaler, road to serfdom, Ronald Coase, Ronald Reagan, science of happiness, selective serotonin reuptake inhibitor (SSRI), sentiment analysis, sharing economy, Slavoj Žižek, smart cities, Smart Cities: Big Data, Civic Hackers, and the Quest for a New Utopia, social intelligence, Social Responsibility of Business Is to Increase Its Profits, Steve Jobs, The Chicago School, The Spirit Level, theory of mind, urban planning, Vilfredo Pareto

It was in these breathless tones that George Stigler recounted one particular workshop in 1960, which took place in Aaron Director’s home in Hyde Park. Stigler would never forget that evening and later cursed Director for not having tape-recorded it.13 It became a turning point for his career and for the Chicago School more generally. Arguably, it was a turning point for the project of neoliberalism. The paper that was discussed that evening was the work of the British economist Ronald Coase, then of the University of Virginia. Coase always resisted the iconic status that Stigler and others were keen to bestow upon him. His career had progressed quietly and methodically, through asking simple scientific questions about why economic institutions are structured as they are. He claimed never to understand the excitement that his work had engendered. He collected his 1991 Nobel with the words ‘What I have done has been determined by factors which were no part of my choosing’, a sentiment that would have struck the chip-on-shoulder, competitive individualists of Chicago as akin to defeatism.


pages: 306 words: 82,765

Skin in the Game: Hidden Asymmetries in Daily Life by Nassim Nicholas Taleb

availability heuristic, Benoit Mandelbrot, Bernie Madoff, Black Swan, Brownian motion, Capital in the Twenty-First Century by Thomas Piketty, Cass Sunstein, cellular automata, Claude Shannon: information theory, cognitive dissonance, complexity theory, David Graeber, disintermediation, Donald Trump, Edward Thorp, equity premium, financial independence, information asymmetry, invisible hand, knowledge economy, loss aversion, mandelbrot fractal, mental accounting, microbiome, moral hazard, Murray Gell-Mann, offshore financial centre, p-value, Paul Samuelson, Ponzi scheme, price mechanism, principal–agent problem, Ralph Nader, random walk, rent-seeking, Richard Feynman, Richard Thaler, Ronald Coase, Ronald Reagan, Rory Sutherland, Silicon Valley, Steven Pinker, stochastic process, survivorship bias, The Nature of the Firm, transaction costs, urban planning, Yogi Berra

The employable person is embedded in an industry, with fear of upsetting not just their employer, but other potential employers.fn2 COASE’S THEORY OF THE FIRM Perhaps, by definition, an employable person is the one you will never find in a history book, because these people are designed to never leave their mark on the course of events. They are, by design, uninteresting to historians. But let us now see how fits the theory of the firm and the ideas of Ronald Coase. An employee is—by design—more valuable inside a firm than outside of it; that is, more valuable to the employer than the marketplace. Coase was a remarkable modern economist in that he was independent thinking, rigorous, and creative, with ideas that are applicable and explain the world around us—in other words, the real thing. His style is so rigorous that he is known for the Coase Theorem (about how markets are very smart about allocating resources and nuisances such as pollution), an idea that he posited without a single word of mathematics, but which is as fundamental as many things written in mathematics.


pages: 998 words: 211,235

A Beautiful Mind by Sylvia Nasar

"Robert Solow", Al Roth, Albert Einstein, Andrew Wiles, Brownian motion, business cycle, cognitive dissonance, Columbine, experimental economics, fear of failure, Gunnar Myrdal, Henri Poincaré, invisible hand, Isaac Newton, John Conway, John Nash: game theory, John von Neumann, Kenneth Arrow, Kenneth Rogoff, linear programming, lone genius, longitudinal study, market design, medical residency, Nash equilibrium, Norbert Wiener, Paul Erdős, Paul Samuelson, prisoner's dilemma, RAND corporation, Ronald Coase, second-price auction, Silicon Valley, Simon Singh, spectrum auction, The Wealth of Nations by Adam Smith, Thorstein Veblen, upwardly mobile, zero-sum game

Like Lindbeck, Stahl began his upward climb early, while he was still in high school, as a protégé of various Social Democratic politicians, including Palme, but he had gone over to the conservative opposition in the late 1960s. Stahl was deeply and adamantly opposed to awarding the prize to Nash. From the start, he was highly skeptical of game theory — as indeed he is of all pure theory. He is an institutionalist, likes intuitive rather than formal reasoning, and is leery of mathematics and “technicians.” He was, for example, a main mover behind the prizes for James Buchanan in 1986 and Ronald Coase in 1991 — economists whose theories focus on the way governments and legal structures affect the workings of markets. He also prides himself on grasping Nobel politics. The more he learned about Nash, the less he liked the idea of giving Nash a prize. In particular, he considered giving the prize to Nash the kind of ill-considered gesture that was likely to result in embarrassment and, more important, make the committee look bad.

The current generation of economic policymakers — including Lawrence Summers, undersecretary of the treasury, Joseph Stiglitz, chairman of the Council of Economic Advisers, and Vice-President Al Gore — are steeped in the stuff, which, they say, is useful for thinking about everything from budget proposals to Federal Reserve policy to pollution cleanups. The most dramatic use of game theory is by governments from Australia to Mexico to sell scarce public resources to buyers best able to develop them. The radio spectrum, T-bills, oil leases, timber, and pollution rights are now sold in auctions designed by game theorists — with far greater success than that of earlier policies.13’ Economists like Nobel Laureate Ronald Coase have advocated the use of auctions by government since the 1950s.14 Auctions have long been used in markets where sellers of unusual items — from vintage wines to movie rights — have no idea what bidders are willing to pay. Their basic purpose is to make bidders reveal how much they value the item. But the arguments of Coase and others were stated in abstract, entirely theoretical terms, and little thought was given to how such auctions would actually be conducted.


pages: 299 words: 91,839

What Would Google Do? by Jeff Jarvis

23andMe, Amazon Mechanical Turk, Amazon Web Services, Anne Wojcicki, barriers to entry, Berlin Wall, business process, call centre, cashless society, citizen journalism, clean water, commoditize, connected car, credit crunch, crowdsourcing, death of newspapers, different worldview, disintermediation, diversified portfolio, don't be evil, fear of failure, Firefox, future of journalism, G4S, Google Earth, Googley, Howard Rheingold, informal economy, inventory management, Jeff Bezos, jimmy wales, Kevin Kelly, Mark Zuckerberg, moral hazard, Network effects, new economy, Nicholas Carr, old-boy network, PageRank, peer-to-peer lending, post scarcity, prediction markets, pre–internet, Ronald Coase, search inside the book, Silicon Valley, Skype, social graph, social software, social web, spectrum auction, speech recognition, Steve Jobs, the medium is the message, The Nature of the Firm, the payments system, The Wisdom of Crowds, transaction costs, web of trust, WikiLeaks, Y Combinator, Zipcar

The agency and advertising need to get out of the way in the relationship between companies and customers. Agencies may help solve problems—teaching companies how to build networks with customers, assisting them with product launches—but once the consultation is done, the good consultant leaves town. Tobaccowala suggested agencies remake themselves as networks. He quoted University of Chicago economist Ronald Coase in his seminal 1937 essay, “The Nature of the Firm”—which is also quoted in Wikinomics, Here Comes Everybody, and, it would seem, half the business books published lately. Coase reasoned that firms exist and grow when internal friction is less than external friction, when it is easier and cheaper to deal with insiders than with outsiders. “In a networked world, it’s easier for us to work with outside people than inside people,” Tobaccowala said.


pages: 328 words: 92,317

Machinery of Freedom: A Guide to Radical Capitalism by David Friedman

back-to-the-land, Fractional reserve banking, hiring and firing, jitney, laissez-faire capitalism, Machinery of Freedom by David Friedman, means of production, rent control, road to serfdom, Ronald Coase, Ronald Reagan, Stewart Brand, The Wealth of Nations by Adam Smith, transaction costs, urban renewal, Vernor Vinge, Whole Earth Catalog

If a right is valuable to two people and belongs to the one who values it less, his neighbor can always offer to buy it from him. If you have the right to order me to shut down my candy factory, I can offer instead to pay the cost of tearing down your consulting room and rebuilding it on the other side of the lot. If the right is more valuable to me than to you, I should be able to make some offer that you will accept. This insight leads us to the Coase Theorem, named after Ronald Coase, the economist whose ideas are largely responsible for this part of the chapter. The Coase Theorem states that any initial definition of property rights will lead to an efficient outcome, provided that transaction costs are zero. The condition — zero transaction costs — is as important as the theorem. Suppose we start with a definition of property rights that forbids trespassing photons; anyone may forbid me from making a light that he can see.


pages: 209 words: 89,619

The Precariat: The New Dangerous Class by Guy Standing

8-hour work day, banking crisis, barriers to entry, basic income, Bertrand Russell: In Praise of Idleness, call centre, Cass Sunstein, centre right, collective bargaining, corporate governance, crony capitalism, deindustrialization, deskilling, fear of failure, full employment, hiring and firing, Honoré de Balzac, housing crisis, illegal immigration, immigration reform, income inequality, labour market flexibility, labour mobility, land reform, libertarian paternalism, low skilled workers, lump of labour, marginal employment, Mark Zuckerberg, mass immigration, means of production, mini-job, moral hazard, Naomi Klein, nudge unit, old age dependency ratio, Panopticon Jeremy Bentham, pensions crisis, placebo effect, post-industrial society, precariat, presumed consent, quantitative easing, remote working, rent-seeking, Richard Thaler, rising living standards, Ronald Coase, Ronald Reagan, science of happiness, shareholder value, Silicon Valley, The Market for Lemons, The Nature of the Firm, The Spirit Level, Tobin tax, transaction costs, universal basic income, unpaid internship, winner-take-all economy, working poor, working-age population, young professional

And corporations are increasingly owned by foreign shareholders, led by pension and private equity funds. The commodification of companies means that commitments made by today’s owners are not worth as much as they used to be. The owners could be out tomorrow, along with their management teams and the nods-andhandshakes that make up informal bargains about how labour is done, how payments should be honoured and how people are treated in moments of need. In 1937, Ronald Coase set out a theory that was to earn him a Nobel Prize in Economics. He argued that firms, with their hierarchies, were superior to atomised markets made up solely of individuals; they reduced the transaction costs of doing business, one reason being that they fostered long-term relationships based on trust. This reasoning has collapsed. Now that opportunistic buyers can amass vast funds and take over even well-run companies, there is less incentive to form trust relationships inside firms.


pages: 346 words: 89,180

Capitalism Without Capital: The Rise of the Intangible Economy by Jonathan Haskel, Stian Westlake

"Robert Solow", 23andMe, activist fund / activist shareholder / activist investor, Airbnb, Albert Einstein, Andrei Shleifer, bank run, banking crisis, Bernie Sanders, business climate, business process, buy and hold, Capital in the Twenty-First Century by Thomas Piketty, cloud computing, cognitive bias, computer age, corporate governance, corporate raider, correlation does not imply causation, creative destruction, dark matter, Diane Coyle, Donald Trump, Douglas Engelbart, Douglas Engelbart, Edward Glaeser, Elon Musk, endogenous growth, Erik Brynjolfsson, everywhere but in the productivity statistics, Fellow of the Royal Society, financial innovation, full employment, fundamental attribution error, future of work, Gini coefficient, Hernando de Soto, hiring and firing, income inequality, index card, indoor plumbing, intangible asset, Internet of things, Jane Jacobs, Jaron Lanier, job automation, Kenneth Arrow, Kickstarter, knowledge economy, knowledge worker, laissez-faire capitalism, liquidity trap, low skilled workers, Marc Andreessen, Mother of all demos, Network effects, new economy, open economy, patent troll, paypal mafia, Peter Thiel, pets.com, place-making, post-industrial society, Productivity paradox, quantitative hedge fund, rent-seeking, revision control, Richard Florida, ride hailing / ride sharing, Robert Gordon, Ronald Coase, Sand Hill Road, Second Machine Age, secular stagnation, self-driving car, shareholder value, sharing economy, Silicon Valley, six sigma, Skype, software patent, sovereign wealth fund, spinning jenny, Steve Jobs, survivorship bias, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Tim Cook: Apple, total factor productivity, Tyler Cowen: Great Stagnation, urban planning, Vanguard fund, walkable city, X Prize, zero-sum game

