Economic Policy Challenges: Microeconomics and Regulation

Given its contributions to policy and practice in such key sectors as health care, industrial organization and technological innovation, and energy and the environment, microeconomics may not be getting the kind of respect, or at least attention, it deserves, these panelists suggest. The field helped “produce a revolution in antitrust thinking” in the U.S., says Dennis Carlton. Since the 1960s, the Department of Justice and the Federal Trade Commission have tapped the talent of dozens of PhD economists, who came up with notions like offering incentives (by way of lower fines and leniency) to those who admit participating in corporate cartels. This “simple idea” led to regulatory policy “with large payoffs,” says Carlton. Simulations and modeling help determine whether the government will approve a merger, or step in when corporations become too big. “Emerging hot topics” in antitrust and industrial organization include the use of product bundling; patent law, especially in high tech; control and use of information over the internet; and privacy issues. Richard Schmalensee calls attention to microeconomics’ generally unrecognized impact on energy and environmental regulations. For instance, cost benefit analysis was applied to the process of making federal environmental rules, and is now “a bipartisan thing a part of good government.” And much of the country moved away from a traditional model of regulating electric utilities, giving greater scope to competition, after some deep economic thinking about incentives. That’s the good news. Schmalensee finds it “frankly amazing” and occasionally infuriating how economic thinking has not been applied to energy and environmental policy: the idea of drilling our way to energy independence; and the pursuit of renewable energy as a way of tackling climate change while side-stepping market mechanisms to achieve environmental goals. Schmalensee says he loves “the sun and the wind, but let’s get serious.” “We live ...

Channel: MIT World Video Length: 0s Date Found: Fri, Feb 11 2011 8:14 PM Category: Science Date Produced: Fri, Feb 11 2011 12:00 AM View Count: 1