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This article focuses on African women (Quitandeiras) who worked in the food sector of the fast-growing port city of Rio de Janeiro during the first half of the nineteenth century. The growing need to supply the harbour workers as well as the crews and captives on the slave ships stimulated the food economy in Rio de Janeiro. The absence of effective government food infrastructure offered opportunities for small businesses. The maritime world on a ship was, in many ways, male. However, there were a high number of female workers in the ports, especially in the informal food sector, frequently mentioned by contemporary authors. This article analyses the involvement of these women as part of a growing working class, who contributed to Rio de Janeiro's crucial role in global networks. The research also focuses on the formation of self-organized groups of female vendors. Thus, it provides further insights into strategies of local actors. By grouping together, the women gained some measure of protection, which empowered them to survive in a difficult and highly competitive market. Through their activities, they also changed the urban space of the port area, leaving their mark on it. They acted as crucial vectors for establishing different diaspora dishes, which met huge demand among many consumers. In doing so, they contributed to the formation of an African-American food culture on the streets of Rio de Janeiro.

The Modern Corporation and Market Competition As with most other advanced economies, large corporations dominate the US economy. In 2012 (the latest complete data available), 1909 firms with 5000 or more employees were 0.033 per cent of all firms in the US economy but had 11 per cent of all establishments and employed 34 per cent of all employees in the business sector of the US economy while accounting for 38 per cent of payrolls and 44 per cent of sales revenues (United States Census Bureau, 2015). In 2014, the 500 largest publicly listed US companies by revenues (the Fortune 500) had a combined $12.5 trillion in revenues, $945 billion in profits, and 26.8 million employees worldwide. The centrality of the large corporation to the advanced economies is nothing new. A century ago, it had already attained a dominant position across a range of industries in the richest economies of the United States and Europe (Chandler, 1990). Economists have had plenty of time to figure out how to incorporate the corporation into their thinking about how a modern economy operates and performs. As we shall see in this chapter, however, the neoclassical economists whose perspective dominates economic thinking have done a terrible job of it. In adhering to the idea that in an advanced economy the corporation can be construed as a ‘market imperfection’, the well-trained neoclassical economist reveals his or her ignorance about the operation and performance of the modern business corporation, and the modern economy to which it is central. Conventionally trained economists, as almost all PhD economists are, see markets, not organizations, as the arbiters of resource allocation in the economy. As the benchmark of superior economic efficiency, they hold to the ideal of the ‘perfect market’ – one in which, because of easy entry by firms in an industry, there are so many firms competing in the industry that no single firm's output decisions can have a discernible impact on the price of the product it sells. Most economists recognize that ‘perfect competition’ is hard to find in the actual economy. Nevertheless, from their market-oriented perspective, ‘perfect competition’ represents the ideal for the economy's efficient allocation of resources against which one can evaluate various states of ‘imperfect competition’.

The “marginality principle” states that the share of joint output atrributable to any single factor of production should depend only on that factor's own contribution to output. This property, together with symmetry and efficiency, uniquely determines the Shapley value. A similar result characterizes Aumann—Shapley pricing for smooth production functions with variable input levels. Introduction In a perfectly competitive market, the wage of a laborer equals his marginal product. No ethical judgment need be made as to whether marginal productivity is a “just” rule of compensation so long as competitive markets are accepted as the correct form of economic organization. Nevertheless, the idea that rewards should be in proportion to contributions has considerable ethical appeal in itself, and appears to reflect widely held views about what constitutes “just compensation” without any reference to the theory of perfect competition. In this paper we shall ask what “compensation in accordance with contribution” means in the absence of competition. How does the marginality principle translate into a rule of distributive justice when cooperation rather than competition is the mode of economic organization? Unfortunately, if we attempt to translate marginalism directly into a cooperative sharing rule, difficulties arise. For, except in very special cases, the sum of individuals' marginal contributions to output will not equal total output.

