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Rosolino A. Candela - One of the best experts on this subject based on the ideXlab platform.
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Where Chicago meets London: James M. Buchanan, Virginia Political Economy, and cost Theory
Public Choice, 2020Co-Authors: Peter J Boettke, Rosolino A. CandelaAbstract:James M. Buchanan argued that not only the study of public choice, but also property-rights economics as well as law and economics, can be traced directly to the work of scholars associated with the Thomas Jefferson Center for Studies in Political Economy and Social Philosophy at the University of Virginia (UVA). We draw attention to that point by raising the following question: what was the common knowledge at UVA that made it uniquely suited for the development of each of those related, yet distinct subdisciplines of political economy? Fundamentally, the answer is the unique combination of Chicago Price Theory and London School of Economics cost Theory developed at UVA, where opportunity costs were regarded not as constraints to which individuals passively respond. Rather, they are the reciprocal of the act of choice itself. That subtle distinction has significant implications not only for public policy, but, what is more important, the proper scale and of governmental responses to market failures. The unique combination of the Chicago and London schools was central to the development of a neglected branch of Price Theory at the University of Virginia.
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Price Theory as prophylactic against popular fallacies
Journal of Institutional Economics, 2017Co-Authors: Peter J Boettke, Rosolino A. CandelaAbstract:AbstractThe articles collected inChicago Price Theoryillustrate elements of continuity and change in the development of the Chicago School of Economics. The editors stress a continuity in the Chicago tradition that runs from Frank Knight to Gary Becker. Our contribution in this essay is to emphasize the discontinuity in the evolution of the Chicago Price Theory tradition. We argue that a logical continuity runs not from the Knight/Viner/Simons generation to the Friedman/Stigler/Becker generation, but to a branch of the Chicago tradition best exemplified by the Alchian/Buchanan/Coase generation of Chicago Price Theory. The continuity we stress is understanding Price Theory as a study of market adjustment and adaptation under alternative institutional arrangements.
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Price Theory as Prophylactic Against Popular Fallacies
SSRN Electronic Journal, 2015Co-Authors: Peter J Boettke, Rosolino A. CandelaAbstract:The articles collected in the three-volume set of Chicago Price Theory illustrate elements of continuity and change in the development of the Chicago School. Its editors stress a continuity in Price Theory at Chicago that runs from Frank Knight to Gary Becker. Our main contribution in this review essay is to emphasize the discontinuity in the Chicago Price Theory tradition between the Knight/Viner/Simons generation and the post-war Friedman/Stigler/Becker generation. Moreover, we argue that a more logical continuation runs from the Knight/Viner/Simons generation to the Alchian/Buchanan/Coase generation of Chicago Price Theory. The element of continuity we stress is one of understanding Price Theory as a study of market adjustment and adaptation under alternative institutional arrangements, rather than using Price Theory to identify a unique solution to an allocative problem. Whereas the former understanding of Price Theory was underemphasized under Friedman/Stigler/Becker, the latter understanding of Chicago Price Theory tradition was continued by Alchian/Buchanan/Coase.
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Alchian, Buchanan, and Coase: A Neglected Branch of Chicago Price Theory
SSRN Electronic Journal, 2014Co-Authors: Peter J Boettke, Rosolino A. CandelaAbstract:This paper suggests that there exists a neglected third branch of Chicago Price Theory, which includes Armen Alchian (1914–2013), James Buchanan (1919–2013), and Ronald Coase (1910–2013). While this branch shares characteristics that are common to the other branches of Chicago Price Theory, there are two fundamental contributions of this branch that distinguishes it from the others in the Chicago Price Theory tradition. The first contribution is the application of the logic of choice in discovering alternative institutional arrangements. That is, individuals will engage in exchange not only within a given institutional arrangement, but will also engage in exchange behavior to foster more preferable institutional arrangements that further the particular goals of the exchanging parties. The second contribution is the notion that the provision of markets is an entrepreneurial activity. We argue that this Alchian, Buchanan, Coase approach to Price Theory provides not only a bridge between the “Old” Chicago School and the “New” Chicago School but also an alternative development of the Chicago School. Our paper, while building on the joint insights of Alchian, Buchanan, and Coase, is focused on Coase’s development of this approach, and clarifying his contribution. By drawing the economist’s attention to transactions costs, Coase more than any other economist of the twentieth century brought institutional analysis to the foreground by stressing the role they play in ameliorating or exacerbating conflicts in a world of positive transactions costs.
