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In this paper, we adopt a Ramsey optimal approach to identify the combination of income taxes, public expenditure, and inflation designed to achieve a fiscal consolidation. In contrast with empirical contributions that emphasize the benefits of expenditure-based consolidations, the optimal policy calls for increases in taxes and inflation. Strong monetary accommodation is quite beneficial relative to a situation where the Central Bank is only concerned with inflation stability and the inflation target is defined as a ceiling, as in the Eurozone.

What determines the price of a pop concert or an opera? Why does Hollywood dominate the film industry? Does illegal downloading damage the record industry? Does free entry to museums bring in more visitors? In A Textbook of Cultural Economics, one of the world's leading cultural economists shows how we can use the theories and methods of economics to answer these and a host of other questions concerning the arts (performing arts, visual arts and literature), heritage (museums and built heritage) and creative industries (the music, publishing and film industries, broadcasting). Using international examples and covering the most up-to-date research, the book does not assume a prior knowledge of economics. It is ideally suited for students taking a course on the economics of the arts as part of an arts administration, business, management, or economics degree.

In this chapter we outline how synthetic networked environments such as multiplayer online games and virtual social worlds have recently been deployed as experimental platforms by behavioural economists. We rst provide the background to behavioural economics before describing the rationale behind their use of virtual worlds for experimentation.We then develop a typology of virtual economic experiments from a survey of the main ways in which behavioural economists have used virtual worlds to conduct studies. We close with an assessment of this burgeoning area.

It is fashionable to speak of trades unions in the UK as organisations in decline. However, it is their organisation and, in particular, their financial status, which ultimately dictates unions' ability to survive, recruit, and influence employers. This book provides the first systematic picture of union financial status for thirty years, and reveals a dramatic picture. Though, overall, unions have become financially less healthy in the post-war period, many unions experienced an improved financial position during the membership contraction of the Thatcher years. It also shows that the long term financial decline of unions has been more affected by competition between unions for membership than by the effects of traumatic industrial disputes.

Ecosystem services-based approaches have been applied to decisions about trade-offs between alternative uses of land (RaudseppHearne et al. 2010; Maes et al. 2012; Bryan & Crossman 2013; Geneletti 2013; Seppelt et al. 2013), but have been used less commonly to assess trade-offs in alternative uses of water (Schluter et al. 2009; Rouquette et al. 2011; Liu et al. 2013). In this chapter we provide an overview of a case study into quantifying the ecosystem services and associated benefits (and their monetary values) of a new water-sharing plan that will return water to the environment in the Murray-Darling Basin, Australia. This serves as an illustration of how to operationalize an ecosystem services-based approach, as defined in this book. Chapter 2 in this book emphasizes that there is a gap between the conceptualization and endorsement of ecosystem services by both researchers and policy makers and the incorporation of ecosystem services-based approaches into natural resources management practice. The present chapter demonstrates the operationalization of an ecosystem services-based approach in the context of water resource planning and management. We estimate the changes to a range of final ecosystem services (Boyd & Banzhaf 2007; Kumar 2010) that result from the implementation of a discrete policy scenario, and provide economic estimates for the associated benefits. Our work contributes to the still scarce literature on real-world examples of integrating empirical data on the biophysical supply of ecosystem services with their socio-cultural context and monetary valuation to inform investment decisions (Martin-Loopez et al. 2014; see also Mulligan et al., this book). The Murray-Darling Basin contains iconic and internationally important wetlands and is Australia’s major food-producing area. In terms of gross value, about 40% of Australia’s agriculture and 50% of irrigated agriculture is produced in the Basin (Australian Bureau of Statistics 2013). However, the dominance of food production has come at the expense of other ecosystem services provided by land and water resources in the Basin, primarily due to the decline in health of river, wetland, and floodplain ecosystems (Kingsford 2000; Kingsford et al. 2011).

This paper investigates whether since the 1980s neoclassical economics has been in the process of being supplanted as the dominant research programme in economics by a collection of competing research approaches which share relatively little in common with each other or with neoclassical economics. A shortlist of the new approaches in recent economics includes game theory, experimental economics, behavioral economics, evolutionary economics, neuroeconomics, and non-linear complexity theory. Two hypotheses are advanced – one regarding the relation between economics instruction and economics research and one regarding the nature of the economics research frontier – to describe social-institutional practices that contribute to the replication of economics as a field. Two further hypotheses are advanced – one regarding the boundaries of the field and one regarding how the field appraises itself – to create a historical–methodological framework for evaluating the question of change in economics and change in recent economics in particular. Finally, the paper distinguishes three leading explanations – the ‘breakdown’ view, the ‘takeover’ view, and the ‘maturity’ view – of why neoclassical economics no longer dominates a mainstream economics.