© Cambridge University Press 2015. Introduction The term of the art ‘brands’ is often used in EU Competition law with the aim of providing factual information on the competitive, or not, relation between products or services provided by different economic actors. The European Commission often refers in its merger or antitrust decisions to the products (or services) of brand X that enter into competition on a relevant market with the products (or services) of brand Y. The term brand used in this context aims to provide a factual observation on the operation of the specific relevant market. No further inferences are made. Inquiring into the role of brands in this context is a simple exercise and offers little to the research question explored in this volume. However, the issue becomes more complex if one engages with the use of brands as an operational concept in EU competition law. Operational concepts connect theoretical concepts to simple factual observations. For instance, the operational concept of ‘market power’ connects a fact concerning the level of prices in a specific market at a certain point in time, which is partially an observable fact, with the theoretical construction of price theory, for instance the theoretical concept of monopoly or its antithesis, that of perfect competition, from which market power is a departure. These operational concepts help decision-makers to make inferences (they serve as analytical shortcuts) about the relation between the different facts they observe in order to assess causal relations and make predictions. It is now accepted that competition law makes extensive use of operational concepts transplanted from the discipline of economics, in particular neoclassical price theory. Yet its receptivity to operational concepts developed in other disciplines, management studies in particular, has been relatively limited. And here lies the core of the problem with regard to the engagement of EU competition law with the concept of ‘brands’. Although the discipline of economics and in particular neoclassical price theory perceives brands as a fact of economic life, until recently price theory has not made use of the term as an operational concept. Instead, economists prefer to focus on the semi-operational concepts of product differentiation, advertising or that of barriers to entry, which describe the consequences of the existence of brands, but do not engage directly with the concept of brand.

Introduction In Chapter 5, we presented a profit frontier model in which producers are assumed to maximize profit under competitive input and output markets. As explained previously, compared to the production and cost models, a profit model allows input and output variables to be endogenous (i.e., to be decision variables), which is arguably a more realistic assumption for a majority of industries and firms. The profit model introduced in Chapter 5 was estimated from the profit function alone. In this chapter, we consider the estimation of a profit model that uses a system of equations consisting of the profit function and the profit share equations. Similar to the cost system (Chapter 6), share equations add information in estimating parameters and yield more efficient parameter estimates. As such, this chapter does not provide new tools to answer additional questions; the questions that can be answered are the same as those set out at the start of Chapter 5. Indeed, we also use the same empirical example of airlines from that chapter. In what follows, we first derive the profit system and then provide the estimation methods and empirical examples. A large part of the derivation is the same as in Chapter 5. Therefore, we will focus on the differences and readers are referred to the earlier chapter for further details. Single Output, Output-Oriented Technical Inefficiency We assume that the input and output markets are competitive and that all firms are fully efficient allocatively. The assumption of full allocative efficiency is relaxed in Chapter 9.The first-order conditions of profit maximization that we use in this chapter are conditional on technical inefficiency. Because the long run profit is zero for producers operating in a competitive market and producers with negative profit exit the industry in the long run, it is perhaps better to focus on the short run and argue that differences in profits are due to quasi-fixed inputs and technical inefficiency.

INTRODUCTION Ever since Adam Smith, it is well known that market size matters for the division of labor, hence for economic development. In this chapter, we want to deal with a related, but different, idea, namely market size is one of the basic determinants of firms' choices of location . Both economists and geographers agree that a large market tends to increase the profitability of the firms established in it. First of all, in his location problem where a firm chooses the location minimizing the total transport costs it bears, Weber ([1909] 1927) showed that the market – or input source – that has a weight exceeding the weighted sum of the other markets and input sources is always the firm's optimal location. In the same vein, the gravity equation asserts that locations having a good access to large markets offer firms greater profit opportunities. The profitability of firms is further enhanced by increasing returns because the growth in their volume of production also generates a drop in their average production costs. As a result, it seems reasonable to expect larger markets to attract more firms than smaller markets. This idea agrees with market potential theory, as developed by the American geographer Harris (1954) according to which firms tend to locate where they have the best access to markets in which they can sell their product

