Cover	1
	Title Page	5
	Copyright	6
	Contents	7
	Preface	15
	Acknowledgments	19
	Introduction	21
	Rationale	21
	Organization	22
	Method	23
	Reader Outcomes	23
	Themes	24
	Relevance and Applicability	25
	References	26
	Notes	26
	Chapter 1 Production	28
	1.1 The Production Function	29
	1.2 The "Law'' of Variable Proportions	31
	1.3 Substitution	33
	1.4 Measuring Substitution	35
	1.5 Specific "Functional Forms'' for Production Functions	36
	1.6 Attributing Products to Inputs: Distributing Income from Production	37
	1.7 Efficiency and the Choice of How to Produce	38
	1.8 Predictions of Production Theory 1: Input Price Changes	40
	1.9 Predictions of Production Theory 2: Technological Changes	41
	1.10 Stocks and Flows	42
	1.11 The Distribution of Income	43
	1.12 Production Functions in Achaemenid Babylonia	45
	References	46
	Suggested Readings	47
	Notes	47
	Chapter 2 Cost and Supply	49
	2.1 The Cost Function	51
	2.2 Short Run and Long Run	52
	2.3 The Relationship between Cost and Production	53
	2.4 Producers' Objectives	54
	2.5 Supply Curves	55
	2.6 Demands for Factors of Production	60
	2.7 Factor Costs in General: Wages and Rents	61
	2.8 Allocation of Factors across Activities	63
	2.9 Organizing Production: The Firm	63
	2.10 A More General Treatment of Cost Functions	66
	2.11 The Economics of Mycenaean Vases, I: Supply and Cost	67
	2.12 Accounting for Apparent Cost Changes in Minoan Pottery	69
	2.13 Production in an Entire Economy: The Production Possibilities Frontier	70
	References	72
	Suggested Readings	73
	Notes	73
	Chapter 3 Consumption	75
	3.1 Rationality of the Consumer	77
	3.2 The Budget	77
	3.3 Utility and Indifference Curves	78
	3.4 Demand	80
	3.5 Demand Elasticities	83
	3.6 Aggregate Demand	85
	3.7 Evaluating Changes in Wellbeing	86
	3.8 Price and Consumption Indexes	90
	3.9 Intertemporal Choice	93
	3.10 Durable Goods and Discrete Choice	95
	3.11 Variety and Differentiated Goods	99
	3.12 Value of Time and Household Production	102
	3.13 Risk, Risk Aversion, and Expected Utility	106
	3.14 Irrational Behavior	108
	3.15 Fixed Prices	110
	3.16 Applying Demand Concepts: Relationships between Housing Consumption, Housing Prices, and Incomes in Pompeii	113
	3.17 The Economics of Mycenaean Vases, II: Demand	116
	References	119
	Suggested Readings	119
	Notes	120
	Chapter 4 Industry Structure and the Types of Competition	123
	4.1 Perfect Competition	124
	4.2 Competitive Equilibrium	126
	4.3 Monopoly	128
	4.4 Oligopoly	130
	4.5 Monopolistic Competition	131
	4.6 Contestable Markets	132
	4.7 Buyer's Power: Monopsony	133
	4.8 The Economics of Mycenaean Vases, III: Industry Structure	134
	4.9 Ancient Monopoly and Oligopoly: Religion and Foreign Trade	135
	References	137
	Suggested Readings	138
	Notes	138
	Chapter 5 General Equilibrium	140
	5.1 General Equilibrium as a Fact and as a Model	140
	5.1.1 The facts	141
	5.1.2 The models	141
	5.1.3 The questions	143
	5.2 The Walrasian Model	144
	5.3 Exchange	147
	5.4 The Two-Sector Model	148
	5.4.1 The basics with the Lerner-Pearce diagram	148
	5.4.2 Growth in factor supplies	150
	5.4.3 Technical change	152
	5.5 Existence and Uniqueness of Equilibrium	153
	5.6 Computable General Equilibrium Models	154
	References	156
	Suggested Readings	157
	Notes	157
	Chapter 6 Public Economics	159
	6.1 Government in the Economy: Scope of Activities, Modern and Ancient	159
	6.2 Private Goods, Public Goods, and Externalities	161
	6.2.1 Private goods	161
	6.2.2 Public goods	162
	6.2.3 Externalities	163
	6.3 Raising Revenue	169
	6.3.1 Taxation 1: rationales and instruments	169
	Equity versus efficiency	169
	The social welfare function	170
	Taxes: categories, concepts, and specific instruments	171
	6.3.2 Taxation 2: effects of taxes	174
	Distortions	174
	Deadweight losses from taxation	175
	Personal income taxes and labor supply	178
