academic researchers: distrusted by citizen-taxpayers, 67–68; funding for, 76, 370, 372; influencing economic policy, 69–70, 78–79; media involvement of, 72–73; motivations of, 66–67; paid for external activities, 70–71; personal ethics of, 76; political involvement of, 73–75; working with organizations outside the university, 68–69, 76–78. See also economic research; economists
accountability: of businesses to stakeholders, 185–86; in classical liberalism, 161–62; of employers, 243, 244, 247, 249; of regulated utilities, 462–64; of unelected decision makers, 163, 168
acquis communautaire, 265, 286, 294, 356, 526n35
adverse selection, 117, 120; insurance and, 409–10; regulation of network industries and, 457. See also asymmetries of information
Affordable Care Act, 165, 411, 412
AIG (American International Group), 321, 327, 334, 340, 533n11
Allais, Maurice, 95
allocation: constructing better methods of, 45; of funds by finance, 297; of resources, 24–27, 33, 101, 161
altruism, 100–101, 128–35, 146, 188. See also moral wiggle room; pro-social behavior
arbitrage, limits to, 318, 319–20, 531n40
Aristotle, 485n3
artificial intelligence (AI), 232, 409, 423. See also machine learning
asymmetries of information, 12; agency problems and, 314; bank loans and, 183; buying admission to university and, 37; on costs and benefits of policies, 162–63, 506n6; derivatives as source of, 301; financial crisis of 2008 and, 327; formal vs. real authority and, 181; games involving, 119; incorporated in economic models, 103; liquidity in financial markets and, 319; market failures due to, 327; in real estate lending, 329–30; regulation of network industries and, 456–57, 462–63, 470
attention, economics of, 379–82
auctions: of bandwidth, 27–28, 87–88, 487nn12–14; laboratory tests of strategies for, 90
authority, formal vs. real, 181
average-cost pricing, 468
avoided cost test, 543n18
bailouts of banks: in Europe, 271, 272–73, 278, 524n15; excessive risk based on expectation of, 187, 312–13, 314–15; financial crisis of 2008 and, 326–27, 334; replaced by “bail ins,” 537n42; risk of sovereign default and, 537n40; US taxpayers profiting from, 334, 531n41
bailouts of governments, 281–82; of Greece, 279, 287, 525n31; Maastricht Treaty and, 274–75, 278, 279, 290, 524n12; US history and, 279–80, 281–82, 292
balance sheet for retail bank, 322
balance sheet structure of firms, 183
bandwidth, allocation of, 26–28, 87–88, 487nn12–14
banking regulation, 159, 321–25, 332–33; bubbles and, 310; in Eurozone, 273. See also bailouts of banks; banking union; capital requirements; prudential regulation; shadow banking
banking union, 289–90, 295, 526n37
bank loans, to small and medium-sized enterprises, 183, 297, 312, 336, 374
bankruptcy law, French, 250, 376
banks: balance sheet for retail bank, 322; connections between sovereign states and, 349, 537n40. See also bailouts of banks; banking regulation; investment banks; shadow banking
Basel accords, 332, 333; Basel I, 322–24; Basel II, 324–25, 330, 346; Basel III, 341, 342, 343, 347, 348
Bayesian equilibrium, perfect, 115, 119
Bear Stearns, 321, 322, 326, 334, 340, 533n9
behavioral economics, 91–92, 317
beliefs: biases affecting, 17–19; mistakes in applying probabilities to, 125–27, 500n9; self-manipulation of, 135–37. See also cognitive biases
Benjamin, Walter, 528n17
Berlin, Isaiah, 80, 101, 497n28
biotechnology startups, 368–69, 389–90
blood donation, payment for, 39, 144–45, 146
bonuses, 53, 344–45, 347. See also remuneration
Booking.com, 381, 394–95, 407, 542n15
Borel, Émile, 110
bottleneck, 363, 455, 480. See also essential infrastructures or facilities
brain drain in France, 492n44
bubbles, financial, 307–12; interest rates and, 309, 310, 336, 338, 529n21; macroeconomics and, 92–93; in poorer countries of Eurozone, 270; sovereign debt crises and, 272. See also real estate bubbles
Canada, successful reforms in, 171, 172, 173
cap and trade, 204. See also tradable emissions permits
capitalist governance of firms, 174–75, 176–79
capital requirements, 342, 343, 348. See also Basel accords
carbon emissions, 4–5, 195–99; industrial policy and, 366; monitoring by international community, 211, 222, 230
carbon leakage, 21–22, 201–3, 209
carbon pricing, 216–17; abandoned by COP 21 in Paris, 211, 212; credibility of international agreement on, 226–28; inequality and, 222–26, 230; with universal carbon price, 213, 229. See also carbon tax; tradable emissions permits
