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on History and Philosophy of Economics |
| By: | Erber, Georg |
| Abstract: | Money illusion in economic theory has been an assumption rejected for academic economists for quite some time. However, with the gradual diffusion of behavioural economics based on experimental research this has changed. Now, it has become a respected fact to accept money illusion as a stylized fact of human behaviour. However, it still needs a better understanding why monetary phenomena especially related to financial markets play an important role in understanding the real economy, the production, consumption and exchange of commodities and services. The author of this paper suggests that financial markets are particular engaged in intertemporal valuation problems which are common to any kind of economic activity. Since money is the unit of account, accounting problems related to the uncertain nature of future economic development makes a continuous readjustment of valuations in money units necessary. However, financial markets are imperfect as Minsky has pointed out. Because of these imperfections the possibility of significant long-lasting valuation problems emerges. One reason for this is that in standard economic reasoning the problem of intentional cheating is neglected. Furthermore major innovations like e.g. the ICT revolution with the Internet or the introduction of securitization as a means to redistribute risk as general purpose innovations make valuations of the long term to medium term impacts on the economy extremely difficult. The recent financial market bubbles are significantly related to such general purpose innovations. If monetary policy fails to control for irrational exuberance of investors about the future benefits and profits of such innovations, this inherently embodies the risk of a financial market shock, if expectations of the general public have to adjust after overoptimistic prediction about the future economic development. The author, however, considers that there are some early warning indicators which would give the possibility of timely action of policy makers to control financial market bubbles. The complacency of monetary authorities of the past decades to do so, has not primarily a diagnostic problem to deal with money illusion, but even more so with vested interests of insiders of private investors on the institution to control unlawful behaviour. By weakening the regulatory framework, failing to establish transparency and accountability of agents eager to get rich as fast as possible without taking into regard the rules of good governance the current global financial crisis of institutional failure to contain the instability of financial markets to an acceptable social level. Money illusion is so as well an expression that unfounded optimism about the self-regulatory discipline of market participates is sufficient to stop financial markets get out of control to an historical unprecedented level. |
| Keywords: | Money Illusion; Imperfect Financial Markets; Regulatory Failure; Behavioural Finance |
| JEL: | G18 G28 B00 |
| Date: | 2010–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:24246&r=hpe |
| By: | Laffont, Jean-Jacques (Université de Toulouse) |
| Abstract: | Regulators must understand basic principles of regulation, to explain with credibility their decissions, to asess the universality of the proposals, to develop new solutions, etc. For the relevance of economic theory, economists must fight to include in their frameworks enough constraints, as regulators face in practice, including technology constraints, even informational constraints, bureaucratic and political ones. Debates on regulation are turning around the world more important, defining the discussion frontier about the role of government in the economy. |
| Keywords: | regulation; economic theory; government in the economy |
| JEL: | D40 D80 L50 |
| Date: | 2010–08–03 |
| URL: | http://d.repec.org/n?u=RePEc:ris:uadewp:1999_001&r=hpe |
| By: | Ginsburg, Douglas H.; Moore, Derek W. |
| Abstract: | Neoclassical economics or “price theory†has had a profound effect upon antitrust analysis, first as practiced in academia and then as reflected in the jurisprudence of the Supreme Court of the United States. More recently, behavioral economics has had a large and growing influence upon legal scholarship generally. Still, behavioral economics has not yet affected judicial decisions in the United States in any substantive area of law. The question we address is whether that is likely to change in the foreseeable future, i.e., whether the courts’ present embrace of price theory in antitrust cases portends the courts’ imminent acceptance of behavioral economics in either antitrust or consumer protection cases. |
| Date: | 2010–04 |
| URL: | http://d.repec.org/n?u=RePEc:reg:rpubli:598&r=hpe |
| By: | Kirdina, Svetlana; Sandstrom, Gregory |
| Abstract: | Neither criticising Western social theory nor constructing an alternative kind of social theory is currently being thought of as a creative and fruitful method for social theorizing around the world today. The development of a new theoretical framework for understanding and explaining social origins and processes, both in Western and non-Western countries is therefore a relevant challenge for human-social sciences. It is also a real contribution to confront the limits of the dominant Western-based social theories on the current global academic stage. The objective of this paper is to present such a new theoretical framework: Institutional Matrices Theory (IMT), or X- & Y-Theory (Kirdina, 2001, 2003, etc.), which attempts to answer this challenge. |
| Keywords: | institutional matrices theory; comprative sociology; X- and Y-theory; social theory |
| JEL: | Z1 B52 P51 B41 B15 |
| Date: | 2010–07–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:18642&r=hpe |
| By: | Hogarth, Robin M. (Universitat Pompeu Fabra); Villeval, Marie Claire (CNRS, GATE) |
