The market has both a coordination function and an incentive function. The first theorem of welfare economics is all about coordination; the principalagent model is all about incentives. What is the relative importance of the market
in carrying out these two functions? While there has been a shift in economic theory in the past thirty years from emphasizing the coordination role to emphasizing the incentive role, it is not clear whether this reflects a new and deeper understanding of the market. Understanding the market’s functions, in real economies, may be key for understanding the degree to which redistribution in them is feasible. |
