The 20 Most Influential Economic Papers Of All Time

via Business Insider: 

 

An economics paper rocked the world earlier this month at the Kansas City’s Fed’s symposium at Jackson Hole, Wyoming. 

Columbia University Professor Michael Woodford’s “Accommodation at the Zero Lower Bound” showed how central bankers’ words and targets can be just as powerful as actual actions.

Fed Chairman Ben Bernanke appears to have acted on Woodford’s implicit conclusion that, as our Joe Weisenthal put it, you can use “Verbal Easing” to do something, while waiting to see if things improve.

Economics papers have had tremendous influence on how decisions are made, how strategies are developed,  and how policy is determined.

Last year, the American Economic Review put together last year a list of its 20-most important papers during its 100-year existence.

Read on to see that list (in no particular order).

 

“The Use of Knowledge In Society”

Publication date: 1945

Authors: Friedrich Hayek

Conclusion: Prices must be the focal point of all economic decisions.

LINK TO PAPER

Source: AER

“The Cost of Capital, Corporation Finance and the Theory of Investment”

"The Cost of Capital, Corporation Finance and the Theory of Investment"

Publication date: 1958

Authors: Franco Modigliani and Merton Miller

Conclusion: A firm’s total market value is invariant to its borrowing behavior.

LINK TO PAPER

Source: AER

“Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?”

Publication date: 1981

Authors: Stephen A. Ross

Conclusion: Stock price volatility is far too great to be simply attributed to new information about future real dividends.

LINK TO PAPER

Source: AER

“An Almost Ideal Demand System”

"An Almost Ideal Demand System"

Publication date: 1980

Authors: Angus S. Deaton and John Muellbauer

Conclusion: You can predict household demand based on the relative costs of “subsistence” versus “bliss”.

LINK TO PAPER

Source: AER

“Uncertainty and the Welfare Economics of Medical Care”

Publication date: 1963

Authors: Kenneth J. Arrow

Conclusion: The health care market is too plagued by moral hazard and consumers’ lack of information to be viewed as free.

LINK TO PAPER

Source: AER

“Some International Evidence on Output-Inflation Tradeoffs”

"Some International  Evidence on Output-Inflation Tradeoffs"

Publication date: 1973

Authors: Robert E. Lucas, Jr.

Conclusion: You can model what happens when consumers make decisions without knowing whether a  price change also signals a relative price change.

LINK TO PAPER

Source: AER

“The Role of Monetary Policy”

Publication date: 1968

Authors: Milton Friedman

Conclusion: There exists a “natural rate of unemployment,” or the number of jobs a given economy can support.

LINK TO PAPER

Source: AER

“Monopolistic Competition and Optimum Product Diversity”

Publication date: 1965

Authors: Avinash K. Dixit and Joseph E. Stiglitz

Conclusion: Product variety can influence the way the market dictates resource allocation. The market considers profits, while a social optimum takes into account the consumer’s surplus.

LINK TO PAPER

Source: AER

“A Theory of Production”

"A Theory of Production"

Publication date: 1928

Authors: Charles W. Cobb and Paul H. Douglas

Conclusion: You can figure out how much production a given amount of capital and labor can yield.

LINK TO PAPER

Source: AER

“Optimal Taxation and Public Production”

"Optimal Taxation and Public Production"

Publication date: 1971

Authors: Peter A. Diamond and James A. Mirrlees

Conclusion: It is possible to set taxes that minimize distortions and disincentives, and eliminate production inefficiencies.

LINK TO PART I & Part II

Source: AER

“Capital Theory and Investment Behavior”

"Capital Theory and Investment Behavior"

Publication date: 1963

Authors: Dale W. Jorgenson

Conclusion: Cost-of-finance (interest rates and equity yields) and taxes should drive investment decisions.

LINK TO PAPER

Source: AER

“Production, Information Costs, and Economic Organization”

"Production, Information Costs, and Economic Organization"

Publication date: 1972

Authors: Armen A. Alchian and Harold Demsetz

Conclusion: Firms must continuously measure productivity. The market alone is not enough to generate peak output — strong management is also required, and firm’s will benefit from devoting resources to it.

LINK TO PAPER

Source: AER

“On The Impossibility Of Informationally Efficient Markets”

"On The Impossibility Of Informationally Efficient Markets"

Publication date: 1980

Authors: Sanford Grossman

Conclusion: In a world of dispersed information, the equilibrium price can itself be a source of information to consumers.

LINK TO PAPER

Source: AER

“Scale Economies, Product Differentiation and the Pattern of Trade”

"Scale Economies, Product Differentiation and the Pattern of Trade"

Courtesy of ABC

Publication date: 1980

Authors: Paul Krugman

Conclusion: Standard comparative cost theory doesn’t sufficiently explain trade.

LINK TO PAPER

Source: AER

“Migration, Unemployment and Development”

"Migration, Unemployment and Development"

Publication date: 1970

Authors: John R. Harris and Michael Todaro

Conclusion: In poor countries, individuals migrate from rural to urban areas.

LINK TO PAPER

Source: AER

“The Political Economy of the Rent-Seeking Society”

"The Political Economy of the Rent-Seeking Society"

Publication date: 1974

Authors: Anne O. Kreuger

Conclusion: Tariffs are better for countries to enact than import quotas.

LINK TO PAPER

Source: AER

“Economic Growth and Income Inequality”

"Economic Growth and Income Inequality"

Publication date: 1955

Authors: Simon Kuznets

Conclusion: Earlier phases of economic development are characterized by increasing income inequality.

LINK TO PAPER

Source: AER

“National Debt In A Neoclassical Growth Model”

"National Debt In A Neoclassical Growth Model"

Publication date: 1965

Authors: Peter A. Diamond

Conclusion: External and internal government debt can potentially reduce capital stock in the long-run.

LINK TO PAPER

Source: AER

“A Theory of Optimum Currency Areas”

"A Theory of Optimum Currency Areas"

Publication date: 1961

Authors: Robert A. Mundell

Conclusion: You can figure out the optimal number of entities for a given currency areas.

LINK TO PAPER

Source: AER

“The Economic Theory of Agency: The Principal’s Problem”

"The Economic Theory of Agency: The Principal's Problem"

Publication date: 1973

Authors: Stephen A. Ross

Conclusion: There is a way to avoid moral hazard when you’re paying people a lot of money.

LINK TO PAPER

Source: AER

 

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