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Microeconomic Incentives and Macroeconomic Decline

In: Economic Incentives

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  • Mancur Olson

Abstract

Perhaps no idea has been so influential on economics as the idea that outcomes depend crucially on the structure of incentives facing the participants in an economy. If tariffs, tax rates, subsidies, or property laws change, the economist normally predicts that a different outcome or allocation of resources will occur. When economists study the differences between Soviet-type economies and the market economies of the West, they again emphasize the differences in the structure of incentives. Economists have also been relatively successful in providing parsimonious explanations of economic behavior with theories built upon the assumption that the individuals and firms in an economy respond to the incentives with which they are confronted. Certainly there is no other system of thought in the social sciences with anything like the same explanatory power.

Suggested Citation

  • Mancur Olson, 1986. "Microeconomic Incentives and Macroeconomic Decline," International Economic Association Series, in: Bela Balassa & Herbert Giersch (ed.), Economic Incentives, chapter 2, pages 40-66, Palgrave Macmillan.
    • Handle: RePEc:pal:intecp:978-1-349-18204-6_2
    DOI: 10.1007/978-1-349-18204-6_2
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