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This collection of papers is dedicated to Mordecai Kurz — our friend, mentor, and colleague. They are to mark our appreciation of his contributions to economic science, from which we have all benefited enormously. A conference in his honor took place on August 2–3, 2002, co-hosted by the Stanford University Department of Economics, the Stanford Institute of Economic Policy Research, and Springer-Verlag. At this conference a selection of these papers was presented, along with some more recent work by several of the same authors and by other invitees.

We are interested in three related questions: (1) How should accounting prices be estimated? (2) How should we evaluate policy change in an imperfect economy? (3) How can we check whether intergenerational well-being will be sustained along a projected economic programme? We do not presume that the economy is convex, nor do we assume that the government optimizes on behalf of its citizens. We show that the same set of accounting prices should be used both for policy evaluation and for assessing whether or not intergenerational welfare along a given economic path will be sustained. We also show that a comprehensive measure of wealth, computed in terms of the accounting prices, can be used as an index for problems (2) and (3) above. The remainder of the paper is concerned with rules for estimating the accounting prices of several specific environmental natural resources, transacted in a few well known economic institutions.

The transition in Eastern Europe from a planned and governmentally-owned economy to a free market system has been discussed primarily in terms of the transfer of ownership of existing firms and productive assets from the government sector to private hands. It appears to me that this process of privatization has proceeded more rapidly that is optimal and has eclipsed an alternative process of private capital acquisition and creation, namely through entry. The process of privatization implies retention of the capital structure and, to some extent at least, of the organizational structure of the previous regime.

In 2001, the World Health Organization (WHO) recommended that countries use artemisinin-based combination therapies (ACTs) to treat malaria patients ( 1 ), as continued use of artemisinin monotherapies and substandard drugs had the potential to lead to widespread resistance to artemisinin, the most effective drug for malaria. But ACTs were unaffordable for most people in malaria-endemic countries, particularly in the private for-profit sector where most people seek treatment. Artemisinin monotherapies and the threat of resistance remain a problem. Resistance has now emerged in Cambodia and is spreading to Myanmar and Vietnam ( 2 ). Despite WHO's efforts, monotherapies are produced by 37 pharmaceutical companies and marketed in 29 countries ( 3 ). Although resistance to artemisinin had not been detected at the time of the Institute of Medicine (IOM) report in 2004 ( 4 ), an IOM committee proposed a global subsidy high in the distribution chain, both to make ACTs inexpensive and to displace artemisinin monotherapy and other ineffective drugs.

On June 12, 2012, Elinor Awan Ostrom died of pancreatic cancer after an illness of about 6 months. Lin Ostrom, one of the few political scientists to win the Nobel Prize in Economic Sciences, showed that solutions to common resource problems worked out by individuals directly involved are often more successful and enduring than regimens imposed by central political authorities. Under specified conditions, common resources—forests, fisheries, oil fields, or grazing lands—can be managed successfully by the people who use them. She showed creatively and rigorously that participatory decision-making can work: as she said the day her Nobel Prize was announced, “What we have ignored is what citizens can do and the importance of real involvement of the people involved.” Ostrom’s pioneering work influenced and inspired researchers across many fields, and she has scores of disciples around the world, including innumerable young people who she touched with her work or personally. She loved to welcome visitors, but especially young scientists, into her Indiana workshop and made each one feel special.

I intend to make here some reflections on the role of the state in the government of the economy. More specifically, I want to draw the implications of the fact that knowledge in the economy is very widely dispersed. Neither the state nor any other entity has ready access to any more than a small portion of the myriad of facts, generalizations, and judgements, explicit and implicit, which are known somewhere in the economic system and affect its outcome. This perception is classic among economists, as seen in Adam Smith, if not before. In recent times, there is a prevailing consensus that the government is in a poor position to make economic decisions since its knowledge is such a small part of that scattered through the economy, a position especially associated with the name of Friedrich von Hayek (1945). This view is manifested in practice in the strong current trend towards privatization and towards deregulation even of natural monopolies. I want to re-examine the argument and show that the inference from dispersed information to absence of government intervention is valid only for some cases but not for others. The generalizations common in current rhetoric are too sweeping.

As we understand it, the D.C. Circuit did not allow the EPA to consider the costs of complying with ozone and PM NAAQS. As we further understand it, this legal ruling can be overturned only by this Court. As economists, we believe that the D.C. Circuit's ruling not allowing the EPA to consider important information relating to the consequences of its regulatory actions is economically unsound. Without delving into the legal aspects of the case, we present below why we think the Court should allow the EPA to consider costs in setting standards. In particular, we believe that, as a general principle, regulators should be allowed to consider explicitly the full consequences of their regulatory decisions. These consequences include the regulation's benefits, costs, and any other relevant factors.

