Academic journal article The Review of Social and Economic Issues

Incentives and the Economic Point of View: The Case of Popular Economics

Academic journal article The Review of Social and Economic Issues

Incentives and the Economic Point of View: The Case of Popular Economics

Article excerpt

INTRODUCTION

In recent years a curious idea has permeated economic thought and teaching: the idea that economics is fundamentally the study of incentives. In particular, the spread of a certain kind of "popular" economics writing in the last two decades has firmly established this notion for economists and laypersons alike. This is a strange development, considering that "incentives" as a specialized concept are relatively new in economics. To take one example, Jean]Jacques Laffont and David Martimort note that Joseph Schumpeter's exhaustive History of Economic Analysis does not contain a discussion of incentives (2002, p. 2). Furthermore, Laffont and Martimort's own discussion of incentives in the history of economic thought reveals relatively little until well into the twentieth century (2002, pp. 727). And even The New Palgrave: A Dictionary of Economics (1987) does not contain an entry for "incentives."1

Why then the shifting focus of economic research? At a deeper, formal level, this trend is largely the result of the success of agency theory, which came into its own together with the development of the theory of the firm2. This branch of economics, however, has only partially influenced popular views of incentives, which have at least one other significant inspiration. That is the incentive theory inspired by Gary Becker and many Chicago economists, which introduced incentive thinking to behavior typically considered outside the scope of economics, creating fields such as the economics of discrimination, crime and punishment, the family, and so on (Becker, 1993)3. Becker's work launched decades of research into the economic aspects of all parts of human society, in both the academic and popular spheres, and it is from this work that the popular literature on incentives in economics has largely grown. The purpose of this paper is not to explore the history of incentives in economics, or decide whether the evolution of the concept ultimately represents an advance in economic reasoning. Rather, I wish only to explore one way the concept of incentives has caused confusion in economic writing.

I will examine what I believe are some shortcomings of popular economics writings, as opposed to academic research. In practice, popular writings often influence economics teaching at the undergraduate level, and popular works are also worth considering given the wide attention they enjoy among laypersons, economists, and policymakers. I take as my main source the literature that in recent years has played such a large role in emphasizing incentives in economic reasoning. There are numerous approaches to this topic, but I consider Landsburg (1993), Levitt and Dubner (2005; 2009), and Cowen (2007) as representative, and my commentary mostly has these books in mind. Notable examples of the popular literature that emphasize incentives less are Harford (2007), Frank (2007), and Wheelan (2010). This last group of writers is often more successful in avoiding the difficulties suggested in this paper, and I occasionally use their works as foils for the first series of authors.

It is important to note that the economists listed above do not agree on all points, and certainly do not represent "schools of thought." For this reason I will limit the discussion to those points on which there appears to be consensus, and attempt to avoid falsely homogenizing opinions4. Popular economics as I characterize it is not an ideological movement or a well-defined methodological position. It is closer to what might be called a general "economic point of view." The theme of the literature is to make economics intelligible for those without formal training, and to teach the reader how to "think like an economist," or perhaps to "discover your inner economist." While its roots are in academic writing, the literature itself is designed for popular audiences and nonspecialists. To reflect this, the style and tone of these works are distinctly journalistic. …

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