Purchasers of pencils don’t know those who made the pencil—who mined the graphite, cut down the trees, or transported the pencil to the shop—so can hardly issue them with instructions. Those engaged in its production, the miners, the tree-fellers, and the truckers, take instructions not from the individual pencil buyers but via the price system. If pencil prices rise, more graphite is mined, more trees are felled, and more wood is transported. No personal authority is required, since the price system issues the instructions. In light of this, in 1937 Ronald Coase (another Nobel laureate) asked a deceptively simple, but very profound, question: Why then do firms exist? If markets do a pretty good job coordinating the economy, what’s the need for firms? Coase’s answer was that firms did a cheaper job of coordination than markets. Inside a firm, Coase said, coordination by internal markets would be very costly since you would have to (a) discover what the market prices are and (b) negotiate a contract for each and every transaction.


pages: 400 words: 88,647

Frugal Innovation: How to Do Better With Less by Jaideep Prabhu Navi Radjou

3D printing, additive manufacturing, Affordable Care Act / Obamacare, Airbnb, Albert Einstein, barriers to entry, Baxter: Rethink Robotics, Bretton Woods, business climate, business process, call centre, Capital in the Twenty-First Century by Thomas Piketty, carbon footprint, cloud computing, collaborative consumption, collaborative economy, Computer Numeric Control, connected car, corporate social responsibility, creative destruction, crowdsourcing, disruptive innovation, Elon Musk, financial exclusion, financial innovation, global supply chain, IKEA effect, income inequality, industrial robot, intangible asset, Internet of things, job satisfaction, Khan Academy, Kickstarter, late fees, Lean Startup, low cost airline, low cost carrier, M-Pesa, Mahatma Gandhi, megacity, minimum viable product, more computing power than Apollo, new economy, payday loans, peer-to-peer lending, Peter H. Diamandis: Planetary Resources, precision agriculture, race to the bottom, reshoring, risk tolerance, Ronald Coase, self-driving car, shareholder value, sharing economy, Silicon Valley, Silicon Valley startup, six sigma, smart grid, smart meter, software as a service, standardized shipping container, Steve Jobs, supply-chain management, TaskRabbit, The Fortune at the Bottom of the Pyramid, The Nature of the Firm, transaction costs, Travis Kalanick, unbanked and underbanked, underbanked, women in the workforce, X Prize, yield management, Zipcar

The rise of the horizontal economy Vertically integrated value chains, controlled by companies that exclude customers, are being challenged by new value ecosystems orchestrated by customers themselves. The new ecosystems allow consumers to design, build, market, distribute and trade goods and services by and among themselves, without the need for intermediaries. This bottom-up approach is creating the horizontal economy. In a 1937 essay, Ronald Coase, a Nobel Prize-winning economist, argued that the reason Western economies are organised vertically – like a pyramid with a few large producers at the top and millions of passive consumers at the bottom – is because of transaction costs (the intangible costs associated with search, bargaining, decision-making and enforcement).5 But with the explosion of the internet, mobile technologies and social media – think of the 1.3 billion interconnected Facebook users – these transaction costs have all but disappeared in many sectors.


pages: 375 words: 88,306

The Sharing Economy: The End of Employment and the Rise of Crowd-Based Capitalism by Arun Sundararajan

additive manufacturing, Airbnb, AltaVista, Amazon Mechanical Turk, autonomous vehicles, barriers to entry, basic income, bitcoin, blockchain, Burning Man, call centre, collaborative consumption, collaborative economy, collective bargaining, commoditize, corporate social responsibility, cryptocurrency, David Graeber, distributed ledger, employer provided health coverage, Erik Brynjolfsson, Ethereum, ethereum blockchain, Frank Levy and Richard Murnane: The New Division of Labor, future of work, George Akerlof, gig economy, housing crisis, Howard Rheingold, information asymmetry, Internet of things, inventory management, invisible hand, job automation, job-hopping, Kickstarter, knowledge worker, Kula ring, Lyft, Marc Andreessen, megacity, minimum wage unemployment, moral hazard, moral panic, Network effects, new economy, Oculus Rift, pattern recognition, peer-to-peer, peer-to-peer lending, peer-to-peer model, peer-to-peer rental, profit motive, purchasing power parity, race to the bottom, recommendation engine, regulatory arbitrage, rent control, Richard Florida, ride hailing / ride sharing, Robert Gordon, Ronald Coase, Ross Ulbricht, Second Machine Age, self-driving car, sharing economy, Silicon Valley, smart contracts, Snapchat, social software, supply-chain management, TaskRabbit, The Nature of the Firm, total factor productivity, transaction costs, transportation-network company, two-sided market, Uber and Lyft, Uber for X, uber lyft, universal basic income, Zipcar

Simon, “Organizations and Markets,” The Journal of Economic Perspectives 5 (1991): 25–44. 5. Alfred D. Chandler Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge, MA: Harvard University Press, 1993; original published 1977). 6. I realize that a lot of Malone, Yates, and Benjamin’s work, and Vijay Gurbaxani and Seungjin Whang’s work, draws from seminal earlier work by Friedrich Hayek (1937), Ronald Coase (1945), and Oliver E. Williamson’s work, perhaps even later work by Sanford Grossman, Oliver Hart, and John Moore, and a host of other excellent economists and social scientists. I am not attempting a systematic analysis of the literature here, but a brief discussion of some intellectual foundations. 7. Malone, Yates, and Benjamin, “Electronic Markets,” 487. 8. Oliver E. Williamson, Markets and Hierarchies: Analysis and Antitrust Implications (New York: Free Press, 1975). 9.


pages: 313 words: 95,077

Here Comes Everybody: The Power of Organizing Without Organizations by Clay Shirky

Andrew Keen, Berlin Wall, bioinformatics, Brewster Kahle, c2.com, Charles Lindbergh, crowdsourcing, en.wikipedia.org, hiring and firing, hive mind, Howard Rheingold, Internet Archive, invention of agriculture, invention of movable type, invention of the printing press, invention of the telegraph, jimmy wales, Joi Ito, Kuiper Belt, liberation theology, Mahatma Gandhi, means of production, Merlin Mann, Metcalfe’s law, Nash equilibrium, Network effects, Nicholas Carr, Picturephone, place-making, Pluto: dwarf planet, prediction markets, price mechanism, prisoner's dilemma, profit motive, Richard Stallman, Robert Metcalfe, Ronald Coase, Silicon Valley, slashdot, social software, Stewart Brand, supply-chain management, The Nature of the Firm, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, transaction costs, ultimatum game, Vilfredo Pareto, Yogi Berra

The problems inherent in managing these transaction costs are one of the basic constraints shaping institutions of all kinds. This ability of the traditional management structure to simplify coordination helps answer one of the most famous questions in all of economics: If markets are such a good idea, why do we have organizations at all? Why can’t all exchanges of value happen in the market? This question originally was posed by Ronald Coase in 1937 in his famous paper “The Nature of the Firm,” wherein he also offered the first coherent explanation of the value of hierarchical organization. Coase realized that workers could simply contract with one another, selling their labor, and buying the labor of others in turn, in a market, without needing any managerial oversight. However, a completely open market for labor, reasoned Coase, would underperform labor in firms because of the transaction costs, and in particular the costs of discovering the options and making and enforcing agreements among the participating parties.


pages: 323 words: 90,868

The Wealth of Humans: Work, Power, and Status in the Twenty-First Century by Ryan Avent

"Robert Solow", 3D printing, Airbnb, American energy revolution, assortative mating, autonomous vehicles, Bakken shale, barriers to entry, basic income, Bernie Sanders, BRICs, business cycle, call centre, Capital in the Twenty-First Century by Thomas Piketty, Clayton Christensen, cloud computing, collective bargaining, computer age, creative destruction, dark matter, David Ricardo: comparative advantage, deindustrialization, dematerialisation, Deng Xiaoping, deskilling, disruptive innovation, Dissolution of the Soviet Union, Donald Trump, Downton Abbey, Edward Glaeser, Erik Brynjolfsson, eurozone crisis, everywhere but in the productivity statistics, falling living standards, first square of the chessboard, first square of the chessboard / second half of the chessboard, Ford paid five dollars a day, Francis Fukuyama: the end of history, future of work, gig economy, global supply chain, global value chain, hydraulic fracturing, income inequality, indoor plumbing, industrial robot, intangible asset, interchangeable parts, Internet of things, inventory management, invisible hand, James Watt: steam engine, Jeff Bezos, John Maynard Keynes: Economic Possibilities for our Grandchildren, Joseph-Marie Jacquard, knowledge economy, low skilled workers, lump of labour, Lyft, manufacturing employment, Marc Andreessen, mass immigration, means of production, new economy, performance metric, pets.com, post-work, price mechanism, quantitative easing, Ray Kurzweil, rent-seeking, reshoring, rising living standards, Robert Gordon, Ronald Coase, savings glut, Second Machine Age, secular stagnation, self-driving car, sharing economy, Silicon Valley, single-payer health, software is eating the world, supply-chain management, supply-chain management software, TaskRabbit, The Future of Employment, The Nature of the Firm, The Rise and Fall of American Growth, The Spirit Level, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, Tyler Cowen: Great Stagnation, Uber and Lyft, Uber for X, uber lyft, very high income, working-age population

And the concentration of the most valuable bits of the production chain into smaller, highly profitable firms means that workers across the rest of the economy struggle to share in the gains from growth. Small, brainy companies are responsible for producing enormous economic value in the digital era. The result is a big distributional mess. THE NATURE OF THE COMPANY ‘Why do firms exist?’ seems like the sort of question economists should have no trouble answering. Yet when Ronald Coase began probing at the idea in a 1937 academic paper, it quickly became clear that the question was a surprisingly tricky one.2 Coase was a British economist who lived an extraordinarily long and productive life. He lived to be 102, and still kept busy writing at 100, though his work in the 1930s, when he was in his twenties, was among his most important. It suggested an entire sub-field’s worth of mysteries waiting to be understood: a corner of economics now known as industrial organization.


pages: 372 words: 94,153

More From Less: The Surprising Story of How We Learned to Prosper Using Fewer Resources – and What Happens Next by Andrew McAfee

back-to-the-land, Bartolomé de las Casas, Berlin Wall, bitcoin, Branko Milanovic, British Empire, Buckminster Fuller, call centre, carbon footprint, clean water, cleantech, cloud computing, Corn Laws, creative destruction, crony capitalism, David Ricardo: comparative advantage, decarbonisation, dematerialisation, Deng Xiaoping, Donald Trump, Edward Glaeser, en.wikipedia.org, energy transition, Erik Brynjolfsson, failed state, Fall of the Berlin Wall, Haber-Bosch Process, Hans Rosling, humanitarian revolution, hydraulic fracturing, income inequality, indoor plumbing, intangible asset, James Watt: steam engine, Jeff Bezos, job automation, John Snow's cholera map, joint-stock company, Joseph Schumpeter, Khan Academy, Landlord’s Game, Louis Pasteur, Lyft, Marc Andreessen, market fundamentalism, means of production, Mikhail Gorbachev, oil shale / tar sands, Paul Samuelson, peak oil, precision agriculture, profit maximization, profit motive, risk tolerance, road to serfdom, Ronald Coase, Ronald Reagan, Scramble for Africa, Second Machine Age, Silicon Valley, Steve Jobs, Steven Pinker, Stewart Brand, telepresence, The Wealth of Nations by Adam Smith, Thomas Davenport, Thomas Malthus, Thorstein Veblen, total factor productivity, Uber and Lyft, uber lyft, Veblen good, War on Poverty, Whole Earth Catalog, World Values Survey