A thought-provoking book by Boldrin and Levine (2009) argues that patents are always detrimental to competition and thereby to innovation. To provide support to their analysis these two authors built a growth model where innovation and growth can occur under perfect competition. The model is then used to argue that monopoly rents and therefore patents are not needed for innovation and growth: on the contrary, patents are detrimental to innovation because they reduce competition. That reducing competition can be detrimental to innovation, is a sound idea which could not be accounted for by the new growth models of Romer (1990) and Aghion and Howitt(1992). In these models, competition is detrimental for innovation and growth for exactly the same reason for why patent protection (IPRs) is good for innovation: namely because competition reduces (post innovation) rents whereas patent protection increases these rents. In this note we argue that this latter conclusion is not robust to considering more elaborated models of competition and innovation. In particular we show below that in a step-by-step innovation model, where a laggard firm needs to catch up with the current leader in its sector (and therefore go through a neck-and-neck stage) before it could later become a leader itself, not only can competition enhance innovation as in Boldrin and Levine’s model, but also and perhaps more importantly competition and IPRs become complementary policies. Why? Because the incentive to innovate depends on the gap between the post-innovation rent and the pre-innovation rent, call it the net innovation rent. And typically, what competition does is to lower pre-innovation rents, and also maybe post-innovation rents, although the difference between postand preinnovation rents may still increase with competition, and all the more so with stronger patents to protect post-innovation rents. In contrast, in our earlier Schumpeterian models where innovations are made by outsiders who then leapfrog incumbent firms, the pre-innovation rent is always equal to zero, thus all ∗Harvard University †Brown University ‡University of Cologne

My contribution develops three themes. First, it looks at competition from the perspective of actually existing capitalism and its differential accumulation, rather than from the perspective of how to regulate or govern competition from the viewpoint of its purported role as a public good. While there is a rational kernel to this perspective of competition as a public good in the contradictions between particular capitals and the interests of capital in general, it is typically interpreted in ways that merit at least a sceptical interrogation, if not a more radical ideological critique. Second, it looks at competition law in terms of the complexities of its object, rather than in terms of its mechanisms, its institutional architecture, its advocates, facilitators, coordinators, targets, and agents. Without paying attention to these complexities, there is a tendency to blame regulatory failure on the design of competition law rather than on the inherent ungovernability of its object. And, third, it looks at competition law as one among several means in which economic and political forces seek to design social modes of regulation to promote the differential accumulation of some capitals at the expense of others. In this sense, it looks at competition law is one element in the overall governance of accumulation on a world scale.

Introduction In the last chapter, we analyzed a model of a pure exchange economy. Although there were only two people, Robinson Crusoe and Friday, and only two goods, bread and rum, our model was a general equilibrium model. That is, it was a model that took everything into account simultaneously: Robinson's preferences for bread and for rum, as well as Friday's, and Robinson's initial endowments of bread and rum, as well as Friday's. To keep that model simple, there were only two people and two goods, and there was no production. The quantities of the two goods were taken as given and fixed. We now turn to another general equilibrium model, in which everything is taken into account simultaneously. However, in this model we analyze production. To keep this model easy, we assume that there is only one person in the economy, who functions both as a producer and as a consumer. We call that one person Robinson Crusoe. (The reader interested in literature may remember that in Defoe's novel, Robinson was alone on the island for many years before Friday arrived. Our productionmodel can be viewed as an economic analysis of work and consumption on the island, before Friday's arrival.) In our analysis of the pure exchange economy, we discussed Pareto optimality (or Pareto efficiency) and related concepts, and we analyzed market equilibria. We showed the crucial connections between Pareto optimality and the market, connections that are expressed in the first and second fundamental theorems of welfare economics.

The Chicago School is typically associated with a pro-patent position: They have defended patents on the grounds that they are vital to encourage innovation and have condemned claims that patents allow patent-holding firms to extend their monopoly power from one market to another. The Nobel Prize–winning Chicago economist, George Stigler, claimed that an inventor’s financial incentive was optimum only if he had exclusive and perpetual ownership of the patent. Steven Cheung, a third-generation representative of the Chicago School, observed in 1977: “In a free society an individual owns his brain, and by way of a number of different arrangements he may utilize and market the outputs of this mental resource to generate income” (Cheung , 597). To Cheung, the patent system was the best way to facilitate this generation of income. In 1973, Ward Bowman, a principal proponent of the Chicago law and economics movement in the 1960s and 1970s, maintained that alleged forms of patent misuse might “actually be the most efficient use of the patent from the social as well as the private point of view. It pays monopolists as well as competitors to be efficient” (1973, 9). More recently, in 2006, Richard Epstein, a public face of Chicago law and economics, defended the pharmaceutical industry from prospective regulations. Taking a pro-patent position, he stated, “[Pharmaceutical companies] are very heavily dependent on the patent law, [which] have allowed these firms to bring a wide variety of vital products to market” (Epstein ). However, members of the Chicago School did not always take a pro-patent position. In the 1930s, the respected University of Chicago professor and self-identified classical liberal, Henry Simons, described monopoly in all its forms, including “gigantic corporations” and “other agencies of price control,” as “the great enemy of democracy” because they undermined the necessary condition for democracy to flourish, namely, a competitive market. In championing democracy and competitive markets, Simons displayed a broad hostility toward patents and claimed that the patent system enabled the creation and extension of monopoly power.

