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on History and Philosophy of Economics |
| By: | Van den Hauwe, Ludwig |
| Abstract: | In the wake of the Financial Crisis and the subsequent Great Recession several commentators have suggested that the analysis of financial instability provided by various strands of heterodox economics got it "right" and that mainstream economics got it "wrong". In this paper two variants of heterodox views about financial instability are compared critically: the views of the late Hyman P. Minsky on the one hand, and the theses of the Austrian School on the other. Indeed there seem to exist a number of prima facie similarities and analogies between Minsky’s approach to the study of financial instability and that of the Austrian School. In particular attention can be drawn to such elements as, among others, the following: (a) both theories are theories of the upper turning point; (b) both theories give due attention to institutional factors, in particular the role of banks and financial institutions; (c) both approaches reject mainstream static equilibrium theorizing; (d) both approaches adhere to a monetary theory of the business cycle and explain, in their respective ways, the non-neutrality and the endogeneity of money; (e) in both approaches the role of Knightian uncertainty is appreciated; (f) in both approaches an attempt is made to provide the theory of the business cycle with adequate micro-foundations as well as with price-theoretic foundations. At the same time it can be seen that these similarities and analogies are quite superficial. The most important differences between both approaches relate to (a) the fundamental causal analysis of business cycles and the role of the interest-rate mechanism; (b) the identification of the relevant institutional context; (b) the role of capital and capital theory; (c) the quite different appreciation of the role of liquidity and liquidity preference; (d) the link between uncertainty and institutional context and (e) the quite different remedies that are proposed by the two approaches. It is concluded that the apparent similarities between both approaches are superficial, while the divergences are profound and fundamental. |
| Keywords: | Financial Instability, Business Cycle, Minsky, Austrian School |
| JEL: | B50 B53 B59 E3 E30 E32 |
| Date: | 2014–12–24 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:61838&r=hpe |
| By: | Blankart, Charles B: |
| Abstract: | In 1870 Menger, Jevons and Walras succeeded in explaining prices in a market economy. While most economists welcomed their achievement, economists of the theory of public finance split in a Great Schism. The dissent is on the two Gossen Laws on which the neoclassical revolution relies. Continental Europeans insist in the relevance of choice and therefore adopt both Gossen laws, meaning that of declining marginal utility and that of utility equalization at the margin. The Anglo-Saxons adopt only declining marginal utility because they found that individual choice does not work for public goods. The former became choice individualists, the latter utilitarians. The Schism was revitalized with the Mirrlees Review of 2010/2011, a monumental work by 63 renowned economists over 1880 pages on what a good tax system ought to be. The author argues that without choice, nothing can be said on a good tax system. Therefore the Mirrlees Review is rejected in favour of a choice alternative which is developed in this paper. |
| JEL: | A20 B50 H20 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc14:100461&r=hpe |
| By: | John Knight; Ramani Gunatilaka |
| Abstract: | The empirical literature on the economics of happiness has grown rapidly, and much has been learned about the determinants of subjective well-being. Less attention has been paid to its normative implications. Taking China as a case study, this paper first summarises empirical results on the determinants of subjective well-being and then considers whether that evidence can be used for social evaluation. Different criteria for social evaluation give very different answers: on the one hand, real income per capita and the human development index have risen rapidly in recent years but, on the other hand, subjective well-being appears not to have risen at all. Ultimately a value judement is required: arguments are presented for and against including subjective well-being, either alone or with other criteria, in the social welfare function. |
| Keywords: | Capabilities, China, Happiness, Human development, Social evaluation, Subjective well-being |
| JEL: | D03 D63 O15 |
| Date: | 2014–01–21 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:wps/2014-09&r=hpe |
| By: | Hoffmann, Timo |
| Abstract: | The assumptions that subjects hold beliefs and that the chosen actions are not altered by a proper elicitation of these beliefs are widely used in economics. In this paper I experimentally test whether the second assumption is correct. Especially controlling for different game properties, I nd that in dominance solvable two-player normal-form games belief elicitation results in a signi cant increase of equilibrium play. Therefore the elicitation of beliefs can affect the choices made by subjects and lead to more equilibrium actions being chosen. Surprisingly one major reason for this effect is the decreased play of own dominated actions. The results indicate that belief elicitation induces subjects to think harder about the presented decision situation, which results in a better understanding of the given situation and consequently in a modi cation of their beliefs. Therefore, in certain decision situations, belief elicitation affects the decisions made by subjects. |
| JEL: | C72 C91 D83 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc14:100483&r=hpe |
| By: | Pierrick Dechaux (Centre d'Economie de la Sorbonne) |
| Abstract: | This paper analyzes the controversy between George Katona and James Tobin that happened at the end of the nineteen fifties. The central problem of the paper concerns the nature of psychological phenomena. While Tobin defends that economic behavior stems from the individual, Katona tries to develop a macropsychological approach in which the individual plays a secondary role. The controversy thus reveals the arguments that initiated the developments of microeconomic theories and the construction of microeconomic data during the nineteen fifties. |
