I promised a longer report on Economics for the Common Good, and here it is.

There are two books that I would like from Tirole. One is on the peculiar features of the French economy. The other is on the role of imperfect information in industrial organization, finance, and regulation. Perhaps the latter can be found in one or more of the books he has already written.

Relative to what I would like, this latest book has interesting sections that are too terse and uninteresting sections that are too long.

If you are willing to wade through the entire book, you will find some really nice passages. For example, on p. 22-23, he writes,

diverging perceptions of medicine and economics are easy to explain. In medicine, the victims of secondary effects are for the most part the same people who are being treated. . .In economics, the victims of secondary effects are rarely the same people who received the original treatment. . .An economist is obliged to think about invisible victims as well, and so the public sometimes accuses the economist of being indifferent to the sufferings of the visible victims.

Yes, this is the “seen and the unseen,” but it helps to explain the hostility toward standard economic analysis of the minimum wage, rent control, and price gouging.

More excerpts to tantalize you below the fold.

p. 12:

the need for public policies that reflect the information available has crucial implications for the design of employment policy, environmental protection, industrial policy, and sectoral and banking regulation. In the private sector, asymmetries of information underlie institutions of governance and modes of financing.

p. 28:

When the state tries to allocate bandwidth free of charge to those it judges able to make the best use of it, it often confuses what it would like to do with what it can do, forgetting that it does not have all the information needed to make the right decision.

p. 58:

29 percent of Americans believe that poor people are caught in a poverty trap, and 30 percent believe that success is due to chance and not to effort or education; for Europeans, the figures are 60 percent and 54 percent, respectively.

p. 120:

the landowner who observes an abundant harvest can infer that the land is fertile or that the farmer is efficient. The landowner will then tend to offer more onerous contracts in the future; for example, the landowner will demand a higher price for a farming lease or will set ambitious goals for the harvest. If the farmer anticipates this “ratchet effect,” he in turn will be encouraged to reduce his effort (or to hide part of his harvest!).

p. 183:

A large enterprise with available cash, the ability to offer guarantees, and an established reputation will be able to get the money it needs on the bond markets. . .a startup in biotechnology or software (without liquid assets, without collateral, and without reliable cash flow) will have to submit to stricter supervision. . .Its managers will be constrained in their choices and constantly in the ejector seat.

p. 299:

This practice [local governments in France taking out variable-interest loans with low “teaser” rates] obviously benefits a politician in office–come the election, he or she can point to past balanced budgets.

p. 315:

Problems of agency were thus the source of the excessive growth in the finance sector during the 1990s and 2000s.

p. 374:

The average age of companies on France’s CAC 40 Index is 101 years. The average lifespan of a company in the S&P 500 has decreased from 61 years in 1958 to 18 years.