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This chapter offers a eulogy for Leonid Hurwicz, who was a transforming figure in modern economic theory. His early theory has found more resonance today among some game theorists, under the name of “algorithmic game theory.” In 1972, Hurwicz restated the problem of choice in decentralized systems. He added the important condition of incentive compatibility to the criteria for a suitable allocation system with decentralized information. He also emphasized the game-theoretic formulation, now as a matter of design. Important as Hurwicz’s work on allocation mechanisms was, it was far from exhausting his contributions to economics. The chapter is augmented by a postscript, a tribute from 1977 when Hurwicz was elected a Distinguished Fellow of the American Economic Association.

Do information differences across U.S. physicians contribute to treatment disparities? This paper uses a unique new dataset to evaluate how changes in physician access to a decision-relevant drug database affect prescribing decisions. Our results indicate that doctors using the reference have a significantly greater propensity to prescribe generic drugs, are faster to begin prescribing new generics, and prescribe a more diverse set of products. Notably, physicians using the reference database are not faster to prescribe new branded drugs. Given that a new generic drug resembles its branded equivalent clinically, these results are consistent with database users responding primarily to the increased accessibility of non-clinical information such as drug price and insurance formulary data; the results also suggest improvements to physician information access have important aggregate implications for the costs and efficiency of medical care. We address possible selection effects in physician types by relying on within-doctor variation and an instrument for adoption timing that is based on the marketing strategy of the drug reference firm.

Despite solid evidence from the scientific community about climate disruption, much of the US public remains unconvinced about the reality of anthropogenic change, and national governments have been slow to undertake major steps to deal with the climate crisis. In order to understand this lack of foresight intelligence regarding climate disruption, we identify some features of climate disruption and human psychology that combine to create barriers to effective action. We also review encouraging, albeit modest, successes in persuading Americans to conserve energy through “psych-wise” initiatives. Although the reductions in energy consumption accomplished by these initiatives and strategies fall far short of what is required to address impending global climate change, we believe that the principles underlying these initiatives suggest ways to achieve more substantial reductions. We conclude by offering some specific steps that could be taken to achieve such reductions and more generally meet the building global challenge.

The economic theory underlying the dynamic systems studied tended to emphasize amplitude-reducing behavior. The multiplicity of solutions is itself an embarrassment, since it suggests that economic theory, even if accurate, does not yield a unique pattern of dynamic behavior and hence its predictions are far from sharp. The general perspective of mainstream economic theory has certainly had some empirical successes. The presence and persistence of cyclical fluctuations in the economy as a whole of irregular timing and amplitude are not consistent with a view that an economy tends to return to equilibrium states after any disturbance. The empirical tools of nonlinear dynamics analysis were applied to several economic time series by W. Brock. There are many more aspects of recent work in natural sciences which have potential analogies in economics: self-organizing systems, the building and erosion of links in network formation, possibilities of nucleation.

* Foreward P.W. Anderson, Kenneth J. Arrow, and David Pines * Introduction and Overview David Pines Lectures And Perspectives * Self-Reinforcing Mechanisms in Economics W. Brian Arthur * Neural Nets for Economists Eric B. Baum * Persistent Oscillations and Chaos in Economic Models: Notes for a Survey Michele Boldrin * Nonlinearity and Complex Dynamics in Economics and Finance William A. Brock * Can New Approaches to Nonlinear Modeling Improve Economic Forecasts? J. Doyne Farmer and John J. Sidorowich * The Global Economy as an Adaptive Process John H. Holland * The Evolution of Economic Webs Stuart A. Kauffman * Computation and Multiplicity of Economic Equilibria Timothy J. Kehoe * A Simple Model for Dynamics away from Attractors Norman Packard * Statistical Mechanics Approaches to Complex Optimization Problems Richard Palmer * Can Nonlinear Dynamics Help Economists? David Ruelle * Rational Expectations, Game Theory and Inflationary Inertia Mario Henrique Simonsen Working Group Summaries * Working Group A: Techniques and Webs J. Guenther, J. Holland, S. Kauffman, T. Kehoe, T. Sargent, and E. Singer * Working Group B: Economic Cycles K. Arrow, W. Brock D. Farmer, D. Pines, D. Ruelle, J. Scheinkman, M. Simonsen, and L. Summers * Working Group C: Patterns P.W. Anderson, W.B. Arthur, E. Baum, M. Boldrin, N. Packard, J. Scheinkman, and L. Summers Final Plenary Discussion * Final Plenary Discussion Richard Palmer Summaries And Perspectives * A Physicist Looks at Economics: An Overview of the Workshop P.W. Anderson * Workshop on the Economy as an Evolving Complex System: Summary Kenneth J. Arrow Research Papers * Learning-By-Doing, International Trade and Growth: A Note Michele Boldrin and Jose A. Sheinkman * Lyapunov Exponents for Stock Returns J.-P. Eckmann, S. Oliffson Kamphorst, D. Ruelle and J. Scheinkman

