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This chapter argues that the art of phronesis is central to doing the right thing as an economist. Phronesis, or practical wisdom, is what we practice when we deliberate, weigh values, take into account our feelings and those of others, consider the circumstances, and grope for the right thing to do. Central to phronesis is figuring out the goods to strive for and the appropriate means to realize those goods. We argue that the goods can be categorized into personal goods, social goods, societal goods, and transcendental goods. An important choice that any economist faces is which conversation to join, to which part of economics he wishes to contribute. We argue that situating ourselves in a university department, in the search for truth and truth only, is an important moral choice, with consequences for the goods we can realize.

This chapter gives an overview over smooth backfitting-type estimators in additive models. Moreover, it illustrates their wide applicability in models closely related to additive models such as nonparametric regression with dependent error variables where the errors can be transformed to white noise by a linear transformation, nonparametric regression with repeatedly measured data, nonparametric panels with fixed effects, simultaneous nonparametric equation models, and non- and semiparametric autoregression and GARCH models. This chapter also discusses extensions to varying coefficient models, additive models with missing observations, and the case of nonstationary covariates.

This chapter considers the psychological, methodological, and normative paths taken by behavioral law and economics (“BLE”) and alternative paths that BLE might have taken, and might still take. The counterfactual BLE imagined here focuses on performing behavioral analyses of legal problems rather than promoting the heuristics and bias view of judgment and decision-making to compete with law and economics’ rational actor model. This change in focus would give priority to empirical studies in which particular legal institutions and specific legal tasks are simulated or studied in situ rather than to studies of abstract and general judgment and decision-making problems that may provide more theoretical bang but have less clear applied payoff in specific legal contexts.

This chapter analyzes the financial crisis from three ethical perspectives. It starts from utilitarianism, the ethical theory underlying neoclassical economics, which has partly driven the crisis. The best-known alternative is deontology, a rule-based ethics. This has failed to prevent the crisis because the dominant utilitarianism has undermined professionals’ belief in universal rules. The third approach is the ethics of care, a relational ethics grounded in moral commitments between people in their particular contexts, which emerged from research on families, households, and healthcare. There are two case studies that illustrate that the ethics of care is not necessarily limited to micro practices shaped by women’s traditional roles as caregivers. One case is on “caring finance” in Rabobank, and the other is on gender differences in financial behavior. They illustrate that the ethics of care deserves more attention from economists.

This chapter provides a survey of the economics literature on multisided platforms with particular focus on competition policy issues, including market definition, mergers, monopolization, and coordinated behavior. It provides a survey of the general industrial organization theory of multisided platforms and then considers various issues concerning the application of antitrust analysis to multisided platform businesses. It shows that it is not possible to know whether standard economic models, often relied on for antitrust analysis, apply to multisided platforms without explicitly considering the existence of multiple customer groups with interdependent demand. It summarizes many theoretical and empirical papers that demonstrate that a number of results for single-sided firms, which are the focus of much of the applied antitrust economics literature, do not apply directly to multisided platforms.

Both theoretical and empirical work in a number of different fields, including economics, accounting, finance, organizational theory, and sociology provides important insights indicating that a firm is not merely a single entity in its actions. Rather, a firm is made up of a number of various components, each of which has its own incentives that shape firm behavior. This chapter reviews both the antitrust and the non-antitrust literatures on compliance and corporate governance to provide a clearer picture of the extant literature and the theoretical and empirical gaps within the antitrust literature to better inform antitrust policy on detecting cartels. This chapter explores the scholarship both within and outside of antitrust to better understand internal detection of wrongdoing and improved compliance in the antitrust cartel context.

Since China has modeled its antitrust regime on that of the EU, there are essentially two antitrust regime types: the United States and the EU. This chapter is a brief comparative study of the two regimes. I focus on three categories in which fundamental differences are observed: enforcement, legal standards, and procedure. Within each of the three categories, I narrow the focus to a specific illustrative feature. With respect to enforcement, the EU imposes gain-based penalties, while the United States imposes harm-based penalties. In predation law, the United States has a marginal cost standard and the EU has an average cost standard. With respect to procedure, the United States is a common law system, while the EU’s procedure is closer to the civil law system in its allocation of power between the courts and the enforcement agency. These differences have profound implications for the welfare consequences of global antitrust enforcement.

Antitrust litigation has been experiencing a growth spurt in the past several decades as the result of expanding public enforcement worldwide, active private enforcement in the United States, and initial forays into private enforcement in other areas of the world. Given the large costs to the parties flowing from antitrust trials, it is not surprising that a vast majority of both private and public enforcement actions are resolved through settlement. This essay sketches out the conceptual framework underlying the settlement-trial decision. It also describes some of the empirical evidence on the settlement of both public and private antitrust cases and in the process offers commentary on a number of important policy issues.

Network industries, including the Internet, have shown significant growth, substantial competition, and rapid innovation. This chapter examines antitrust policy towards network industries. The discussion considers the policy implications of various concepts in the economics of networks: natural monopoly, network economic effects, vertical exclusion, and dynamic efficiency. The analysis finds that antitrust policymakers should not presume that network industries are more subject to monopolization than other industries. Deregulation and the strength of competition in network industries have removed justifications for structural separation as a remedy. Also, the chapter argues that deregulation and competition have effectively eliminated support for application of the essential facilities doctrine. Antitrust policy in network industries should be guided by considerations of dynamic efficiency.