carbon tax, 204–5, 511nn12–15; carbon leakage and, 201; in economic modeling, 84; as national choice within international agreement, 226; opposition to, 189; rationale for, 37–38; reduction in UK greenhouse gas emissions and, 208; worldwide, 22, 217–19, 513n31. See also carbon pricing
cartels, destabilizing, 114
central banks: independence of, 164, 165; liquidity provision by, 316–17, 333–34, 335–36, 534nn17–18. See also European Central Bank (ECB); Federal Reserve
China: efficiency in response to competition from, 359; manufacturing jobs in US and, 260; shadow banking in, 322, 350; transitioning of, 349
clawback provisions, 184, 509n14
Clean Development Mechanism (CDM), 202, 511n8
climate change: challenge of, 195–99; disadvantages of top-down environmental policies for, 206, 213–16, 512n24; economic approach to, 216–22 (see also carbon pricing); global solution required for, 22, 203, 209, 213, 216; modest progress on, 203–6; negotiations falling short of the stakes, 206–13; putting negotiations back on track, 228–30; reasons for standstill on, 199–203; voluntary INDC commitments, 209–10, 512n21. See also global warming
clusters, industrial, 367, 368–69, 372
cognitive biases, 17–19; behavioral finance and, 317; exploited by populists, 481–82; of ignoring indirect effects, 20–21, 27–28
collusion in cliques, 120, 143
the commons, 4; tragedy of, 114, 200–201, 208, 436
compensation. See remuneration
competition: employment and, 364–65; imperfect, 102–3; in information technology markets, 397–400; international, 356, 359; network industries and, 358, 363–64, 455–56, 459–60, 471–72, 475, 476, 478–80; patent pools and, 437–41; purpose of, 357–61; role of the state in relation to, 355–57, 538n1; situations calling for absence of, 363–64; special interest groups and, 356–57; two-sided markets and, 391, 392–400
competitive equilibrium, 89, 495n12
competitive market paradigm, 101–2
conflicts of interest: of economic researchers, 76, 98, 352; in independent authorities, 169; online recommendations and, 403
consumer protection authority, 158
consumer surplus, 362, 468, 550n8
contestability of a market, 398–400. See also competition
contracts: formal authority based on, 181; information theory and, 115–18, 119–21
cooperative governance, 174, 175–76, 179–80
coopetition, 437
Copenhagen conference of 2009, 114, 197, 209, 211, 224, 225
corporate philanthropy, 190–91
corporate social responsibility (CSR), 174–75, 185–91
Cournot, Antoine Augustin, 362, 436
creative destruction, 360, 398, 426–27, 430–31
credit cards. See payment cards
credit default swaps (CDS), 298
crowding out, of intrinsic motivation by extrinsic incentives, 37, 143–46
Cuban migrants to Miami, 258–59
Darwin, Charles, 150
data: Big Data, 82, 107, 408; misleading because local, 108; personal, 401, 403–9, 413; theoretical models in absence of, 107–8
delegated philanthropy, 188–90
denial of reality, 17–19, 318, 531nn36–37
deposit insurance, 315–16, 331, 333
deregulation: financial, 314; of network industries, 108, 455
derivatives, 297–301, 303, 526n1
development economics, randomized control trials in, 89
Dictator Game, 128–29, 131–32, 500n13, 500n16; with three choices, 133–34, 501n19
digitization of society, 378–79; future of employment and, 261, 263–64, 401–2, 423–27; inequality and, 421–22, 425, 426; tax system and, 427–29; trust and, 401, 402–5, 418. See also platforms, two-sided; technological change
dignity, human, 1, 33, 40, 42, 44–45, 61
dot-com bubble collapsing in 2001, 309, 310
Durkheim, Émile, 40
econometrics, 87, 105–6, 118, 119
economic growth: finance as essential factor in, 297; technological change and, 430
economic policy: as goal of economics, 86; indirect effects of, 20–21, 28; made without economic understanding, 30–32; market failures and, 34, 122; models in analysis of, 86–87, 107; pressure groups and, 91; theory and, 78–79
economic rent, 25, 54. See also rent seeking
economic research: American domination of, 99; consensus and controversy in, 98–99; evaluation of, 93–98; evolution of knowledge in, 91–93; foxes and hedgehogs in, 101–4; fundamental, without direct application, 118–19; interplay between theory and evidence, 80–91; personal impact of training in, 99–101. See also academic researchers; mathematics in economics; modeling in economics
economics: contributing to the common good, 5; mathematization of, 104–5; moving closer to other human and social sciences, 122–23; need for better public understanding of, 29–32; relationship between society and, 7–10; as a science, 90–91