We begin with some fundamental and still highly influential work on regulation and its effects by two leading economists of the mid-twentieth century, George Stigler and Sam Peltzman. We then move to develop a specific Stigler-Peltzman political support function and analyze the role of electoral responsiveness in it. We next consider possible welfare and distributional effects of regulated, high-price economic systems. We then consider how the analysis might differ in a small, open, export-dependent economy. Then, having analyzed the effect of various kinds of democratic constitutions, we consider some of the implications for nondemocracies, weakly institutionalized democracies, and less developed economies. Finally, we consider whether electoral systems can be regarded as exogenous and whether this affects our overall analysis. The Stigler-Peltzman Framework The essential insight of the Stigler-Peltzman (S-P) analysis of regulation can be conveyed by a single and widely familiar diagram shown in Figure 2.1 (cf. Peltzman 1976, p. 224). Suppose that the price of a given industry's product is represented on the horizontal axis and its profits on the vertical one. At the perfectly competitive price ( p c ), profits will be zero. To the extent that regulation in any of its familiar forms – licensure schemes that artificially restrict supply, regulatory boards that set minimum prices, impediments to efficient retailing, tariffs, quotas, and so on – raises the product's price above this competitive level, total industry profits begin to rise until price reaches the level that a monopoly would impose; this is denoted as p m . If regulation becomes so restrictive of supply as to push price even beyond this monopolistic level, industry profits again decline, returning to zero (or even becoming negative) as the price becomes prohibitive.

Competition, if not prevented, tends to bring about a state of affairs in which: first, everything will be produced which somebody knows how to produce and which he can sell profitably at a price at which buyers will prefer it to the available alternatives; second, everything that is produced is produced by persons who can do so at least as cheaply as anybody else who in fact is not producing it; and third, that everything will be sold at prices lower than, or at least as low as, those at which it could be sold by anybody who in fact does not do so. Friedrich A. Hayek In the heart of New York City, Fred Lieberman's small grocery is dwarfed by the tall buildings that surround it. Yet it is remarkable for what it accomplishes. Lieberman's carries thousands of items, most of which are not produced locally, and some of which come from other parts of this country or the world, thousands of miles away. A man of modest means, with little knowledge of production processes, Fred Lieberman has nevertheless been able to stock his store with many if not most of the foods and toiletries his customers need and want. Occasionally Lieberman's runs out of certain items, but most of the time the stock is ample. Its supply is so dependable that customers tend to take it for granted, forgetting that Lieberman's is one small strand in an extremely complex economic network. How does Fred Lieberman get the goods he sells, and how does he know which ones to sell and at what price? The simplest answer is that the goods he offers and the prices at which they sell are determined through the market process – the interaction of many buyers and sellers trading what they have (their labor or other resources) for what they want. Lieberman stocks his store by appealing to the private interests of suppliers – by paying them competitive prices. His customers pay him extra for the convenience of purchasing goods in their neighborhood grocery – appealing to his private interests in the process.