This chapter surveys the theoretical and empirical literature on bid rigging in auctions. In particular, it reviews the theory and practice of bidding rings in one-shot auctions and in repeated auctions. The main theme is how the type of auction, whether it is first-price or second-price, sealed bid or oral, affects the incentive of bidders to collude and the way in which they collude.

This article describes and analyzes the Austrian approach to law and economics within the context of the law and economics discipline. The important and distinctive feature of the Austrian approach is the emphasis on economic and legal processes. The article focuses on four themes within the Austrian approach to law and economics: the spontaneous origin of legal institutions; the analysis of implications of ignorance, decentralization of knowledge, and static and dynamic uncertainty; the interaction between the changes in legal institutions and the market process and coordination; and entrepreneurship in market and non-market settings.

The increasing use of randomized evaluations in economics has brought an increase in discussion about ethical issues. We argue that while there are ethical issues specific to randomization, most important ethical challenges are not unique to this methodology. The rise in direct researcher involvement with antipoverty programs that has accompanied the rise in randomized evaluations has made ethics issues more salient and raised complex regulatory questions. Though the principles of respect for persons, justice, and beneficence outlined by the 1978 Belmont Report continue to provide a useful ethical framework, we note a number of challenging tradeoffs in applying them including those around data confidentiality, informed consent, and misleading research subjects. We conclude by discussing how ethical guidelines are applied in practice, noting a number of gaps, ambiguities, and areas where we believe practice is diverging from the underlying principles. These issues apply with equal force to all empirical methodologies.

This chapter focuses on the universal principles of banking and financial regulation. Banking and financial regulation is needed to protect the financial system, which provides functions essential to economic development. Traditionally, financial regulation focused on banking because banks historically have aggregated moneys (primarily by taking deposits from customers) and then allocated those monies (by making loans to borrowers). Traditional financial regulation is geared toward ensuring that deposit-taking banks can continue to perform these functions efficiently. In recent years, however, shadow banking has begun to overtake traditional banking. Financial regulation has two overall goals: to ensure that the components of the financial system—firms and markets—can efficiently perform their underlying economic functions, and to ensure the financial system’s ability to itself function as a network within which those components can operate.

This chapter explores Major League Baseball (MLB)'s antitrust exemption and its current relevance, starting by presenting a brief overview of the antitrust laws in the United States. Next, MLB's anomalous antitrust exemption and its vulnerability to Congressional action are explained, and it is argued that the antitrust exemption is largely irrelevant today. The anticompetitive pooling of broadcast rights is covered by the Sports Broadcasting Act, which shields such pooling from the antitrust laws. The exemption had an enormous financial impact for over fifty years as it protected and preserved MLB's monopsonistic reserve system, which meant that the club owners obtained nearly the entire surplus generated by the business of baseball. The agreements on other labor issues, namely player drafts, age restrictions, and roster size, are considered. There is still an extremely good reason for MLB to jealously guard its antitrust exemption.

After contrasting behavioral criminal law and economics with the retributivist tradition and with traditional criminal law and economics, the chapter illustrates how various behavioral phenomena can be used to predict the effects of criminal law norms and to design criminal law in a way that serves social goals, in particular deterrence. It explores the effects of uncertainty on deterrence; it examines the effects of prospect theory and the differential effects of future uncertainty (prediction) and past uncertainty (postdiction) on the propensity to commit crime. It also investigates the effects of overoptimism on the propensity to commit crime. Last the chapter discusses the literature on happiness and its relevance to the optimal design of criminal law. It establishes that the literature on happiness can be used to promote retributive justice concerns. The chapter concludes by examining critically the potential contribution of behavioral studies to the optimal design of criminal law norms.

Classical contract law, Chicago economics, and Chicago law-and-economics all assumed that people rationally maximize their utility. However, just as classical contract law was supplanted by modern contract law, so Chicago-style law-and-economics is being supplanted by a school of law-and-economics based on behavioral psychology or behavioral economics. The shift to behavioral law-and-economics, which is still under way, has arrived in three waves. The first wave showed that actors often make decisions without being fully informed, without adequately processing the available information, and without bringing to consciousness critical assumptions that underlay their decisions. The second wave showed that in certain areas, actors systematically make decisions that are not rational. The third wave shows that in making decisions, contracting actors are often motivated by moral principles as well as by wealth-enhancement.

Because choosing insurance requires consumers to assess risks and probabilities, the demand for insurance has proven to be fertile ground for identifying deviations from rational behavior. Consumers often shun the insurance against large losses that they rationally should want (e.g., floods); and they are attracted to insurance against small losses (extended warranties, low deductibles) that no rational individual should purchase. But the welfare consequences of behavioral anomalies in insurance are complex, because consumers’ irrational behavior takes place in a market profoundly shaped by informational asymmetries. Under some conditions, deviations from rational behavior may actually generate insurance market equilibria that produce greater welfare than would be achieved in a market in which all consumers are rational. This chapter summarizes the literature and discuss the legal and policy implications of this conclusion.