William J. Baumol

American economist.

Developed contestable markets theory.

Major works of William J. Baumol

– Community Indifference, 1946, RES
– A Community Indifference Map: A construction, 1949, RES
– A Formalization of Mr. Harrod’s Model, 1949, EJ
– The Analogy between Producer and Consumer Equilibrium Analysis, with Helen Makower, 1950, Economica
– Economic Dynamics, with R. Turvey, 1951
– The Transaction Demand for Cash: An inventory-theoretic approach, 1952, QJE
– The Classical Monetary Theory: The outcome of the discussion, with G.S. Becker, 1952, Economica
– Welfare Economics and the Theory of the State, 1952
– Firms with Limited Money Capital, 1953, Kyklos
– Economic Processes and Policies, with L.V. Chandler, 1954
– More on the Multiplier Effect of a Balanced Budget, with M.H. Preston, 1955, AER
– Acceleration without Magnification, 1956, AER
– Variety in Retailing, with E.A. Ide, 1956 Management Science
– Speculation, Profitability and Stability, 1957, REStat
– Activity Analysis in One Lesson, 1958, AER
– On the Theory of Oligopoly, 1958, Economica
– Topology of Second Order Linear Difference Equations with Constant Coefficients, 1958, Econometrica
– The Cardinal Utility which is Ordinal, 1958, EJ
– Business Behavior, Value and Growth, 1959
– Integer Programming and Pricing, with R.E. Gomory, 1960, Econometrica
– Economic Theory and Operations Analysis, 1961
– What Can Economic Theory Contribute to Managerial Economics?, 1961, AER
– Pitfalls in Contracyclical Policies: Some tools and results, 1961, REStat
– The Theory of Expansion of the Firm, 1962, AER
– Stocks, Flows and Monetary Theory, 1962, QJE
– An Expected Gain-Confidence Limit Criterion for Portfolio Selection, 1963, Management Science
– Rules of Thumb and Optimally Imperfect Decisions, 1964, AER
– Decomposition, Pricing for Decentralization and External Economics, with T.Fabian, 1964, Management Science
– On the Performing Arts: the anatomy of their economic problems, with W.G. Bowen, 1965, AER
– Investment and Discount Rates Under Capital Rationing, with R.E.Quandt, 1965, EJ
– Informed Judgement, Rigorous Theory and Public Policy, 1965, Southern EJ
– The Stock Market and Economic Efficiency, 1965
– Performing Arts: the economic dilemma, 1966
– The Ricardo Effect in Point-Input, Point-Output Case, 1966, Essays in Mathematical Economics in Honor of Oskar Morgenstern
– Macroeconomics of Unbalanced Growth: The anatomy of urban crisis, 1967, AER
– Calculation of Optimal Product and Retailer Characteristics, 1967, JPE
– The Firm’s Optimal Debt-Equity Combination and the Cost of Capital, with B.G. Malkiel, 1967, QJE
– Error Produced by Linearization in Mathematical Programming, with R. Bushnell, 1967, Econometrica
– The Dual of Nonlinear Programming and its Economic Interpretation, with M.L.Balinski, 1968, RES
– Entrepreneurship in Economic Theory, 1968, AER
– On the Social Rate of Discount, 1968, AER
– On the Discount Rate for Public Projects, 1969, Analysis and Evaluation of Public Expenditures
– Input Choices and Rate-of-Return Regulation: An overview of the discussion, with A.K.Klevorick, 1970, Bell JE
– Optimal Departures from Marginal Cost Pricing, with D.F. Bradford, 1970, AER
– The Economics of Athenian Drama, 1971, QJE
– Environmental protection, International Spillovers and Trade, 1971
– On the Economics of the Theatre in Renaissance London, with Mary Oates, 1972, Swedish JE
– The Dynamics of Urban Problems and its Policy Implications, 1972, in Preston and Corry, editors, Essays in Honor of Lord Robbins
– Taxation and the Control of Externalities, 1972, AER
– Detrimental Externalities and Non-Convexity of the Production Set, with D.F. Bradford, 1972, Economica
– The Transformation of Values: What Marx `Really’ Meant, 1974, JEL
– The Theory of Environmental Policy, with W.E.Oates, 1975
– Economics, Environmental Policy and Quality of Life, with W.E.Oates and S.A. Batey Blackman 1979
– Contestable Markets and the Theory of Industry Structure, with J.C. Panzar and R.D. Wilig, 1982
– Microetheory: Applications and origins, 1986
– Superfairness: Application and theory, with D. Fischer, 1986
– The Optimal Cash Balance Proposition: Maurice Allais’ Priority, with J. Tobin, 1989, JEL
– Productivity and American Leadership: The long view, with S.A. Batey Blackman and E.N. Wolff, 1989
– Perfect Markets and Easy Virtue: Business ethics and the invisible hand, with S.A. Batey Blackman, 1992
– Entrepreneurship, Management and the Structure of Profit, 1993