	Effects on saving	181
	Effects on risk taking	184
	6.3.3 Taxation 3: tax incidence (who really pays?)	185
	6.3.4 Taxation 4: optimal tax systems	189
	6.3.5 Other revenue sources	193
	6.4 The Theory of Second Best	194
	6.5 Government Productive Activities	195
	6.5.1 Public production and pricing	195
	Pricing and production in declining-cost industries	195
	Ramsey pricing	196
	Multiple-part pricing	198
	The structure of public enterprises	199
	Public economic planning	199
	6.5.2 The supply of public goods and social choice mechanisms	201
	The optimal provision of public goods financed by taxes	202
	Voting on public goods: the Arrow impossibility theorem	203
	Preference-revelation mechanisms	204
	The positive economics of politics	205
	6.5.3 Public investment and cost-benefit analysis	206
	6.6 Regulation of Private Economic Activities	211
	6.6.1 Rent seeking	212
	6.6.2 The costs of regulation: the Averch--Johnson effect	213
	6.7 The Behavior of Government and Government Agencies	214
	6.7.1 Theories of government	214
	6.7.2 Theories of bureaucracy	215
	6.7.3 Levels of government	216
	6.8 Suggestions for Using the Material of this Chapter	216
	References	217
	Suggested Readings	219
	Notes	219
	Chapter 7 The Economics of Information and Risk	222
	7.1 Risk	222
	7.1.1 The ubiquity of risky decisions	223
	7.1.2 Concepts and measurement	225
	7.1.3 Risk and behavior: expected utility	229
	Elements of risk	229
	Expected utility	230
	Certainty equivalence, the risk premium, and risk aversion	230
	Individual equilibrium under uncertainty	232
	7.1.4 Risk versus uncertainty: the substance of probabilities	235
	7.2 Information and Learning	237
	7.2.1 The structure of information	237
	7.2.2 Learning as Bayesian updating	238
	7.2.3 Experts and groups	243
	Contracting with experts for information	243
	Information and group decisions	244
	7.3 Dealing with Nature's Uncertainty	245
	7.3.1 Contingent markets	245
	State-claims and assets	246
	Maximizing state-contingent utility	246
	Complete markets	247
	Incomplete markets	248
	Production adjustments for contingent consumption	248
	State-dependent utility	249
	7.3.2 Portfolios and diversification	250
	The individual portfolio	250
	Market equilibrium and the "capitalization'' of risk in asset prices	254
	7.4 Behavioral Uncertainty	255
	7.4.1 Asymmetric information: problems and solutions	256
	The principal--agent relationship and the moral hazard problem	257
	Adverse selection	259
	Signaling and screening	260
	Signaling	260
	Screening	262
	7.4.2 Strategic behavior	262
	7.5 Expectations	266
	7.5.1 The role of expectations in resource-allocation decisions	267
	7.5.2 Adaptive models of expectations	267
	7.5.3 The rational expectations hypothesis	269
	7.6 Competitive Behavior under Uncertainty	272
	7.6.1 Production behavior	272
	7.6.2 Search problems	273
	7.7 Suggestions for Using the Material of this Chapter	273
	References	274
	Suggested Readings	275
	Notes	275
	Chapter 8 Capital	278
	8.1 The Substance and Concepts of Capital	278
	8.1.1 Capital as stuff	279
	8.1.2 Capital in the production function	282
	8.1.3 Stocks, flows, and accumulation	283
	8.1.4 Prices and values	284
	8.1.5 Temporal aspects of capital	285
	Durability	285
	Ageing of capital	286
	"Embodiment''	288
	8.1.6 Measuring capital	288
	8.1.7 The labor theory of value	289
	8.2 Quasi-Rents	290
	8.3 Interest Rates	292
	8.4 The Theory of Capital	296
	8.4.1 Present and future consumption, investment, and capital accumulation	296
	8.4.2 Demand for and supply of capital: flows and stocks	299
	8.4.3 Capital richness and interest rates	303
	8.5 Use of Capital by Firms	304
	8.5.1 Investment	304
	8.5.2 Maintenance	307
	8.5.3 Scrapping and replacement	309
	8.6 Consumption and Saving	310
	8.6.1 Intertemporal utility maximization	310
	8.6.2 Hypotheses about consumption	311
