Economy, Society and Public Policy
Free

Economy, Society and Public Policy

By The CORE Team
Free
Book Description

ESPP is for students from any programme of study. Students develop analytical tools and data handling skills as they engage with the most pressing policy problems facing our societies: inequality, financial instability, climate change, wealth creation, and innovation. No previous knowledge of economics is needed.

In order to be well-governed, a democracy needs voters who are fluent in the language of economics and who can do some quantitative analysis of social and economic policy. We also need a well-trained cadre of researchers and journalists who have more advanced skills in these fields.

Many students in other disciplines are drawn to economics so that they can engage with policy debates on environmental sustainability, inequality, the future of work, financial instability, and innovation. But, when they begin the study of economics, they find that courses appear to have little to do with these pressing policy matters, and are designed primarily for students who want to study the subject as their major, or even for those going on to post-graduate study in the field.

The result: policy-oriented students often find they have to choose between a quantitative and analytical course of study⁠—economics⁠—that is only minimally policy oriented in content and that downplays the insights of other disciplines, or a policy and problem-oriented course of study that gives them little training in modelling or quantitative scientific methods.

Economy, Society, and Public Policy changes this.

It has been created specifically for students from social science, public policy, business and management, engineering, biology, and other disciplines, who are not economics majors. If you are one of these students, we want to engage, challenge, and empower you with an understanding of economics. We hope you will acquire the tools to articulate reasoned views on pressing policy problems. You may even decide to take more courses in economics as a result.