If pollution has a cost, companies will spend time and effort and innovate to lower it, just as they do all kinds of clever things to lower their spending on materials and resources. If pollution is costly instead of free, companies will work hard to “de-pollute,” just as they work hard to dematerialize. Markets for Pollution!?!? If companies can buy and sell the right to pollute, things will get even better. This is the conclusion of a line of thinking kicked off by the legendary and Nobel Prize–winning economist Ronald Coase in his 1960 paper “The Problem of Social Cost.” Coase argued that since markets work so well, the smart thing to do with externalities such as pollution is to make them tradable in a market. “Let’s allow companies to buy and sell pollution” struck many at the time as even more strange and distasteful than “let’s allow companies to pollute for a fee.” Amazingly enough, though, in the 1980s an alliance of market-loving conservatives and liberal environmentalists found common ground around using Coase’s ideas to reduce pollution, and a “cap-and-trade” program for air-polluting emissions began in the United States with the Clean Air Act of 1990.


pages: 294 words: 89,406

Lying for Money: How Fraud Makes the World Go Round by Daniel Davies

bank run, banking crisis, Bernie Madoff, bitcoin, Black Swan, Bretton Woods, business cycle, business process, collapse of Lehman Brothers, compound rate of return, cryptocurrency, financial deregulation, fixed income, Frederick Winslow Taylor, Gordon Gekko, high net worth, illegal immigration, index arbitrage, Nick Leeson, offshore financial centre, Peter Thiel, Ponzi scheme, price mechanism, principal–agent problem, railway mania, Ronald Coase, Ronald Reagan, short selling, social web, South Sea Bubble, The Great Moderation, the payments system, The Wealth of Nations by Adam Smith, time value of money, web of trust

But you can’t build a cathedral or a nuclear power station* that way. Checking prices is a costly and cognitively demanding process itself. For projects which need to make long-term plans and output decisions over time, it is more efficient to draw together resources on the basis of long-term contracts rather than to keep bidding for them in a brand-new market every day. A large cluster of these long-term contracts is what we call a firm, and Ronald Coase’s contribution to this strand of intellectual history was to set out the circumstances under which firms would form, and how the economy would tend not to the frictionless ideal, but to be made up of islands of central planning* linked by bridges of price signals. Of course, bringing the theory of the firm back into the model brings back a lot of the information problems associated with the socialist planning debate.


pages: 297 words: 103,910

Free culture: how big media uses technology and the law to lock down culture and control creativity by Lawrence Lessig

Brewster Kahle, Cass Sunstein, creative destruction, future of journalism, George Akerlof, Innovator's Dilemma, Internet Archive, invention of the printing press, Joi Ito, Kenneth Arrow, Kevin Kelly, knowledge economy, Louis Daguerre, new economy, prediction markets, prisoner's dilemma, profit motive, rent-seeking, Richard Florida, Richard Stallman, Ronald Coase, Ronald Reagan, Saturday Night Live, Silicon Valley, software patent, transaction costs

Then to support the legal argument, there were a number of powerful briefs by libraries and archives, including the Internet Archive, the American Association of Law Libraries, and the National Writers Union. But two briefs captured the policy argument best. One made the argument I've already described: A brief by Hal Roach Studios argued that unless the law was struck, a whole generation of American film would disappear. The other made the economic argument absolutely clear. This economists' brief was signed by seventeen economists, including five Nobel Prize winners, including Ronald Coase, James Buchanan, Milton Friedman, Kenneth Arrow, and George Akerlof. The economists, as the list of Nobel winners demonstrates, spanned the political spectrum. Their conclusions were powerful: There was no plausible claim that extending the terms of existing copyrights would do anything to increase incentives to create. Such extensions were nothing more than "rent-seeking"—the fancy term economists use to describe special-interest legislation gone wild.


pages: 443 words: 98,113

The Corruption of Capitalism: Why Rentiers Thrive and Work Does Not Pay by Guy Standing

3D printing, Airbnb, Albert Einstein, Amazon Mechanical Turk, Asian financial crisis, asset-backed security, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Bernie Sanders, Big bang: deregulation of the City of London, bilateral investment treaty, Bonfire of the Vanities, Boris Johnson, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, carried interest, cashless society, central bank independence, centre right, Clayton Christensen, collapse of Lehman Brothers, collective bargaining, credit crunch, crony capitalism, crowdsourcing, debt deflation, declining real wages, deindustrialization, disruptive innovation, Doha Development Round, Donald Trump, Double Irish / Dutch Sandwich, ending welfare as we know it, eurozone crisis, falling living standards, financial deregulation, financial innovation, Firefox, first-past-the-post, future of work, gig economy, Goldman Sachs: Vampire Squid, Growth in a Time of Debt, housing crisis, income inequality, information retrieval, intangible asset, invention of the steam engine, investor state dispute settlement, James Watt: steam engine, job automation, John Maynard Keynes: technological unemployment, labour market flexibility, light touch regulation, Long Term Capital Management, lump of labour, Lyft, manufacturing employment, Mark Zuckerberg, market clearing, Martin Wolf, means of production, mini-job, Mont Pelerin Society, moral hazard, mortgage debt, mortgage tax deduction, Neil Kinnock, non-tariff barriers, North Sea oil, Northern Rock, nudge unit, Occupy movement, offshore financial centre, oil shale / tar sands, open economy, openstreetmap, patent troll, payday loans, peer-to-peer lending, plutocrats, Plutocrats, Ponzi scheme, precariat, quantitative easing, remote working, rent control, rent-seeking, ride hailing / ride sharing, Right to Buy, Robert Gordon, Ronald Coase, Ronald Reagan, Sam Altman, savings glut, Second Machine Age, secular stagnation, sharing economy, Silicon Valley, Silicon Valley startup, Simon Kuznets, sovereign wealth fund, Stephen Hawking, Steve Ballmer, structural adjustment programs, TaskRabbit, The Chicago School, The Future of Employment, the payments system, The Rise and Fall of American Growth, Thomas Malthus, Thorstein Veblen, too big to fail, Travis Kalanick, Uber and Lyft, Uber for X, uber lyft, Y Combinator, zero-sum game, Zipcar

The second highly influential MPS member, possibly even more so than Hayek, was Milton Friedman, who had been the youngest inaugural member of the society in 1947. Associated with monetarism – and with supporting Pinochet, Thatcher and Reagan – in 1976 he too went on to receive a Nobel Prize for Economics. He and Hayek were two of the eight original members who received the prize, the others being George Stigler, James Buchanan, Maurice Allais, Ronald Coase, Gary Becker and Vernon Smith. The third influential economist was Ludwig von Mises, proponent of the nineteenth-century Austrian school of economics, which shaped neo-liberalism. One of its tenets was that value could be measured only by the market. So something without ‘exchange value’ had no value at all. This helps explain the contempt of neo-liberals for preserving the commons and protecting the environment.


pages: 332 words: 100,601

Rebooting India: Realizing a Billion Aspirations by Nandan Nilekani

Airbnb, Atul Gawande, autonomous vehicles, barriers to entry, bitcoin, call centre, cashless society, clean water, cloud computing, collaborative consumption, congestion charging, DARPA: Urban Challenge, dematerialisation, demographic dividend, Edward Snowden, en.wikipedia.org, energy security, financial exclusion, Google Hangouts, illegal immigration, informal economy, Khan Academy, Kickstarter, knowledge economy, land reform, law of one price, M-Pesa, Mahatma Gandhi, Marc Andreessen, Mark Zuckerberg, mobile money, Mohammed Bouazizi, more computing power than Apollo, Negawatt, Network effects, new economy, offshore financial centre, price mechanism, price stability, rent-seeking, RFID, Ronald Coase, school choice, school vouchers, self-driving car, sharing economy, Silicon Valley, Skype, smart grid, smart meter, software is eating the world, source of truth, Steve Jobs, The Nature of the Firm, transaction costs, WikiLeaks

Today, taxi services like Ola and Uber are aggregators, organizing thousands of individual drivers on a single platform. By pooling the homes and spare bedrooms of thousands of people, Airbnb now has more rooms than the biggest hotel chains. In India, Oyo Rooms has achieved much the same with budget hotels. Flipkart and Amazon provide marketplaces where merchants sell just about anything to hundreds of millions of customers. In his pioneering article, ‘The Nature of the Firm’, written in 1937, the economist Ronald Coase argued that the costs of carrying out transactions—the costs of search and information, coordination and contracting—meant that it made better financial sense for people to organize themselves into firms. As the friction around these costs grew, firms themselves would keep expanding. While this was an accurate worldview in 1937, today technology has upended Coase’s law. Perhaps India can retain the small retailer, the small farmer and the small entrepreneur; instead of converting them into faceless employees of large firms, we can bring them ‘on the grid’.


pages: 463 words: 105,197

Radical Markets: Uprooting Capitalism and Democracy for a Just Society by Eric Posner, E. Weyl

3D printing, activist fund / activist shareholder / activist investor, Affordable Care Act / Obamacare, Airbnb, Amazon Mechanical Turk, anti-communist, augmented reality, basic income, Berlin Wall, Bernie Sanders, Branko Milanovic, business process, buy and hold, carbon footprint, Cass Sunstein, Clayton Christensen, cloud computing, collective bargaining, commoditize, Corn Laws, corporate governance, crowdsourcing, cryptocurrency, Donald Trump, Elon Musk, endowment effect, Erik Brynjolfsson, Ethereum, feminist movement, financial deregulation, Francis Fukuyama: the end of history, full employment, George Akerlof, global supply chain, guest worker program, hydraulic fracturing, Hyperloop, illegal immigration, immigration reform, income inequality, income per capita, index fund, informal economy, information asymmetry, invisible hand, Jane Jacobs, Jaron Lanier, Jean Tirole, Joseph Schumpeter, Kenneth Arrow, labor-force participation, laissez-faire capitalism, Landlord’s Game, liberal capitalism, low skilled workers, Lyft, market bubble, market design, market friction, market fundamentalism, mass immigration, negative equity, Network effects, obamacare, offshore financial centre, open borders, Pareto efficiency, passive investing, patent troll, Paul Samuelson, performance metric, plutocrats, Plutocrats, pre–internet, random walk, randomized controlled trial, Ray Kurzweil, recommendation engine, rent-seeking, Richard Thaler, ride hailing / ride sharing, risk tolerance, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Rory Sutherland, Second Machine Age, second-price auction, self-driving car, shareholder value, sharing economy, Silicon Valley, Skype, special economic zone, spectrum auction, speech recognition, statistical model, stem cell, telepresence, Thales and the olive presses, Thales of Miletus, The Death and Life of Great American Cities, The Future of Employment, The Market for Lemons, The Nature of the Firm, The Rise and Fall of American Growth, The Wealth of Nations by Adam Smith, Thorstein Veblen, trade route, transaction costs, trickle-down economics, Uber and Lyft, uber lyft, universal basic income, urban planning, Vanguard fund, women in the workforce, Zipcar

As many economists have pointed out, creating large-scale enterprises consistently requires putting together a variety of moving parts, each controlled by a local monopolist.9 Entrepreneurs were frustrated by monopoly problems at every turn. If they tried to expand their factories, a landowner would hold out. If they tried to build a railroad, thousands of local politicians tried to extract a pound of flesh. Every small supplier of oil, coal, or parts would waste endless hours bargaining with them or trying to take advantage of them. Nobel Laureate Ronald Coase called these frustrations the “transaction costs of the market.”10 He explained that to avoid this chaos, business people formed large corporations that would own many assets, such as factories and parcels of land, and employed many workers whom the head of the corporation could centrally direct to accomplish its goals without constant negotiation. Corporations rapidly took over the business landscape during the nineteenth and early twentieth century.


