What are the Questions and Other Essays: Further Contributions to Modern Economics
Commercial banks play an important role in the financial system and the economy. As a key component of the financial system, banks allocate funds from savers to borrowers in an efficient manner. They provide specialized financial services, which reduce the cost of obtaining information about both savings and borrowing opportunities.
Economics Essays: The Importance of Economics
These financial services help to make the overall economy more efficient. One way to answer your question is to imagine, for a moment, a world without banking institutions, and then to ask yourself a few questions. This is not just an academic exercise; many former eastern-block nations began facing this question when they began to create financial markets and develop market-oriented banks and other financial institutions.
Banks operate by borrowing funds-usually by accepting deposits or by borrowing in the money markets. Banks borrow from individuals, businesses, financial institutions, and governments with surplus funds savings. They then use those deposits and borrowed funds liabilities of the bank to make loans or to purchase securities assets of the bank. Banks make these loans to businesses, other financial institutions, individuals, and governments that need the funds for investments or other purposes.
Robinson was also intensely interested in problems in underdeveloped and developing countries - a natural outgrowth of her work on growth - and made substantial contributions in that direction as well. However, in later years, Robinson embarrassed many foes and friends alike with her far-too-laudatory comments of Mao Zedong and the Chinese cultural revolution.
Robinson joined the British Academy in and was elected fellow of Newnham College in In , she finally became a full professor and a fellow of Girton College. In , she became the first female fellow of King's College. Her lack of a Nobel prize has been considered one of the saddest "oversights" of the modern economics profession - or one of the most outrageous cases of deliberate neglect. Nonetheless, the real "prize" is better than any Nobel: while other prominent economists drop into obscurity, her legendary works have maintained their analytical and inspirational hold on economics.
A mere glance at her eclectic and voluminous collection of works remains perhaps among the better testaments to both the depth and breadth of the impact Joan Robinson had on economic theory as a whole. Despite her many contributions to high theory, Robinson never mastered mathematics. In a famous incident, she declined an invitation from Ragnar Frisch in to become vice-president of the Econometric Society. In explaining her refusal, she pointed out that she could not very well oversee a journal that she couldn't read! Her negligence was partly motivated by her suspicion of the increasing mathematization of economics.
As she put in a favorite comment, ""I never learned math, so I had to think. Major Works of Joan Robinson Economics is a Serious Subject: The apologies of an economist to the mathematician, the scientist and the plain man , Luxemburg , Accumulation of Capital. Collected Economic Papers, Vol. I , Economic Philosophy: An essay on the progress of economic thought , Kalecki , Studies in the Theory of Business Cycles.
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The New Mercantilism: an inaugural lecture , Economics: An awkward corner , Naqvi, QJE. IV , Kregel, Reconstruction of Political Economy. Kalecki , Essays on Developing Economies. Contributions to Modern Economics , Cripps, , JPKE. Aspects of Development and Underdevelopment , V , What Are the Questions?
And other essays , Wilkinson, , in Vicarelli, editor, Keynes's Relevance Today. He had taken that first essential step out of the sea, but he failed to go further. The next step was to use the type of framework that he had developed to describe markets in which goods varied by quality.
Gig Economy (Student Essay)
There was no analysis as to how different qualities of goods in the case of growth theory, different qualities of capital would affect markets. But the stage was set to analyze more generally the behavior of markets with many different types of product quality. Growth theory set the stage in yet another way for the discovery of asymmetric information.
Denison used the differential in earnings of those with different schooling as a basis for estimating how changes in education would affect productivity. But, as he acknowledged, his estimates were invariably polluted, since those with more schooling also on the average had greater natural ability, which would also contribute to their earnings. I put this idea on the back-burner, to be pursued in due course. It was a useful bit of structure, but how could it be applied more generally? What would constitute a paper? Perfect competition with perfect information was so useful precisely because it provided a framework for theoretical analysis: one could analyze in this framework the existence or non-existence of deviations from economic efficiency.
The asymmetric information and the inefficiency of the egg-grader model of education might be interesting structure, but it would take some exploration before I could develop these thoughts into a useful paper. I turned my focus, instead, to the effects of asymmetric information in the automobile market. My interest in economics had always been in macroeconomics. I believed then, as I still believe today, that unemployment, with the financial hardship and the loss of identity that it entails, is a very major problem.
This led me to consider the causes of the business cycle. At the time a very major factor in the business cycle was the fluctuation in sales of new cars, leading naturally to the question: why was there so much variation in new car purchases? In order to tackle this problem, I had to see why people purchased new cars, rather than rented cars, or purchased used cars.
There, asymmetric information seemed to play a key role. I knew that a major reason as to why people preferred to purchase new cars rather than used cars was their suspicion of the motives of the sellers of used cars. As mentioned earlier, this insight, of course, had been central to the horse trading profession for centuries, but I did not know that at the time either.
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I did not have the modeling ability to be able to show what I really wanted. I really wanted to show that the informational advantage of sellers of used cars over buyers of new cars, would force car buyers into the new car market and therefore exacerbate business-cycle fluctuations.
I also realized then that this phenomenon, which I had first perceived in the market for education, would extend to a large number of other fields as well, including insurance markets and the market for loans, where borrowers vary by risk. Indeed, I soon saw that asymmetric information was potentially an issue in any market where the quality of goods would be difficult to see by anything other than casual inspection. Rather than being a handful of markets, the exception rather than the rule, that seemed to me to include most markets.
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These ideas were at least somewhat well formulated at the time that I arrived at Berkeley as a new assistant professor fresh from graduate school in September , and I had dinner with Tom Rothenberg, who was also new to the Berkeley faculty. Tom asked me what I was working on and I went down my list of different items.
What are the Questions and Other Essays: Further Contributions to Modern Economics
I always keep a list of potential topics, partly because an idea is usually not useful on its own, but only in combination with another, and also for psychological reasons, so that when one idea fails, I can turn without remorse to another. Tom tells me today that he is quite sure that I knew that asymmetric information was at the top of my agenda.
I am not so sure. In any case, he thought that the idea was quite intriguing and encouraged me to pursue it. In any case, I wrote my first draft, with the example that the market for used cars would collapse. My style of proof came from mathematics specifically, from topology.