Energy, food, and water crises; climate disruption; declining fisheries; increasing ocean acidification; emerging diseases; and increasing antibiotic resistance are examples of serious, intertwined global-scale challenges spawned by the accelerating scale of human activity. They are outpacing the development of institutions to deal with them and their many interactive effects. The core of the problem is inducing cooperation in situations where individuals and nations will collectively gain if all cooperate, but each faces the temptation to take a free ride on the cooperation of others. The nation-state achieves cooperation by the exercise of sovereign power within its boundaries. The difficulty to date is that transnational institutions provide, at best, only partial solutions, and implementation of even these solutions can be undermined by internation competition and recalcitrance.

Le but de cette communication, presentee a l'Universite catholique du Sacre Cœur a Milan en avril 1994, est d'examiner, dans un premier temps, le role de l'information en tant que produit economique -l'information est en effet rare pour l'individu et la societe consideree comme un tout : elle n'est pas accessible gratuitement, voire pas accessible du tout ; elle a donc un cout et une valeur- et dans un deuxieme temps, l'identite des entreprises comme lieux de connaissance et de revendications de la richesse. L'information, une fois creee, n'est pas rare au sens economique du terme. Son principal probleme sera celui de sa propriete, de par sa large diffusion. L'A. souleve les problemes de definition des entreprises en droit et en theorie economique par rapport a l'information, son acquisition et sa propriete

The importance of the correct choice of discount rate for social (or indeed individual) investments hardly needs elaboration. In the social context, the discount rate is, at least in part, an expression of concerns about equity between the present and future generations and among future generations. I say, in part, because it also expresses both an expectation of the rates of return available to future generations in alternative uses of capital and an expectation of the growth of income of the representative individual.

Preface Introduction 1. The nonprofit mission and its financing: growing links between nonprofits and the rest of the economy Burton A. Weisbrod Part I. Basic Issues and Perspective: 2. Competition, commercialization, and the evolution of nonprofit organizational structures Howard P. Tuckman 3. Modeling the nonprofit organization as a multi-product firm: a framework for choice Burton A. Weisbrod 4. Pricing and rationing nonprofit organizations with distributional objectives Richard Steinberg and Burton A. Weisbrod 5. Differential taxation of nonprofits and the commercialization of nonprofit revenues Joseph J. Cordes and Burton A. Weisbrod 6. Interdependence of commercial and donative revenues Lewis M. Segal and Burton A. Weisbrod 7. Conversion from nonprofit to for-profit legal status: why does it happen and should anyone care? John H. Goddeeris and Burton A. Weisbrod Part II. Industry Studies: 8. Commercialism in nonprofit hospitals Frank A. Sloan 9. Universities as creators and retailers of intellectual property: life sciences research and economic development Walter W. Powell and Jason Owen-Smith 10. Commercialism in nonprofit social service associations: its character, significance, and rationale Dennis R. Young 11. Zoos and aquariums Louis Cain and Dennis Meritt, Jr 12. Commerce and the muse: are art museums becoming commercial? Helmut K. Anheier and Stefan Toepler 13. The funding perils of the corporation for public broadcasting Craig L. LaMay and Burton A. Weisbrod Part III. Concluding Remarks: 14. Commercialism among nonprofits: objectives, opportunities and constraints Estelle James 15. Conclusions and public policy issues: commercialism and the road ahead Burton A. Weisbrod References.

Acknowledgements - Preface - Introduction - PART 1: SPECIALIZATION, ORGANIZATION AND GROWTH: NEW CLASSICAL ECONOMICS - Specialization and Division of Labour: a Survey X.Yang & S.Ng - Comments J.M.Buchanan - Comments J.Borland - Specialisation and the Emergence and the Value of Money W.Cheng - Productivity, Investment in Infrastructure and Population Size: Formalizing the Theory of Ester Boserup C.Y.C.Chu & Y-C.Tsai - The Inframarginal Analysis of Demand and Supply and the Relationship between a Minimum Level of Consumption and the Division of Labour M.Lio - Economies of Specialization and Trade S.Ng - Centralized Hierarchy within a Firm and Decentralized Hierarchy in the Market H.Shi & X.Yang - An Analytical Framework of Consumer-producers, Economies of Specialization and Transaction Costs M.Wen - An Extended Ethier Model with the Tradeoff between Economies of Scale and Transaction Costs K-y.Wong & X.Yang - Policy Analysis in a Dynamic Model with Endogenous Specialization J.Zhang PART 2: ECONOMIES OF SCALE AND MONOPOLISTIC COMPETITION - Increasing Returns, Constant Returns and Micro-Macro Economics R.Marris - Non-neutrality of Money under Non-perfect Competition: Why do Economists fail to see the Possibility? Y-K.Ng - Comments R.Marris - A Dynamic Model of Monopolistic Competition with Trade Externalities and Fiscal Policy K.N.Cheung - Comments C-S.Hwang - Industrialisation Policy and the Big Push J.Gans - Comments P.A.Trostel - Economies of Scale and Imperfect Competition in an Applied General Equilibrium Model of the Australian Economy K.A-Silva & M.Horridge - Comments P.B.Dixon - Variety, Spillovers and Market Structure in a Model of Endogenous Technological Change P.F.Peretto - Pursuit of Relative Conspicuous Consumption in Monopolistic Competition J.Wang & Y-K.Ng - Economic Fluctuations and Non-neutrality of Money based upon Imperfect Competition X.Yin - PART 3: INFORMATION, TRADE, AND RESOURCES - Innovation and Increasing Returns to Scale K.J.Arrow - Variable Returns to Scale and Factor Price Equalization M.Kemp, M.Okawa & M.Tawada - The Stolper-Samuelson Theorem in Models with Economies of Scale P.J.Lloyd & A.G.Schweinberger - Comments P.M.Sgro - Variable Returns to Scale, Resources and Population J.Pitchford - Index

