I LOVE JAPAN. Kazuhiro Arai

The Nature of Economics (2) When a contract is incomplete as in the real world, the agents have discretion and face interdependence or a game situation. Each can influence the welfare of the other. Pursuit of self-interest in this situation is generally inefficient. This discretion includes many commonplace behaviors such as providing wrong information, doing shoddy work, and working slowly. They will surely decrease the welfare of the partners such as employers, employees, and consumers. The game situation can be described as the prisoner's dilemma game. It shows that pursuit of self-interest under contract incompleteness with discretion leads to inefficiency. For example, telling a lie is a strictly dominating strategy* in it but both players being honest is more efficient than both telling a lie. The above story suggests that individualism or unrestrained pursuit of self-interest cannot be justified in general. It may be loosely justified only in organized markets, suc

The Nature of Economics (1) Many people believe that economics is a science that promotes the welfare of all human beings. However it is actually used to justify strategies of particular groups as in the case of free trade. Today’s economics is an ideology. The basis of an ideology is formed first intuitively and then the whole is justified by cleverly applying logic. A widely used method of clever application of logic is to use only facts or assumptions that are convenient for justification. Neoclassical economics or mainstream economics is an ideology that justifies individual freedom or individualism to the maximum. Because of its mathematical nature, we can easily know what assumptions are used in it. We can know further that it ignores many inconvenient facts. One of the most important assumptions of neoclassical economics is contract completeness, which means that all transaction contracts are sufficiently detailed. Otherwise it cannot justify Western individualism. But