Aquaculture is the fastest growing food sector and continues to expand alongside terrestrial crop and livestock production. Using portfolio theory as a conceptual framework, we explore how current interconnections between the aquaculture, crop, livestock, and fisheries sectors act as an impediment to, or an opportunity for, enhanced resilience in the global food system given increased resource scarcity and climate change. Aquaculture can potentially enhance resilience through improved resource use efficiencies and increased diversification of farmed species, locales of production, and feeding strategies. However, aquaculture’s reliance on terrestrial crops and wild fish for feeds, its dependence on freshwater and land for culture sites, and its broad array of environmental impacts diminishes its ability to add resilience. Feeds for livestock and farmed fish that are fed rely largely on the same crops, although the fraction destined for aquaculture is presently small (∼4%). As demand for high-value fed aquaculture products grows, competition for these crops will also rise, as will the demand for wild fish as feed inputs. Many of these crops and forage fish are also consumed directly by humans and provide essential nutrition for low-income households. Their rising use in aquafeeds has the potential to increase price levels and volatility, worsening food insecurity among the most vulnerable populations. Although the diversification of global food production systems that includes aquaculture offers promise for enhanced resilience, such promise will not be realized if government policies fail to provide adequate incentives for resource efficiency, equity, and environmental protection.

Lotteries with infinite expected utility are inconsistent with the axioms of expected utility theory. To rule them out, either the set of permissible lotteries must be restricted (to exclude, at a minimum, “fat-tailed” distributions such as that underlying the St. Petersburg Paradox and power laws that are popular in models of climate change), or the utility function must be bounded. This note explores the second approach and proposes a number of tractable specifications leading to utility functions that are bounded both from above and below. This property is intimately related to that of increasing relative risk aversion as first hypothesized by Arrow (1965).

At a workshop held at Resources for the Future in September 2011, twelve of the authors were asked by the US Environmental Protection Agency (EPA) to provide advice on the principles to be used in discounting the benefits and costs of projects that affect future generations. Maureen L. Cropper chaired the workshop. Much of the discussion in this article is based on the authors' recommendations and advice presented at the workshop.

Should governments use a discount rate that declines over time when evaluating the future benefits and costs of public projects? The argument for using a declining discount rate (DDR) is simple: if the discount rates that will be applied in the future are uncertain but positively correlated, and if the analyst can assign probabilities to these discount rates, then the result will be a declining schedule of certainty-equivalent discount rates. There is a growing empirical literature that estimates models of long-term interest rates and uses them to forecast the DDR schedule. However, this literature has been criticized because it lacks a connection to the theory of project evaluation. In benefit-cost analysis, the net benefits of a project in year t (in consumption units) are discounted to the present at the rate at which society would trade consumption in year t for consumption in the present. With simplifying assumptions, this leads to the Ramsey discounting formula, which results in a declining certainty-equivalent discount rate if the rate of growth in consumption is uncertain and if shocks to consumption are correlated over time. We conclude that the arguments in favor of a DDR are compelling and thus merit serious consideration by regulatory agencies in the United States. (JEL: D61)

The June 2012 issue of Environment and Development Economics published a symposium with considerable focus on our paper, ‘Sustainability and the measurement of wealth’. The Symposium also contained five articles in which other researchers offered valuable comments on our paper. The present note replies to those comments. It clarifies important issues and reveals how important questions relating to sustainability analysis can be fruitfully addressed within our framework. These include questions about the treatment of time, the use of shadow prices and the treatment of transnational externalities. This note also offers new theoretical results that help substantiate our earlier empirical finding that the value of human health is something very different from the value of the consumption permitted by health and survival.

We develop and apply a consistent and comprehensive theoretical framework for assessing whether economic growth is compatible with sustaining wellbeing over time. Our approach differs from earlier approaches by concentrating on wealth rather than income. Sustainability is demonstrated by showing that a properly defined comprehensive measure of wealth is maintained through time. Our wealth measure is unusually comprehensive, capturing not only reproducible and human capital but also natural capital, health improvements and technological change. We apply the framework to five countries: the United States, China, Brazil, India and Venezuela. We show that the often-neglected contributors to wealth – technological change, natural capital and health capital – fundamentally affect the conclusions one draws about whether given nations are achieving sustainability. Indeed, even countries that display sustainability differ considerably in the kinds of capital that contribute to it.

"Resilience to specified kinds of disasters is an active area of research and practice. However, rare or unprecedented disturbances that are unusually intense or extensive require a more broad-spectrum type of resilience. General resilience is the capacity of social-ecological systems to adapt or transform in response to unfamiliar, unexpected and extreme shocks. Conditions that enable general resilience include diversity, modularity, openness, reserves, feedbacks, nestedness, monitoring, leadership, and trust. Processes for building general resilience are an emerging and crucially important area of research."