Limits of Markets


Lent 2018/19  

Teacher responsible:  Prof Maitreesh Ghatak


Brief description of the theme: The narrow self-interest driven view of individuals in the economic domain has increasingly come under question. Recent work in economics has moved beyond stylized models of motivation based on a narrow view of homo economicus who cares about only money and leisure and have embraced a wider perspective on motivation. At the same time, the power of self-regulating markets to achieve the greatest good for the largest number is increasingly under question due to rising inequality and unemployment, unravelling of social norms and communities due to market forces, and environmental degradation. 

In this research seminar, we will examine various aspects of this broad theme of Limits of Markets – their intrinsic limitations as mechanisms to allocate resources from the welfare point of view and the kind of limits that may be needed to be put in place to prevent them having corrosive effects on society.  But what form should government intervention take? For example, show we ban organ sales? Is Universal Basic Income an answer to the labour displacement by automation? Should we use incentive pay to improve public service delivery or should we worry about pro-social motivation being crowded out if we do so? How are social norms formed – is it an equilibrium that people coordinate on or does it affect people’s preferences? How do social norms and market forces interact – e.g., can labour market or product market competition eliminate discrimination against some social group or can they reinforce them? Should we look beyond government vs market binary, and look at communities, the third-sector (non-profits, social enterprises)?  How do these organisations work, in what way they are different from standard (for-profit) firms, and how they survive in a market economy?   

Below you will find the link to an audio recording with slides from a recent panel discussion that will give you a bit of a background to the broad theme. It was a panel in which Nava Ashraf, Oriana Bandiera, and I participated at the Economics Panel of the British Science Festival in Brighton in September 2017 titled “How Does Caring for One Another Affect Economic Decisions?”

This is a brief write-up on that panel:

Contact Information

My office is 3.08A in the third floor of 32LIF.  


My assistant is Lubala Chibwe (, Ext 6674, 32 Lincoln Inn Fields, 3rd Floor, office 3.06.

My office hours are Tuesdays 4 -5PM.  You can sign up on this sheet for an appointment:  

There are some extra appointment slots in the spreadsheet. Please email Lubala to book an appointment at a different time if the slots are all full or you cannot make them for some reason.


This course is compulsory on the BSc in Philosophy, Politics and Economics. This course is not available as an outside option nor to General Course students.

This course is only available to second year students on the BSc in Philosophy, Politics and Economics.


The course will include lecture-seminars given by researchers from inside and outside LSE and will allow for the opportunity to interact and ask questions. 

Each term will consist of a series of biweekly lecture-seminars (5 x 90mins) and class-seminars (5 x 60mins).

The class-seminars will discuss the previous lecture through specific questions on the topic that will be circulated after the lecture.  Students are expected to be prepared for discussing the answers to these questions during the class. 



All lectures will take place at PAR.1.02 (Parish Hall on the LSE campus, room 1.02) from 17-18.30. 

Lecture 1 - January 17

Maitreesh Ghatak.  Department of Economics, and STICERD, LSE.

Topic:  Limits of Markets - Should All Voluntary Exchanges be Legal?



Lecture 2 - January 31 

Christopher Pissarides. Department of Economics and CFM, LSE

Topic: Technological disruption in markets with frictions



Lecture 3 – February 14


Zaki Wahhaj. School of Economics, University of Kent.

Topic: Social Constraints and Discrimination in Labour Markets




Lecture 4 - February 28 

Oriana Bandiera. Department of Economics, and STICERD, LSE

Topic: What Economists Really Do  




Lecture 5 - March 14

Stephan Chambers. The Marshall Institute, LSE.

Topic:  Social Entrepreneurship






Students will be assessed throughout the course, through essays, and class participation.

Students will be expected to produce one 2500-word group essay by the end of the LT.  Groups of size three to four will be formed from within each section of the class-seminars. Students are required to write a 2,500-word essays in groups in the LT of year 2 and MT of year 3 to prepare them for the individual assessment of year 3. This essay will be due the last day of the Lent term – March 29, 2019. A 500 word proposal for the essay will be due on Friday, February 15 (Week 5). All essays and proposals should be sent by email (in pdf form) to by 10PM of the day of the deadline. Groups will be invited to meet with the course convener in his office to discuss the proposal and receive feedback.  

Feedback on the essay proposal and essay will help prepare students for the final individual essay.

The format of class participation will range from questions and comments during a lecture/class to more structured forms such as a mock panel or debate format.

The final summative grade will weigh the essay (80%) and class participation (20%) from all three terms (the essays will be weighted 25%, 25% and 50%, respectively).

The overall grade the students will receive will be one of four: fail, pass, merit and distinction.

EC240 and EC340 will be assessed in the same manner as LSE100. Marks of F, P, M, DI appear on the transcript but do not affect progression or the final degree classification.


LSE Course & Programme Guide,PoliticsAndEconomics.htm


Background readings for Ec 240


General Readings on the Broad Theme


Jean TiroleEconomics for the Common Good, Princeton University Press, 2017. (The introduction and Chapters 2 and 5 are excellent for how the discipline of Economics relates to broader public policy debates and that there is no presumption that economists are blind supporters of the free market).


