A century of the American Economic Review: Top 20 articles

The Top 20 Committee, consisting of Arrow,  Bernheim,  Feldstein,  McFadden,  Poterba, and  Solow, was appointed with the task of selecting the “Top 20” articles published in the American Economic Review during its first hundred years… here they are:

Alchian, Armen A., and Harold Demsetz. 1972. “Production, Information Costs, and Economic Organization.” American Economic Review, 62(5): 777–95.
This article explains why production processes takes place within the firm as opposed to within the market, mainly it is the result of the greater ability of the firm to better allocate the inputs.
Arrow, Kenneth J. 1963. “Uncertainty and the Welfare Economics of Medical Care.” American Economic
Review, 53(5): 941–73.
There are significant market failures in the market for medical care which results from the presence of uninsurable risks, moral hasard, and consumers’ lack of information as well as expertise.
Cobb, Charles W., and Paul H. Douglas. 1928. “A Theory of Production.” American Economic Review,
18(1): 139–65.
Originally a theoretical framework for production possibilities as a function of labour and capital, it has also been widely used for utility functions of individuals.
Deaton, Angus S., and John Muellbauer. 1980. “An Almost Ideal Demand System.” American Economic
Review, 70(3): 312–26.
This article presents a system of demand equations consistent with preference maximisation which makes it possible to assess the welfare impact of different policies
Diamond, Peter A. 1965. “National Debt in a Neoclassical Growth Model.” American Economic
Review, 55(5): 1126–50.
Using the Overlapping Generation Model with capital goods, it shows the impact of debt on the capital stock.
Diamond, Peter A., and James A. Mirrlees. 1971. “Optimal Taxation and Public Production I: Production
Efficiency.” American Economic Review, 61(1): 8–27.
Diamond, Peter A., and James A. Mirrlees. 1971. “Optimal Taxation and Public Production II: Tax
Rules.” American Economic Review, 61(3): 261–78.
These two parts paper provides the foundation for optimal taxation theory and public production.
Dixit, Avinash K., and Joseph E. Stiglitz. 1977. “Monopolistic Competition and Optimum Product
Diversity.” American Economic Review, 67(3): 297–308.
Analysis of product differentiation under monopolistic competition with differentiated goods and increasing returns to scale. 
Friedman, Milton. 1968. “The Role of Monetary Policy.” American Economic Review, 58(1): 1–17.
There exists a natural rate of  unemployment defined as the only rate consistent with the coincidence of actual and expected inflation. Thus, the phillips curve is vertical in the long run and hence the trade off between unemployment and inflation is only short lived.

Grossman, Sanford J., and Joseph E. Stiglitz. 1980. “On the Impossibility of Informationally Efficient
Markets.” American Economic Review, 70(3): 393–408.
“if some individuals can acquire perfect information at a finite cost, then no equilibrium exists, since, if information is acquired by some, it will be reflected in the price and so can be acquired costlessly by others, while if no one acquires information, it will pay any individual to acquire it.”

Harris, John R., and Michael P. Todaro. 1970. “Migration, Unemployment and Development: A Two-
Sector Analysis.” American Economic Review, 60(1): 126–42.
The distribution of workers bewteen urban and rural areas is a function of the agricultural marginal product of labour and the minimum wage in urban areas times the probability of finding employment in urban areas.

Hayek, F. A. 1945. “The Use of Knowledge in Society.” American Economic Review, 35(4): 519–30.
The price system through its informational content is essential to coordination and efficient use of resources.

Jorgenson, Dale W. 1963. “Capital Theory and Investment Behavior.” American Economic Review,
53(2): 247–59.
Theoretical framework for investment behavior based on a neoclassical theory of optimal capital accumulation.

Krueger, Anne O. 1974. “The Political Economy of the Rent-Seeking Society.” American Economic
Review, 64(3): 291–303.
Government policies create rents for some market agents, which thereby have an incentive to undertake rent seeking activities. This results in further (i.e.: in addition to the costs of rents themselves) welfare costs.

Krugman, Paul. 1980. “Scale Economies, Product Differentiation, and the Pattern of Trade.” American
Economic Review, 70(5): 950–59.
Comparative advantages fails to account for some of the trade taking place, not least within the same industry. Introducing increasing returns, imperfect competition and product differentiation, an alternative model is developped.

Kuznets, Simon. 1955. “Economic Growth and Income Inequality.” American Economic Review,
45(1): 1–28.
Initial phases of economic development generate inequality, as the modern sector expands taking labour from the traditional sector. Inequality reaches a peak as most workers are now in the modern sector which also allows for redistibutive activities.