| Abstract: | Whereas economists have made extensive studies of the impact of levels of incentives on behavior, they have paid little attention to the effects of regularity and frequency of incentives. We contrasted three ways of rewarding participants in a real-effort experiment in which individuals had to decide when to exit the situation: a continuous reinforcement schedule (all periods paid); a fixed intermittent reinforcement schedule (one out of three periods paid); and a random intermittent reinforcement schedule (one out of three periods paid on a random basis). In all treatments, monetary rewards were withdrawn after the same unknown number of periods. Overall, intermittent reinforcement leads to more persistence and higher total effort, while participants in the continuous condition exit as soon as payment stops or decrease effort dramatically. Randomness increases the dispersion of effort, inducing both early exiting and persistence in behavior; overall, it reduces agents’ payoffs. Our interpretation is that, in the presence of regime shifts, both the frequency and the randomness of the reinforcement schedules influence adjustments that participants make across time to their reference points in earnings expectations. This could explain why agents persist in activities although they lose money, such as excess trading in stock markets. |
| Keywords: | randomness, ambiguity, intermittent reinforcement, incentives, experiment |
| JEL: | C92 M54 J28 J31 |
| Date: | 2010–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp5103&r=hpe |
| By: | Lorenz Goette; David Huffman |
| Abstract: | Traditionally, models of economic decision-making assume that individuals are rational and emotionless. This chapter argues that the neglect of emotion in economic models explains their inability to predict important aspects of the labor market. We focus on one example: the scarcity of nominal wage cuts. [IZA Discussion Paper No. 1895] |
| Keywords: | wage rigidity, affect, emotions, money illusion, loss aversion |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:ess:wpaper:id:2743&r=hpe |
| By: | Mitchell H. Kellman (Department of Economics, The City College of New York, and the Graduate Center of the City University of New York); Yochanan Shachmurove (Department of Economics, The City College of New York, and the Graduate Center of the City University of New York) |
| Abstract: | Development economists agree that increasing export diversification is a concomitant to economic development. An accepted explanation for Africa’s export stagnation is its dependence on monoculture, and on small number of commodities. Recently a large body of literature focuses on the relationship between economic growth and export specialization. However, there does not exist one generally acceptable measure or index for the concept of “Specialization in International Trade”. This paper suggest one such measure for specialization and its theoretical and conceptual framework are developed and applied to Singapore, South Korea, Malaysia, Mexico, Tunisia and Morocco, during the years of their take offs. |
| Keywords: | Trade Specialization Indices; Development Theory; Developing Country Export Compositions; International Trade Theory; Trade in Manufactures; Trade and Transformation. |
| JEL: | O1 O14 F1 F14 |
| Date: | 2010–08–06 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:10-029&r=hpe |
| By: | Pezzey, John C.V.; Mazouz, Salim; Jotzo, Frank |
| Abstract: | We analyse the long-term efficiency of the emissions target and of the provisions to reduce carbon leakage in the Australian Government's Carbon Pollution Reduction Scheme, as proposed in March 2009, and the nature and likely cause of changes to these features in the previous year. The target range of 5-15% cuts in national emission entitlements during 2000-2020 was weak, in that on balance it is too low to minimise Australia's long-term mitigation costs. The free allocation of outputlinked, tradable emission permits to Emissions-Intensive, Trade-Exposed (EITE) sectors was much higher than proposed earlier, or shown to be needed to deal with carbon leakage. It plausibly means that EITE emissions can rise by 13% during 2010-2020, while non-EITE sectors must cut emissions by 34-51% (or make equivalent permit imports) to meet the national targets proposed, far from a cost-effective outcome. The weak targets and excessive EITE assistance illustrate the efficiencydamaging power of collective action by the 'carbon lobby'. Resisting this requires new national or international institutions to assess lobby claims impartially, and more government publicity about the true economic importance of carbon-intensive sectors. Published in the Australian Journal of Agricultural and Resource Economics, volume 54, pages 185-202. |
| Keywords: | Environment |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:reg:rpubli:601&r=hpe |
| By: | Litan, Robert E. |
| Abstract: | In this essay, I take up Volcker’s challenge. I do so by highlighting many, perhaps most, of the key truly “financial” (not mechanical) innovations since the 1960s that have changed the way finance carries out its four economic functions: enabling parties to pay each other; mobilizing society’s savings; channeling those savings toward productive investments; and allocating financial risks to those most willing and able to bear them. Admittedly, my analysis is more qualitative than quantitative, reflecting the difficulty of putting numbers to the impacts (a follow-on project I hope to undertake). But I nonetheless assert that logic and reason can lead to lead to certain meaningful conclusions.<br><br>My ultimate verdict is that like Johnson and Kwak, I find that there is a mix between good and bad financial innovations, although on balance I find more good ones than bad ones. Individually and collectively, these innovations have improved access to credit, made life more convenient, and in some cases probably allowed the economy to grow faster. But some innovations (notably, CDOs and Structured Investment Vehicles, or SIVs) were poorly designed, while others were misused (CDS, adjustable rate mortgages or ARMs, and home equity lines of credit or HELOCs) and contributed to the financial crisis and/or amplified the downturn in the economy when it started. |
| Keywords: | Technology and Industry |
| Date: | 2010–02 |
| URL: | http://d.repec.org/n?u=RePEc:reg:wpaper:37&r=hpe |