economies of scale: in digital markets, 398; monopoly position and, 456
economists: as bearers of bad news, 149, 482; as foxes or hedgehogs, 101–4; as public intellectuals, 66–75; sharing their knowledge with the public, 29–30, 482–83. See also academic researchers
education systems, inequalities created by, 56
efficiency, in response to competition, 359–60
elasticity of demand: in natural monopoly regulated markets, 469–70, 471, 550n10; in two-sided platforms, 383, 384
electricity transmission networks, 363, 461–62, 463, 467, 471–72, 475–78. See also network industries
empathy, 127, 188. See also altruism
employee-run firms, 174, 176, 178–79
employment: competition and, 364–65; decline of salaried employment, 418–20; digital economy and, 261, 263–64, 401–2, 423–27; new twenty-first century forms of, 414–15. See also labor market; unemployment
environmental regulation: to deal with market failure, 158; top-down approaches to, 213–15, 457, 512n24
environmental taxation: accountability of the firm and, 185; moral objections to, 254. See also carbon tax
equity capital requirements, 342, 343, 348. See also Basel accords
essential infrastructures or facilities, 455. See also infrastructure, and competition
ethics: of academic researcher’s role in public affairs, 76; in determining economic policies, 59. See also morality
euro, advantages of, 266
euro crisis: comparison with United States, 279–80; competitiveness and, 267–70; debts and, 270–82; failure of institutions and, 350
European Central Bank (ECB): financial crisis of 2008 and, 316, 326; independence of, 169, 506n12; “no bailouts” clause and, 279; as provider of liquidity across Eurozone, 317; recapitalization of Greek banks and, 285; role with regard to struggling countries, 288–89; Spanish real
estate bubble and, 273; in troika, 525n29
European Union (EU): achievements of, 265; law of (see acquis communautaire); limited labor mobility in, 266; options for, 289–95; UK vote in favor of leaving (Brexit), 29, 349, 482, 487n15. See also Maastricht Treaty
Eurozone, 265–67; challenges faced by, 288–89; economists’ views of, 482; European Central Bank and, 317; options for, 289–95
evolutionary economics, 149–50
exchange: not necessarily involving money, 45; Ultimatum Game and, 131
experience rating, 244
externalities: accountability of a business for, 186; of CO2 emissions, 213; confused with moral issues, 37–38; created by inequality, 160; defined, 488n8; regulation or prohibition of a market in response to, 36; in two-sided market, 383–84. See also market failures
Fannie Mae, 334, 533nn12–13, 534n14
Federal Reserve, 321, 326, 328, 506n12
finance: benefits and risks of modern instruments in, 303; hypertrophied sector of, 314–15; irrationality in financial markets, 306–7; remuneration in, 54, 184–85, 314, 344–47; speculation in, 304; for technology startups, 445–47, 450; turning toxic, 298–306; uses of, 296–98. See also derivatives; securitized assets
financial crisis of 2008, 326–35; disappearance of markets during, 319; economists’ failure to predict, 67, 108, 350–52, 537n43; emphasis on short-term profitability and, 184; European Central Bank and, 316, 326; European countries with banking problems in, 327, 532n2; excessive maturity transformation and, 331–32; excessive securitization and, 328, 330–31, 333, 338; factors leading to, 327–35, 350; failure of EU’s Emission Trading Scheme and, 208; failure of institutions and, 350; French effects of, 241, 518n23; lasting effects on growth and employment, 326; low interest rates as legacy of, 335–39; real estate bubble and, 328–30, 532n4; regulation in postcrisis environment, 339–50; risks remaining in aftermath of, 349–50; toxic over-the-counter arrangements and, 221
financial intermediaries, 120
firms: governance of, 174–85; social responsibility of, 185–91
foreign exchange swaps, 297, 526n1
fossil fuel energy sources, subsidized, 198–99
fossil fuels, carbon leakage from taxation of, 202
France: consumers’ wariness of competition in, 356; deteriorating public finances of, 261; economists’ views of 2017 election in, 482; lack of entrepreneurial culture in, 417–18; public spending by, 170, 507n17; restrictions on competition in, 358–59; state reforms proposed for, 171, 173, 507nn20–21; tradition of economic planning in, 251. See also labor market in France
Freddie Mac, 334, 533nn12–13, 534n14
free rider problem: climate change and, 189, 200–203, 209, 210, 211, 213, 218, 226, 228; delegated philanthropy and, 189; intellectual property and, 432