Students who aspire to become economists, may think that all they need to do is learn the techniques, do the exams, and get on with it. How naive students can be. In this chapter I reveal to them what it takes to become an academic economist, that is, an economist at a university. For, so I would warn them, it makes a world of difference whether they want to work inside or outside academia. How so, they will find out shortly. The inside view that I am about to provide of the world of scientific economists may also be clarifying for those who are looking at it from the outside. Just like visiting a foreign country, the outsider is likely to be puzzled, if not dumbfounded when finding out what academic economists actually do each day. We say that we are busy so what are we doing when we teach only a few hours a week? When they visit us in our university departments they may catch us chatting a great deal, if they catch us at all as most of the time we are absent, working at home or attending a conference at some resort. And when they prod us with urgent economic questions (“where is the dollar heading?” and “what should governments do to get out of the crisis?”) they may scratch their head because of the evasiveness and the variety of the answers they get – if we bother to give the answers as we may be too preoccupied with our research.

What Are the Objects of Interest? We have seen earlier that various approaches can be used to describe household behavior, from the unitary setting to noncooperative approaches and the collective model. Ultimately, the choice among these various frameworks will rely on particular considerations. First, general methodologic principles may favor one approach over the others. For instance, one can argue that the unitary framework is not totally faithful to methodologic individualism, a cornerstone of micro theory that postulates that individuals, not groups, are the ultimate decision makers. A second requirement is the model's ability to generate testable predictions for observable behavior that can be taken to data using standard techniques. Standard consumer theory fares pretty well in this respect. Utility maximization under a linear budget constraint yields strong predictions (e.g., adding-up, homogeneity, Slutsky symmetry, and negative semidefiniteness and income pooling), and adequate methodologies have been developed for testing these properties. Finally, a crucial criterion is the fruitfulness of the approach, particularly in terms of normative analysis and policy recommendations. A remarkable feature of standard consumer theory is that individual preferences can be uniquely recovered from demand functions (if these satisfy the Slutsky conditions); it is therefore possible to analyze welfare issues from the sole knowledge of observed behavior. This is a particular case of the general requirement that the model be identifiable , that is, that it should be possible to recover the underlying structure from observed behavior. The first line of argument, concerning methodologic individualism, was evoked earlier. In this chapter we concentrate on the remaining two aspects, namely, testability and identifiability of preferences and processes from observed behavior. Most of the existing knowledge for nonunitary models concerns the cooperative framework and especially the collective model. The testability requirement per se is not problematic. The idea that a model should generate predictions that can be taken to data belongs to the foundations of economics (or any other science!).

Market design seeks to offer practical solutions to various resource allocation problems. Still at its relative infancy, the field has already enjoyed impressive successes in applying economics tools and insights to improve the methods for allocating government resources such as radio spectra, for organizing professional labor markets such as those for medical interns and residents, for assigning students to public schools, and for exchanging kidney donors with medical incompatibilities among transplant patients.

It has been almost half a century since David Gale and Lloyd Shapley published their pathbreaking paper “College admissions and the stability of marriage” in American Mathematical Monthly . It is hard to know whether Gale and Shapley expected the literature they initiated to be used to improve lives of masses of people all around the world. We are very fortunate to see that this is happening today. The model Gale and Shapley presented is very simple. A number of boys and girls have preferences for each other and would like to be matched. The question Gale and Shapley were especially interested in was whether there is a “stable” way to match each boy with a girl so that no unmatched pair can later find out that they can both do better by matching each other. They found that there indeed is such a stable matching, and they presented a deferred acceptance algorithm that achieves this objective. Versions of this algorithm are used today to match hospitals with residents and students with public schools in New York City and Boston. In 1974, Lloyd Shapley and Herbert Scarf published a somewhat related paper, “On Cores and Indivisibility,” in the first issue of the Journal of Mathematical Economics . Their model was arguably the simplest exchange economy one could think of. Each agent comes to the market with one indivisible good and seeks to trade it for possibly more preferred ones that might be brought by other agents. In their simple model agents are restricted to consume only one good. They were interested in whether a core allocation exists in their model. They showed that there indeed