	8.6.3 Individual and aggregate savings	314
	8.7 Capital Formation	314
	8.8 Suggestions for Using the Material of this Chapter	316
	References	317
	Suggested Readings	318
	Notes	318
	Chapter 9 Money and Banking	321
	9.1 The Services of Money	322
	9.1.1 Money as a medium of exchange	322
	9.1.2 Money as a store of value	322
	9.1.3 Money as a unit of account	323
	9.1.4 Stability of value	323
	9.1.5 Monetization prior to currency	323
	9.2 The Types of Money	324
	9.2.1 Commodity money	324
	9.2.2 Credit money	324
	9.2.3 One special case of credit money: bank money	325
	9.3 Some Preliminary Concepts	325
	9.3.1 The price level	325
	9.3.2 Inflation	326
	9.3.3 "Nominal'' versus "real'' distinctions	327
	9.3.4 What people in antiquity knew	329
	9.4 The Demand for Money	329
	9.4.1 Measuring money	330
	9.4.2 The distinctiveness of the demand for money	331
	9.4.3 Monetary theory and macroeconomics for ancient economies?!	332
	9.4.4 The neoclassical quantity theory	333
	9.4.5 Keynesian monetary theory	335
	9.4.6 The contemporary synthesis	337
	9.5 The Supply of Money	338
	9.5.1 Supply of a commodity money	340
	9.5.2 Creation of money by banks	343
	9.5.3 The banking firm	348
	9.5.4 Financial intermediation	352
	9.5.5 Exogeneity / endogeneity of money supply and foreign exchange	355
	9.5.6 Seigniorage: making money by issuing money	356
	9.5.7 Bimetallism	357
	9.6 Inflation	357
	9.6.1 Causes of inflation	358
	9.6.2 Mechanisms of inflation	359
	9.6.3 Consequences of inflation	360
	9.7 Monetary Policy	362
	9.7.1 The players and their motives	362
	9.7.2 Choice of monetary standard	363
	9.7.3 Influencing the supply of money	363
	9.7.4 Influencing the demand for money	365
	9.7.5 International monetary policies	365
	9.8 Suggestions for Using the Material of this Chapter	365
	References	365
	Suggested Readings	367
	Notes	367
	Chapter 10 Labor	370
	10.1 Applying Contemporary Labor Models to Ancient Behavior and Institutions	370
	10.2 Human Capital	373
	10.2.1 Investment in human capital	374
	10.2.2 Health	376
	10.2.3 Guilds, occupational licensing, and entry restriction	376
	10.3 Labor Supply	377
	10.3.1 Utility analysis of individual and family labor supply	377
	10.3.2 Lifecycle / dynamic labor supply	384
	10.3.3 Supply of labor to activities	388
	10.3.4 Household production	389
	10.4 Labor Demand	395
	10.4.1 The productive enterprise's demand for labor	396
	10.4.2 Derived demand	399
	10.5 Labor Contracts	404
	10.5.1 Information problems and incentives	404
	10.5.2 The basis of pay	405
	10.5.3 Sequencing of pay	407
	10.5.4 Compensating differentials in wages	407
	10.6 Migration	411
	10.6.1 Economic incentives for migration	412
	10.6.2 Consequences of migration	414
	10.6.3 Refugee migration	416
	10.6.4 Equilibrating migration flows when the wage rate doesn't adjust	416
	10.7 Families	418
	10.7.1 Marriage	418
	10.7.2 Intrafamily resource allocation	425
	10.7.3 Children and the economics of fertility and child mortality	432
	10.8 Labor and the Family Enterprise	434
	10.8.1 The farm family household and the separability of production decisions from consumption decisions	435
	10.8.2 Effects of missing markets on labor allocation	438
	10.8.3 Restrictions on household activities	440
	10.8.4 Implications of the family farm model	442
	10.9 Slavery	443
	10.9.1 The supply of slaves	444
	10.9.2 The demand for slaves	446
	10.9.3 Investment in slaves	447
	10.9.4 Market consequences of slaves	447
	10.9.5 Slaves' incentives	447
	10.10 Suggestions for Using the Material of this Chapter	448
	References	449
	Suggested Readings	452
	Notes	453
	Chapter 11 Land and Location	460
	11.1 The Special Characteristics of Land	460
	11.2 Land as a Factor of Production	461
	11.2.1 Supply	461
	11.2.2 Demand	461
	11.3 The Location of Land Uses	462
	11.3.1 The Thünen model	462
	11.3.2 The bid-rent function	467