Lectures on Urban Economics by Jan K. Brueckner

affirmative action, Andrei Shleifer, congestion charging, Edward Glaeser, invisible hand, market clearing, mortgage tax deduction, negative equity, New Economic Geography, profit maximization, race to the bottom, rent control, rent-seeking, Ronald Coase, The Nature of the Firm, transaction costs, urban sprawl

In actuality, many polluters (not just a single factory) typically contribute to the pollution that affects consumers in a given neighborhood. In addition, real-world measurement of the MD and MB curves is fraught with difficulty. Section 9.4 discusses pollution policies in a more realistic setting. 9.3 Bargaining as a Path to the Social Optimum: The Coase Theorem In a famous and influential article published in 1960, Ronald Coase argued that bargaining between the party generating an externality and those affected by it could, under some circumstances, lead to the social optimum. As a result of bargaining, the externality-generating activity would be set at the socially optimal level. Coase argued that two conditions must be satisfied for this outcome to occur. First, the costs of engaging in the bargaining process must be sufficiently low.


pages: 338 words: 106,936

The Physics of Wall Street: A Brief History of Predicting the Unpredictable by James Owen Weatherall

Albert Einstein, algorithmic trading, Antoine Gombaud: Chevalier de Méré, Asian financial crisis, bank run, beat the dealer, Benoit Mandelbrot, Black Swan, Black-Scholes formula, Bonfire of the Vanities, Bretton Woods, Brownian motion, business cycle, butterfly effect, buy and hold, capital asset pricing model, Carmen Reinhart, Claude Shannon: information theory, collateralized debt obligation, collective bargaining, dark matter, Edward Lorenz: Chaos theory, Edward Thorp, Emanuel Derman, Eugene Fama: efficient market hypothesis, financial innovation, fixed income, George Akerlof, Gerolamo Cardano, Henri Poincaré, invisible hand, Isaac Newton, iterative process, John Nash: game theory, Kenneth Rogoff, Long Term Capital Management, Louis Bachelier, mandelbrot fractal, martingale, Myron Scholes, new economy, Paul Lévy, Paul Samuelson, prediction markets, probability theory / Blaise Pascal / Pierre de Fermat, quantitative trading / quantitative finance, random walk, Renaissance Technologies, risk-adjusted returns, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Sharpe ratio, short selling, Silicon Valley, South Sea Bubble, statistical arbitrage, statistical model, stochastic process, The Chicago School, The Myth of the Rational Market, tulip mania, Vilfredo Pareto, volatility smile

She tried everything: pointing to famous economists, explaining their most influential theories, describing important experimental results. But Weinstein was resistant. The mathematics, he was convinced, was too simple; the subject matter, too complex. Economics was a worthless pursuit, a pseudoscience. Finally, on the verge of giving up, Malaney tried one last tack. She gave Weinstein a challenge, a problem whose solution was equivalent to a classic result in economics known as Coase’s theorem. Ronald Coase was a British economist who spent most of his career in the United States, at the University of Chicago. He was interested in something he called “social cost.” Imagine you are the local sheriff in an agricultural community. Two of your constituents come to you, asking you to help them settle an ongoing dispute. One of them is a rancher, raising cattle. The other, the rancher’s neighbor, farms soybeans.


pages: 311 words: 17,232

Living in a Material World: The Commodity Connection by Kevin Morrison

addicted to oil, barriers to entry, Berlin Wall, carbon footprint, clean water, commoditize, commodity trading advisor, computerized trading, diversified portfolio, Doha Development Round, Elon Musk, energy security, European colonialism, flex fuel, food miles, Hernando de Soto, Hugh Fearnley-Whittingstall, hydrogen economy, Intergovernmental Panel on Climate Change (IPCC), Kickstarter, Long Term Capital Management, new economy, North Sea oil, oil rush, oil shale / tar sands, oil shock, out of africa, Paul Samuelson, peak oil, price mechanism, Ronald Coase, Ronald Reagan, Silicon Valley, sovereign wealth fund, the payments system, The Wealth of Nations by Adam Smith, trade liberalization, transaction costs, uranium enrichment, young professional

At the same time many environmentalists have come to accept the market-based approach as a mechanism to address climate change. In the Markets for Clean Air The philosophy of cap-and-trade systems for dealing with environmental issues is not a result of unrestrained market capitalism, but rather the refinement of an academic debate which has lasted almost 50 years. It can be traced back to an article in 1960, ‘The Problem of Social Cost’ by Ronald Coase. The British-born economist (and Nobel Prize winner for economics in 1991), suggests that well-defined property rights could control ‘externalities.’18 (Latterly this has been taken to mean the effects of economic activity on the environment.) Coase refutes the work of Arthur Cecil Pigou, who, in 1920, recommended corrective taxes to discourage activities that generate ‘externalities’ (Hahn and Stavins, 1992) Coase’s work was followed by more research when Thomas Crocker in 1966 and John Dales in 1968 each wrote papers about the prospect of using transferable permits to allocate the pollution-control burden between emitters.


pages: 344 words: 104,077

Superminds: The Surprising Power of People and Computers Thinking Together by Thomas W. Malone

agricultural Revolution, Airbnb, Albert Einstein, Amazon Mechanical Turk, Apple's 1984 Super Bowl advert, Asperger Syndrome, Baxter: Rethink Robotics, bitcoin, blockchain, business process, call centre, clean water, creative destruction, crowdsourcing, Donald Trump, Douglas Engelbart, Douglas Engelbart, drone strike, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, experimental economics, Exxon Valdez, future of work, Galaxy Zoo, gig economy, happiness index / gross national happiness, industrial robot, Internet of things, invention of the telegraph, inventory management, invisible hand, Jeff Rulifson, jimmy wales, job automation, John Markoff, Joi Ito, Joseph Schumpeter, Kenneth Arrow, knowledge worker, longitudinal study, Lyft, Marshall McLuhan, Occupy movement, Pareto efficiency, pattern recognition, prediction markets, price mechanism, Ray Kurzweil, Rodney Brooks, Ronald Coase, Second Machine Age, self-driving car, Silicon Valley, slashdot, social intelligence, Stephen Hawking, Steve Jobs, Steven Pinker, Stewart Brand, technological singularity, The Nature of the Firm, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, theory of mind, Tim Cook: Apple, transaction costs, Travis Kalanick, Uber for X, uber lyft, Vernor Vinge, Vilfredo Pareto, Watson beat the top human players on Jeopardy!

Often this means that markets can make an overall decision that is much better than what a vast hierarchy could have made and at a much lower cost. When Do Markets Have a Higher Decision-Making Cost Than Hierarchies? Even though markets are often cheaper to operate than hierarchies when many people and decisions are involved, they can be more expensive, too, especially in ever-changing situations that involve only a small number of potential trading partners. A number of Nobel Prize–winning economists, including Ronald Coase, Oliver Williamson, Oliver Hart, and Bengt Holmström, have analyzed the situations in which this is true.8 A key issue is that the transaction costs of making decisions in markets can sometimes be greater than those of hierarchies. For instance, say Ron promises to give Elizabeth a slice of deer meat in exchange for a bunch of grapes, but then he takes the grapes and never gives her the meat.


Remix: Making Art and Commerce Thrive in the Hybrid Economy by Lawrence Lessig

Amazon Web Services, Andrew Keen, Benjamin Mako Hill, Berlin Wall, Bernie Sanders, Brewster Kahle, Cass Sunstein, collaborative editing, commoditize, disintermediation, don't be evil, Erik Brynjolfsson, Internet Archive, invisible hand, Jeff Bezos, jimmy wales, Joi Ito, Kevin Kelly, Larry Wall, late fees, Mark Shuttleworth, Netflix Prize, Network effects, new economy, optical character recognition, PageRank, peer-to-peer, recommendation engine, revision control, Richard Stallman, Ronald Coase, Saturday Night Live, SETI@home, sharing economy, Silicon Valley, Skype, slashdot, Steve Jobs, The Nature of the Firm, thinkpad, transaction costs, VA Linux, yellow journalism

These technologies will radically reduce the cost of doing business in this increasingly important commercial space. LEGO-ized innovation is just one component of what Tim O’Reilly first tagged “Web 2.0.”29 It may ultimately be the most important. For it demonstrates both how the Internet is uniquely poised to exploit a general tenet of economics and how the Internet takes advantage of the principle of democratization that is its hallmark. Consider these two in turn. Economics In 1937 Nobel laureate Ronald Coase was wondering why there were firms in a free market.30 If the core of a market was that resources should be allocated by price, why within a firm wasn’t it price that determined who got what? Within a firm it was the command of a “boss.” Life inside the firm thus looked more like the “economic planning” of communism than the competition of a marketplace. Why? Why weren’t firms built like free markets?


pages: 502 words: 107,657

Predictive Analytics: The Power to Predict Who Will Click, Buy, Lie, or Die by Eric Siegel

Albert Einstein, algorithmic trading, Amazon Mechanical Turk, Apple's 1984 Super Bowl advert, backtesting, Black Swan, book scanning, bounce rate, business intelligence, business process, butter production in bangladesh, call centre, Charles Lindbergh, commoditize, computer age, conceptual framework, correlation does not imply causation, crowdsourcing, dark matter, data is the new oil, en.wikipedia.org, Erik Brynjolfsson, Everything should be made as simple as possible, experimental subject, Google Glasses, happiness index / gross national happiness, job satisfaction, Johann Wolfgang von Goethe, lifelogging, Machine translation of "The spirit is willing, but the flesh is weak." to Russian and back, mass immigration, Moneyball by Michael Lewis explains big data, Nate Silver, natural language processing, Netflix Prize, Network effects, Norbert Wiener, personalized medicine, placebo effect, prediction markets, Ray Kurzweil, recommendation engine, risk-adjusted returns, Ronald Coase, Search for Extraterrestrial Intelligence, self-driving car, sentiment analysis, Shai Danziger, software as a service, speech recognition, statistical model, Steven Levy, text mining, the scientific method, The Signal and the Noise by Nate Silver, The Wisdom of Crowds, Thomas Bayes, Thomas Davenport, Turing test, Watson beat the top human players on Jeopardy!, X Prize, Yogi Berra, zero-sum game

The bank’s bang for its marketing buck just tripled. The trees we’ve seen achieve various lifts at the 20 percent mark: Decision Tree Lift at 20 Percent 4 segments 2.5 10 segments 2.8 39 segments 3.0 As the tree gets bigger, it keeps getting better, so why stop there? Shall we keep going? Slow down, Icarus! I’ve got a bad feeling about this. Overlearning: Assuming Too Much If you torture the data long enough, it will confess. —Ronald Coase, Professor of Economics, University of Chicago There are three kinds of lies: lies, damned lies, and statistics. —British Prime Minister Benjamin Disraeli (quote popularized by Mark Twain) An unlimited amount of computational resources is like dynamite: If used properly, it can move mountains. Used improperly, it can blow up your garage or your portfolio. —David Leinweber, Nerds on Wall Street A few years ago, Berkeley Professor David Leinweber made waves with his discovery that the annual closing price of the S&P 500 stock market index could have been predicted from 1983 to 1993 by the rate of butter production in Bangladesh.