Peter J Boettke - One of the best experts on this subject based on the ideXlab platform.
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Where Chicago meets London: James M. Buchanan, Virginia Political Economy, and cost Theory
Public Choice, 2020Co-Authors: Peter J Boettke, Rosolino A. CandelaAbstract:James M. Buchanan argued that not only the study of public choice, but also property-rights economics as well as law and economics, can be traced directly to the work of scholars associated with the Thomas Jefferson Center for Studies in Political Economy and Social Philosophy at the University of Virginia (UVA). We draw attention to that point by raising the following question: what was the common knowledge at UVA that made it uniquely suited for the development of each of those related, yet distinct subdisciplines of political economy? Fundamentally, the answer is the unique combination of Chicago Price Theory and London School of Economics cost Theory developed at UVA, where opportunity costs were regarded not as constraints to which individuals passively respond. Rather, they are the reciprocal of the act of choice itself. That subtle distinction has significant implications not only for public policy, but, what is more important, the proper scale and of governmental responses to market failures. The unique combination of the Chicago and London schools was central to the development of a neglected branch of Price Theory at the University of Virginia.
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Robert Tollison and operationalizing public choice
Public Choice, 2017Co-Authors: Peter J BoettkeAbstract:In this tribute to Robert Tollison, I will outline his contributions to the development of public choice. I focus on Tollison’s work on rent-seeking, the political economy of reform, and the rules level of analysis in sports economics. Throughout his career, Tollison brilliantly figured out ways to take insights from Price Theory and public choice Theory and operationalize them using multiple methods of empirical analysis, including historical interpretation and statistical testing.
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Price Theory as prophylactic against popular fallacies
Journal of Institutional Economics, 2017Co-Authors: Peter J Boettke, Rosolino A. CandelaAbstract:AbstractThe articles collected inChicago Price Theoryillustrate elements of continuity and change in the development of the Chicago School of Economics. The editors stress a continuity in the Chicago tradition that runs from Frank Knight to Gary Becker. Our contribution in this essay is to emphasize the discontinuity in the evolution of the Chicago Price Theory tradition. We argue that a logical continuity runs not from the Knight/Viner/Simons generation to the Friedman/Stigler/Becker generation, but to a branch of the Chicago tradition best exemplified by the Alchian/Buchanan/Coase generation of Chicago Price Theory. The continuity we stress is understanding Price Theory as a study of market adjustment and adaptation under alternative institutional arrangements.
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Price Theory as Prophylactic Against Popular Fallacies
SSRN Electronic Journal, 2015Co-Authors: Peter J Boettke, Rosolino A. CandelaAbstract:The articles collected in the three-volume set of Chicago Price Theory illustrate elements of continuity and change in the development of the Chicago School. Its editors stress a continuity in Price Theory at Chicago that runs from Frank Knight to Gary Becker. Our main contribution in this review essay is to emphasize the discontinuity in the Chicago Price Theory tradition between the Knight/Viner/Simons generation and the post-war Friedman/Stigler/Becker generation. Moreover, we argue that a more logical continuation runs from the Knight/Viner/Simons generation to the Alchian/Buchanan/Coase generation of Chicago Price Theory. The element of continuity we stress is one of understanding Price Theory as a study of market adjustment and adaptation under alternative institutional arrangements, rather than using Price Theory to identify a unique solution to an allocative problem. Whereas the former understanding of Price Theory was underemphasized under Friedman/Stigler/Becker, the latter understanding of Chicago Price Theory tradition was continued by Alchian/Buchanan/Coase.
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Alchian, Buchanan, and Coase: A Neglected Branch of Chicago Price Theory
SSRN Electronic Journal, 2014Co-Authors: Peter J Boettke, Rosolino A. CandelaAbstract:This paper suggests that there exists a neglected third branch of Chicago Price Theory, which includes Armen Alchian (1914–2013), James Buchanan (1919–2013), and Ronald Coase (1910–2013). While this branch shares characteristics that are common to the other branches of Chicago Price Theory, there are two fundamental contributions of this branch that distinguishes it from the others in the Chicago Price Theory tradition. The first contribution is the application of the logic of choice in discovering alternative institutional arrangements. That is, individuals will engage in exchange not only within a given institutional arrangement, but will also engage in exchange behavior to foster more preferable institutional arrangements that further the particular goals of the exchanging parties. The second contribution is the notion that the provision of markets is an entrepreneurial activity. We argue that this Alchian, Buchanan, Coase approach to Price Theory provides not only a bridge between the “Old” Chicago School and the “New” Chicago School but also an alternative development of the Chicago School. Our paper, while building on the joint insights of Alchian, Buchanan, and Coase, is focused on Coase’s development of this approach, and clarifying his contribution. By drawing the economist’s attention to transactions costs, Coase more than any other economist of the twentieth century brought institutional analysis to the foreground by stressing the role they play in ameliorating or exacerbating conflicts in a world of positive transactions costs.
