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For those who prefer to read rather than listen (understandable given the way voice rendered is in XTRANORMAL) here is the script.

W: Hi Professor Smith.

S: Ah, Wickham. Thought you were in deepest Africa dispensing economic wisdom to the natives.

W: Yurt in Outer Mongolia actually.

S: So the bloom is off the development rose?

W: Yup. Realized that all that first year micro was going to waste. Reading Freakonomics on the flight over would have sufficed.

S: Now what?

W: Well, I was thinking of theory.

S: Good. What did you have in mind?

W: Behavioral?

S: Interesting.Why?

W: Its the hot the thing. The newspapers talk about it all the time. Obama’s administration is using it. Laibson! Thaler! Rabin.

S: Bit like curve fitting isn’t it?

W: That’s harsh.

S: You’re right. I should guard my toungue. I’m sure it is all very valuable and important. When the behaviorist’s produce an Arrow, I shall read him. Until then, best to let sleeping dogs lie. What else?

W: Ambiguity aversion, unawareness and preference for flexibility. In short decision theory.

S: I see, you’ve been reading your Econometrica. Agreed, its very seductive. Much like social choice in its heyday. And like social choice, a new Sonnenschein will arrive and say, enough with the axioms.

W: But, but, what about Pesendorfer, Dekel, Epstein and so on?

S: Aristocrats of the profession! Always the last to ride the tumbrils. Not a good idea to assume you will enjoy the same fortunes they did.

W: OK then. Existence of equilibria in repeated games with imperfect monitoring?

S: What made you think of that?

W: It’s hard and no one has cracked it. Plus, Horner, Fudenberg, Olszewski, are all good company.

S: You are right. If economic theory had a Manhattan project, this would be it.

W: Thats irony, right?

S: Irony? I don’t think there has been much call for irony in the profession, oh since, Lucas invented rational expectations.

W: Social Networks?

S: Only if you want to end up on the B ark.

W: Pardon.

S: Sorry. Forgot they don’t teach anything anymore in school. The Golgafrincham’s, decided to rid themselves of a third of their population.

W:This is fiction, right?

S: Yes. From the hitch hikers guide to the galaxy. The leaders of the Golgafrinchams announce the planet is about to die and so must be evacuated. A B ark is constructed to hold amongst others management consultants, insurance salesman and telephone sanitary engineers.

W: Ok, then, Global games?

S: Will the refinements literature never die?

W: Professor Smith if you don’t mind me asking. Are you really a theorist?

S: Why do you ask?

W: You seem awfully critical of theory.

S: I see. Yes, I am a theorist. But one just past middle age.

W: Why is age relevant?

S: Just as Salmon go upstream and Vulcan’s undergo Pon Far

W: Pon what?

S: Pon Far! A psychological condition affecting Vulcans. The benefits of a classical education. Look, never mind. All theorists undergo a mid life crisis. Some emerge from it declaring theory is dead. Others, become empirical. Some cynical, treating the whole thing as a game.

W: And you?

S: I say, its time to return to our roots. Back to catallactics.

W: Cat uh what?

S: I see, no Greek either. Pertaining to the exchange of money. Its what economics used to be about before we became an imperial science. Hayek always thought that Economics should have adopted the label catallactics instead

W:I see.

S: Yes, a return to our republican roots as it were. When none was for party and all were for state.

W: Poetry?

S: Macaulay. Anyway, what I’m trying to say is that we’ve been digging around the foundations of the subject so long that we’ve turned into Morlocks.

W: Got that one. H. G. Wells right?

S: Hope for you yet Wickham. Back to the point I want to make. All of this foundational work should, at some point, say something about trade. What’s amazing is the number of questions about markets that we don’t have answers for. Even wrong answers.

W: So, what do you suggest?

S: Off the top of my head? Lets see. Bankruptcy.

W: Bankruptcy?

S: Yes.In the US there are two ways to deal with it. First, is liquidate and apportion the proceeds according to a fixed priority rule. Second, on the assumption that a reorganized firm might be more valuable than in liquidation, reorganize.

W: Does the second mean that a contract can be revised after the fact?

S: Exactly. Why not write the contract to account for the contingency for bankruptcy? Thats an incomplete contract issue. But consider something more concrete. Assuming the firm is in banruptcy, what is the efficient mechanism to decide whether it should be liquidated or reorganized recognizing the claims of the various creditors and shreholders?

W: Why would that be useful?

S: Well, there has been a great deal of criticism of the existing approach arguing it is inefficient. That may well be, but what is efficient? While a number of scholars have written about this question, none has taken the problem head on by defining the environment and determining an efficient mechanism.

W: What else?

S: The design of healthcare exchanges.By their supporters they are touted as a panacea for a variety of ills. But their effectiveness will depend on the details of their design. What can we say? For example, should the kind of insurance contracts offered be limited in some way? Or , look at the exachnages already in place. Some appear to have failed others not. Why? I cannot recall a paper that talks about the design of markets where adverse selection plays an important role.

W: Professor Smith, this seems to smack of applied theory.

S: Don’t be profane Wickham.Its not applied theory. Its high theory applied!