| Keywords: | Macroeconomics, History of behavioral economics, Attitudinal data, Economic prediction. |
| JEL: | B23 C83 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:15011&r=hpe |
| By: | Müller, Andrea; Haucap, Justus |
| Abstract: | We analyze the behavior of 577 economics and law students in a simple binary trust experiment in class-room. While economists are both significantly less trusting and less trustworthy than law students, this difference is largely due to heterogeneity between female law and economics students. While female law and economics students are already different in nature (during the first term of study), the gap between them also widens more drastically over the course of their study compared to their male counterparts. This finding is rather critical as the detailed composition of students is typically neglected in most experiments. |
| JEL: | A12 A22 C91 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc14:100554&r=hpe |
| By: | Freeman, Alan |
| Abstract: | In discussions on the rate of profit and its tendency to fall and its role in Marxist theory, a number of phrases are often employed without clarifying what these might really mean. Primary among these are such phrases as ‘the rate of profit must ultimately fall’ and ‘the counter-acting factors cannot possibly offset the tendency in the long run’. As a result of this ambiguity, and as a result of a legacy of confusion concerning Marx’s own ideas on the profit rate beginning with the Western reception of Okishio’s (1961) famous theorem, research on the actual mathematical conditions for the profit rate to rise or fall, especially in the long term, has all but ceased. However there is very strong evidence that the rate of profit has, in fact, been falling in most industrialised economies for some considerable time, and there is good reason to suppose this has at least some bearing on the origins of the present prolonged phase of stagnation in these economies. The time is therefore ripe to return to a rigorous study of the general mathematical conditions that might govern the long-term movement of the profit rate. In particular, I will attempt to give mathematical meaning to the two concepts above |
| Keywords: | Non-equilibrium; value theory; TSSI; Rate of Profit; Okishio Theorem; Marxist Economics |
| JEL: | B12 B14 |
| Date: | 2015–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:61973&r=hpe |
| By: | Andrew Monaco (Department of Economics, University of Puget Sound); Tarun Sabarwal (Department of Economics, University of Kansas) |
| Abstract: | This paper studies games with both strategic substitutes and strategic complements, and more generally, games with strategic heterogeneity (GSH). Such games may behave differently from either games with strategic complements or games with strategic sub- stitutes. Under mild assumptions (on one or two players only), the equilibrium set in a GSH is totally unordered (no two equilibria are comparable in the standard product order). Moreover, under mild assumptions (on one player only), parameterized GSH do not allow decreasing equilibrium selections. In general, this cannot be strengthened to conclude increasing selections. Monotone comparative statics results are presented for games in which some players exhibit strategic substitutes and others exhibit strategic complements. For two-player games with linearly ordered strategy spaces, there is a char- acterization. More generally, there are sufficient conditions. The conditions apply only to players exhibiting strategic substitutes; no additional conditions are needed for players with strategic complements. Several examples highlight the results. |
| Keywords: | Lattice games, strategic complements, strategic substitutes, strategic hetero- geneity, equilibrium set, monotone comparative statics |
| JEL: | C70 C72 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:kan:wpaper:2011408&r=hpe |
| By: | Burda, Michael C.; Kirchgaessner, Gebhard |
| Abstract: | In response to recent negative publicity within and outside the economics profession, the Verein für Socialpolitik instituted a Code of Ethics for its members in 2012. The Code is based on central three principles of transparency, objectivity, and fairness. This essay presents a rationalization of these principles and points to a number of practical aspects of ethical behavior in economics addressed by the Code, which relies more on social norms and common sense rather than on adjudicable rules. The behavior of institutions, however, is only indirectly addressed; given recent trends in corporate sponsoring of academic activities, there may be good reasons to adapt and further refine the scope of its provisions. The ultimate impact of the Verein’s new Code of Ethics on its members’ behavior remains to be seen. |
| Keywords: | Ethics, Plagiarism, Auto-Plagiarism, Data Manipulation, Conflict of Interest, Sponsoring |
| JEL: | A11 |
| Date: | 2015–02 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2015:05&r=hpe |
| By: | Luigi Zingales |
| Abstract: | Academics’ view of the benefits of finance vastly exceeds societal perception. This dissonance is at least partly explained by an under-appreciation by academia of how, without proper rules, finance can easily degenerate into a rent-seeking activity. I outline what finance academics can do, from a research point of view and from an educational point of view, to promote good finance and minimize the bad. |
| JEL: | G00 O43 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20894&r=hpe |
| By: | Christian Ewerhart |
| Abstract: | This paper considers rent-seeking games in which a small percentage change in a player's bid has a large percentage impact on her odds of winning, i.e., on the ratio of her respective probabilities of winning and losing. An example is the Tullock contest with a high R. The analysis provides a fairly complete characterization of the equilibrium set. In particular, for "sufficiently generic" valuations, any equilibrium of the rent-seeking game is shown to be both payoff- and revenue-equivalent to the first-price all-pay auction. For general valuations, the analysis establishes a robustness property of the all-pay auction. |