	11.3.3 Equilibrium in a region	470
	11.3.4 Modifying the social context	471
	11.4 The Location of Production Facilities	472
	11.4.1 Individual facilities	472
	11.4.2 Industries	475
	11.5 Consumption and the Location of Marketing	477
	11.5.1 The structure of transportation costs	477
	11.5.2 The shopping tradeoff: frequency versus storage	478
	11.5.3 Aggregate demand in a spatial market	480
	11.5.4 Hierarchies of marketplaces: central place theory	481
	11.5.5 Periodic markets	482
	11.6 Transportation	483
	11.6.1 Infrastructure	483
	11.6.2 Equipment	485
	11.6.3 Pricing of transportation services	485
	11.7 Suggestions for Using the Material of this Chapter	487
	References	488
	Suggested Readings	489
	Notes	490
	Chapter 12 Cities	492
	12.1 Cities and their Analysis, Modern and Ancient	492
	12.1.1 Classifying cities	492
	12.1.2 Characteristics of cities	493
	12.1.3 What goes on in cities	493
	12.1.4 Ancient observations and contemporary analytical emphases	494
	12.2 Economies of Cities	495
	12.2.1 Scale economies in production	495
	12.2.2 Externalities	497
	12.2.3 Types of production	497
	12.3 Housing	499
	12.3.1 The Special Characteristics of Housing	499
	12.3.2 Housing supply	500
	12.3.3 Housing demand	501
	12.4 Urban Spatial Structure	502
	12.4.1 The monocentric city model	503
	12.4.2 Multiple categories of residents	508
	12.4.3 Working at home	509
	12.4.4 Endogenous centers	510
	12.4.5 Density gradients and the ancient city	511
	12.4.6 Wage differentials across cities	511
	12.5 Systems of Cities	512
	12.5.1 Production and consumption within any city	513
	12.5.2 Different types of cities	517
	12.5.3 The city size distribution and its responses to various changes	519
	12.6 Urban Finance	523
	12.6.1 Local public goods	524
	12.6.2 What to supply and how much	525
	12.6.3 Raising revenue	526
	12.7 Suggestions for Using the Material of this Chapter	527
	References	528
	Suggested Readings	530
	Notes	531
	Chapter 13 Natural Resources	536
	13.1 Exhaustible Resources	537
	13.1.1 The theory of optimal depletion	537
	13.1.2 Different deposits	540
	13.1.3 Uncertainty	541
	13.1.4 Exploration	541
	13.1.5 Monopoly	543
	13.2 Renewable Resources	544
	13.2.1 Biological growth	544
	13.2.2 Harvesting	545
	13.2.3 The theory of optimal use	547
	13.2.4 Open access and the fishery	548
	13.3 Resource Scarcity	551
	13.4 The Ancient Mining-Forestry Complex	551
	13.5 Suggestions for Using the Material of this Chapter	552
	References	553
	Suggested Readings	553
	Notes	553
	Chapter 14 Growth	555
	14.1 Introduction	555
	14.1.1 Economic growth: delimiting the scope	555
	14.1.2 Growth in antiquity: is there anything to explain?	556
	14.2 Essential Concepts	556
	14.2.1 Production functions again	556
	14.2.2 Technical change	557
	14.2.3 Growth versus development	557
	14.3 Neoclassical Growth Theory	558
	14.3.1 The Solow model	558
	14.3.2 Technology and growth in the Solow model	561
	14.3.3 Endogenizing technical change	563
	14.3.4 Extent of the market, division of labor, and productivity	565
	14.4 Structural Change	566
	14.4.1 Sectoral concepts as organizing devices	566
	14.4.2 A two-sector model of an economy	568
	14.4.3 Some stylized facts	569
	14.5 Institutions	571
	14.5.1 Property rights	572
	14.5.2 Governments	572
	14.5.3 Stability and change	573
	14.6 Studying Economic Growth in Antiquity	573
	14.6.1 What there is to explain	574
	14.6.2 Organizing inquiry about economic growth with the help of growth theory	574
	The output side	575
	The input side	576
	14.6.3 Studying episodes of growth following declines: beyond growth theory	577
	14.6.4 Summary	579
	14.7 Suggestions for Using the Material of this Chapter	579
	14.7.1 Evidence of growth	579
	The production side	579
	Fruits of growth	580
	14.7.2 Sectoral structure	581
	References	581
	Suggested Readings	584
	Notes	584
	Index	589