There has been a long tradition, going back to Adam Smith (1776), that technological progress is somehow intrinsically associated with increasing Retums. In more recent times, this connection has been emphasized by Young (1928), Nicholas Kaldor (1957), and, still more recently, by Arrow (1962), Shell (1966), and Romer (1990). There is, however, more than one interpretation of the relation.

Standard economic theory is only apparently institution-free. More importantly, the failures of the theory serve as a fruitful way to examine the need for institutions and explain why they emerge. It is, however, less useful, but not entirely useless, in analyzing which institutions will emerge.1

This note discusses the analytic tools available for studying the interrelations between the economy and the ecological system. It points out the importance of the concept of cooperative games as an addition to the emphasis on non-cooperative games in both economics and ecology. The relation between both concepts of the games and the market system is discussed.

Social choice theory was intended to provide a rational framework for decisions that, for whatever reason, have to be made collectively. The paradigmatic example was election of officials, but this was intended only to exemplify the issue. Indeed, the real purpose was to analyze policy decisions. A candidate was thought of primarily as an embodiment of policies.

December 26, 1996

Where the theorist can be helpful is in sorting out the logical coherence of different kinds of assumptions. Typically, economic theory states the resource and technological limitations constraining the economy as a whole and individual agents within the economy, and postulates that the agents act rationally within these constraints. The constraints on individual agents derive in part from the constraints of the economy as a whole but in even greater measure from the very actions of other agents. The prices which an individual agent faces in his or her decisions are determined in one way or another by the aggregate choices of all the other agents.

From 1948 until the present, the UN has engaged in 26 peace-keeping operations. The total cost over that period has been about $8.3 billion (current). In 1992 there were 12 operations under way, for an annual cost of about $2.6 billion.1 This is less than 1 per cent of US military expenditure and probably less than 0.2 per cent of world military expenditure, so it is a trivial fraction of world income. Nevertheless, raising the finances for this operation is not entirely a trivial matter; uncollected contributions from member states equal more than $735 million.

This paper considers some of the implications and deficiencies of general competitive equilibrium theory for understanding levels of and changes in the distributions of earnings and income. Although leisure is a consumer good, and therefore a component of income, little is made of this notion in analyzing earnings distributions. Increased income inequality during recessions suggests that lower-income earners are more likely laid off or fired. Yet the explanation — seemingly in hiring and firing costs — suggests a major role for transaction costs, prominently absent from standard equilibrium theory. Explanation of the very wide distribution of income leads almost inevitably to dynamic theories; yet dynamic choices and processes seem to be under-represented in the literature.

This chapter takes up the range of proposed reforms of the economy receiving attention in the Soviet Union. The chapter is divided into three sections: the first a commentary on the reform discussion (with brief summaries of the leading written plans), the second an attempt to project the broad direction that any adopted program is likely to take with some indication of its possible weaknesses, and the third our suggestions at those points where in our view the program of reform will need strengthening or additional thinking to increase the likelihood that it will come near to achieving its goals.

Insurance is an item of considerable importance in the economies of advanced nations, yet it is fair to say that economic theorists have had little to say about it, and insurance theory has developed with virtually no reference to the basic economic concepts of utility and productivity. Insurance is not a material good; although it is usually classified as a service, its value to the buyer is clearly different in kind from the satisfaction of consumers’ desires for medical treatment or transportation. Indeed, unlike goods and services, transactions involving insurance are an exchange of money for money, not money for something which directly meets needs. The closest analog in ordinary economic theory to an insurance policy is a bond or note, an exchange of money now for money later. But an insurance is a more subtle kind of contract; it is an exchange of money now for money payable contingent on the occurrence of certain events.

[In this paper, Kenneth Arrow provides a general framework for analysis by economists of the forces lying behind the deescalation and escalation of military expenditures. On the basis of his long experience and leadership in the development of economic theory, he addresses the question: what are the ways suggested by such theory for estimating the economic effects of a major reduction of current arms expenditure, particularly with reference to the United States? (eds.)]