nep-evo New Economics Papers
on Evolutionary Economics
Issue of 2006‒05‒06
six papers chosen by
Matthew Baker
US Naval Academy, USA

  1. Environmental Morale and Motivation By Bruno S. Frey; Alois Stutzer
  2. Cooperation and Reciprocity: a Theoretical Approach By Marcello Basili; Maurizio Franzini
  3. Who is “Behavioral”? Cognitive Ability and Anomalous Preferences By Daniel J. Benjamin; Sebastian A. Brown; Jesse M. Shapiro
  4. Adaptive Learning in Practice By Carceles-Poveda, Eva; Giannitsarou, Chryssi
  5. Does Propitious Selection Explain Why Riskier People Buy Less Insurance? By De Donder, Philippe; Hindriks, Jean J.G.
  6. Toward an Economic Theory of Dysfunctional Identity By Hanming Fang; Glenn C. Loury

  1. By: Bruno S. Frey; Alois Stutzer
    Abstract: This chapter discusses the role of environmental morale and environmental motivation in individual behavior from the point of view of economics and psychology. It deals with the fundamental public good problem, and presents empirical (laboratory and field) evidence on how the cooperation problem can be overcome. Four different theoretical approaches are distinguished according to how individuals’ underlying environmental motivation is modeled. Specifically, we look at the interaction between environmental policy and environmental morale through the lens of cognitive evaluation theory (also known as crowding theory).
    Keywords: environmental morale; environmental policy; motivation crowding; pro-social preferences; public good problem
    JEL: D64 H41 Q50 Z13
    Date: 2006–04
  2. By: Marcello Basili; Maurizio Franzini
    Abstract: Cooperation among genetically unrelated agents occurs in many situations where economic theory would not expect it. A too narrow conception of self-interest is widely considered the culprit. In particular, relying on experimental evidence in plenty, we consider strong reciprocity rules of behaviour, according to which it is worth bearing the cost of punishing those who defect, and we give analytical foundation to such behaviour – and more generally to cooperation-proneness. The basic idea is that most agents may include self-esteem in their utility function and actually produce or destroy self-esteem through their effective behaviour. The latter amounts to introducing a moral system in individual behaviour in such a way to make it amenable to rational maximization. We also show how the presence of cooperation-prone agents may impact on the best contract in Principal-Agents situations by altering the convenience of gift giving and trust.
    Keywords: agency, altruism, self-interest, punishment, reciprocity
    JEL: J41 D64
    Date: 2005–11
  3. By: Daniel J. Benjamin; Sebastian A. Brown; Jesse M. Shapiro
    Date: 2006–05–02
  4. By: Carceles-Poveda, Eva; Giannitsarou, Chryssi
    Abstract: We analyse some practical aspects of implementing adaptive learning in the context of forward-looking linear models. In particular, we focus on how to set initial conditions for three popular algorithms, namely recursive least squares, stochastic gradient and constant gain learning. We propose three ways of initializing, one that uses randomly generated data, a second that is ad-hoc and a third that uses an appropriate distribution. We illustrate, via standard examples, that the behaviour and evolution of macroeconomic variables not only depend on the learning algorithm, but on the initial conditions as well. Furthermore, we provide a computing toolbox for analysing the quantitative properties of dynamic stochastic macroeconomic models under adaptive learning.
    Keywords: adaptive learning; computational methods; least square estimations; short-run dynamics
    JEL: C63 D83 E10
    Date: 2006–04
  5. By: De Donder, Philippe; Hindriks, Jean J.G.
    Abstract: Empirical testing of asymmetric information in the insurance market has uncovered a negative correlation between risk levels and insurance purchases, rather than the positive correlation predicted by the standard insurance theory. Hemenway (1990) proposes an explanation for this negative correlation, called 'propitious selection''. He argues that potential insurance buyers have different tastes for risk and that 'individuals who are highly risk avoiding are more likely both to try to reduce the hazard and to purchase insurance' (p. 1064). Chiappori and Salanié (2000) also suggest that this line of argument, which they call 'cherry picking', may explain the observed negative correlation. In this paper, we show that the propitious selection argument does not imply negative correlation between risk levels and insurance purchases, be-cause it fails to take into account the supply side of the insurance market. To illustrate this claim, we provide a model where, although we assume that individuals differ in risk aversion and that the more risk averse individuals exert more precaution and buy more insurance, we end up with a positive correlation between risk and insurance purchases at equilibrium. The reason is that, in any separating equilibrium, the more risk averse individuals face insurance overprovision which, combined with moral hazard, increases their risk relative to the less risk averse individuals. To obtain the negative correlation between risk and insurance purchases, one further needs the extra condition of decreasing marginal willingness to pay for the less risk averse individuals. Finally, we find that propitious selection has profound policy implications for social insurance.
    Keywords: cherry picking; precaution; preference-based adverse selection; social insurance
    JEL: D82 G22
    Date: 2006–04
  6. By: Hanming Fang (Department of Economics, Yale University); Glenn C. Loury (Institute for Economic Development, Boston University)
    Abstract: We advance a novel choice-theoretic model of “identity” based on the notions of categories and narratives. Identity is conceived as a matter of “reflexive perception” — how people understand themselves. Choosing an identity is equivalent to making a generalization about one’s past that highlights the most salient aspects of experience. When many individuals make a common choice in this regard, they embrace a collective identity which is dysfunctional if it is Pareto dominated by an alternative self-classificatory schema. Using a simple multi-stage risk sharing game, we explore conditions under which dysfunctional collective identities might be expected to emerge.
    Keywords: Identity: dysfunctional collective identity
    JEL: Z1 Z13

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