| Keywords: | Rent-seeking games, mixed-strategy Nash equilibrium, robustness of the all-pay auction, Tullock contest |
| JEL: | C72 D45 D72 L12 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:186&r=hpe |
| By: | Tahereh Rezaei Khavas; Stephanie Rosenkranz; Gustav Weitzel; Bastian Westbrock |
| Abstract: | Experimental economics has provided evidence for fairness concerns, but their relative strength and even their stability is still under debate. We reconcile the seemingly inconsistent results by presenting a theory of marginal fairness concerns. The key assumption is that fairness concerns are stable across various decision situations, but individuals care only marginally about other individuals’ payoffs. This produces inequitable outcomes when the decision situation is ’unfair’ but equitable outcomes when the structure itself is ’fair’. An experimental horse race with competing theories of pure selfishness, pure fairness, and power-/need-based norms, applied across a range of (a)symmetric and (in)transitive experimental decision settings, supports our theory: 80% of the subjects in our experiment appear to be at most marginally fairness concerned. |
| Keywords: | fairness, lab experiment, local public goods game, heterogeneous influence stracture |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:1413&r=hpe |
| By: | Dirk Engelmann, Dirk; Grüner, Hans Peter |
| Abstract: | Optimal voting rules have to be adjusted to the underlying distribution of preferences. However, in practice there usually is no social planner who can perform this task. This paper shows that the introduction of a stage at which agents may themselves choose voting rules according to which they decide in a second stage may increase the sum of individuals' payoffs if players are not all completely selfish. We run three closely related experimental treatments (plus two control treatments) to understand how privately informed individuals decide when they choose voting rules and when they vote. Efficiency concerns play an important role on the rule choice stage whereas selfish behavior seems to dominate at the voting stage. Accordingly, in an asymmetric setting groups that can choose a voting rule do better than those who decide with a given simple majority voting rule. |
| JEL: | C91 D70 D82 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc14:100600&r=hpe |
| By: | Rosengren, Eric S. (Federal Reserve Bank of Boston) |
| Abstract: | Remarks by Eric S. Rosengren, President and Chief Executive Officer, Federal Reserve Bank of Boston, to the National Association for Business Economics / American Economic Association Meetings, Boston, Massachusetts, January 3, 2015. |
| Date: | 2015–01–03 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbsp:90&r=hpe |
| By: | David N. Weil |
| Abstract: | In Capital in the 21st Century, Thomas Piketty uses the market value of tradeable assets to measure both productive capital and wealth. As a measure of wealth this is problematic because it ignores the value of human capital and transfer wealth, which have grown enormously over the last 300 years. Thus the constancy of the wealth/income ratio as portrayed in his data is an illusion. Further, the types of wealth that he does not measure are more equally distributed than tradeable assets. The approach also incorrectly identifies capital gains due to reduced discount rates as increases in the capital stock. |
| JEL: | D31 Y3 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:20919&r=hpe |
| By: | Ching-jen Sun |
| Abstract: | A new, more fundamental approach is proposed to the classical bargaining problem. The give-and-take feature in the negotiation process is explicitly modelled under the new framework. A compromise set consists of all allocations a bargainer is willing to accept as agreement. We focus on the relationship between the rationality principles (arguments) adopted by bargainers in making mutual concessions and the formation of compromise sets. The bargaining correspondence is then defined as the intersection of bargainers’ compromise sets. We study the non-emptyness, symmetry, efficiency and single-valuedness of the bargaining correspondence, and establish its connection to the Nash solution. Our framework provides the first rational foundation to Nash’s axiomatic approach, and hence bridges the “Edgeworth-Nash gap”. |
| Keywords: | Bargaining Correspondence, Compromise, Edgeworth-Nash Gap, Nash Solution |
| JEL: | C78 D74 |
| Date: | 2015–02–05 |
| URL: | http://d.repec.org/n?u=RePEc:dkn:econwp:eco_2015_4&r=hpe |
| By: | Garcia-Murillo, Martha; MacInnes, Ian |
| Abstract: | In W.A. Mozart's opera Così Fan Tutte the protagonists are put through a social experiment to move from a state of innocence to one of experience. The goal is to understand that the idealized characterization of a perfect mate is unrealistic. We must accept the weaknesses of others as well as the setbacks that occur in the real world even though the lessons can be bitter. In this article we use secondary research and logical argumentation to show that the dissemination of personal information through public and private databases as well as social media is gradually educating humanity of the enlightened lessons that Mozart and his librettist Lorenzo da Ponte identified: humans are weak; everyone misbehaves; and we should accept public knowledge of the imperfections of ourselves and others. In the presence of so much information about people, how can society best protect us from potential harm? As we learn more about others through self-disclosed or other means we are noticing that while some people make egregious mistakes, most of us are moving toward a more realistic expectation of human behavior. We thus argue that the European Union directive on 'the right to be forgotten' is misguided and unrealistic and suggest instead a series of principles that can protect us from the potentially harmful publication of private information. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:itsb14:106874&r=hpe |