Wednesday, 9 February 2011

Top in the AER

The American Economic Review is the top economics journal in the world. A committee of some very distinguished economists - Kenneth J. Arrow, B. Douglas Bernheim, Martin S. Feldstein, Daniel L. McFadden, James M. Poterba and Robert M. Solow - have selected the top 20 articles published in the AER over the last 100 years.

Interestingly, interesting to me at least, F. A. Hayek's article "The Use of Knowledge in Society" makes the list. About the article it is said:
The author addresses the fundamental question of the nature of the economic system and, in particular, its role in dealing with resource allocation when a fundamental knowledge base is distributed in small bits among a large population. The knowledge needed includes consumer valuations, production relations, and resource availabilities. In particular, general scientific principles, where expert opinion might be best, are only a small part of the knowledge base. The author argues for the importance of a price system in achieving coordination and efficiency in resource use without implying an impossible aggregation of information in a central place.
Also interesting is the inclusion of Armen Alchian and Harold Demsetz paper. “Production, Information Costs, and Economic Organization.”
What is the special role of the firm in organizing production? The authors argue that it is the ability to measure inputs and their productivity and to allocate hired resources in production involving the cooperation of many inputs. It is this phenomenon that explains why all cooperation of factors does not take place through market-determined contracts. The firm is made to be the residual claimant because that approach creates the appropriate incentives for management. Many implications of this hypothesis are developed.
This is an important paper in the theory of the firm literature, although it has come in for much criticism. But that criticism has lead to the development of new theories of the firm.

Anne Krueger's article on “The Political Economy of the Rent-Seeking Society” also makes the top 20:
Many government policies, such as import licenses in developing nations, create rents for some market participants. While the presence of such rents and the distortions that they create have long been noted, this paper recognized the importance of “rent-seeking behavior” and explored its welfare implications. The paper’s central finding is that competitive rent-seeking increases the welfare costs of policies such as trade restrictions. In the context of import restrictions, this result strengthens the case for the use of tariffs rather than import quotas, since quotas create the possibility of rent-seeking behavior. By identifying the importance of rent-seeking activities and providing a framework for analyzing their welfare costs, this paper expanded the economic analysis of the government’s choice of policy instrument to achieve particular goals. It also helped to launch a voluminous literature on the role of corruption and governance in the process of economic development.

An interesting question is, What does the list signals about what is, and what isn't important in modern economic thinking?

The full list is:
  • Alchian, Armen A., and Harold Demsetz. 1972. “Production, Information Costs, and Economic Organization.”American Economic Review, 62(5): 777–95.
  • Arrow, Kenneth J. 1963. “Uncertainty and the Welfare Economics of Medical Care.” American Economic Review, 53(5): 941–73.
  • Cobb, Charles W., and Paul H. Douglas. 1928. “A Theory of Production.” American Economic Review, 18(1): 139–65.
  • Deaton, Angus S., and John Muellbauer. 1980. “An Almost Ideal Demand System.” American Economic Review, 70(3): 312–26.
  • Diamond, Peter A. 1965. “National Debt in a Neoclassical Growth Model.” American Economic Review, 55(5): 1126–50.
  • Diamond, Peter A., and James A. Mirrlees. 1971. “Optimal Taxation and Public Production I: Production Efficiency.” American Economic Review, 61(1): 8–27 and Diamond, Peter A., and James A. Mirrlees. 1971. “Optimal Taxation and Public Production II: Tax Rules.” American Economic Review, 61(3): 261–78.
  • Dixit, Avinash K., and Joseph E. Stiglitz. 1977. “Monopolistic Competition and Optimum Product Diversity.” American Economic Review, 67(3): 297–308.
  • Friedman, Milton. 1968. “The Role of Monetary Policy.” American Economic Review, 58(1): 1–17.
  • Grossman, Sanford J., and Joseph E. Stiglitz. 1980. “On the Impossibility of Informationally Efficient Markets.” American Economic Review, 70(3): 393–408.
  • Harris, John R., and Michael P. Todaro. 1970. “Migration, Unemployment and Development: A Two-Sector Analysis.” American Economic Review, 60(1): 126–42.
  • Hayek, F. A. 1945. “The Use of Knowledge in Society.” American Economic Review, 35(4): 519–30.
  • Jorgenson, Dale W. 1963. “Capital Theory and Investment Behavior.” American Economic Review, 53(2): 247–59.
  • Krueger, Anne O. 1974. “The Political Economy of the Rent-Seeking Society.” American Economic Review, 64(3): 291–303.
  • Krugman, Paul. 1980. “Scale Economies, Product Differentiation, and the Pattern of Trade.” American Economic Review, 70(5): 950–59.
  • Kuznets, Simon. 1955. “Economic Growth and Income Inequality.” American Economic Review, 45(1): 1–28.
  • Lucas, Robert E., Jr. 1973. “Some International Evidence on Output-Inflation Tradeoffs.” American Economic Review, 63(3): 326–34.
  • Modigliani, Franco, and Merton H. Miller. 1958. “The Cost of Capital, Corporation Finance and the Theory of Investment.” American Economic Review, 48(3): 261–97.
  • Mundell, Robert A. 1961. “A Theory of Optimum Currency Areas.” American Economic Review, 51(4): 657–65.
  • Ross, Stephen A. 1973. “The Economic Theory of Agency: The Principal’s Problem.” American Economic Review, 63(2): 134–39.
  • Shiller, Robert J. 1981. “Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends?” American Economic Review, 71(3): 421–36.

1 comment:

HJAH said...

What does this say about economics? It sais, in my opinion, that economists are generally truely searching for truth. Also the AER committee was probably doing so.

The probelm is, however, that you can't find the goal if you don't have a compass or anything that helps you to distinguish right from wrong. Mathematics is not such a tool, and econometrics isn't either. Hence, many economists go wrong despite their having the best intentions. The problem is that most economists are innocent people. Innocent as persons and innocent of a suitable theory.