frictions in markets, 102–3; in financial markets, 318–20
Friedman, Milton, 98, 190, 496n17, 497n33
fundamental value of financial asset, 307–8
funeral market in US, 42
game theory, 109–15, 119–21; biologists’ contributions to, 149; economic modeling and, 86; pure, 119. See also Dictator Game; prisoner’s dilemma; Ultimatum Game
general equilibrium, 102; groupthink and, 318
generosity. See altruism
globalization: competition for talent and, 53–54, 422, 492nn44–46; damage to some workers caused by, 260–61; first and second waves of, 491n40; inequality and, 52–53; labor market policies and, 232, 233
global warming: economic models of, 83–85; as example of prisoner’s dilemma, 114; Kyoto Protocol and, 21–22; migration projected in response to, 263; requiring global solution, 22; unchangeable beliefs about, 18, 485n1. See also climate change
Google, 384, 407; Android and, 388, 448, 451, 452
great moderation, 337
Greek debt crisis, 267, 282–89; bailouts and, 279, 287, 525n31; buyers of Greek bonds prior to, 313
Green Climate Fund, 226, 514n42
greenhouse gases (GHGs), 83, 157–58, 195–99. See also carbon emissions
groupthink, 318
health care: cost-benefit analysis of, 489n11; inequality in, 60–61; physician’s role in future of, 544n8; taboos on discussing economic tradeoffs in, 40
health insurance, 159–60, 401, 409–14
high-frequency trading, 313–14, 530n27
Hobbes, Thomas, 2
horizontal policies, industrial, 367
hostage-taking, ransom for, 41
housing shortages: in France, 235–36; rent controls contributing to, 26, 55–56
housing subsidies, 56
I, Daniel Blake (film), 232
identifiable victim, 22–24; condemning behavior in absence of, 46; hostage-taking and, 41; of labor market dysfunction, 23, 24, 255
immigration. See migration
import controls, 361
incentives: with counterproductive effects, 39–40, 141–43; intrinsic motivation and, 143–46; law as a set of, 147; for managers of business, 183–85; politicians and officials responding to, 155, 164; in quest for the common good, 3
incentive theory, 115
independent authorities, 1, 163–69, 459
industrial policy: economists’ skepticism toward, 367–70; guidelines for, 370–73; rationales for, 365–67; of South Korea, 370, 373, 540n22
industrial weaknesses in Europe, 374–77
inequality, 50–61; beliefs about causes of, 57–59; bonus culture and, 345; carbon pricing and, 222–26; causes of, 52–54, 57–59, 491n37; in countries less subject to market economy, 490n30; decreased between nations, 52; digitization and, 421–22, 425, 426; economic analysis of, 51–57; evaluating possible solutions for, 54–57; immigration and, 59; intergenerational, 59–60, 235–36; liberalization of trade and, 59; in a market economy, 160; measuring, 51–52, 490n34; non-financial dimensions of, 60–61; prostitution and, 45; reduced under European Union, 265; sale of kidneys and, 43; savings resulting from increase in, 338; share of production going to labor and, 52, 491n39; technological change and, 52, 491n37. See also redistribution
information: about corporate responsibility, 189; allocation by the market and, 28; insurance destroyed by, 412, 413; management of the firm and, 180, 181; in organizations, 120, 121; prices in financial markets and, 319–20; self-manipulation and, 135–37; trust and, 137–38; updating probabilities in the light of, 126. See also asymmetries of information
information technology. See digitization of society
information theory, 12, 115–18, 119–21
infrastructure, and competition, 363–64, 365, 455–56, 459, 460, 471–78
innovation: culture and institutions that facilitate, 431; economic growth and, 430–31; job creation by, 417; in response to competition, 359–60; in small startups, 443–45; SMEs in Europe and, 375. See also intellectual property; technological change
Inside Job (film), 352
insider trading, 306
insurance. See deposit insurance; health insurance; unemployment insurance
integrity, as benefit of competition, 360–61
interest rates: bubbles and, 309, 310, 336, 338, 529n21; after financial crisis of 2008, 335–39; for public debt, 316–17
interest rate swaps, 298
intermediaries, 120
internal devaluation, 270
internalities, 36, 38. See also procrastination; self-control
International Monetary Fund (IMF): Greek debt and, 283, 284, 288, 525n29; liquidity provision by, 317; purpose of, 280–81
Internet. See digitization of society; platforms, two-sided