Smart Mobs: The Next Social Revolution by Howard Rheingold

A Pattern Language, augmented reality, barriers to entry, battle of ideas, Brewster Kahle, Burning Man, business climate, citizen journalism, computer vision, conceptual framework, creative destruction, Douglas Engelbart, Douglas Engelbart, experimental economics, experimental subject, Extropian, Hacker Ethic, Hedy Lamarr / George Antheil, Howard Rheingold, invention of the telephone, inventory management, John Markoff, John von Neumann, Joi Ito, Joseph Schumpeter, Kevin Kelly, Metcalfe's law, Metcalfe’s law, more computing power than Apollo, New Urbanism, Norbert Wiener, packet switching, Panopticon Jeremy Bentham, pattern recognition, peer-to-peer, peer-to-peer model, pez dispenser, planetary scale, pre–internet, prisoner's dilemma, RAND corporation, recommendation engine, Renaissance Technologies, RFID, Richard Stallman, Robert Metcalfe, Robert X Cringely, Ronald Coase, Search for Extraterrestrial Intelligence, SETI@home, sharing economy, Silicon Valley, skunkworks, slashdot, social intelligence, spectrum auction, Steven Levy, Stewart Brand, the scientific method, transaction costs, ultimatum game, urban planning, web of trust, Whole Earth Review, zero-sum game

The Communications Act of 1934 added authority over telephone and telegraph communications and created the Federal Communications Commission.8 The 1927 and 1934 laws established that airways are public property, that commercial broadcasters must be licensed to use the airways, and that the main condition for use is whether the broadcaster serves “the public interest, convenience, and necessity.”9 Since only specialists understand (or even hear about) the fine points of wireless technologies and their regulatory implications, the big-boys-only business of selling the spectrum has largely been ignored by the citizens on whose behalf the transactions were executed.10 Economist Ronald Coase, who later won a Nobel Prize, convinced the FCC that auctioning spectrum was more efficient and inherently more fair than the original license-granting procedure because it eliminated outright granting of licenses as political favors and insured that the owner of a spectrum license, having paid top dollar for it, would be motivated to develop the use of that spectrum allocation.11 Top dollar in a public auction is indeed more open than political deal making.


pages: 518 words: 107,836

How Not to Network a Nation: The Uneasy History of the Soviet Internet (Information Policy) by Benjamin Peters

Albert Einstein, American ideology, Andrei Shleifer, Benoit Mandelbrot, bitcoin, Brownian motion, Claude Shannon: information theory, cloud computing, cognitive dissonance, computer age, conceptual framework, continuation of politics by other means, crony capitalism, crowdsourcing, cuban missile crisis, Daniel Kahneman / Amos Tversky, David Graeber, Dissolution of the Soviet Union, Donald Davies, double helix, Drosophila, Francis Fukuyama: the end of history, From Mathematics to the Technologies of Life and Death, hive mind, index card, informal economy, information asymmetry, invisible hand, Jacquard loom, John von Neumann, Kevin Kelly, knowledge economy, knowledge worker, linear programming, mandelbrot fractal, Marshall McLuhan, means of production, Menlo Park, Mikhail Gorbachev, mutually assured destruction, Network effects, Norbert Wiener, packet switching, Pareto efficiency, pattern recognition, Paul Erdős, Peter Thiel, Philip Mirowski, RAND corporation, rent-seeking, road to serfdom, Ronald Coase, scientific mainstream, Steve Jobs, Stewart Brand, stochastic process, technoutopianism, The Structural Transformation of the Public Sphere, transaction costs, Turing machine

A few standard references in the literature include Thorsten Veblen’s heterodox position in “Why Is Economics Not an Evolutionary Science?,” Quarterly Journal of Economics 12 (1898): 373–393; Thomas C. Schelling, Micromotives and Macrobehavior (New York: Norton, 1978); Douglass C. North, Institutions, Institutional Change and Economic Performance (New York: Cambridge University Press, 1998); Ronald Coase, “The New Institutional Economics,” American Economic Review 88 (2) (1998): 72–74; and William Kapp, The Foundations of Institutional Economics (New York: Routledge, 2011). For comparison to the quirkiness of individual decisions, see popular introductions to cognitive psychology and behavioral psychology and economics, such as Daniel Kahnemann, Thinking Fast and Slow (New York: Farrar, Straus, and Giroux, 2011), and Dan Ariely, Predictably Irrational: The Hidden Forces That Shape Our Decisions (New York: HarperCollins, 2008).


pages: 265 words: 15,515

Nomad Citizenship: Free-Market Communism and the Slow-Motion General Strike by Eugene W. Holland

business cycle, capital controls, cognitive dissonance, Colonization of Mars, complexity theory, continuation of politics by other means, deskilling, Firefox, Frederick Winslow Taylor, full employment, informal economy, invisible hand, Jane Jacobs, means of production, microcredit, money: store of value / unit of account / medium of exchange, Naomi Klein, New Urbanism, peak oil, price mechanism, Richard Stallman, Ronald Coase, slashdot, The Death and Life of Great American Cities, The Wisdom of Crowds, transaction costs, Upton Sinclair, urban renewal, wage slave, working poor

The General Public License (also known colloquially as copyleft), which was developed for the Free Software Foundation by Richard Stallman and Eben Moglen, assures that FOSS cannot become private property and remains instead a Common Good from which anyone may benefit and to which anyone may contribute (if she is able). This Internet-mediated intellectual commons is a key feature of the peer-production system, and we will return to it later. The final Im portant feature of the new system is that peer produc­ tion is based neither on incentives coming from the market nor on or­ ders coming from a boss or managing supervisor. A now-classic analysis of capitalist production spearheaded by Ronald Coase in the 1930s and developed subsequently by Oliver Williamson and others examined the relative transaction costs to a business firm of buying goods and services on the open market compared to hiring people to produce those same goods and services within the firm.95 Where transaction costs of buying on the open market are high, production is integrated into the firm and triggered by managerial command; where they are low, production is out­ sourced and triggered by market pricing mechanisms.


pages: 409 words: 118,448

An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy by Marc Levinson

affirmative action, airline deregulation, banking crisis, Big bang: deregulation of the City of London, Boycotts of Israel, Bretton Woods, business cycle, Capital in the Twenty-First Century by Thomas Piketty, car-free, Carmen Reinhart, central bank independence, centre right, clean water, deindustrialization, endogenous growth, falling living standards, financial deregulation, floating exchange rates, full employment, George Gilder, Gini coefficient, global supply chain, income inequality, income per capita, indoor plumbing, informal economy, intermodal, invisible hand, Kenneth Rogoff, knowledge economy, late capitalism, linear programming, manufacturing employment, new economy, Nixon shock, North Sea oil, oil shock, Paul Samuelson, pension reform, price stability, purchasing power parity, refrigerator car, Right to Buy, rising living standards, Robert Gordon, rolodex, Ronald Coase, Ronald Reagan, Simon Kuznets, statistical model, strikebreaker, structural adjustment programs, The Rise and Fall of American Growth, Thomas Malthus, total factor productivity, unorthodox policies, upwardly mobile, War on Poverty, Washington Consensus, Winter of Discontent, Wolfgang Streeck, women in the workforce, working-age population, yield curve, Yom Kippur War, zero-sum game

Deregulation was not an entirely new concept in 1974. Congress had briefly considered rolling back some of the regulations governing trains and trucks in 1957, and in 1968 the Federal Communications Commission had allowed customers to connect some of their own equipment to the telephone network, a tiny step toward deregulation of the telecommunications sector. More consequentially, economists such as George Stigler and Ronald Coase, both of the University of Chicago, had been laying the intellectual framework for deregulation since the 1950s by arguing that the economy would be better off if prices for particular goods and services were determined by competition rather than the dictates of government agencies. The Ford Foundation had jumped into the fray in 1967, granting the Brookings Institution, a Washington think tank, $1.8 million for a program of studies that resulted in 125 books, journal articles, and dissertations on regulation or deregulation by 1975.


pages: 421 words: 110,406

Platform Revolution: How Networked Markets Are Transforming the Economy--And How to Make Them Work for You by Sangeet Paul Choudary, Marshall W. van Alstyne, Geoffrey G. Parker

3D printing, Affordable Care Act / Obamacare, Airbnb, Alvin Roth, Amazon Mechanical Turk, Amazon Web Services, Andrei Shleifer, Apple's 1984 Super Bowl advert, autonomous vehicles, barriers to entry, big data - Walmart - Pop Tarts, bitcoin, blockchain, business cycle, business process, buy low sell high, chief data officer, Chuck Templeton: OpenTable:, clean water, cloud computing, connected car, corporate governance, crowdsourcing, data acquisition, data is the new oil, digital map, discounted cash flows, disintermediation, Edward Glaeser, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, financial innovation, Haber-Bosch Process, High speed trading, information asymmetry, Internet of things, inventory management, invisible hand, Jean Tirole, Jeff Bezos, jimmy wales, John Markoff, Khan Academy, Kickstarter, Lean Startup, Lyft, Marc Andreessen, market design, Metcalfe’s law, multi-sided market, Network effects, new economy, payday loans, peer-to-peer lending, Peter Thiel, pets.com, pre–internet, price mechanism, recommendation engine, RFID, Richard Stallman, ride hailing / ride sharing, Robert Metcalfe, Ronald Coase, Satoshi Nakamoto, self-driving car, shareholder value, sharing economy, side project, Silicon Valley, Skype, smart contracts, smart grid, Snapchat, software is eating the world, Steve Jobs, TaskRabbit, The Chicago School, the payments system, Tim Cook: Apple, transaction costs, Travis Kalanick, two-sided market, Uber and Lyft, Uber for X, uber lyft, winner-take-all economy, zero-sum game, Zipcar

THE CASE AGAINST REGULATION Despite the problems illustrated by platform business like Monkey-Parking, there are many who would argue that the potential abuses and social dislocations caused by platforms are a small price for the tremendous innovation, new value, and economic growth they produce. Platform businesses are here to stay, and they are bringing undoubted benefits to millions of people. Why run the risk of discouraging innovation through the heavy hand of regulation? Opponents of regulation are quick to point out the many cases in which it fails or backfires. Nobel Prize-winners Ronald Coase and George Stigler, members of the famous laissez-faire-oriented Chicago School of economics, argue that the vast majority of market failures are best addressed by market mechanisms themselves—for example, by encouraging the free growth of competitors who provide goods and services that produce greater social benefits than their rivals. In their view, the evidence of history suggests that government regulators tend to be incompetent or corrupt, which means that regulation generally fails to solve the problems it is intended to address.


pages: 453 words: 117,893

What Would the Great Economists Do?: How Twelve Brilliant Minds Would Solve Today's Biggest Problems by Linda Yueh

"Robert Solow", 3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, Fall of the Berlin Wall, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, Gini coefficient, global supply chain, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, low-wage service sector, manufacturing employment, market bubble, means of production, mittelstand, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

Although we do observe some convergence among leading industrial nations that trade with each other, an overwhelming feature of the last ten millennia is that we have evolved into radically different religious, ethnic, cultural, political, and economic societies, and the gap between rich and poor nations, between developed and undeveloped nations, is as wide today as it ever was and perhaps a great deal wider than ever before.3 It seems hardly radical, but North took economics out of its comfort zone, which consisted of examining more easily measured inputs like labour and capital and instead brought in politics, sociology and history in order to understand why some countries succeed and others fail. North won the Nobel Prize in economics in 1993. Along with his fellow laureates Ronald Coase (who won in 1991) and Oliver Williamson (who won more than a decade later in 2009), North founded the field of New Institutional Economics. This work was later expanded upon by MIT economist Daron Acemoglu and University of Chicago political scientist James Robinson, notably in their book Why Nations Fail: The Origins of Power, Prosperity, and Poverty, and by many others who have built on North’s work on the role of institutions in economic development.


pages: 374 words: 113,126

The Great Economists: How Their Ideas Can Help Us Today by Linda Yueh

"Robert Solow", 3D printing, additive manufacturing, Asian financial crisis, augmented reality, bank run, banking crisis, basic income, Ben Bernanke: helicopter money, Berlin Wall, Bernie Sanders, Big bang: deregulation of the City of London, bitcoin, Branko Milanovic, Bretton Woods, BRICs, business cycle, Capital in the Twenty-First Century by Thomas Piketty, clean water, collective bargaining, computer age, Corn Laws, creative destruction, credit crunch, Credit Default Swap, cryptocurrency, currency peg, dark matter, David Ricardo: comparative advantage, debt deflation, declining real wages, deindustrialization, Deng Xiaoping, Doha Development Round, Donald Trump, endogenous growth, everywhere but in the productivity statistics, Fall of the Berlin Wall, fear of failure, financial deregulation, financial innovation, Financial Instability Hypothesis, fixed income, forward guidance, full employment, Gini coefficient, global supply chain, Gunnar Myrdal, Hyman Minsky, income inequality, index card, indoor plumbing, industrial robot, information asymmetry, intangible asset, invisible hand, job automation, John Maynard Keynes: Economic Possibilities for our Grandchildren, joint-stock company, Joseph Schumpeter, laissez-faire capitalism, land reform, lateral thinking, life extension, manufacturing employment, market bubble, means of production, mittelstand, Mont Pelerin Society, moral hazard, mortgage debt, negative equity, Nelson Mandela, non-tariff barriers, Northern Rock, Occupy movement, oil shale / tar sands, open economy, paradox of thrift, Paul Samuelson, price mechanism, price stability, Productivity paradox, purchasing power parity, quantitative easing, RAND corporation, rent control, rent-seeking, reserve currency, reshoring, road to serfdom, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, school vouchers, secular stagnation, Shenzhen was a fishing village, Silicon Valley, Simon Kuznets, special economic zone, Steve Jobs, The Chicago School, The Wealth of Nations by Adam Smith, Thomas Malthus, too big to fail, total factor productivity, trade liberalization, universal basic income, unorthodox policies, Washington Consensus, We are the 99%, women in the workforce, working-age population

