"David B. Shemano" <[EMAIL PROTECTED]> wrote: ---------
"Somewhere along the way, mainstream economics became hung up on the concept of
a perfect market and an optimal allocation of resources. The conditions
necessary for a perfect market are absurdly demanding. Everything in the
economy must be transparent. Managers must have perfect information about
worker productivity and consumers must have perfect information about product
quality. There can be nothing that gives an advantage to a firm with a large
market share. There cannot be any benefits or costs of any market activity that
spill over beyond that market.
The argument between Chicago and MIT seems to be over whether perfect markets
are a "good approximation" or a "bad approximation" to reality. Masonomics goes
along with the MIT view that perfect markets are a bad approximation to
reality. But we do not look to government as a "solution" to imperfect markets.
Masonomics sees market failure as a motivation for entrepreneurship. As an
example of market failure, let us use a classic case described by a Nobel
Laureate, which is that the seller of a used car knows more about the condition
of the car than the buyer. Masonomics predicts that entrepreneurs will try to
address this problem. In fact, there are a number of entrepreneurial solutions.
Buyers can obtain vehicle history reports. Sellers can offer warranties. Firms
such as Carmax undertake professional inspections and stake their reputation on
the quality of the cars that they sell.
=======================
Unfortunately this view is a bit too self-deceptive. "Masonomics" is more like
Chicago than they will admit. Although critical of the perfect market, they
maintain the same natural law ontology, which is why their illustrious
entrepreneur avoids systematic errors in their decision making. Behavioral
economics, of course, shows otherwise.
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