E. Glen Weyl - One of the best experts on this subject based on the ideXlab platform.
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Price Theory
Journal of Economic Literature, 2019Co-Authors: E. Glen WeylAbstract:I argue that there exists a coherent and relevant tradition in economic thought that I label “Price Theory.” I define it as neoclassical microeconomic analysis that reduces rich and often incompletely specified models into “Prices” (approximately) sufficient to characterize solutions to simple allocative problems. I illustrate this definition by highlighting distinctively Price theoretic approaches to prominent research practices (diagrams and problems sets) and substantive research topics (e.g. selection markets and media slant). I trace the origins of Price Theory from the early nineteenth century through its segregation into the Chicago School in the last quarter of the twentieth. I argue that Price Theory plays a valuable complementary role to two traditions, “reductionism” and “empiricism,” with which I contrast it and show how this contribution of Price Theory has fueled a resurgence in this style of research in fields ranging from market design to international trade. Approximations critical to Price Theory are less formally developed than tools used in other methodological traditions, suggesting a research agenda to clarify the accuracy and range of validity of these methods.(JEL B13, B21, B41, D00, D47, F10)
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Price Theory
2014Co-Authors: E. Glen WeylAbstract:I propose an alternative to the conventional definition of Price Theory as Pricetaking in partial equilibrium. Instead I define it as a methodological approach that derives a small collection of Prices sufficient to characterize low-dimensional allocative problems in rich aggregate economies. A classic example is optimal income taxation formulas based on summary elasticities of taxable income and measures of inequality. This definition derives from a tight analogy to thermodynamics in physics and contrasts both with reductionism (e.g. game Theory) that seek more complete characterizations of lower-dimensional economies and reduced-form empiricism that builds off of available empirical evidence. I use recent research from fields ranging from market design to international trade to highlight this definition and both the contrasts and complementarities of such Price Theory with empiricism and reductionism. I then argue that this schema helps make sense of the historical evolution of Price Theory during the 19th and 20th centuries, especially its interaction with the other traditions during the last half century, when Price Theory was closely identified with the University of Chicago. I conclude by expositing the analytic tools of Price Theory.
Andrew F Newman - One of the best experts on this subject based on the ideXlab platform.
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a Price Theory of vertical and lateral integration
Quarterly Journal of Economics, 2013Co-Authors: Patrick Legros, Andrew F NewmanAbstract:We construct a Price-theoretic model of firms' integration decisions under perfect competition and study their interplay with consumer demand and welfare. Integration is costly to implement but is effective at coordinating production decisions. The Price of output influences the ownership structure chosen: there is an inverted-U relation between the degree of integration and product Price. Ownership in turn affects output: integration is more productive than non-integration at low Prices, and less productive at high Prices. If the managers deciding organizational design have full claim to firm revenues, market equilibrium ownership choices will be second-best efficient. When managers have less than a full claim on profits, however, total welfare may sometimes be increased by a social planner who could force some firms to reorganize. The Price mechanism tends to correlate reorganizations across firms and generates external effects of technological shocks: productivity changes in some firms may have little effect on their own organization, while inducing changes of ownership in the rest of the industry. Terms of trade in supplier markets also affect ownership structure; entry of low-cost suppliers may induce reorganizations that raise Prices. The model can generate coexistence of different ownership structures, even among ex-ante identical firms.
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a Price Theory of vertical and lateral integration
ULB Institutional Repository, 2013Co-Authors: Patrick Legros, Andrew F NewmanAbstract:This article presents a perfectly competitive model of firm boundary decisions and study their interplay with product demand, technology, and welfare. Integration is privately costly but is effective at coordinating production decisions; nonintegration is less costly but coordinates relatively poorly. Output Price influences the choice of ownership structure: integration increases with the Price level. At the same time, ownership affects output, because integration is more productive than nonintegration. For a generic set of demand functions, equilibrium delivers heterogeneity of ownership and performance among ex ante identical enterprises. The Price mechanism transmutes demand shifts into industry-wide reorganizations and generates external effects from technological shocks: productivity changes in some firms may induce ownership changes in others. If the enterprise managers have full title to its revenues, market equilibrium ownership structures are second-best efficient. When managers have less than full revenue claims, equilibrium can be inefficient, with too little integration. JEL Codes: D21, D23, D41, L11, L14, L22. Copyright 2013, Oxford University Press.(This abstract was borrowed from another version of this item.)