Although we do observe some convergence among leading industrial nations that trade with each other, an overwhelming feature of the last ten millennia is that we have evolved into radically different religious, ethnic, cultural, political, and economic societies, and the gap between rich and poor nations, between developed and undeveloped nations, is as wide today as it ever was and perhaps a great deal wider than ever before.3 It seems hardly radical, but North took economics out of its comfort zone, which consisted of examining more easily measured inputs like labour and capital and instead brought in politics, sociology and history in order to understand why some countries succeed and others fail. North won the Nobel Prize in economics in 1993. Along with his fellow laureates Ronald Coase (who won in 1991) and Oliver Williamson (who won more than a decade later in 2009), North founded the field of New Institutional Economics. This work was later expanded upon by MIT economist Daron Acemoglu and University of Chicago political scientist James Robinson, notably in their book Why Nations Fail: The Origins of Power, Prosperity, and Poverty, and by many others who have built on North’s work on the role of institutions in economic development.


pages: 401 words: 115,959

Philanthrocapitalism by Matthew Bishop, Michael Green, Bill Clinton

Albert Einstein, anti-communist, barriers to entry, battle of ideas, Bernie Madoff, Bob Geldof, Bonfire of the Vanities, business process, business process outsourcing, Charles Lindbergh, clean water, cleantech, corporate governance, corporate social responsibility, Dava Sobel, David Ricardo: comparative advantage, don't be evil, family office, financial innovation, full employment, global pandemic, global village, God and Mammon, Hernando de Soto, high net worth, Intergovernmental Panel on Climate Change (IPCC), invisible hand, James Dyson, John Harrison: Longitude, joint-stock company, knowledge economy, knowledge worker, Live Aid, lone genius, Marc Andreessen, market bubble, mass affluent, microcredit, Mikhail Gorbachev, Nelson Mandela, new economy, offshore financial centre, old-boy network, peer-to-peer lending, performance metric, Peter Singer: altruism, plutocrats, Plutocrats, profit maximization, profit motive, Richard Feynman, risk tolerance, risk-adjusted returns, Ronald Coase, Ronald Reagan, shareholder value, Silicon Valley, Slavoj Žižek, South Sea Bubble, sovereign wealth fund, stem cell, Steve Jobs, The Wealth of Nations by Adam Smith, The Wisdom of Crowds, Thomas Malthus, Thorstein Veblen, trade liberalization, transaction costs, trickle-down economics, wealth creators, winner-take-all economy, working poor, World Values Survey, X Prize

The right-wing political philanthropists “have not been attacked the way I have been attacked,” says Soros, which he thinks “reflects that they already have more influence.” One of the achievements of the right-wing foundations that Soros cites is the creation of the discipline of “law and economics,” which grew out of the University of Chicago in the 1970s. This movement, whose ranks include two winners of the Nobel Prize in Economics, Ronald Coase and Gary Becker, uses considerations of economic efficiency to help solve legal questions. As well as having a perceived free-market bias, law and economics is opposed by those, usually on the left, who believe that law should focus on absolutes of what is right, not engage in utilitarian calculations of economic benefits. Law and economics was helped in getting established by the John M. Olin Foundation, whose story is told in a 2005 book, A Gift of Freedom, by John J.


Super Thinking: The Big Book of Mental Models by Gabriel Weinberg, Lauren McCann

affirmative action, Affordable Care Act / Obamacare, Airbnb, Albert Einstein, anti-pattern, Anton Chekhov, autonomous vehicles, bank run, barriers to entry, Bayesian statistics, Bernie Madoff, Bernie Sanders, Black Swan, Broken windows theory, business process, butterfly effect, Cal Newport, Clayton Christensen, cognitive dissonance, commoditize, correlation does not imply causation, crowdsourcing, Daniel Kahneman / Amos Tversky, David Attenborough, delayed gratification, deliberate practice, discounted cash flows, disruptive innovation, Donald Trump, Douglas Hofstadter, Edward Lorenz: Chaos theory, Edward Snowden, effective altruism, Elon Musk, en.wikipedia.org, experimental subject, fear of failure, feminist movement, Filter Bubble, framing effect, friendly fire, fundamental attribution error, Gödel, Escher, Bach, hindsight bias, housing crisis, Ignaz Semmelweis: hand washing, illegal immigration, income inequality, information asymmetry, Isaac Newton, Jeff Bezos, John Nash: game theory, lateral thinking, loss aversion, Louis Pasteur, Lyft, mail merge, Mark Zuckerberg, meta analysis, meta-analysis, Metcalfe’s law, Milgram experiment, minimum viable product, moral hazard, mutually assured destruction, Nash equilibrium, Network effects, nuclear winter, offshore financial centre, p-value, Parkinson's law, Paul Graham, peak oil, Peter Thiel, phenotype, Pierre-Simon Laplace, placebo effect, Potemkin village, prediction markets, premature optimization, price anchoring, principal–agent problem, publication bias, recommendation engine, remote working, replication crisis, Richard Feynman, Richard Feynman: Challenger O-ring, Richard Thaler, ride hailing / ride sharing, Robert Metcalfe, Ronald Coase, Ronald Reagan, school choice, Schrödinger's Cat, selection bias, Shai Danziger, side project, Silicon Valley, Silicon Valley startup, speech recognition, statistical model, Steve Jobs, Steve Wozniak, Steven Pinker, survivorship bias, The Present Situation in Quantum Mechanics, the scientific method, The Wisdom of Crowds, Thomas Kuhn: the structure of scientific revolutions, transaction costs, uber lyft, ultimatum game, uranium enrichment, urban planning, Vilfredo Pareto, wikimedia commons

There are many ways to internalize negative externalities, including taxes, fines, regulation, and lawsuits. Smoking externalities are internalized via cigarette taxes and higher health insurance premiums for smokers. Traffic congestion externalities are internalized through tolls. On a personal level, your neighbor might file a noise complaint against you if you consistently play music too loud. Another way to internalize externalities is through a marketplace. Ronald Coase won the Nobel Prize in economics in 1991 in part for what has become known as the Coase theorem, essentially a description of how a natural marketplace can internalize a negative externality. Coase showed that an externality can be internalized efficiently without further need for intervention (that is, without a government or other authority regulating the externality) if the following conditions are met: Well-defined property rights Rational actors Low transaction costs When these conditions are met, entities surrounding the externality will transact among themselves until the extra costs are internalized.


pages: 395 words: 116,675

The Evolution of Everything: How New Ideas Emerge by Matt Ridley

"Robert Solow", affirmative action, Affordable Care Act / Obamacare, Albert Einstein, Alfred Russel Wallace, AltaVista, altcoin, anthropic principle, anti-communist, bank run, banking crisis, barriers to entry, bitcoin, blockchain, Boris Johnson, British Empire, Broken windows theory, Columbian Exchange, computer age, Corn Laws, cosmological constant, creative destruction, Credit Default Swap, crony capitalism, crowdsourcing, cryptocurrency, David Ricardo: comparative advantage, demographic transition, Deng Xiaoping, discovery of DNA, Donald Davies, double helix, Downton Abbey, Edward Glaeser, Edward Lorenz: Chaos theory, Edward Snowden, endogenous growth, epigenetics, Ethereum, ethereum blockchain, facts on the ground, falling living standards, Ferguson, Missouri, financial deregulation, financial innovation, Frederick Winslow Taylor, Geoffrey West, Santa Fe Institute, George Gilder, George Santayana, Gunnar Myrdal, Henri Poincaré, hydraulic fracturing, imperial preference, income per capita, indoor plumbing, interchangeable parts, Intergovernmental Panel on Climate Change (IPCC), invisible hand, Isaac Newton, Jane Jacobs, Jeff Bezos, joint-stock company, Joseph Schumpeter, Kenneth Arrow, Kevin Kelly, Khan Academy, knowledge economy, land reform, Lao Tzu, long peace, Lyft, M-Pesa, Mahatma Gandhi, Mark Zuckerberg, means of production, meta analysis, meta-analysis, mobile money, money: store of value / unit of account / medium of exchange, Mont Pelerin Society, moral hazard, Necker cube, obamacare, out of africa, packet switching, peer-to-peer, phenotype, Pierre-Simon Laplace, price mechanism, profit motive, RAND corporation, random walk, Ray Kurzweil, rent-seeking, reserve currency, Richard Feynman, rising living standards, road to serfdom, Ronald Coase, Ronald Reagan, Satoshi Nakamoto, Second Machine Age, sharing economy, smart contracts, South Sea Bubble, Steve Jobs, Steven Pinker, The Wealth of Nations by Adam Smith, Thorstein Veblen, transaction costs, twin studies, uber lyft, women in the workforce

Anderson and Hill conclude that in the absence of a government monopoly of coercion, multiple private law enforcers emerged, and competition among them drove improvements and innovations that thrived by natural selection. In effect, the cattlemen of the nineteenth century rediscovered what medieval merchants had found – that customs and laws would emerge where they were not imposed. It was very far from anarchic. Robert Ellickson of Yale documented a good example of this more recently in Shasta County, California, an area of farms and ranches. Taking his cue from a famous example given by the economist Ronald Coase (who argued that in the absence of transaction costs, wrongs between cattle ranchers and wheat farmers would be righted by private negotiation rather than state punishment), Ellickson looked to see how individuals actually dealt with trespassing cattle. He found that the law was largely irrelevant. People dealt with the problem privately, sometimes even illegally. For example, they would call the owner of the cattle and ask him to retrieve his errant beasts; if he failed to do so persistently, he would be punished by finding his animals driven away in the wrong direction, or even castrated.


pages: 420 words: 124,202

The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention by William Rosen

"Robert Solow", Albert Einstein, All science is either physics or stamp collecting, barriers to entry, collective bargaining, computer age, Copley Medal, creative destruction, David Ricardo: comparative advantage, decarbonisation, delayed gratification, Fellow of the Royal Society, Flynn Effect, fudge factor, full employment, invisible hand, Isaac Newton, Islamic Golden Age, iterative process, James Hargreaves, James Watt: steam engine, John Harrison: Longitude, Joseph Schumpeter, Joseph-Marie Jacquard, knowledge economy, moral hazard, Network effects, Panopticon Jeremy Bentham, Paul Samuelson, Peace of Westphalia, Peter Singer: altruism, QWERTY keyboard, Ralph Waldo Emerson, rent-seeking, Ronald Coase, Simon Kuznets, spinning jenny, the scientific method, The Wealth of Nations by Adam Smith, Thomas Malthus, transaction costs, transcontinental railway, zero-sum game, éminence grise

Within months, lawyers were preparing suits intended to break one or another of these monopolies; in 1602, a competing merchant named Thomas Allein imported his own cards, and Darcy sued. In a slightly perverse reminder that lawyers have clients, not opinions, Edward Coke, as the Attorney General of England, represented Darcy, whose hostility to monopolies was already well known, though less as a matter of principle and more as a matter of economics: Coke was convinced that monopolies were costly6 to Britain’s artisans. In 1961, the British economist Ronald Coase published an article entitled “The Problem of Social Cost” that jump-started one of the most influential ideas in modern legal theory: the school familiarly known as Law and Economics, which proposes that legal decisions ought to account for economic efficiency as well as more traditional measures such as legislative history or case precedent. Had Coase lived three centuries earlier, he would have found Coke a most congenial colleague, since Coke’s arguments against monopolies were almost entirely derived from their economic impact, specifically on the need for full employment of England’s skilled craftsmen; decades before7 Darcy v.


pages: 386 words: 122,595

Naked Economics: Undressing the Dismal Science (Fully Revised and Updated) by Charles Wheelan