investment banks: financial crisis of 2008 and, 322, 326, 340 (see also AIG; Bear Stearns; Lehman Brothers); functions of, 530n26; proposed separation from retail banks, 341–42
judiciary, independence of, 164, 506n8
Keynes, John Maynard, 78–79, 105, 107, 351, 426
Kyoto Protocol, 21, 114, 197, 202–3, 206–9, 225, 228
labor contracts: economic analysis of, 242–45; in France, 233, 238–39, 240–41, 517n15, 517n17; in southern European countries, 23, 24
labor market: challenges of, 231–33; reforms in Germany, 252
labor market in France, 232, 233–42; collusion between management and labor in, 248–49; employment policy and, 236–39; for entertainment workers, 247, 249–50; implementing reform of, 251–55, 519n39; judicial dismissal procedures and, 245–47; labor code and, 262–63, 420; malaise associated with, 231, 239–41; need for reform of, 241–42; perverse incentives in, 245–50; proposed reforms of, 242–45; reward-penalty system proposed for, 244, 245, 246, 249, 250, 253, 254; sector agreements and, 262–63, 376–77, 522n56; subsidized jobs in, 237–38; unemployment in, 233, 234–37, 238, 240, 241, 250–51; urgent challenges of, 261–64; vocational training system and, 255–56, 521n44. See also labor contracts
labor market in southern Europe, 232, 261; in Greece, 283; reforms in Italy and Spain, 253, 520n41; unemployment in, 232, 255–57, 326; urgent challenges of, 261–64
Laffont, Jean-Jacques, xi, 66, 116, 155–156, 455, 470
La loi du marché (film), 231
leakage problem, 21–22, 201–3, 209
Lehman Brothers, 313, 322, 326, 334, 338, 340, 346
liquidity: banks transforming maturity to, 297; information in financial markets and, 319; regulation of, 342–43
liquidity provision. See central banks
Little People, catapulting of, 44–45, 489n19
lobbies. See pressure groups; special interests
Locke, John, 2
lotteries to manage scarcity, 24, 26, 27
lump of labor fallacy, 257, 259, 482
Maastricht Treaty, 273–75, 278–79, 289, 290–92
machine learning, 107, 378, 409, 423, 425, 497n35, 541n1
macroeconomics, evolution of, 92–93
macroprudential approach, 344
manufacturing sector, 373
marginal cost, 466–67; network services and, 467, 474
the market: advantages over planned economies, 33–34, 156, 157; complementarity between the state and, 156–57, 160–63, 355–56; different countries’ beliefs about, 33; efficiency and integrity of, 157; French distrust of, 156; as instrument, not end in itself, 3, 34; managing scarcity by means of, 24; moral criticisms of, 8, 34–36; opposition to supremacy of, 1–2; public intervention in, 362–63; restriction of political power and, 1; social cohesion and, 47–50, 61
market design, 45
market failures: asymmetries of information leading to, 103, 327; categories of, 157–60; corrected by the state, 161, 170; economic policy based on, 122; financial crisis of 2008 and, 327–28; geographic limitations to correction of, 163; industrial policy and, 366, 371; moral limits of the market and, 36–40; regulation or prohibition in response to, 35–36, 170. See also externalities
market price, 25
Markov perfect equilibrium, 119
Marshall, Alfred, 105
mathematics in economics, 104–9. See also game theory; information theory; modeling in economics
maturity transformation, 297; bank runs and, 315; excessive, 331–32
medical care. See health care
medicine: contrast between economics and, 23–24; digital health care and, 409; future of, 543n8; state of knowledge in, 70
methodological individualism, 87, 123, 141, 499n1
migration: economic benefits of, 259, 263, 482, 522n51; European attitudes toward, 22; European migration crisis of 2015, 263; labor market issues and, 232; unemployment and, 258–59
minimum income, 61
minimum wage, 55, 61, 232, 256
Mitterrand, François, 165
modeling in economics, 82–85; competitive market paradigm and, 101–2; empirical tests of, 87–90; in industrial economics, 361–62; need for mathematics in, 105–8; theory and, 85–87
Modigliani-Miller hypothesis, on financial structure, 181–82
monetary policy, and financial crisis of 2008, 327, 328, 337, 532n4
monopolies: in government-regulated network industries, 355–56, 363–64, 455–59, 471; intellectual property
and, 432, 433, 437 (see also patents); lack of innovation in, 360
moral hazard: Adam Smith’s awareness of, 150; defined, 409; federalism and, 293; information theory and, 116–17, 457; insurance and, 293, 410–11, 413; regulation of network industries and, 457; securitized mortgages and, 302; sovereign borrowing and, 281; truck drivers and, 419
morality: eroded by shared responsibility, 132–33; indignation used to justify, 35, 46–47; reservations about certain markets based on, 40–47. See also ethics