Lucas, Robert E., Jr. 1973. “Some International Evidence on Output-Inflation Tradeoffs.” American
Economic Review, 63(3): 326–34.
Natural rate model in which the ratio of ‘real-output changes o price-level change’, in response to exogenous shifts in aggregate expenditure, depends on the relative variance of those processes.

Modigliani, Franco, and Merton H. Miller. 1958. “The Cost of Capital, Corporation Finance and the
Theory of Investment.” American Economic Review, 48(3): 261–97.
In a setting with complete capital markets and in the absence of tax-induced distortions, a firm’s total market value is invariant to its borrowing behavior.

Mundell, Robert A. 1961. “A Theory of Optimum Currency Areas.” American Economic Review,
51(4): 657–65.

Macroeconomic stability is enhanced if the currency area has a high degree of internal factor mobility relative to the cross-border factor mobility. But there are substantial transaction costs and valuation costs involved in making cross-area purchases.

Ross, Stephen A. 1973. “The Economic Theory of Agency: The Principal’s Problem.” American Economic
Review, 63(2): 134–39.
Introduced the Principal agent problem with moral hasard where the interests of the agent and the principal may not be aligned.

Shiller, Robert J. 1981. “Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in
Dividends?” American Economic Review, 71(3): 421–36.
The historical stock price volatility was much greater than the volatility of dividend payouts would appear to warrant. This challenges the traditional view that the value of a share of corporate stock equals the present discounted value of that stock’s expected future payouts.

As  Krugman argues, the double entries go to Peter Diamond and Stiglitz…. For more information and details on the importance of each article.

Power centered approaches to political economy

Just had an interesting workshop on power centered approaches to political economy today, so thought it’d be interesting to write a quick summary of it. This approach emphasise the importance of power in economic relations. To an extent, it uses methods closer to political science to study an object which is traditionally economic. While power is obviously a contentious concept, the implications of such an approach for the validity neoclassical theories are quite important.

If power is conceptualised as the ‘transformative capacity’ of agents or their ability to affects other agents’ behaviours, then the recognition that agents have power undermines the assumption that economic actors are price takers (i.e.: have no influence on prices) as well as the assumption that they ‘voluntarily’ agree to exchanges on the market.
If that is the case, this in turn implies that transactions do not in the ‘worst case scenario ‘make agents at least as good as if they didn’t participate in the market. It also suggests that the price may be the result of forces that do not result in an efficient allocation of market outcomes. Thus, from this perspective, markets are neither necessarily efficient in their allocation nor in the joint maximisation of agents’ utilities (i.e.: supposed to capture their well being).
Where does power arise? Monopolies and Oligopolies are obvious market candidates for power to be located and even neoclassical economics recognises the problems that arises in such cases, not least with respect to the potential inefficiencies that generate. But this extends to many other spheres such as labour-capital relations and hierarchical structures of firms themselves.
Indeed, if power is understood as the ability to affect actors preferences and readings of  both their own interests and the problems in the system in which evolve, then it also becomes clear that financial institutions detain such power and that this prevents our societies from taking appropriate actions: we (and our governemnts) are neither able to read the situation appropriately nor to understand our interests in the fundamental reform of the financial system.
In fact, Galbraith made that point eloquently concerning the corporation almost 30 years ago: “nothing is so important in the defense of the modern corporation as the argument that its power does not exist – that all power is surrendered to the impersonal play of the market” (1983: 119).
Thus, this approach represents an important contribution to the field of political economy and entails important insights for the current regulatory failures of financial markets. While strong in its critical potential, however, this approach is not without conceptual or methodological problems.  This last point raises perhaps the biggest criticism of this approach, namely its parternalism, as it assumes that most actors’ subjective assessments are biased, while some external theorist is best able to assess people’s objective interests for them.
This is a huge topic, so I think a few references are in order:
Caporaso and Levine “theories of political economy” (chapter 7)
Galbraith “the anatomy of power”
Max Weber “Protestant ethic and the Spirit of Capitalism”
Frank Knight “on the history and method of economics”
Ronald Coase “The nature of the firm”
Alchian and Demsetz “Production, information costs, and economic organisation”

Ranking Political Science Journals

If you’re wondering how different academic journals in political science fare according to different ranking measures, have a look at the article by Giles and Garand (2007). Below, I reproduce the table on page 744:

Whatever the ranking method used, World Politics, International organisation and the American Political Science Review are in the top 5. The Journals in bold are the ones which are not picked by the ranking of the column to the left, e.g.: “International interactions” appears in column “PS Impact” but it is not in “ISI impact”. If you can’t be bothered to regularly check whether new issues have been published in these Journals, most Journal providers such as SAGE where you can also receive automatic updates through the RSS feed.