Outsourcing Economics has a double meaning. First, it is a book about the economics of outsourcing. Second, it examines the way that economists have understood globalization as a pure market phenomenon, and as a result have 'outsourced' the explanation of world economic forces to other disciplines. Markets are embedded in a set of institutions - labor, government, corporate, civil society, and household - that mold the power asymmetries that influence the distribution of the gains from globalization. In this book, William Milberg and Deborah Winkler propose an institutional theory of trade and development starting with the growth of global value chains - international networks of production that have restructured the global economy and its governance over the past twenty-five years. They find that offshoring leads to greater economic insecurity in industrialized countries that lack institutions supporting workers. They also find that offshoring allows firms to reduce domestic investment and focus on finance and short-run stock movements.

INTRODUCTION Relationships: Two Illustrations Each year, about $60 billion dollars worth of diamond jewelry is sold worldwide. Over the course of its journey from mine to warbrobe, a diamond typically passes through numerous intermediaries in search of just the right buyer. Because diamonds are easy to conceal, difficult to distinguish, portable and valuable, there are many opportunities to cheat on diamond deals. One would accordingly expect them to be handled with the utmost care. To the contrary, virtually no care at all is taken: Once gems leave the vault-like workshops, they do so in folded sheets of tissue paper, in the pockets of messengers, dealers and traders. They are not logged in and out … or marked to prevent substitution. They are protected from embezzling only by the character of those who transport. … On that slender record, gems worth thousands of dollars traverse the street and are distributed among buyers from Bombay to Buenos Aries, Pawtucket and Dubuque. In Puccini's opera Gianni Schicchi , the deceased Buoso Donati has left his estate to a monastery, much to the consternation of his family. Before others learn of the death, Donati's relatives hire the actor Gianni Schicchi, who is to impersonate Buoso Donati, write a new will leaving the fortune to the family, and then feign death. Anxious that Schicchi do nothing to expose the plot, the family explains that there are severe penalties for tampering with a will and that any misstep puts Schicchi at risk.

This paper discusses the use of bounded rationality in industrial organization. There is a long tradition of such work: Literatures from various decades have discussed irrationalities by firms and consumers. Three main approaches are found in the recent literature: Rule-of-thumb papers specify simple rules for behavior; explicit bounds papers consider agents who maximize payoffs net of cognitive costs; the psychology and economics approach typically cites experimental evidence to motivate utility-like framworks. Common to each recent literature is a focus on consumer irrationalities that firms might exploit. I discuss several new topics that have been opened up by the consideration of bounded rationality and new perspectives that have been provided on traditional topics. INTRODUCTION In the last few years there has been a surge of interest in bounded rationality in industrial organization. The field has attracted the attention of a remarkable collection of top young researchers from industrial organization and behavioral economics. Much of the recent interest has been spurred by developments in psychology and economics, but there is also a long-standing tradition of such work in industrial organization. Although the field is not yet as coherent and advanced as most fields surveyed at an Econometric Society World Congress, the fact that diverse strands of research and diverse researchers are coming together seemed to me to make it a topic for which a discussion could be useful. The terms “boundedly rational” and “behavioral” have been used by different groups of economists over the years to describe different styles of work.

Economics is about the allocation of resources. In the modern industrialized world, most goods and services are allocated through transactions, which in turn are mostly purchases and taxes. Goods are largely the outputs of early modern economies, while services – particularly labor services – are more typically the inputs. To understand how an economy works, we need to consider how inputs are directed to provide the outputs that people desire. There also are economic analyses of marriages and families, seeing marriage itself, fertility choice, and the raising of children as decisions that affect the allocation of resources. Ancient economies clearly differed from modern ones, but the principles of economics still hold true, and economics can bring clarity to the analysis of how resources were allocated in the ancient world. I make this case in several steps. First, I describe the concepts of a market and of institutional economics. Second, I separate supply and demand and discuss the nature of economic incentives and equilibrium to show that economics may be useful even in the absence of market activity. Third, I introduce the concept of comparative advantage to explain trade. Fourth, I discuss possible economic growth as well as catastrophes like plagues. Fifth, I turn to money and prices. Sixth, I discuss the nature of information that can be used to test hypotheses about all these topics. The last two topics are discussed on this volume's web site.