moral limits of the market, 33–46
Morgenstern, Oskar, 110
multiple equilibria, 91
multitasking, 142
Nash equilibrium, 110
natural monopolies, 455. See also infrastructure, and competition
negative income tax, 422
negative interest rates, 535n21
neo-Keynesian macroeconomic models, 93
network industries: basic issues at stake in, 455–56; competition and, 358, 363–64, 455–56, 459–60, 471–72, 475, 476, 478–80; fourfold reform of, 456–60; incentives in regulation of, 460–66; independence of regulators of, 165, 459; pricing in, 466–71; public service obligations and, 478–80; regulation of network access in, 471–78. See also sector regulation
neuroeconomics, 122
“new man,” Soviet myth of, 3, 485n2
normative choices, 19
Obama, Barack, 220, 279. See also Affordable Care Act
OPEC oil cartel, 114
organ exchanges, 45
ostracism, experiments on, 135
over-the-counter transactions, 301, 340, 341, 530n26, 535n27; defined, 527n8
Paris Climate Change Conference (COP 21), 209, 210–13, 224
patent assertion entities, 453–54
patent pools, 437–41, 547n13, 547nn15–17, 548n20
patents, 432–33, 434–35; standard-essential, 441–42, 548n21
patent thickets, 435
patent trolls. See patent assertion entities
paternalism: libertarian, 134, 501n21; in means of redistribution, 479; to protect people from their own choices, 125, 158–59; for real estate loans, 330
payment cards, 382, 385, 387, 388, 391, 394, 396
peer evaluation, 96
peer-reviewed professional journals, 77–78, 97–98
perfect Bayesian equilibrium, 115, 119
personal data, 401, 403–9, 413
pharmaceutical industry, vertical business model of, 389–90
Phillips curve, 92
Pigou, Arthur Cecil, 84, 161, 185
planned economies: failure of, 33–34, 156, 157; Vichy regime in France as, 507n15
platforms, two-sided, 379; business model of, 383–85; compared to vertical business model, 390–91; compatibility between, 387–88; competition policy and, 392–400; facilitating interactions, 379, 381–82; with lag in development of two sides, 385–87; microjobs available through, 414–15; open systems in computer market and, 388–89; providing services in exchange for personal data, 407–8; as regulators, 391–92; reliability of, 401
Poincaré, Henri, 66
policy. See economic policy
politically engaged intellectuals, 73–75, 493n5
politicians: condemnation of, 30, 156, 163, 164; independent authorities in tension with, 163–69; restricted by supremacy of the market, 1
pollution: acid rain caused by, 158, 203, 205, 220; environmental taxation and, 185, 254; market failure involving, 157–58. See also carbon emissions
Popper, Karl, 81
populism: attacks on expertise and, 163, 169, 481; fears about work and, 233, 260, 264; free of difficult choices, 19; opposition to united Europe and, 285, 286, 287; rise of, 28–29, 481
postal services, 455, 456, 479, 480
poverty: beliefs about merit and, 58–59; decreased in developing countries, 52, 53, 59, 260–61; health care and, 60–61. See also inequality
predictions: by algorithms, 397, 413, 424–25, 497n35; of economists, 83, 90–91, 97, 107, 112, 350–51, 426, 497n33, 537n43; of foxes vs. hedgehogs, 104; public decision-making and, 215, 367
pressure groups, 91
price caps: for network monopolies, 458, 471, 474; for public projects, 461
price coherence, in two-sided platforms, 393–96
price comparison websites, 396–97
price competition, 357–59; elasticity of demand and, 383; online, 381–82
price-earnings ratio, 312
price regulation: for allocation of resources, 24, 25, 26; by platforms, 391. See also price caps
principal–agent theory, 115
prisoner’s dilemma, 112–14, 498n39
privatization: for the common good, 4–5; of natural monopolies, 455, 458, 464
procrastination, 124–25. See also internalities; paternalism
productivity, in response to competition, 359–60
Progresa program, 89
pro-social behavior, 127–28; demand for businesses’ commitment to, 188–89; intrinsic motivation and, 143–46; law and, 147–49; memory and, 134–35. See also altruism
protectionism: European project and, 265, 482; labor market and, 232, 260–61
prudential regulation, 321–25; complicated by asymmetries of information, 301, 314; economists’ uncertainty about, 349. See also banking regulation; Basel accords
public debt: cost to the people, 280–81; difficulty of measuring, 277–78; factors affecting sustainability of, 275–77; interest rates for, 316–17; Maastricht approach to, 278–79, 290; of US states and cities, 279–80, 281–82. See also bailouts of governments; Greek debt crisis
