What is the biggest breakthrough in economics over the last fifty years?

by on September 14, 2004 at 7:12 am in Economics | Permalink

Read the answers of some some Nobel Laureates. Milton says it is acceptance of the idea of inflation as a monetary phenomenon; Vernon Smith cites Hayek.

My answer?:

Rigorous and consistent application of the idea of incentives. This includes the public choice revolution, principal-agent theory, much of law and economics, principal-agent theory, and, I would argue, the collapse of central planning (the problems of incentives were prior and more important than those of knowledge). Yes the basic idea dates back to Adam Smith and Aristotle, but try reading the American Economic Review from 1950 and you will see how far we have come.

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