What I've Been Writing

Your regularly scheduled programming returns next week

I don’t have a full post this week to blow all y’all’s minds about price theory. I’ll be back next week with something extra fun. I promise.

So instead of just ghosting everyone (Thursday is Economic Forces day after all), I thought I’d let you know about other things I’ve written that may interest the wonderful readers of this newsletter.

First, I’m an affiliated faculty of Kennesaw State’s Bagwell Center for the Study of Markets and Economic Opportunity. The “Bagwell Center” is easier to say.

Anyways, I wrote a piece for The Bagwell Center’s Commentary, which expands on my newsletter on the DOJ’s Google lawsuit. I’d encourage everyone to check out other Commentaries from other KSU faculty here.

Second, I have a new working paper out on “The Hayek Hypothesis” with Omar Al-Ubaydli and Peter Boettke. We use some theory and field experiments to argue that, contrary to some people’s naive understanding of competition, it doesn’t really require perfect knowledge, infinite buyers and sellers, etc. I harp on this point a lot. I like how Omar summarized it on Twitter.

Omar AlUbaydli @omareconomics

A common error is to think that markets only deliver desirable outcomes under "perfect" conditions. Friedrich Hayek argued differently. My paper with @BrianCAlbrecht and @PeterBoettke examines the theory and the evidence from field experiments. briancalbrecht.com/Al-Ubaydli_Boe…

Third, and excuse my self-congratulations, my paper with Rafael Guthmann, also on the Hayek Hypothesis and informational efficiency, won a working paper award from my college. The paper has lots of Greek in it but this was my attempt to summarize it for the college magazine.

Building on the ideas of Nobel laureate F. A. Hayek, many economists, such as Nobel laureate Leo Hurwicz, have formally shown that competitive markets require little information to allocate goods efficiently. If people know only the prices of goods that they want to buy and sell, they can achieve an efficient outcome. However, the standard formulation of competitive markets neglects their underlying microstructure; nobody actually sets the prices, which provide all necessary information. Our paper reconsiders the informational efficiency of markets by modeling two with different microstructures. In the first and most commonly studied, people must search for their trading partners. In the second, market-makers connect buyers and sellers. We prove that while a search market can allocate goods as efficiently as a competitive market, it requires much more information to do so. Search is informationally inefficient; every buyer must know every seller’s expected price. In an economy with market-makers, buyers and sellers only need to need to know the price of a few market-makers. Less abstractly, buyers require less information if they can go on Amazon and find the going rate for a product than if they must search myriad online shops.

Executive takeaways:

• Any form of trade requires information.

• Platforms, such as Amazon or Uber, help users by acquiring information for the users

• With globalization, platforms that can gather, organize, and present people information have an advantage. 

• We predict an increase in the use of these platforms with economic integration.

I’m really excited about this paper. Working with Rafael has taught me a lot about how to thinking about perfect competition.

Well, I hope those three pieces can tide everyone until next week 👍

Finally, and I won’t speak for Josh, but this bozo (Brian) sometimes has a hard time coming up with ideas for these posts. if there is any topic you’d like to read about, let us know