Thursday, October 10, 2013

Some links

1. Jonathan Catalan has a great post on Akerlof's lemons paper, criticizing some skeptics. I think if most economists really thought about it they'd be in Jonathan's group 3 (accept the conclusions of the paper and think for the most part we have private solutions). I think people get a sense that most economists are in his group 2 (seek out public and private solutions) because the thing about private solutions is that they kind of take care of themselves. Plausible public solutions are in our face precisely because these are the cases that don't solve themselves (or at least not as easily). But that's not the case for most asymmetric information problem (or any other "market failure"). I'd differ a little with Jonathan on his point at the end that we don't see a lot of markets characterized by a lemons situation. He seems to conclude that Akerlof thought markets for lemons would eventually collapse. But this is only one outcome. It all depends on the critical points in the distribution of quality and expected quality and peoples' demand for quality. For certain critical values, in the Akerlof model, markets for lemons can be and are sustained indefinitely. Presumably many such markets exist and we just deal with it (or else we solve the asymmetric information problem).

2. Kevin Quinn has a really excellent paper in the latest issue of Critical Review on Adam Smith and education. I want to assign it to my class, since we spent a lot of time talking about the relationship between the division of labor and Smith's egalitarianism. Alas we're past Smith and I'm probably assigning too much anyway.

3. Gene Callahan on the Mises/Hayek divergence.

4. Yesterday J. Michael Dunn, of Indiana University, lead the discussion in our Infometrics Seminar. Unfortunately I don't have a link to the talk (although it looked like it was being taped), but you can find info on his work in the link above. Our seminar is basically on information theory, and he spent a lot of time connecting the math of information theory to code and computation.


  1. Regarding Mises and Hayek, I'll copy what I said on Callahan's blog.... I agree to an degree.

    "Hayek is getting at the same thing, but won't fully realize it for another three decades, until"

    But Hayek wrote both "The Uses of Knowledge in Society" and "The Meaning of Competition" in the 40s. They sit side-by-side in "Individualism and the Economic Order". Also, Mises specifically mentions price-signaling in "Human Action".

  2. I don't have access to the Smith article, but I read the abstract. Even if there is no market for educating the poor, that doesn't mean that govt must provide education directly. What's wrong with vouchers? Is it that they will allow poor parents to satisfy their low-class preferences?

    1. I think you should find the article. I don't think there's anything in the article against vouchers. Vouchers would be equally consistent with the ideas presented.

  3. I'll reiterate myself, then elaborate...first, please read my comment on Jonathan Finegold Catalan's post.

    Once you've done that, I'll explain my rationale:

    Although Leonard J. Savage, Bruno de Finetti, and Frank P. Ramsey are Daniel Ellsberg's main targets in the November 1961 QJE article, while George Akerlof deals with John von Neumann and Oskar Morgenstern in his famous August 1970 piece in the same outlet (however, I don't think critcised vNM Expected Utility much, if at all, in the August 1970 piece), both papers have implications that easily reinforce each other. (And as an aside, a few people cited in Daniel Ellsberg's 1962 dissertation are also cited in the references of the August 1970 piece by George Akerlof: namely Roy Radner and Kenneth Arrow.)

  4. Daniel: Thanks for your nice comment on my article! John S.: I don't say that government must provide education, but that the sort of education Smith wants, because it is precisely not human capital, must be required. For example, he wants people in the professions to be required to demonstrate a knowledge of science and philosophy. They don't need it for their job, so there would be no demand if it were not required. The rationale for this is interesting: "A knowledge of science and philosophy is the great antidote to the poison of enthusiasm and superstition."

    Kevin Quinn

  5. PS John: if you email me at, I will send you the article -


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