Daniel Hausman, Michael McPherson, and Debra SatzEconomic Analysis, Moral Philosophy, and Public Polcy, Cambridge University Press, Third Edition, 2017. (An electronic version of the second edition of this book is available at the LSE Library)

Ravi Kanbur, "Economic Policy, Distribution, and Poverty - The Nature of the Disagreements", World Development, 29(6), 1983-1094, 2001. (An excellent summary of the core nature of disagreements between economists and non-economists.)


Sandel, Michael, What Money Cannot Buy - The Moral Limits of Markets, Allen Lane, 2012; (A modern classic – a non-economist’s critique of market economics).


Sandel, Michael, Justice- What's the Right Thing to Do, Allen Lane, 2009; (An excellent introduction to alternative approaches to welfare judgements).


Satz, Debra, Why Some Things Should Not be For Sale - The Moral Limits of Markets, Oxford University Press, 2010; (An excellent complement to Sandel’s book, often taking different positions.)


Rodrik, Dani, Economics Rules, Oxford University Press, 2015; (A great introduction to the methodology of using models in Economics).



Specific Readings on Individual Topics


(Will be updated through the term)


For each lecture there will be a few video clips and background readings to help you get an introduction to the core issues. There will be a number of additional readings for each topic if you want to pursue it in greater depth and/or find useful for the essay that you are required to write. 



Lecture 1 (Maitreesh Ghatak)






Video links from related talks:

See also Moodle for link from last year’s lecture


Michael Sandel (2012): "How Markets Crowd Out Morals - A Forum on the Corrupting Effects of Markets", Boston Review, May 1.

Timothy Besley (2013): "What’s the Good of the Market? An Essay on Michael Sandel’s What Money Can’t Buy", Journal of Economic Literature 2013, 51(2), 478–495.  

Maitreesh Ghatak (2009): "Buying Land and Selling Kidneys", Financial Express, 2009.


Additional Readings


Michael Sandel (2012): What Money Can’t Buy: The Moral Limits of Markets. Allen Lane, 2012. Introduction and Chapter 3.

Jean Tirole (2017): “The Moral Limits of the Market”, Chapter 2 in Economics for the Common Good, Princeton University Press (copies have been ordered in the LSE library to be put up in course collections).

Ravi Kanbur, "On Obnoxious Markets", Working Paper, Cornell University, 2001. (A very insightful early contribution to the limits of the market debate).

Alvin Roth (2007), "Repugnance as a Constraint on Markets", Journal of Economic Perspectives,  21(3), Summer 2007, pp. 37-58.

Enrique Guerra-Pujol (2014): “Buy or Bite?” in Economics of the Undead, edited by Glen Whitman & James Dow (2014), pp. 123-129 ( ).  

Daniel Hausman, Michael McPherson, and Debra SatzEconomic Analysis, Moral Philosophy, and Public Polcy, Cambridge University Press, Third Edition, 2017, Chapter 6.

Carl Mellström and Magnus Johannesson (2008): “Crowding out in Blood Donation: Was Titmuss Right?” Journal of the European Economic Association, Vol. 6, No. 4 (Jun., 2008), pp. 845-863.

Gary S. Becker and Julio Jorge Elías (2007): "Introducing Incentives in the Market for Live and Cadaveric Organ Donations", The Journal of Economic Perspectives, Vol. 21, No. 3 (Summer, 2007), pp. 3-24.

R. Benabou and J. Tirole (2010): "Individual and Corporate Social Responsibility," Economica, 77, 1-19, 2010.

Maitreesh Ghatak (2016): "A Critique of the Law Banning Commerical Surrogacy in India,", August 31, 2016.

Maitreesh Ghatak (2014): "Should all voluntary exchanges be legal? First version: September 2, 2014.


Lecture 2 (Christopher Pissarides)





Video links from related talks:



Christopher Pissarides and Jacques Bughin (2018): “Embracing the New Age of Automation”, Project Syndicate, January 18.

Christopher Pissarides (2018): The Impact of AI on the Future of Work: Technology and Jobs in the Digital Era, lecture given at event on AI and the Future of Work at the Royal Economic Society and The British Academy.  (Here is a link to The Sunday Times story on this).

Maximilian Kasy (2018): "Why a Universal Basic Income Is Better Than Subsidies of Low-Wage Work", Working Paper, Harvard University.

Maitreesh Ghatak (2017): "Combating poverty in developing countries with a universal basic income",, July 17, 2017. 


 Additional Readings


Christopher Pissarides (2011): Equilibrium in the Labour Market with Search Frictions, American Economic Review 101 (June 2011): 1092–1105.

David Autor (2019): "Work of the Past, Work of the Future", Slides from Richard T. Ely Lecture, American Economic Association Annual Meeting, January 4, 2019, Atlanta

Thomas Piketty and Emmanuel Saez (2014): "Inequality in the long run", Science 23 May 2014:Vol. 344, Issue 6186, pp. 838-843.

