Working Paper: CEPR ID: DP3813
Authors: Paul Klemperer
Abstract: Economic theory is often abused in practical policy-making. There is frequently excessive focus on sophisticated theory at the expense of elementary theory; too much economic knowledge can sometimes be a dangerous thing. Too little attention is paid to the wider economic context, and to the dangers posed by political pressures. Superficially trivial distinctions between policy proposals may be economically significant, while economically irrelevant distinctions may be politically important. I illustrate with some disastrous government auctions, but also show the value of economic theory.
Keywords: auction theory; auctions; bidding; economic theory; methodology; mobile phones; spectrum auctions; telecommunications; UMTS
JEL Codes: A11; B40; D44; L96
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| overemphasis on sophisticated auction theory (D44) | poor policy outcomes (D78) |
| excessive focus on advanced auction theory (D44) | neglect of elementary economic principles (P19) |
| neglect of elementary economic principles (P19) | auction designs that are not robust (D44) |
| lack of attention to wider economic context and political pressures (E65) | auction designs that fail to attract sufficient competition (D44) |
| political and organizational contexts must be considered (D73) | better auction designs and outcomes (D44) |