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This intriguing collection is designed to show how economists can play a more active role in designing and directing the nation's social institutions. By taking the task of political economy seriously, the contributors (including some of today's most distinguished economists) reveal the power of economic thought to offer innovative solutions to some of the most difficult problems facing society today. By creating markets where none existed before, the authors propose efficient, reliable, and profitable improvements to current systems of health insurance, financial markets, human organ distribution, judicial practice, bankruptcy and securities regulation, patenting, and transportation. Written in the entrepreneurial spirit, these essays show economics to be an ambitious, dynamic, and far-from-dismal science.
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ENTREPRENEURIAL ECONOMICS This page intentionally left blank AN INDEPENDENT INSTITUTE BOOK ENTREPRENEURIAL ECONOMICS Bright Ideas from the Dismal Science Edited by Alexander Tabarrok OXFORD UNIVERSITY PRESS 2002 OXFORD UNIVERSITY PRESS Oxford New York Athens Auckland Bangkok Bogota Buenos Aires Cape Town Chennai Dar es Salaam Delhi Florence Hong Kong Istanbul Karachi Kolkata Kuala Lumpur Madrid Melbourne Mexico City Mumbai Nairobi Paris Sao Paulo Shanghai Singapore Taipei Tokyo Toronto Warsaw and associated companies in Berlin Ibadan Copyright © 2002 by The Independent Institute Published by Oxford University Press, Inc. 198 Madison Avenue, New York, New York 10016 Oxford is a registered trademark of Oxford University Press All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press. Library of Congress Cataloging-in-Publication Data Entrepreneurial economics: bright ideas from the dismal science / edited by Alexander Tabarrok. p. cm. Includes bibliographical references and index. ISBN 0-19-515028-7 (cloth); ISBN 0-19-514503-8 (pbk.) 1. Entrepreneurship. 2. Economics. I. Tabarrok, Alexander. HB615 .E5967 2002 338'.04—dc21 2001045841 9 8 7 6 5 4 3 2 Printed in the United States of America on acid-free paper Acknowledgments The contributors appreciate permission to reprint the following: Aghion, P., O. Hart, and }. Moore. 1994. Improving Bankruptcy Procedure. Washington University Law Quarterly 72 (3):849-72. Reprinted here as chapter 11. Reprinted with permission of Washington University Law Quarterly. © 1994 Washington University Law Quarterly. All rights reserved. Athanasoulis, S., R. Shiller, and E. van Wincoop. 1999. Macro Markets and Financial Security. Federal Reserve Bank of New York: Economic Policy Review 5 (l):21-39. Reprinted here as chapter 2. Reprinted with permission of S. Athanasoulis, R. Shiller, and E. van Wincoop. © 1999 Federal Reserve Bank of New York and Economic Policy Review, All rights reserved. Barnett, A. H., R. D. Blair, and D. L. Kaserman. 1996. A Market for Organs. Society 33 (6):8-17. Reprinted here as chapter 6. Reprinted with permission of Transaction Publishers. © 1996 by Transaction Publishers. All rights reserved. Cochrane, J. H. 1995. Time-Consistent Health Insurance. Journal of Political Economy 103 (3):445-73. Reprinted here as chapter 4. Reprinted with permission of the Journal of Political Economy and J. H. Cochrane. © 1995 The University of Chicago. All rights reserved. Friedman, D. 1996. More Justice for Less Money. Journal of Law and Economics XXXIX (April):211-40. Reprinted here as chapter 10. Reprinted with permission of the Journal of Law and Economics. © 1996 by The University of Chicago. All rights reserved. vi Acknowledgments Hanson, R