Early life

Baumol was born in the South Bronx. His parents, Solomon and Lillian, were both immigrants from Eastern Europe.^[6]

Baumol studied at the City College of New York and was awarded his bachelor’s degree in 1942. After college, he served in the U.S. Army in World War II and later worked for the Department of Agriculture as an economist.^[6][7]

Education

He was initially denied entry to the doctoral studies at the London School of Economics and was instead admitted to the Master’s program. After witnessing his debating skills at Lord Lionel Robbins’ seminars, he was within weeks switched to the doctoral program and also admitted to the faculty as an Assistant Lecturer.^[8]

Teaching

While a professor at Princeton University he supervised some graduate students who would eventually become very well-known economists, including Burton Malkiel, William G. Bowen, and Harold Tafler Shapiro.^[1]

Research

Among his better-known contributions are the theory of contestable markets, the Baumol-Tobin model of transactions demand for money, Baumol’s cost disease, which discusses the rising costs associated with service industries, Baumol’s sales revenue maximization model^[9] and Pigou taxes.^[10][11] His research on environmental economics^[12] recognized the fundamental role of non-convexities in causing market failures.^[13]

William Baumol also contributed to the transformation of the field of finance, and published contributions to the areas of efficiency of capital markets, portfolio theory, and capital budgeting.^[14]

Entrepreneurship

The place of the disruptive innovations and innovative entrepreneurs in traditional economic theory (which describes many efficiency-based ratios assuming uniform outputs) presents theoretic quandaries. Baumol contributed greatly to this area of economic theory. The 2006 Annual Meetings of the American Economic Association held a special session in his name, and honoring his many years of work in the field of entrepreneurship and innovation,^[15] where 12 papers on entrepreneurship were presented.^[16]

The Baumol Research Centre for Entrepreneurship Studies at Zhejiang Gongshang University is named after William Baumol.^[17]

In 2003, Baumol received the Global Award for Entrepreneurship Research^[18] “[f]or his persistent effort to give the entrepreneur a key role in mainstream economic theory, for his theoretical and empirical studies of the nature of entrepreneurship, and for his analysis of the importance of institutions and incentives for the allocation of entrepreneurship.”^[19]

The British news magazine, The Economist published an article about William Baumol and his lifelong work to develop a place in economic theory for the entrepreneur (March 11, 2006, pp 68), much of which owes its genesis to Joseph Schumpeter. They note that traditional microeconomic theory normally holds a place for ‘prices’ and ‘firms’ but not for that (seemingly) important engine of innovation, the entrepreneur. Baumol is given credit for helping to remedy this shortcoming: “Thanks to Mr. Baumol’s own painstaking efforts, economists now have a bit more room for entrepreneurs in their theories.”

William Baumol’s book, The Microtheory of Innovative Entrepreneurship^[20] is the first formal theoretical analysis of the role of innovative entrepreneurs.

Textbooks

Baumol wrote several textbooks in economics, including an introductory textbook with Alan Blinder titled Macroeconomics: Principles and Policy.^[21] His economics textbook on operations research was internationally well-received:^{[citation needed]}

In the 1960s and 1970s, nearly every economics department offered a course in operations research methods in economics, and the usual textbook used was Economic Theory and Operations Analysis by W. J. Baumol. An entire generation of economics students was familiar with this book ….^[22]

Professional and philanthropic interests

Baumol was a trustee of Economists for Peace and Security. Baumol was known for his interests in the economics of art, including the economics of the performing arts.^[23]

Death

Baumol died on May 4, 2017 at the age of 95