Print and online versions available from CoreEcon

Table of Contents
  • Table of contents
  • Preface
  • A note to instructors
  • Producing Economy, Society, and Public Policy
  • 1 Capitalism and democracy: Affluence, inequality, and the environment
    • 1.1 Introduction
    • 1.2 Affluence and income inequality
    • 1.3 How did we get here? The hockey stick in real incomes
    • 1.4 Economic growth
    • 1.5 The permanent technological revolution: Engine of growth
    • 1.6 Another engine of growth: More machines and tools per worker
    • 1.7 The capitalist revolution
    • 1.8 Capitalism and growth: Cause and effect?
    • 1.9 Varieties of capitalism: Institutions and growth
    • 1.10 Varieties of capitalism: Growth and stagnation
    • 1.11 Capitalism, inequality, and democracy
    • 1.12 Capitalism, growth and environmental sustainability
    • 1.13 Conclusion
    • 1.14 Doing Economics: Measuring climate change
    • 1.15 References
  • 2 Social interactions and economic outcomes
    • 2.1 Introduction
    • 2.2 Two types of social interaction
    • 2.3 Resolving social dilemmas
    • 2.4 Social interactions as games
    • 2.5 When self-interest works: The invisible hand
    • 2.6 When self-interest doesn’t work: The prisoners’ dilemma
    • 2.7 Free riding and the provision of public goods
    • 2.8 Social preferences and the public good
    • 2.9 Sustaining cooperation by punishing free riding
    • 2.10 How three kinds of social preferences address social dilemmas
    • 2.11 Predicting economic outcomes: A Nash equilibrium
    • 2.12 Which Nash equilibrium? Conflicts of interest and bargaining
    • 2.13 Conflicts of interest in the global climate change problem
    • 2.14 The economy and economics
    • 2.15 Conclusion
    • 2.16 Doing Economics: Collecting and analysing data from experiments
    • 2.17 References
  • 3 Public policy for fairness and efficiency
    • 3.1 Introduction
    • 3.2 Goals of public policy
    • 3.3 Fairness and efficiency in the ultimatum game
    • 3.4 Evaluating an outcome: Is it efficient?
    • 3.5 Adding the option of transferring payoffs between players.
    • 3.6 Evaluating an outcome: Is it fair?
    • 3.7 Why are (some) economic inequalities unfair? Procedural and substantive judgements
    • 3.8 Implementing public policies
    • 3.9 Unintended consequences of a redistributive tax
    • 3.10 Unintended consequences: Policies affect preferences
    • 3.11 How do we find out if a policy will work?
    • 3.12 Conclusion
    • 3.13 Doing Economics: Measuring the effect of a sugar tax
    • 3.14 References
  • 4 Work, wellbeing, and scarcity
    • 4.1 Introduction
    • 4.2 Economic models: How to see more by looking at less
    • 4.3 Decision making, trade-offs, and opportunity costs
    • 4.4 Making decisions when there are trade-offs
    • 4.5 Preferences
    • 4.6 The feasible set
    • 4.7 Decision making and scarcity
    • 4.8 Hours of work and economic growth
    • 4.9 Applying the model: Explaining changes in working hours
    • 4.10 Applying the model: Explaining differences between countries
    • 4.11 Is this a good model? Does it matter that people (mostly) do not really optimize?
    • 4.12 Extending the model: The influence of culture and politics
    • 4.13 Extending the model: Women, men, and the gender division of labour
    • 4.14 Work and wellbeing as a social dilemma
    • 4.15 Conclusion
    • 4.16 Doing Economics: Measuring wellbeing
    • 4.17 References
  • 5 Institutions, power, and inequality
    • 5.1 Introduction
    • 5.2 Institutions: The rules of the game
    • 5.3 Production and distribution: Using a model
    • 5.4 The rule of force: Bruno appears and has unlimited power over Angela
    • 5.5 Property rights and the rule of law
    • 5.6 Efficiency and conflicts over the distribution of the surplus
    • 5.7 Property rights, the rule of law, and the right to vote
    • 5.8 The lessons from Angela and Bruno’s story
    • 5.9 Measuring economic inequality
    • 5.10 Comparing inequality across the world
    • 5.11 Conclusion
    • 5.12 Doing Economics: Measuring inequality: Lorenz curves and Gini coefficients
    • 5.13 References
  • 6 The firm: Employees, managers, and owners
    • 6.1 Introduction
    • 6.2 Firms, markets, and the division of labour
    • 6.3 Power relations within the firm
    • 6.4 Other people’s money: The separation of ownership and control
    • 6.5 Other people’s labour: The employment relationship
    • 6.6 Why do a good day’s work? Consider the alternative!
    • 6.7 Employment rents
    • 6.8 Work effort and wages: The labour discipline model
    • 6.9 The employer sets the wage to minimize the cost per unit of effort
    • 6.10 Why there is always involuntary unemployment
    • 6.11 Putting the model to work: Owners, employees, and public policy
    • 6.12 Why do employers pay employment rents to their workers?
    • 6.13 Another kind of business organization: Cooperative firms
    • 6.14 Another kind of business organization: The gig economy
    • 6.15 Principals and agents: Interactions under incomplete contracts
    • 6.16 Conclusion
    • 6.17 Doing Economics: Measuring management practices
    • 6.18 References
  • 7 Firms and markets for goods and services
    • 7.1 Introduction
    • 7.2 Economies of scale and the cost advantages of large-scale production
    • 7.3 The demand curve and willingness to pay
    • 7.4 Profits, costs, and the isoprofit curve
    • 7.5 The isoprofit curves and the demand curve
    • 7.6 Gains from trade