public good games, 500n16
public goods, 485n4; intellectual property and, 431–32
public-private partnerships, 460, 527n3
public procurement, 355, 376, 460
public utilities. See sector regulation
Puerto Rico, bankruptcy of, 279–80
quantitative easing, 337, 524n18, 535n22
railroads, 363, 459, 464, 473, 475. See also network industries
Ramsey-Boiteux rule, 468–71, 474, 550n12
randomized control trials (RCTs), 88–89
random sampling, 88, 495nn9–10
rating agencies, 347–48, 532n46; as concentrated market, 533n8; extrafinancial, 189–90, 510n23; scales used by, 528n13; securitization and, 303, 330–31
rational choice theory, 19, 122; deviations from, 103; economic modeling and, 83–84
rational expectations revolution, 496n17
Rawls, John, 2
real estate bubbles, 309, 310–12, 529n25; in The Big Short, 320; financial crisis of 2008 and, 328–30, 532n4; in poorer countries of Eurozone, 270, 272–73; sovereign debt crises and, 272. See also bubbles, financial
real estate loans: by French banks largely to solvent households, 533n5; subprime, 166–67, 187, 302, 318, 320; to US households before 2008, 328–29
real estate prices, and inequality, 54
reciprocal altruism, 130–31, 146
reciprocity, 139–40, 146, 504n46
redistribution: beliefs about causes of inequality and, 57–59; environmental policy and, 222–23; in homogeneous populations, 59; ineffective policies for, 54–57; low interest rates leading to, 336; market economy and, 160; by minimum wage, 55, 61, 256; network utilities and, 469–70, 478–80; between regions under federalism, 294–95; by tax system, 50, 51, 160, 256, 479; trade-off between growth and, 57; by universal service obligations, 478–80. See also inequality
regulation: of financial markets, 321; in response to market failure, 35–36, 170. See also banking regulation; prudential regulation; sector regulation
regulatory capture, 162, 167, 464
regulatory infrastructures, 348
religion, and economics, 150–52
remuneration: agency problem and, 313; in financial sector, 54, 184–85, 313, 314, 344–47; tenuous connection between performance and, 177
renewable energy sources, 206, 208, 212, 215, 366
rent controls, scarcity created by, 26, 55–56
rent seeking: competition and, 361; greed unchecked by institutions and, 49; by platforms, 395–96; speculation connected with, 305. See also economic rent
representative agent, 109
research and development (R&D): in corporations vs. startups, 443–45; industrial policy and, 366, 367; intellectual property and, 432
rights, behind the veil of ignorance, 4
robots, 232, 259, 378, 401, 423, 541n1
Rousseau, Jean-Jacques, 2
safe assets, excess demand for, 338–39
Samuelson, Paul, 98, 105, 107, 537n43
sector regulation, 355–56, 455–80; access to network and, 471–78; asymmetries of information and, 456–58; basic issues at stake in, 455–56; competition for the market and in the market, 459–60; fourfold reform in, 458–59; incentives in, 460–66; independence of regulatory authorities in, 165, 459; pricing in, 466–71; public service obligations and, 478–80. See also network industries
secular stagnation, 221, 338, 535n23
Securities and Exchange Commission, 321
securitized assets, 298, 301–3, 528n12; financial crisis of 2008 and, 328, 330–31, 333, 338
self-control, 38, 137. See also internalities; paternalism; procrastination,
self-employment, 414–15, 418, 420, 421
self-fulfilling prophecies, 91
self-interest: economic efficiency achieved through, 161; empathy and, 127; failure to consider, 3; harmonious allocation of resources based on, 101; at heart of market economy, 48, 49; rational choice theory and, 19, 122
self-management. See employee-run firms
shadow banking, 322, 333–34, 349–50, 534n15
Shanghai Ranking, 94
sharing economy, 381, 392; taxation and, 427–28
Sherman Antitrust Act, 362
signaling, by open source programmers, 449–50
signaling costs, in digital economy, 381
SMEs (small and medium-sized enterprises): banking regulation and, 322; dependence on banks, 183, 297, 312, 336, 374; European industrial weakness and, 374–77; rationales for industrial policy and, 366, 367; securitization of loans to, 302; threshold effects limiting growth of, 375, 540n25
Smith, Adam, 17, 48, 124, 150–51, 161, 162, 185, 189, 468
social cohesion: the market and, 47–50, 61; state’s responsibility for, 161
socially responsible investment (SRI), 175, 187–88, 191. See also corporate social responsibility (CSR)
social sciences, reunification of, 152