Harry Bloch - One of the best experts on this subject based on the ideXlab platform.
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Neo-Schumpeterian Price Theory with Sraffian and post-Keynesian elements
Journal of Evolutionary Economics, 2017Co-Authors: Harry BlochAbstract:This paper contributes to the development of a neo-Schumpeterian Price Theory by combining elements of Sraffian and post-Keynesian Price Theory with elements drawn from Schumpeter’s own Theory of Prices. The result is an integrated heterodox approach to Price Theory incorporating the realism of post-Keynesian pricing rules and the rigour of Sraffa’s formal modelling, along with Schumpeter’s insight that capitalism develops “from within” in a disruptive and uneven manner.
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Schumpeter's Price Theory
2017Co-Authors: Harry BlochAbstract:Schumpeter distinguishes between the circular flow of economic activity and economic development. The former is characterised by equilibrium, while the latter involves discontinuous change. The Price Theory that Schumpeter associates with the circular flow is the well established Walrasian Price system. However, the Price Theory which Schumpeter proposes for economic development is only partially developed in writings and has been largely ignored since. Yet, it is the analysis of economic development that constitutes Schumpeter‟s enduring contribution to economic thought. This paper provides a critical examination of Schumpeter‟s Price Theory as it applies when there is economic development. *Financial support from the Australian Research Council Discovery Projects scheme is gratefully acknowledged. Preliminary Draft – Not for Quotation
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Innovation, creative destruction, and Price Theory
Industrial and Corporate Change, 2017Co-Authors: Harry Bloch, Stan MetcalfeAbstract:Our purpose in this paper is to consider developments in Price Theory required to facilitate the evolutionary analysis of economic change. Evolution is always a matter of change and, although its driving force is innovation, the Price mechanism is central to how innovations are resolved into economic development. That is Schumpeter’s great theme, but he said relatively little about who sets Prices or how and why Prices are changed. We focus particularly on Price determination in markets disrupted by innovations, where firms are necessarily heterogeneous. We contrast the evolutionary paths followed by Prices and market structure when Prices are determined by market clearing to the paths when Prices are determined through the application by firms of administered rules and routines to achieve their strategic objectives. This links the analysis to theories of administered Prices and post-Keynesian Price theories more broadly. Interaction of innovators with their customers and with established competitors create the context for the evolution of pricing rules along with differential firm growth, which together generates structural change in the industry and the economy. We show that analyzing how the introduction and diffusion of innovations impact on the rules and routines provides the foundation for a broadly applicable evolutionary Price Theory.
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Kurt Rothschild's heterodox approach to Price Theory and oligopoly
History of Economics Review, 2014Co-Authors: Harry Bloch, Madhumita BhattacharyaAbstract:The seminal article by Kurt Rothschild on the state of imperfect competition analysis, ‘Price Theory and oligopoly’, published in the Economic Journal in1947 is used as an exemplar of the merits of a heterodox approach to economics. We identify key elements of Rothschild’s analysis and relate them to later analytical developments in pricing strategies, entry barriers, internal organisation and the use of power by firms. Further, we note lacunae that remain in the modern analysis of oligopoly and Price Theory that can be addressed by adopting ideas proposed by Rothschild in his 1947 article and in his later writings.
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Schumpeter's Contribution to Price Theory
SSRN Electronic Journal, 2009Co-Authors: Harry BlochAbstract:Schumpeter distinguishes between the circular flow of economic activity and economic development. The former is characterised by equilibrium, while the latter involves discontinuous change. The Price Theory that Schumpeter associates with the circular flow is the well established Walrasian Price system. However, the Price Theory which Schumpeter proposes for economic development is only partially developed in writings and has been largely ignored since. Yet, it is the analysis of economic development that constitutes Schumpeter's enduring contribution to economic thought. This paper provides a critical examination of Schumpeter's Price Theory as it applies when there is economic development and provides some suggestions for further development of the Theory.