The complexity of resource allocation and price mechanisms under bounded rationality

Summary We develop a framework for designing and evaluating the complexity of mechanisms that allocate resources in a distributed setting to agents or processors with bounded computational ability. We discuss several mechanisms and describe the construction of efficient price based mechanisms, which exploit the decentralized aspects of the problem. These price mechanisms are polynomial in the number of resources, precision of the solution, and the logarithm of the number of agents.We thank Thomas Marschak and a anonymous referee for helpful suggestions. This research was been supported by National Science Foundation Grant IRI-8902813.     

From Big Bang to Big Crash: The Early Origins of the UK’s Finance-led Growth Model and the Persistence of Bad Policy Ideas

Using newly declassified documents from the British Public Records Office, we argue that the finance-dependent growth regime that typified the UK economy in the period up to the Great Crash of 2008 has much deeper roots than is commonly realised. We use these documents to demonstrate that the growth of finance was integral to the Thatcher revolution, tying together mortgage markets, household debt, and boom-bust cycles as early as the mid-1980s. We also show how policy-makers in this period were aware of all the weaknesses of this growth model, to the point that they effectively diagnosed what would happened in 2008, back in 1987. We argue that selecting for a finance-led growth model as the preferred growth model so early effectively rendered other possible growth models for the UK unattainable. The result was the shift from an economy characterised by ‘stop-go’ cycles in the post-war period to an economy characterised by recurrent ‘boom-slump-austerity-reset’ cycles in the Thatcher and post Thatcher periods. The 2008 crisis did not change this highly unstable mode of accumulation.     

Social Control,Urban Planning and Ethno‐class Relations: Mizrahi Jews in Israel's ‘Development Towns’

Urban planning is usually portrayed as a benign and progressive societal force. This interpretation is critically examined through an evaluation of Israel's development town project. According to the ‘best’ planning concepts available during the 1950s, Israel built 28 new towns, mainly on the country's peripheral ‘frontiers’. New immigrants, chiefly low‐income Mizrahi Jews, were housed in the towns, which provided a cornerstone of Israel's national project of ‘Judaising’ the country. The evidence shows that the planning of the towns has had many regressive consequences: it reinforced and reproduced patterns of deprivation and inequality through the creation of segregated and low‐status Mizrahi ethnic spaces. In the longer term, this spawned continuing grievances and protest, fluctuating political orientation and the emergence of a low‐status Mizrahi ethno‐class. The case in hand casts doubt over the notion of planning solely as a progressive force, and highlights its potential to act as an instrument of control and domination in the hands of societal elites. In Israel, promotion of the ‘national imperative’ of settling the frontiers, the advent of ‘modern urban planning’, and later ‘corrective’ policies to close the centre‐periphery gap, all worked to obscure the regressive stratifying processes caused by the development town project. La planification urbaine est généralement vue comme une force sociale bégnine et progressive. Cette interprétation est examinée de facon critique avec une évaluation du projet de développement de la ville en Israël. Suivant les ‘meilleurs’ concepts de planification des années cinquante, Israël a construit 28 villes nouvelles, principalement sur les ‘frontières’ périphériques du pays. Les nouveaux immigrants, avant tout des juifs Mizrahi qui avaient des revenus bas, furent logés dans les villes, qui étaient au centre du projet national israélien de rendre le pays plus judaïque. L'évidence montre que la planification des villes a eu de nombreuses conséquences régressives: elle a renforcé et reproduit les modèles de privation et d'inégalité par la création d'espaces ethniques Mizrahi de bas standing et isolés. À long terme, cela a donné lieu à des protestations et des doléances continuelles, à une orientation politique changeante et à la naissance d'une ethno‐classe Mizrahi de statut peu élevé. Ce cas d'étude met en doute le fait que la notion de planification soit uniquement une force progressive, et illumine le fait qu'elle peut servir d'instrument de contröle et de domination pour les élites sociales. En Israël, la promotion de ‘l'impératif national’ de stabilisation des frontières, l'arrivée de la ‘planification moderne urbaine’ et la récente politique ‘corrective’ pour réduire la distance entre le centre et la périphérie, ont toutes contribuéà obscurcir les processus régressifs de stratification dus au projet de développement des villes.     