    • 7.7 Price-setting, market power, and public policy
    • 7.8 Product selection, innovation, and advertising
    • 7.9 Buying and selling: Demand and supply in a competitive market
    • 7.10 Demand and supply in a competitive market: Bakeries
    • 7.11 Competitive equilibrium: Gains from trade, allocation, and distribution
    • 7.12 Changes in supply and demand
    • 7.13 The world oil market
    • 7.14 Conclusion
    • 7.15 Doing Economics: Supply and demand
    • 7.16 References
  • 8 The labour market and the product market: Unemployment and inequality
    • 8.1 Introduction
    • 8.2 Measuring the economy: Employment and unemployment
    • 8.3 The labour market, the product market and the aggregate economy: The WS/PS model
    • 8.4 The labour market and the wage-setting curve (firms and workers)
    • 8.5 The product market and the price-setting curve (firms and customers)
    • 8.6 Wages, profits, and unemployment in the aggregate economy
    • 8.7 Unemployment as a characteristic of equilibrium
    • 8.8 Why was unemployment higher in Spain than in Germany?
    • 8.9 Declining competition and increasing inequality in the US
    • 8.10 The labour and product market model and inequality: Using the Lorenz curve and Gini coefficient
    • 8.11 Labour unions: Bargained wages and the union voice effect
    • 8.12 Rising markups and profit share, weaker trade unions, and rising inequality
    • 8.13 Labour market policies to address unemployment and inequality
    • 8.14 Labour market policies: Shifting the Nash equilibrium
    • 8.15 Looking backward: Baristas and bread markets
    • 8.16 Structural and cyclical unemployment: The role of demand
    • 8.17 Conclusion
    • 8.18 Doing Economics: Measuring the non-monetary cost of unemployment
    • 8.19 References
  • 9 The credit market: Borrowers, lenders, and the rate of interest
    • 9.1 Introduction
    • 9.2 Income, consumption, and wealth
    • 9.3 Borrowing: Bringing consumption forward in time
    • 9.4 Reasons to borrow: Smoothing and impatience
    • 9.5 Borrowing allows smoothing by bringing consumption to the present
    • 9.6 Storing or lending allows smoothing and moving consumption to the future
    • 9.7 Mutual gains and conflicts over their distribution in the credit market
    • 9.8 Borrowing may allow investing: Julia’s best hope
    • 9.9 Balance sheets: Assets and liabilities
    • 9.10 Credit market constraints: Another principal–agent problem
    • 9.11 Inequality: Lenders, borrowers, and those excluded from credit markets
    • 9.12 The credit market and the labour market
    • 9.13 Conclusion
    • 9.14 Doing Economics: Credit-excluded households in a developing country
    • 9.15 References
  • 10 Banks, money, housing, and financial assets
    • 10.1 Introduction
    • 10.2 Assets, money, banks, and the financial system
    • 10.3 Money and banks
    • 10.4 Banks, profits, and the creation of money
    • 10.5 The central bank, banks, and interest rates
    • 10.6 The business of banking and bank balance sheets
    • 10.7 How key economic actors use and create money: A summary so far
    • 10.8 The value of an asset: Expected return and risk
    • 10.9 Changing supply and demand for a financial asset
    • 10.10 Asset market bubbles
    • 10.11 Housing as an asset, collateral, and house price bubbles
    • 10.12 Banks, housing, and the global financial crisis
    • 10.13 The role of banks in the crisis
    • 10.14 Banking, markets, and morals
    • 10.15 Conclusion
    • 10.16 Doing Economics: Characteristics of banking systems around the world
    • 10.17 References
  • 11 Market successes and failures
    • 11.1 Introduction
    • 11.2 The market and other institutions
    • 11.3 Markets, specialization, and the division of labour
    • 11.4 The ‘magic of the market’: Prices are messages plus motivation
    • 11.5 Prices as messages
    • 11.6 Putting motivation behind the price message
    • 11.7 Market failure: External effects of pollution
    • 11.8 External effects and private bargaining
    • 11.9 External effects: Government policies and income distribution
    • 11.10 Property rights, contracts, and market failures
    • 11.11 Public goods, common pool resources, and market failure
    • 11.12 Missing markets: Insurance and lemons
    • 11.13 Market failure and government policy
    • 11.14 Conclusion
    • 11.15 Doing Economics: Measuring willingness to pay for climate change mitigation
    • 11.16 References
  • 12 Governments and markets in a democratic society
    • 12.1 Introduction
    • 12.2 The limits of markets: Repugnant markets and merit goods
    • 12.3 The government as an economic actor
    • 12.4 The government as a rent-seeking monopolist
    • 12.5 Competition can limit political rent-seeking
    • 12.6 Political monopoly and competition compared.
    • 12.7 Spending by democratic governments: Priorities of a nation
    • 12.8 The feasibility of economic policies
    • 12.9 Administrative feasibility: Information and capacities
    • 12.10 Political feasibility
    • 12.11 Policy matters
    • 12.12 The distributional impact of public policies: Early childhood education
    • 12.13 Free tuition in higher education: Can it be fair to non-students?
    • 12.14 The distributional impact of public policies: Rent control
    • 12.15 Conclusion
    • 12.16 Doing Economics: Government policies and popularity: Hong Kong cash handout
    • 12.17 References
  • Glossary
  • Bibliography
  • Copyright acknowledgements
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