social welfare systems: beliefs about causes of inequality and, 58–59; ineffective redistribution and, 55; of modern state, 170, 171, 172
southern Europe: Germany’s mercantilist policy and, 269; high national debt in countries of, 273. See also labor market in southern Europe
sovereign wealth funds: commodity prices and, 537n41; invested in United States, 328
special interests, 155, 167, 168, 356–57
Stability and Growth Pact, 275, 278, 282. See also Maastricht Treaty
stagflation, 92
standards, technological, 441–43
startups, 369, 443–47; biotechnology, 368–69, 389–90
state: captured by special interests, 155; complementarity between the market and, 156–57, 160–63, 355–56; failures of, 162–63; reform of, 169–73
stock market bubbles, 309, 312
stock options, 183, 344, 509n13
strategic uncertainty, 91
students of economics, experiments on behavior of, 99–101
subprime mortgage loans, 302, 318, 320; crises precipitated by, 166–67, 187
subsidies for public services, 467–68
superstar firms with high markups, 52
supply and demand, 24–25, 45, 102, 161
sustainable development, 186–88
systemic risk, 321
taxation: beliefs about determination of wealth and, 58; digitization of work and, 427–29; Greece’s resistance to collection of, 218, 513n33; multinational corporations’ optimization of, 190, 428, 510n24, 546n33; need for reform of, 55; poverty trap in system of, 55, 492n50; redistributive, 50, 51, 160, 256, 479; value-added tax (VAT), 270, 427, 429, 479. See also carbon tax
taxi industry, 358, 360, 364, 415–17
teaser rates of interest, 299
technological change: economic growth and, 430; employee fears about, 365; fallacy of fixed quantity of work and, 259; industrial policy and, 368–69; inequality and, 52, 491n37; not leading to unemployment, 426; polarization of jobs resulting from, 423–24; political demands by workers and, 232–33; theoretical models for analyzing, 107–8. See also digitization of society; innovation
technological standards, 441–43
telecommunications: cell phones and, 358, 387; competition in, 358, 363–64, 472–73; infrastructure for, 456; monitoring quality in, 464; price paid by user of, 467, 469–70; public service obligations in, 478–79
theory in economics, 82
Titmuss, Richard, 144
Tocqueville, Alexis de, 168
tourist test, 543n18
toxic loans, to local French authorities, 298–301
tradable emissions permits, 219–21; in economic modeling, 84, 85; exchange rates in global market for, 228–29, 515n47; existing markets for, 203–4, 228, 511n11; financial transfers to poorer countries for, 515n45; under Kyoto Protocol, 207, 208, 512nn19–20; managing uncertainty in market for, 221–22, 514n40; as national choice within international agreement, 226; for pollutants causing acid rain, 220, 514n37; previous distaste for, 46; rationale for, 37–38. See also carbon pricing
trade: promoted by euro, 266. See also protectionism
trade liberalization, and inequality, 53, 59
trademark, 433
trade secret, 432
tragedy of the commons, 114, 200–201, 208, 436
Truman, Harry, 72
trust, 137–40; demanded in market economy, 48, 49; in digital economies, 401, 402–5, 418; replacing formal incentives, 143; stereotypes and, 140–41
trust game, 138–39; variant of, 146, 504n46
Tsipras, Aléxis, 282
Two-pack, 291
two-sided markets. See platforms, two-sided
Uber, 415–17; driver’s commission in, 395; employment status of drivers for, 420–21; information for customer and, 392, 418; taxi market and, 358, 360, 364, 415–17
Ultimatum Game, 131
unbundling, of patent licenses, 440–41
unemployment: in France, 233, 234–37, 238, 240, 241, 250–51; labor market reform and, 251–52; long-term, 234, 236; minimum wage and, 61; not produced by technological progress, 426; reducing working hours and, 257–60; relative rates of, in European and English-speaking countries, 232, 234; in southern Europe, 232, 255–57, 326
unemployment insurance: redistributive impact of federalist approach to, 293; cost of a layoff and, 185
universal income, 422
value, created by the firm, 185–86
value-added tax (VAT): fiscal devaluation using, 269–70; on French labor, 427; on online purchases, 429; redistribution and, 479
Veblen, Thorstein, 150
veil of ignorance, 2–4; inequality and, 160; trolley problem and, 41
venture capitalists, 120, 183, 445–47, 450
vertical business model, 389–90
videogames, 379, 382, 383, 385–86, 387
von Neumann, John, 110
voting: market failure associated with, 38; self-image and, 128, 130
WTO: China’s accession to, 359; in enforcement of climate agreements, 227, 229
Zero Lower Bound (ZLB), 337