"Robert Solow", affirmative action, Albert Einstein, Andrei Shleifer, barriers to entry, Berlin Wall, Bernie Madoff, Bretton Woods, business cycle, buy and hold, capital controls, Cass Sunstein, central bank independence, clean water, collapse of Lehman Brothers, congestion charging, creative destruction, Credit Default Swap, crony capitalism, currency manipulation / currency intervention, Daniel Kahneman / Amos Tversky, David Brooks, demographic transition, diversified portfolio, Doha Development Round, Exxon Valdez, financial innovation, fixed income, floating exchange rates, George Akerlof, Gini coefficient, Gordon Gekko, greed is good, happiness index / gross national happiness, Hernando de Soto, income inequality, index fund, interest rate swap, invisible hand, job automation, John Markoff, Joseph Schumpeter, Kenneth Rogoff, libertarian paternalism, low skilled workers, Malacca Straits, market bubble, microcredit, money market fund, money: store of value / unit of account / medium of exchange, Network effects, new economy, open economy, presumed consent, price discrimination, price stability, principal–agent problem, profit maximization, profit motive, purchasing power parity, race to the bottom, RAND corporation, random walk, rent control, Richard Thaler, rising living standards, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Ronald Reagan, Sam Peltzman, school vouchers, Silicon Valley, Silicon Valley startup, South China Sea, Steve Jobs, The Market for Lemons, the rule of 72, The Wealth of Nations by Adam Smith, Thomas L Friedman, Thomas Malthus, transaction costs, transcontinental railway, trickle-down economics, urban sprawl, Washington Consensus, Yogi Berra, young professional, zero-sum game

Markets alone fail to make us better off when there is a large gap between the private cost of some activity and the social cost. Reasonable people can and should debate what the appropriate remedy might be. Often it will involve government. Of course, sometimes it may not. The parties involved in an externality have an incentive to come to a private agreement on their own. This was the insight of Ronald Coase, a University of Chicago economist who won the Nobel Prize in 1991. If the circumstances are right, one party to an externality can pay the other party to change their behavior. When my neighbor Stuart started playing his bongos, I could have paid him to stop, or to take up a less annoying instrument. If my disutility from his noise is greater than his utility from playing, I could theoretically write him a check to put the bongos away and leave us both better off.


pages: 472 words: 117,093

Machine, Platform, Crowd: Harnessing Our Digital Future by Andrew McAfee, Erik Brynjolfsson

"Robert Solow", 3D printing, additive manufacturing, AI winter, Airbnb, airline deregulation, airport security, Albert Einstein, Amazon Mechanical Turk, Amazon Web Services, artificial general intelligence, augmented reality, autonomous vehicles, backtesting, barriers to entry, bitcoin, blockchain, British Empire, business cycle, business process, carbon footprint, Cass Sunstein, centralized clearinghouse, Chris Urmson, cloud computing, cognitive bias, commoditize, complexity theory, computer age, creative destruction, crony capitalism, crowdsourcing, cryptocurrency, Daniel Kahneman / Amos Tversky, Dean Kamen, discovery of DNA, disintermediation, disruptive innovation, distributed ledger, double helix, Elon Musk, en.wikipedia.org, Erik Brynjolfsson, Ethereum, ethereum blockchain, everywhere but in the productivity statistics, family office, fiat currency, financial innovation, George Akerlof, global supply chain, Hernando de Soto, hive mind, information asymmetry, Internet of things, inventory management, iterative process, Jean Tirole, Jeff Bezos, jimmy wales, John Markoff, joint-stock company, Joseph Schumpeter, Kickstarter, law of one price, longitudinal study, Lyft, Machine translation of "The spirit is willing, but the flesh is weak." to Russian and back, Marc Andreessen, Mark Zuckerberg, meta analysis, meta-analysis, Mitch Kapor, moral hazard, multi-sided market, Myron Scholes, natural language processing, Network effects, new economy, Norbert Wiener, Oculus Rift, PageRank, pattern recognition, peer-to-peer lending, performance metric, plutocrats, Plutocrats, precision agriculture, prediction markets, pre–internet, price stability, principal–agent problem, Ray Kurzweil, Renaissance Technologies, Richard Stallman, ride hailing / ride sharing, risk tolerance, Ronald Coase, Satoshi Nakamoto, Second Machine Age, self-driving car, sharing economy, Silicon Valley, Skype, slashdot, smart contracts, Snapchat, speech recognition, statistical model, Steve Ballmer, Steve Jobs, Steven Pinker, supply-chain management, TaskRabbit, Ted Nelson, The Market for Lemons, The Nature of the Firm, Thomas Davenport, Thomas L Friedman, too big to fail, transaction costs, transportation-network company, traveling salesman, Travis Kalanick, two-sided market, Uber and Lyft, Uber for X, uber lyft, ubercab, Watson beat the top human players on Jeopardy!, winner-take-all economy, yield management, zero day

And Moore’s law will continue to operate, driving prices down and performance up for all manner of digital goods, at rates unheard of in history prior to the computer era. So the technology seems to support decentralizing all the things. What about the economics? What does economic theory and evidence have to say about how tech progress changes companies and other ways we organize to get work done? Quite a lot, actually. . . . Meet the Economics of the Firm In November 1937, when he was just twenty-six, the economist Ronald Coase published his landmark paper “The Nature of the Firm.” In it, he posed a very basic question: If markets are so great, why does so much happen inside companies? Why, in other words, do we choose to conduct so much economic activity within these stable, hierarchical, often large and bureaucratic structures called companies, rather than just all working as independent freelancers, coming together as needed and for only as long as necessary to complete a particular project, then going our own way afterward?


pages: 677 words: 121,255

Giving the Devil His Due: Reflections of a Scientific Humanist by Michael Shermer

Alfred Russel Wallace, anthropic principle, anti-communist, barriers to entry, Berlin Wall, Boycotts of Israel, Chelsea Manning, clean water, clockwork universe, cognitive dissonance, Colonization of Mars, Columbine, cosmological constant, cosmological principle, creative destruction, dark matter, Donald Trump, Edward Snowden, Elon Musk, Flynn Effect, germ theory of disease, gun show loophole, Hans Rosling, hedonic treadmill, helicopter parent, hindsight bias, illegal immigration, income inequality, invisible hand, Johannes Kepler, Joseph Schumpeter, laissez-faire capitalism, Laplace demon, luminiferous ether, McMansion, means of production, mega-rich, Menlo Park, moral hazard, moral panic, More Guns, Less Crime, Peter Singer: altruism, phenotype, positional goods, race to the bottom, Richard Feynman, Ronald Coase, Silicon Valley, Skype, social intelligence, stem cell, Stephen Hawking, Steve Jobs, Steven Pinker, the scientific method, The Wealth of Nations by Adam Smith, transaction costs, WikiLeaks, working poor, Yogi Berra

When the mega rich produce a festival fit for a king for their sixteen-year old queen, the next economic tier down must up the catering bill to satisfy teenage wants that have been artificially adjusted upward. Money that should be spent on, say, food, clothes, health care, future college tuition, or mortgage payments, is being wasted on frivolous ceremonial one-upmanship. The Hidden Costs of Market Failures and Moral Hazards Moving from examples to analysis, Frank employs a technical model developed by the economist Ronald Coase that shows precisely how economists can take into account such transaction costs in order to better understand macroeconomic phenomena and correct for market failures. Here Frank claims that the transaction costs of keeping up with the Joneses are not presently included in the price of homes, suits, shoes, and parties in terms of the real benefit to the owners, so this is an example of a market failure (and, he opines, a moral hazard) that he suggests can be remedied through a progressive consumption tax wherein these newfound liabilities would not only adjust the transaction costs to account for the hedonic treadmill while simultaneously curtailing needless consumptive behavior, it would also generate additional tax revenues from the rich that could be used to shore up our crumbling Social Security and Medicare accounts.


pages: 675 words: 141,667

Open Standards and the Digital Age: History, Ideology, and Networks (Cambridge Studies in the Emergence of Global Enterprise) by Andrew L. Russell

American ideology, animal electricity, barriers to entry, borderless world, Chelsea Manning, computer age, creative destruction, disruptive innovation, Donald Davies, Edward Snowden, Frederick Winslow Taylor, Hacker Ethic, Howard Rheingold, Hush-A-Phone, interchangeable parts, invisible hand, John Markoff, Joseph Schumpeter, Leonard Kleinrock, means of production, Menlo Park, Network effects, new economy, Norbert Wiener, open economy, packet switching, pre–internet, RAND corporation, RFC: Request For Comment, Richard Stallman, Ronald Coase, Ronald Reagan, Silicon Valley, Steve Crocker, Steven Levy, Stewart Brand, technoutopianism, Ted Nelson, The Nature of the Firm, Thomas L Friedman, Thorstein Veblen, transaction costs, web of trust

Gherardi, who is absent from existing histories of the early Bell System, was a chief architect of AT&T’s methodical and deliberate style of “normal design” that regulators eventually came to view with suspicion.6 The prevailing caricature of standardization in the Bell monopoly as closed and monolithic also suffers from a second weakness: it fails to account for activities that occurred across the boundaries of the Bell System. Boundary activities, as we have seen, are crucial sites where managers and engineers decide through managerial hierarchies what they can make or decide inside their firm, and what they need to do with respect to markets and organizations that exist outside the firm. In some cases, these decisions can be understood in terms of economic efficiency, using the economist Ronald Coase’s concept of transaction costs.7 The problem with the concept is that it tends to reduce – or ignore altogether – strategic, political, and cultural factors that are in many cases decisive. We deceive ourselves if we pretend that decisions to build from within or purchase from without are made solely on the grounds of economic efficiency. In the late nineteenth and early twentieth centuries, Bell engineers were deeply suspicious of the “outsiders” described by Jewett in 1915 as those who were looking for “reason to assert that what we are attempting to do is to muzzle all possible development.”


pages: 500 words: 145,005

Misbehaving: The Making of Behavioral Economics by Richard H. Thaler

"Robert Solow", 3Com Palm IPO, Albert Einstein, Alvin Roth, Amazon Mechanical Turk, Andrei Shleifer, Apple's 1984 Super Bowl advert, Atul Gawande, Berlin Wall, Bernie Madoff, Black-Scholes formula, business cycle, capital asset pricing model, Cass Sunstein, Checklist Manifesto, choice architecture, clean water, cognitive dissonance, conceptual framework, constrained optimization, Daniel Kahneman / Amos Tversky, delayed gratification, diversification, diversified portfolio, Edward Glaeser, endowment effect, equity premium, Eugene Fama: efficient market hypothesis, experimental economics, Fall of the Berlin Wall, George Akerlof, hindsight bias, Home mortgage interest deduction, impulse control, index fund, information asymmetry, invisible hand, Jean Tirole, John Nash: game theory, John von Neumann, Kenneth Arrow, Kickstarter, late fees, law of one price, libertarian paternalism, Long Term Capital Management, loss aversion, market clearing, Mason jar, mental accounting, meta analysis, meta-analysis, money market fund, More Guns, Less Crime, mortgage debt, Myron Scholes, Nash equilibrium, Nate Silver, New Journalism, nudge unit, Paul Samuelson, payday loans, Ponzi scheme, presumed consent, pre–internet, principal–agent problem, prisoner's dilemma, profit maximization, random walk, randomized controlled trial, Richard Thaler, Robert Shiller, Robert Shiller, Ronald Coase, Silicon Valley, South Sea Bubble, Stanford marshmallow experiment, statistical model, Steve Jobs, Supply of New York City Cabdrivers, technology bubble, The Chicago School, The Myth of the Rational Market, The Signal and the Noise by Nate Silver, The Wealth of Nations by Adam Smith, Thomas Kuhn: the structure of scientific revolutions, transaction costs, ultimatum game, Vilfredo Pareto, Walter Mischel, zero-sum game

“You are completely unscientific!” he cried, in utter despair. I had resolved to remain calm so I just smiled at this outburst, said, “Okay then,” and moved on. There was much more contentious material still to come, and I was determined not to get into a shouting contest, especially with a federal judge! The biggest fight was about something called the Coase theorem. The Coase theorem is named for its inventor, Ronald Coase, who had been a faculty member at University of Chicago Law School for many years. The theorem can be easily stated: in the absence of transaction costs, meaning that people can easily trade with one another, resources will flow to their highest-valued use.‡ The logic is easy to explain. I will follow Coase’s lead and explain it with a simple numerical example. Suppose that Alexa and Julia are college roommates.