Interruption insurance for generation and distribution of electric power

We describe a simple insurance scheme for use in an environment in which consumers of electricity are differentiated by their value of uninterrupted service as well as their location. Location plays a determining role in the model, in that reliability of distribution is allowed to vary throughout the network. Consumers choose a level of compensation for service interruption and pay a premium that depends on this compensation, as well as the distribution reliability at their location. In the event of power shortages, the utility will interrupt consumers according to their selected compensation so as to minimize compensation payments. The premium schedule is designed to induce consumer self-selection which results in efficient rationing, i.e., consumers are interrupted in increasing order of their interruption losses. The tariff has the added feature of inducing consumers to purchase full insurance and thus transfers all of the risk to the utility. It is shown that with proper tuning the proposed insurance scheme is Pareto superior to a uniform service charge with random rationing.     

Law and Preferences

Legal rules do more than provide incentives, they change people.When preferences and norms are endogenously determined via aprocess of imitation and learning, legal rules, by affectingthe market outcome, may affect the dynamics of preference formation.Analyzing the effect of different legal rules should thereforego beyond the analysis of the incentives they provide. It shouldalso include an analysis of their effect on the distributionof preferences and norms of behavior. We illustrate this claimby considering a simple market game in which individuals mayhave preferences that include fairness concerns. We show thatdifferent legal rules change not only the pattern of trade ina market game, but also individuals' fairness concerns. Thatis, different rules may eventually make individuals care more(or less) about a fair outcome. Specifically, our model suggeststhat enhanced remedies for breach of contract may reduce equilibriumpreferences for fairness.     

The Migratory Worker in American Agriculture

The debate over the minimum wage is often conducted on a technical level, primarily focusing on the effects of wage increases. In recent years the debate has often been between those who maintain that increases in the minimum wage will result in disemployment, particularly among teenagers, on the one hand and those who maintain that increases will offer much needed assistance to the poor on the other. Lost in this focus have been serious discussions of the ethical grounds for such a policy. Core to the issue of the minimum wage are questions of justice and the type of society we would like to create. This article argues that the technical approach to the minimum wage so often taken is an outgrowth of a particular conception of justice, one predicted on liberal neutrality. A different conception of justice would enable us to view the minimum wage as but one tool for achieving other social objectives. Moreover, a justice approach to the minimum wage would enable us to consider our values because we would be required to engage in a more philosophically grounded discussion of the policy and the issues it raises.     

How good are supply function equilibrium models: an empirical analysis of the ERCOT balancing market

We present an empirical analysis of a supply function equilibrium model in the Texas spot electricity market. We derive conditions for optimal bidding behavior in a spot market with ex ante bilaterally contracted sales. By estimating costs, we are able to derive a set of ex post-and ex ante-optimal supply functions and use a non-parametric behavioral model to compare our theoretically optimal supply functions to actual offers made. Our results show that with the exception of the largest generators, firms make offers with markups and markdowns far in excess of what a model of profit-maximizing behavior suggests.     

Folk theorems on transmission access: Proofs and counterexamples

Nodal prices, congestion revenues, transmission capacity rights, and compensation for wire ownership are key concepts used to formulate claims about proposals to organize competitive and open transmission access. Underlying those claims are implicit assertions (folk theorems) concerning the regulation of transmission access, the determination of power flows, properties of economic dispatch, and the operations of competitive nodal markets for power. The paper has two objectives. We first formulate these folk theorems as explicit mathematical assertions. We then prove that some of these assertions are true, and we present counterexamples to other assertions.The counterexamples are interesting because they negate plausible propositions, including: (1) uncongested lines do not receive congestion rents (defined through node price differences); (2) nodal prices clear markets for power only if the allocation is efficient; (3) in an efficient allocation power can only flow from nodes with lower prices to nodes with higher prices; (4) strengthening transmission lines or building additional lines increases transmission capacity; (5) transmission capacity rights are compatible with any economically efficient dispatch.