In our analysis of economic transactions on networks, particularly the model in Chapter 11, we considered how a node's position in a network affects its power in the market. In some cases, we were able to come up with precise predictions about prices and power, but in others the analysis left open a range of possibilities. For example, in the case of perfect competition between traders, we could conclude that the traders would make no profit, but it was not possible to say whether the resulting situation would favor particular buyers or sellers – different divisions of the available surplus were possible. This is an instance of a broader phenomenon that we discussed earlier, in Chapter 6: when there are multiple equilibria, some of which favor one player and some of which favor another, we may need to look for additional sources of information to predict how things will turn out. In this chapter, we formulate a perspective on power in networks that can help us further refine our predictions for the outcomes of different participants. This perspective arises dominantly from research in sociology, and it addresses not just economic transactions but also a range of social interactions more generally that are mediated by networks. We will develop a set of formal principles that aim to capture some subtle distinctions in how a node's network position affects its power. The goal will be to create a succinct mathematical framework enabling predictions of which nodes have power, and how much power they have, for arbitrary networks.

Economists understand by the term market, not any particular market place in which things are bought and sold, but the whole of any region in which buyers and sellers are in such free intercourse with one another that the prices of the same goods tend to equality, easily and quickly. Augustin Cournot Chapters 6 through 8 largely dealt separately with the two sides of markets – consumers and producers. We devised graphic means of representing consumer preferences (the demand curve) and producer costs (the average and marginal cost curves). This chapter brings demand and cost analysis together in a way that allows us to examine how individual firms react to consumer demand in competitive markets. Our focus is on a highly competitive market structure. We investigate an intriguing question: at the maximum, how much can competitive markets contribute to consumer welfare? We do not attempt to give a full description of a real-world competitive market setting. Markets are too diverse for such a description to be very useful. Rather, our aim is to devise a theoretical framework that can enable us to think about how competitive markets work in general, as a constructive behavioral force. Although our model cannot tell much that is specific about real-world markets, it provides a basis for predicting the general direction of changes in market prices and output.

Differences in tastes, desires, incomes and locations of buyers, and differences in the use which they wish to make of commodities all indicate the need for variety and the necessity of substituting for the concept of a “competitive ideal,” an ideal involving both monopoly and competition. Edward Chamberlin We have so far considered two distinctly different market structures: perfect competition (characterized by producers that cannot influence price at all because of extreme competition) and pure monopoly (in which there is only one producer of a product with no close substitutes and whose market is protected by prohibitively high barriers to entry). Needless to say, neither of those theoretical structures well describes most markets. Even in the short run, producers typically compete with several or many other producers of similar, but not identical, products. General Motors Corporation competes with Ford Motor Company and a number of foreign producers. McDonald's Corporation competes with Burger King Corporation, Carl's Jr., and any number of other burger franchises, as well as with Pizza Hut, Popeye's Fried Chicken, and Taco Bell. In the long run, all these firms must compete with new companies that surmount the imperfect barriers to entry into their markets. In short, most companies competing in the imperfect markets can cause producers to be more efficient in their use of resources than under pure monopoly, although less efficient than in perfect competition. Part A of this chapter develops the theory of competition in obvious markets, those for products.

We discuss the strong connections between auction theory and "standard" economic theory; we show that situations that do not at first sight look like auctions can be recast to use auction-theoretic techniques; and we argue that auction-theoretic tools and intuitions can provide useful arguments and insights in a broad range of mainstream economic settings. We also discuss some more obvious applications, especially to industrial organization. This was an Invited Symposium paper for the 2000 (Seattle) World Congress of the Econometric Society.

In this chapter, our goal is to examine the interplay between market structure and innovation. This is clearly a two-way relationship: on the one hand, firms’ incentives to invest in RD on the other hand, firms are likely to use R&D to shape the structure of their market (e.g., by using R&D to increase their market share or to keep potential competition at bay). As the two effects are complex and intertwined, we simplify the analysis by assuming that firms can somehow appropriate the return from their R&D investments (we analyse how they actually manage to do so in the next chapter).We also break down the analysis into separate issues. In Section 18.1, we assess how market structure affects the incentives for conducting R&D, which are measured by the profit increase that the innovator gains from the innovation. First, incentives to innovate are compared in the two market structures where strategic considerations are absent, namely monopoly and perfect competition. It is shown that the latter generates larger incentives to innovate than the former. Next, we extend the analysis to include strategic interaction by considering oligopolies. We reach an ambiguous result: a higher intensity of competition may increase or decrease the incentives to innovate depending on the initial starting point, the size of the innovation and the way competition is increased. Finally, we study the possibility for the innovator to obtain additional revenues by licensing its innovation to other firms, be it inside or outside its own industry. In Section 18.2, we reverse our point of view by investigating how innovation may influence market structure. First, we reconsider a monopolist's incentives to innovate in situations where a competing firm threatens to enter the market. We show that the incumbent firm is often keener to invest in R&D than the entrant. Monopoly is thus likely to prevail over time, which indicates that innovation does indeed drive market structure. Second, we enrich the previous analysis by incorporating explicitly the time dimension. Indeed, a firm's main motivation when investing in R&D is often to be the first to come up with an innovation.