David Autor(2014): "Skills, education, and the rise of earnings inequality among the “other 99 percent”",  Science 23 May 2014:Vol. 344, Issue 6186, pp. 843-851

David H. Autor (2015): "Why Are There Still So Many Jobs? The History and Future of Workplace Automation", Journal of Economic Perspectives, Summer 2015, 29(3), 3–30.

Maitreesh Ghatak and François Maniquet (2018): "Some Theoretical Aspects of a Universal Basic Income Proposal" , revised version to appear in the Annual Reviews of Economics

David Autor and Anna Salomons (2018): “Is Automation Labor-Displacing? Productivity Growth, Employment, and the Labor Share”, Brookings Papers on Economic Activity, Spring 2018, 1-63

Daron Acemoglu and Pascual Restrepo (2018): “Artificial Intelligence, Automation, and Work”, Working Paper, MIT. 


Lecture 3 (Zaki Wahhaj)






Video links from related talks:




Arrow, K.J. (1998) “What has Economics to say about Racial Discrimination?”, Journal of Economic Perspectives, Vol. 12(2), pp. 91-100.

Danielle Kurtzlebe (2015): "Eliminating racism and sexism would boost US workers' output by 10 percent or more",

Mueser P. (1987) “Discrimination”. The New Palgrave Dictionary of Economics. Palgrave Macmillan, London

Lang, K. and J.K. Lehmann (2012) “Racial Discrimination in the Labor Market: Theory and Empirics”, Journal of Economic Literature, Vol. 50(4), sections 1-3.



 Additional Readings


Bertrand, M. and S. Mullainathan (2004): Are Emily and Greg More Employable than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination, The American Economic Review, Vol. 94, No. 4, (Sep., 2004), pp. 991-1013

Loury, G.C. (1992) “Incentive Effects of Affirmative Action”, Annals of the American Academy of Political and Social Science, Vol. 523, pp. 19-29.

Goldin, C. (2006) “The Quiet Revolution that Transformed Women’s Employment, Education and Family”, American Economic Review Papers and Proceedings, May 2006.

Heath, R. and Jayachandran, S. (2018) “The Causes and Consequences of Increased Female Education and Labor Force Participation in Developing Countries” in The Oxford Handbook of Women and the Economy.

Mammen, K. and C. Paxson (2000) “Women’s Work and Economic DevelopmentJournal of Economic Perspectives, 14(4), 141-164.

Giuliano P. (2014) “Female Labour Force Participation: Persistence and Evolution”. The New Palgrave Dictionary of Economics. Palgrave Macmillan, London


Lecture 4 (Oriana Bandiera)






Video links from related talks:




Orazio Attanasio, Oriana Bandiera, Richard Blundell, Stephen Machin, Rachel Griffith and Imran Rasul (2017): "Dismal ignorance of the “dismal science”—a response to Larry Elliot", Institute for Fiscal Studies, 23 Dec 2017

Angrist, Joshua, Pierre Azoulay, Glenn Ellison, Ryan Hill, and Susan Feng Lu. 2017. "Economic Research Evolves: Fields and Styles." American Economic Review, 107 (5): 293-97.

Oriana Bandiera and Julia Tobias (2015): "Hiring Do-Gooders or Go-Getters: Attracting talent to improve public service delivery", IGC Blog, 13 Jul 2015.

Oriana Bandiera, Kelsey Jack, Nava Ashraf (2012): "No margin, no mission? Motivating agents in the social sector",, 13 March 2012




Nava Ashraf and Oriana Bandiera (2018): "Social Incentives in Organizations", Annual Review of Economics, Vol. 10:439-463. 

Tim Besley and Maitreesh Ghatak (2018): "Pro-social Motivation and Incentives" Annual Review of Economics, Volume 10, pp 411-438, 2018.

Nava Ashraf, Oriana Bandiera, and Scott Lee (2018): "Losing Pro-sociality in the Quest for Talent? Sorting, selection, and productivity in the delivery of public services", Working Paper, LSE. 


Nava Ashraf, Oriana Bandiera, and Kelsey Jack "No Margin, No mission? A field experiment on incentives for public service delivery"Journal of Public Economics,  2014.  



Lecture 5 (Stephan Chambers)


Topic:  Social Entrepreneurship


Slides (from last year, will be updated once received)




Video links from related talks:




Howard H. Stevenson and David E. Gumpert (1985): "The Heart of Entrepreneurship",  Harvard Business Review MARCH–APRIL 1985

J. Gregory Dees (1998): "The Meaning of "Social Entrepreneurship", Working Paper, Duke University.

Maitreesh Ghatak (2019): "Economic Theories of the Social Sector: From Nonprofits to Social Enterprise", forthcoming in Walter W. Powell and Patricia Bromley (ed.s) The Nonprofit Sector: A Research Handbook, 3rd edition, Stanford University Press, 2019.