New Horizons in Institutional and Evolutionary Economics series
This book reﬂects the development of my thinking about economic and other social phenomena over the past 15 years. As a PhD student in the 1990s, my ﬁrst encounter with economic theory was with spatial equilibrium models of real estate markets. I was struck by the simplicity and internal consistency of those models, and initially accepted them as an adequate representation of reality. But then I read Jane Jacobs’s book, The Death and Life of Great American Cities (1961), which presented a completely diﬀerent image of the urban economy. Observing the city in which I lived at the time, it seemed that Jacobs was right and that neoclassical theory was wrong, at least if my perception reﬂected any kind of objective conditions. I preferred to conclude that I was not delusional. Land uses in real cities are not neatly separated into functionally specialized parts, as one would expect if ﬁrms minimized supposedly well-known transport costs per unit of land area. Notwithstanding their empirical richness and implicit critique of equilibrium theorizing, I was still not quite sure what theory would better account for Jacobs’s observations. It seemed to me as if Jacobs proposed a set of plausible hypotheses in search of an underlying theory. Around 1995, I read Hayek’s The Use of Knowledge in Society (1945) for the ﬁrst time. This was the key that unlocked the question of why Jacobs seemed right and equilibrium models seemed wrong. It was a question of dispersed local knowledge that could...