Monday, January 4, 2010

Journal of Economic Literature, Vol. XLVII, No. 4 (Dec. 2009)

The new issue of the JEL contains a couple of interesting articles.

Marc Fleurbaey, "Beyond GDP: The Quest for a Measure of Social Welfare":
This paper critically examines the various approaches to the measurement of individual well-being and social welfare that have been considered for the construction of alternatives to GDP [Gross Domestic Product]. Special attention is devoted to recent developments in the analysis of sustainability, in the study of happiness, in the theory of social choice and fair allocation, and in the capability approach. It is suggested in the conclusion that, although convergence toward a consensual approach is not impossible, for the moment not one but three alternatives to GDP are worth developing.
Roger B. Myerson, "Learning from Schelling's Strategy of Conflict":
Thomas Schelling's Strategy of Conflict is a masterpiece that should be recognized as one of the most important and influential books in social theory. This paper reviews some of the important ideas in Strategy of Conflict and considers some of the broader impact that the book has had on game theory, economics, and social theory. By his emphasis on the critical importance of information and commitment in strategic dynamics, Schelling played a vital role in stimulating the development of non-cooperative game theory. More broadly, Schelling's analysis of games with multiple equilibria has redefined the scope of economics and its place in the social sciences.
I have nothing to add to Myerson's assessment of Schelling's Strategy of Conflict, except that the same might be said for at least one of Schelling's other books, Mircomotives and Macrobehavior.

With respect to the Fleurbraey article, my sense is that alternative measures to GDP are not yet sufficiently well-developed to replace it entirely, though they may provide useful supplementary information. On my own reading of the literature on sustainability, we have made only minor progress elaborating on Sir John Hicks's (1904-1989) observation in his book Value and Capital (1939) that the most relevant indicator of economic welfare is not the gross product, but net income, defined as the amount a country can consume without depleting its capital stock, which can be defined to include the stock of natural resources.

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