For Friedman, lack of realism of assumptions is not a virtue. It is a necessary evil: to base theories on absolutely realistic assumptions is like drawing a map on a one-to-one scale. Mark Blaug Consumer Theory focuses on the buyer. It models a consumer's optimization problem and emphasizes deriving a Demand Curve as an important result. The Theory of the Firm is about the seller. Firm decisions about inputs and outputs are modeled as optimization problems. A key result will be deriving a Supply Curve. The Theory of the Firm is made up of three interrelated optimization problems. 1. Input cost minimization: Choose inputs to minimize the cost of producing a given level of output. Derive the cost function by changing q and tracking the minimum total cost. 2. Output profit maximization: Choose output to maximize profits. Derive the supply curve by changing the price and tracking the optimal output. 3. Input profit maximization: Choose inputs to maximize profits. Derive an input demand curve by changing an input price and tracking optimal input use. The economic approach (optimization and comparative statics) will play a key role, but there are three crucial innovations in the Theory of the Firm. 1. Market structure: The Theory of the Firm includes the market environment as an important consideration in the model. The firm can be a price taker , a perfectly competitive firm, or a price maker , a monopolist. Other market structures include oligopoly (where there a few firms) and monopolistic competition. 2. Time period: The Theory of the Firm distinguishes between long-run and short-run decision-making horizons. In the long run, all factors are freely variable and firms may enter or exit the industry. In the short run, at least one input (usually capital) is fixed and the firm may cease production (shut down), but it must pay fixed costs whether it produces or not. 3 […]

Much of economics has to do with the coordination of independent decisions, and such questions with some well-known exceptions are inherently game theoretic. Yet when the Econometric Society held its First World Congress in 1965, economic theory was still almost entirely non-strategic and game theory remained largely a branch of mathematics, whose applications in economics were the work of a few pioneers. As recently as the early 1970s, the profession's view of game-theoretic modeling was typified by Paul Samuelson's customarily vivid phrase, "the swamp of n-person game theory"; and even students to whom the swamp seemed a fascinating place thought carefully before descending from the high ground of perfect competition and monopoly. The game-theoretic revolution that ensued altered the landscape in ways that would have been difficult to imagine in 1965, adding so much to our understanding that many questions whose strategic aspects once made them seem intractable are now considered fit for textbook treatment. This process was driven by a fruitful dialogue between game theory and economics, in which game theory supplied a rich language for describing strategic interactions and a set of tools for predicting their outcomes, and economics contributed questions and intuitions about strategic behavior

Biological (bio)pesticides represent 2.4% of the global pesticide market, but this share is growing quickly and is projected to double by 2010. In contrast, the market for chemical pesticides is flat to declining as transgenic seeds have reduced sprays and governments have restricted or removed products from the market. By combining performance and safety, biopesticides offer value through benefits generally not realized by conventional pesticides. Biopesticides perform efficaciously while providing customers the flexibility of minimum application restrictions, superior residue and resistance management potential, and human and environmental safety benefits. Despite these advantages, there are significant barriers that impede adoption of biopesticides. This review will explore these barriers in depth and offer solutions for increasing adoption. These barriers include a competitive market, risk-averse customers, a complex selling channel, perceived lack of efficacy and lack of awareness.

My earliest intellectual contact with the work of Nancy Schwartz dates from my graduate-student days at Minnesota. There was an optimal growth course, taught by John Chipman, that was not to be missed. The piece de resistance was Pontryagin's Maximum Principle, and I will always be thankful to the Journal of Economic Theory article by Kamien and Schwartz for helping me to get through it. It took several nights of a still-remembered week, but at the end I understood the principle. So I have a debt that is a pleasure to repay on this occasion. It is for me truly an honor to be delivering the Nancy L. Schwartz Memorial Lecture. My subject will be market competition as viewed by traditional general equilibrium theory. Nancy Schwartz made outstanding contributions to our understanding of dynamic market competition from the standpoint of industrial organization theory. I hope, therefore, that this is a fitting topic for me in this lecture.

