This section deals with Barro and Romer working on price theory and public finance. This is an interesting aside to Romer's work on Growth Theory. A lot of space is used to describe the theory of rival and nonrival, or, public goods. While taught in Principles of Micro-economics classes now, these concepts were little understood just a few decades ago. While Romer was working on a paper about Ski Lifts and club theory, he came across the idea of rival/nonrival goods while reading a textbook by Richard Cornes and Todd Sandler. Finding the content useful, Romer applied it to his paper on Ski Lifts and eventually made the connection that the rival/nonrival concept could be applied to economic growth. "For the very meaning of a nonrival good was that it was an item which is not 'used up'..." While looking at Growth Theory in class, we found that we haven't reached that "steady state," which can be applied to technological growth, but also that we haven't "used up" our ideas yet which is keeping growth possible.
Another interesting point in this section is on page 279-280 about James Buchanan. I'll just quote one section, but it's worth thinking about: "Economists should cease proffering policy advice as if they were employed by a benevolent despot and instead turn their attention to the way in which political decisions were made." This part also mentions including "political failure" along with market failure. It should also be noted that Mr. Buchanan also received a Nobel Prize for his work in political decision making.
A for Basil.
ReplyDeleteOoh ... this isn't just an aside. The ski-lift pricing paper is a big deal (both in its own right, and for the direction it sent Romer in).
It turns out the ski-lift is a kind of public good provided privately: a club good. You pay to enter the club, but once inside there is a tragedy of the commons surrounding the use of the public good.
So the seat on the ski-lift is a rival good. Learning about rival goods was what showed Romer that ideas were something else: nonrival goods. In some sense, he couldn't tell what black was until he put white up next to it.
Extra credit for the first person to comment with a definition of doyen, and an explanation of its use in this context.