DP3813 Using and Abusing Economic Theory

Author(s): Paul Klemperer
Publication Date: March 2003
Keyword(s): 3g, auction theory, auctions, bidding, economic theory, methodology, mobile-phones, spectrum auctions, telecommunications, umts
JEL(s): D44, L96
Programme Areas: Public Economics, Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3813

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.