Welcome to Incentives Matter. The main goal of this blog is to allow me to share my thoughts and readings with my students in a less intimidating environment than a large classroom. Friends and passersby are naturally very welcome to participate.
When choosing the blog header, I asked myself: if you had to summarize economics in a few words, what would those words be? The "two things about economics" looked to me like a good starting point.
The first thing about economics is "incentives matter." The second thing is "there's no such thing as a free lunch." A math econ interpretation of the two things is that the first thing is an optimal rule, while the second thing is a constraint. Between an optimal rule and a constraint I choose the rule.
"Incentives matter" is a fundamental concept in economics. It explains its unrivaled success as a social science and allows economists to easily shake off its critics. "Incentives matter" is a theoretically and empirically sound principle that works well across related fields of knowledge, such as evolutionary biology, psychology and anthropology. Almost all modern economics derives from this simple idea.
If the two things about economics can be seen as an optimal rule and a constraint, then what is it that is maximized? The utilitarian approach simplifies the problem by saying that the goal is to maximize utility. My personal take however is that the ultimate human goal is to maximize freedom. Maximization of utility or wealth is just a part of the whole business of becoming freer.
Here we get to the second part of the header. Since I believe that the ultimate human goal is freedom maximization, then it's natural that in this blog I will focus my attention on issues related to freedom and economics. Furthermore, it can be argued that knowledge is the most important engine driving us ahead in the road to freedom (another possible engine is love). Knowledge, condensed in all its representations, such as physical capital, human capital, technology, science, artworks, contracts, and institutions, leads to increased material and nonmaterial wealth and consequently frees us from the necessities of life.
Look ahead for my musings on freedom, economics and knowledge. And also on the 7th art, my favorite hobby!