pages: 436 words: 76

Culture and Prosperity: The Truth About Markets - Why Some Nations Are Rich but Most Remain Poor by John Kay

"Robert Solow", Albert Einstein, Asian financial crisis, Barry Marshall: ulcers, Berlin Wall, Big bang: deregulation of the City of London, business cycle, California gold rush, complexity theory, computer age, constrained optimization, corporate governance, corporate social responsibility, correlation does not imply causation, Daniel Kahneman / Amos Tversky, David Ricardo: comparative advantage, Donald Trump, double entry bookkeeping, double helix, Edward Lloyd's coffeehouse, equity premium, Ernest Rutherford, European colonialism, experimental economics, Exxon Valdez, failed state, financial innovation, Francis Fukuyama: the end of history, George Akerlof, George Gilder, greed is good, Gunnar Myrdal, haute couture, illegal immigration, income inequality, industrial cluster, information asymmetry, intangible asset, invention of the telephone, invention of the wheel, invisible hand, John Meriwether, John Nash: game theory, John von Neumann, Kenneth Arrow, Kevin Kelly, knowledge economy, light touch regulation, Long Term Capital Management, loss aversion, Mahatma Gandhi, market bubble, market clearing, market fundamentalism, means of production, Menlo Park, Mikhail Gorbachev, money: store of value / unit of account / medium of exchange, moral hazard, Myron Scholes, Naomi Klein, Nash equilibrium, new economy, oil shale / tar sands, oil shock, Pareto efficiency, Paul Samuelson, pets.com, popular electronics, price discrimination, price mechanism, prisoner's dilemma, profit maximization, purchasing power parity, QWERTY keyboard, Ralph Nader, RAND corporation, random walk, rent-seeking, Right to Buy, risk tolerance, road to serfdom, Ronald Coase, Ronald Reagan, second-price auction, shareholder value, Silicon Valley, Simon Kuznets, South Sea Bubble, Steve Jobs, telemarketer, The Chicago School, The Market for Lemons, The Nature of the Firm, the new new thing, The Predators' Ball, The Wealth of Nations by Adam Smith, Thorstein Veblen, total factor productivity, transaction costs, tulip mania, urban decay, Vilfredo Pareto, Washington Consensus, women in the workforce, yield curve, yield management

Strangelove-before dying at the age of fifty-three. John Nash was author of the principal solution concept in game theory-the Nash equilibrium-but his productive career was ended by schizophrenia. His health partially restored, he was awarded the Nobel Prize in 1994. 21 Nash was played by Russell Crowe in an Oscar-winning film of his life, A Beautiful Mind. Institutional (or transactions cost) economics regards as its founder Ronald Coase,n a British economist who spent most of his career at the University of Chicago. His claim to fame rests mainly on two articles, published almost twenty-five years apart. The first was concerned with the theory of the firm. In the perfectly competitive world of Part III, firms played little or no role. There are many similar producers of every commodity. In Parts II and IV of this book, there are frequent references to individual firms; in Part III, almost none.


pages: 660 words: 141,595

Data Science for Business: What You Need to Know About Data Mining and Data-Analytic Thinking by Foster Provost, Tom Fawcett

Albert Einstein, Amazon Mechanical Turk, big data - Walmart - Pop Tarts, bioinformatics, business process, call centre, chief data officer, Claude Shannon: information theory, computer vision, conceptual framework, correlation does not imply causation, crowdsourcing, data acquisition, David Brooks, en.wikipedia.org, Erik Brynjolfsson, Gini coefficient, information retrieval, intangible asset, iterative process, Johann Wolfgang von Goethe, Louis Pasteur, Menlo Park, Nate Silver, Netflix Prize, new economy, p-value, pattern recognition, placebo effect, price discrimination, recommendation engine, Ronald Coase, selection bias, Silicon Valley, Skype, speech recognition, Steve Jobs, supply-chain management, text mining, The Signal and the Noise by Nate Silver, Thomas Bayes, transaction costs, WikiLeaks

Overfitting Overfitting is the tendency of data mining procedures to tailor models to the training data, at the expense of generalization to previously unseen data points. The example from the previous section was contrived; the data mining built a model using pure memorization, the most extreme overfitting procedure possible. However, all data mining procedures have the tendency to overfit to some extent—some more than others. The idea is that if we look hard enough we will find patterns in a dataset. As the Nobel Laureate Ronald Coase said, “If you torture the data long enough, it will confess.” Unfortunately, the problem is insidious. The answer is not to use a data mining procedure that doesn’t overfit because all of them do. Nor is the answer to simply use models that produce less overfitting, because there is a fundamental trade-off between model complexity and the possibility of overfitting. Sometimes we may simply want more complex models, because they will better capture the real complexities of the application and thereby be more accurate.


pages: 868 words: 147,152

How Asia Works by Joe Studwell

affirmative action, anti-communist, Asian financial crisis, bank run, banking crisis, barriers to entry, borderless world, Bretton Woods, British Empire, call centre, capital controls, central bank independence, collective bargaining, crony capitalism, cross-subsidies, currency manipulation / currency intervention, David Ricardo: comparative advantage, deindustrialization, demographic dividend, Deng Xiaoping, failed state, financial deregulation, financial repression, Gini coefficient, glass ceiling, income inequality, income per capita, industrial robot, Joseph Schumpeter, Kenneth Arrow, land reform, land tenure, large denomination, liberal capitalism, market fragmentation, non-tariff barriers, offshore financial centre, oil shock, open economy, passive investing, purchasing power parity, rent control, rent-seeking, Right to Buy, Ronald Coase, South China Sea, The Wealth of Nations by Adam Smith, urban sprawl, Washington Consensus, working-age population

The reason the recipe worked is that it has enabled poor countries to get much more out of their economies than the low productive skills of their populations would otherwise have allowed at an early stage of development. Governments manipulated economies which thereby forged ahead and created wealth that paid for people – who cannot be neatly transformed by government policy – to catch up. Neo-classical economists do not like political intervention in markets. They claim that markets are inherently efficient. But history shows that markets – with the primordial exception of what the institutional economist Ronald Coase dismissed as ‘individuals exchanging nuts for berries on the edge of the forest’ – are created.1 Which is to say that in a functioning society markets are shaped and re-shaped by political power. Without the dispossession of landlords in Japan, Korea, Taiwan and China there would have been no increased agricultural surplus to prime industrialisation. Without the focus on manufacturing for export, there would have been no way to engage tens of millions of former farmers in the modern economy.


pages: 482 words: 161,169

Corporate Warriors: The Rise of the Privatized Military Industry by Peter Warren Singer

barriers to entry, Berlin Wall, blood diamonds, borderless world, British Empire, colonial rule, conceptual framework, failed state, Fall of the Berlin Wall, financial independence, full employment, Jean Tirole, joint-stock company, Machinery of Freedom by David Friedman, market friction, moral hazard, Nelson Mandela, new economy, offshore financial centre, Peace of Westphalia, principal–agent problem, prisoner's dilemma, private military company, profit maximization, profit motive, RAND corporation, risk/return, rolodex, Ronald Coase, Ronald Reagan, Scramble for Africa, South China Sea, supply-chain management, The Nature of the Firm, The Wealth of Nations by Adam Smith

Jones and Newburn, Private Security and Public Policing, p. 29. l l. Perhaps the best work on this was Coase's study of the history of lighthouses. Lighthouses used to be cited by economists as one of the few clear-cut examples, outside of national defense, of public goods that required the involvement of government. It turned out, however, that they were wrong and that even lighthouses were operated by private firms at one time. Ronald Coase, "The Lighthouse in Economics" Journal of Law and Economics 17 (October i974)=357-376- 12. Paul Taibel, "Outsourcing & Privatization of Defense Infrastructure." A Business Executives for National Security Report, L 998. Available at http^/w'wwbens.org/pubs/outsrce.html. 13. J. Michael Brower, "Outland: The Vogue of DOD Outsourcing and Privatization," Acquisition Review Quarterly 4 (Fall 1997): $83—392; Adam Smith, The Wealth of Nations, 1776.


pages: 524 words: 146,798

Anarchy State and Utopia by Robert Nozick

distributed generation, invisible hand, Jane Jacobs, Kenneth Arrow, laissez-faire capitalism, Machinery of Freedom by David Friedman, means of production, Menlo Park, moral hazard, night-watchman state, Norman Mailer, Pareto efficiency, price discrimination, prisoner's dilemma, rent control, risk tolerance, Ronald Coase, school vouchers, The Death and Life of Great American Cities, The Nature of the Firm, transaction costs, Yogi Berra

Unfortunately, no satisfactory specific alternative theory of either type has yet been produced. y Instead of compensating them, can the agent supply tranquilizers to all those upon whom the risk is imposed, so that they won’t feel very afraid? Should they have to tranquilize themselves, so that it’s not the agent’s concern at all if they neglect to do so and feel fear? For an illuminating initial tangling of such issues see Ronald Coase, “The Problem of Social Costs, ”Journal of Law and Economics, 1960, pp. 1—44. z The proposal I make here can, I think, be defended against the considerations adduced in Frank Michelman’s sophisticated presentation of a contrasting view in his “Pollution as a Tort,” an essay review of Guido Calabresi’s The Costs of Accidents, in Yale Law Journal, 80 (1917), pt. V, 666—683. I do not mean to put forth the above scheme as the solution to controlling pollution.


pages: 497 words: 144,283

Connectography: Mapping the Future of Global Civilization by Parag Khanna

"Robert Solow", 1919 Motor Transport Corps convoy, 2013 Report for America's Infrastructure - American Society of Civil Engineers - 19 March 2013, 9 dash line, additive manufacturing, Admiral Zheng, affirmative action, agricultural Revolution, Airbnb, Albert Einstein, amateurs talk tactics, professionals talk logistics, Amazon Mechanical Turk, Asian financial crisis, asset allocation, autonomous vehicles, banking crisis, Basel III, Berlin Wall, bitcoin, Black Swan, blockchain, borderless world, Boycotts of Israel, Branko Milanovic, BRICs, British Empire, business intelligence, call centre, capital controls, charter city, clean water, cloud computing, collateralized debt obligation, commoditize, complexity theory, continuation of politics by other means, corporate governance, corporate social responsibility, credit crunch, crony capitalism, crowdsourcing, cryptocurrency, cuban missile crisis, data is the new oil, David Ricardo: comparative advantage, deglobalization, deindustrialization, dematerialisation, Deng Xiaoping, Detroit bankruptcy, digital map, disruptive innovation, diversification, Doha Development Round, edge city, Edward Snowden, Elon Musk, energy security, Ethereum, ethereum blockchain, European colonialism, eurozone crisis, failed state, Fall of the Berlin Wall, family office, Ferguson, Missouri, financial innovation, financial repression, fixed income, forward guidance, global supply chain, global value chain, global village, Google Earth, Hernando de Soto, high net worth, Hyperloop, ice-free Arctic, if you build it, they will come, illegal immigration, income inequality, income per capita, industrial cluster, industrial robot, informal economy, Infrastructure as a Service, interest rate swap, Intergovernmental Panel on Climate Change (IPCC), Internet of things, Isaac Newton, Jane Jacobs, Jaron Lanier, John von Neumann, Julian Assange, Just-in-time delivery, Kevin Kelly, Khyber Pass, Kibera, Kickstarter, LNG terminal, low cost airline, low cost carrier, low earth orbit, manufacturing employment, mass affluent, mass immigration, megacity, Mercator projection, Metcalfe’s law, microcredit, mittelstand, Monroe Doctrine, mutually assured destruction, New Economic Geography, new economy, New Urbanism, off grid, offshore financial centre, oil rush, oil shale / tar sands, oil shock, openstreetmap, out of africa, Panamax, Parag Khanna, Peace of Westphalia, peak oil, Pearl River Delta, Peter Thiel, Philip Mirowski, plutocrats, Plutocrats, post-oil, post-Panamax, private military company, purchasing power parity, QWERTY keyboard, race to the bottom, Rana Plaza, rent-seeking, reserve currency, Robert Gordon, Robert Shiller, Robert Shiller, Ronald Coase, Scramble for Africa, Second Machine Age, sharing economy, Shenzhen was a fishing village,