During the first three decades after World War II, mainstream academic economists focussed their attention on developing and expanding the theoretical foundations for what is commonly called neoclassical economics, and on the development and application of econometric techniques to measure empirically the parameters of these theoretical models, and to test hypotheses about their properties. In microeconomics we saw the development of rigorous theoretical models of consumer demand, firm production, and cost functions; the foundations of competitive market equilibrium, with and without uncertainty; and the implications of a wide range of market imperfections (e.g. externalities, oligopoly, asymmetric information) on firm behavior and market performance. Econometric techniques to estimate the parameters of demand and cost functions, and to measure the effects of market imperfections on prices, costs, and other market attributes, were also developed and applied. In macro-economics we saw the development of theoretical models to explain key determinants of aggregate economic activity – income, consumption, investment, inflation, unemployment, and economic growth. This work focussed initially on the rigorous theoretical articulation of the foundations of Keynesian economics, and then on alternative non-Keynesian and post-Keynesian models linked more closely with neoclassical micro-economic foundations of firm and consumer decision making, price and wage formation in markets, and investments in human capital. This theoretical work was accompanied by new econometric techniques to use macro-economic data to estimate the parameters of key aggregate economic relationships. These empirical relationships were used, in turn, to create large macro-economic models to assist in making predictions of the components of aggregate economic activity and the effects of government tax, expenditure, and monetary policies on these variables.

What we have argued so far may not sound altogether incredible to the alert observer of the economics of innovation. Theory aside, what have we shown, after all? That thriving innovation has been and still is commonplace in the absence of intellectual monopoly and that intellectual monopoly leads to substantial and well-documented reductions in economic freedom and general prosperity. However, while expounding the theory of competitive innovation, we also recognized that, under perfect competition, some socially desirable innovations would not be produced because the indivisibility involved with introducing the first copy or implementation of the new idea is too large, relative to the size of the underlying market. When this is the case, monopoly power may generate the necessary incentive for the putative innovator to introduce socially valuable goods. And the value for society of these goods could dwarf the social losses we have documented. In fact, were standard theory correct, so that most innovators gave up innovating in a world without intellectual property, the gains from patents and copyright would certainly dwarf those losses. Alas, as we noted, standard theory is not even internally coherent, and its predictions are flatly violated by the facts reported in Chapters 2 and 3. Nevertheless, when in the previous chapter we argued against all kinds of theoretical reasons brought forward to justify intellectual monopoly on scientific grounds, we carefully avoided stating that it is never the case the fixed cost of innovation is too large to be paid for by competitive rents.

In the introduction I reviewed the main propositions of two competing theoretical approaches to variation in employment performance among advanced industrialized democracies: the corporatist approach and an economic approach that relies on the assumption of perfectly competitive labor markets. The corporatist literature has been more successful than the neoclassical framework in explaining cross-national variation in macroeconomic and labor market outcomes. But corporatist studies fail to account for both cross-national and intertemporal changes in labor market outcomes across advanced industrialized economies. Most corporatist scholars praise the “institutional advantages” of economies with highly centralized labor market institutions for delivering egalitarian income distribution, high levels of wage moderation, and labor peace. But these studies do not provide an explanation for the deterioration of the labor market performance of these economies in the last two decades. The main theoretical objective of this chapter is to extend and amend the conclusions of the corporatist literature in an effort to explain both cross-national as well as intertemporal variation in employment outcomes. The outline of this chapter is as follows. I begin by reviewing the most significant theoretical developments in the literature that examine the impact of labor market institutions on labor market outcomes. These studies differ in the precise specification of the functional form of the relationship between labor market institutions and economic outcomes. Recent studies have formulated an important qualification of earlier results, suggesting that differences in a government's macroeconomic orientation affect both the optimal wage behavior of trade unions and the equilibrium level of unemployment.