It's a Knowledge Problem World: Three Essays on the Knowledge Problem in Economics

Tyler Watts

Advisor: Peter Boettke

Committee Members: Virgil Storr, Mercatus Center

April 23, 2010, 07:00 AM to 08:00 AM


   This dissertation addresses the question: how do entrepreneurs solve knowledge problems within the price system? In other words, given that prices tend to guide people in their production and consumption decisions, and ultimately in economizing on all productive resources, what are the mechanisms or institutions by which entrepreneurs learn not only about market prices, but how to enter markets, recognize and exploit the opportunities that these prices represent, and overcome the obstacles to commerce thrown up by ignorance?

     Chapter 1 demonstrates the important distinction between information and knowledge, and investigates how entrepreneurs learn how to exploit profit opportunities in the simple arbitrage venture of copper penny hoarding. Chapter 2 investigates the CB radio phenomenon of the 1970s as a spontaneous outcome of an entrepreneurial quest for information in light of a regulatory change- in this case the imposition of the nationwide 55 m.p.h. speed limit. Chapter 3 explores international trade on America's Southwest frontier in the early 1800s, focusing on the economic mechanisms employed by entrepreneurs for establishing mutual trust among unkown, potentially hostile trade partners.  

     In exploring these questions, this dissertation takes up the Hayekian challenge of investigating those institutions within the social economy that serve in the discovery, dissemination, and employment of the various types of knowledge and information required for successful entrepreneurship. Only on the basis of the “right” knowledge can entrepreneurial individuals exploit fully the potential gains from trade, giving rise to maximal benefits from the division of labor, specialization, and the progressing economy.