nep-hme New Economics Papers
on Heterodox Microeconomics
Issue of 2012‒12‒22
fourteen papers chosen by
Frederic S. Lee
University of Missouri-Kansas City

  1. Reconstructing a Computable and Computationally Complex Theoretic Path Towards Simon's Behavioural Economics By Ying-Fang Kao; K. Vela Velupillai
  2. Borges' Librarian in the Library of Babel as a Turing Machine: An Unreasonable Note By K. Vela Velupillai
  3. Why Post Keynesianism is not yet a science By Kakarot-Handtke, Egmont
  4. Replacement versus Historical Cost Profit Rates: What is the difference? When does it matter? By Deepankar Basu
  5. Conspicuous consumption, inequality and debt: The nature of consumption-driven profit-led regimes By Jakob Kapeller; Bernhard Schütz
  6. Entrepreneurship and Post-Entry Performance: the Microeconomic Evidence By Marco Vivarelli
  7. Household Debt and Social Interactions By Georgarakos, Dimitris; Haliassos, Michalis; Pasini, Giacomo
  8. Productivity and structural heterogeneity in the Brazilian manufacturing sector: trends and determinants By Eva Yamila Catela; Mario Cimoli; Gabriel Porcile
  9. Global Value Chains and the EU Industry By Martin Borowiecki; Bernhard Dachs; Doris Hanzl-Weiss; Steffen Kinkel; Johannes Pöschl; Magdolna Sass; Thomas Christian Schmall; Robert Stehrer; Andrea Szalavetz
  10. Employment and Distribution Effects of the Minimum Wage By Fabián Slonimczyk; Peter Skott
  11. A Re-examination of the Impact of the UK National Minimum Wage on Employment By Richard Dickens; Rebecca Riley; David Wilkinson
  12. Use and Abuse of Authority: A Behavioral Foundation of the Employment Relation By Bartling, Björn; Fehr, Ernst; Schmidt, Klaus M.
  13. Minimum wages and competition: The case of the German roofing sector By Kraft, Kornelius; Rammer,Christian; Gottschalk, Sandra
  14. Promiscuous Elites and Economic Development By Elise S. Brezis

  1. By: Ying-Fang Kao; K. Vela Velupillai
    Abstract: This paper aims to interpret and formalize Herbert Simon's notions of bounded rationality, satisficing and heuristics in terms of computability theory and computational complexity theory. Simon's theory of human problem solving is analysed in the light of Turing's work on Solvable and Unsolvable Problems. It is suggested here that bounded rationality results from the fact that the deliberations required for searching computationally complex spaces exceed the actual complexity that human beings can handle. The immediate consequence is that satisficing becomes the general criterion of decision makers and heuristics are the procedures used for achieving their goals. In such decision problems, it is demonstrated that bounded rationality and satisficing are more general than Olympian rationality and optimization, respectively, and not the other way about.
    Keywords: Bounded Rationality, Satisficing, Heuristics, Computability, Computational Complexity
    Date: 2012
  2. By: K. Vela Velupillai
    Date: 2012
  3. By: Kakarot-Handtke, Egmont
    Abstract: In a programmatic article Alfred Eichner explained, from a Post Keynesian perspective, why neoclassical economics is not yet a science. This was some time ago and one would expect that Post Keynesianism, with a heightened awareness of scientific standards, has done much better than alternative approaches in the meantime. There is wide agreement that this is not the case. Explanations, though, differ widely. The present – strictly formal – inquiry identifies an elementary logical flaw. This strengthens the argument that the Post Keynesian motto ‘it is better to be roughly right than precisely wrong!’ is methodologically indefensible.
    Keywords: new framework of concepts; structure-centric; axiom set; consistency; Post Keynesian hard core; logical rigor; loose verbal reasoning; hypothetico-deductive method; profit; retained profit; saving; general complementarity; IS-fallacy
    JEL: E12 B22 B41
    Date: 2012–09
  4. By: Deepankar Basu (University of Massachusetts, Amherst)
    Abstract: This paper explains the BEA methodology for computing historical cost and replacement cost measures of the net stock of capital in the U.S. economy. It is demonstrated that there exists a threshold rate of inflation in the price of capital goods that keeps the percentage difference between the two capital stock measures constant. Hence, over periods when average inflation in the price index for capital goods is equal to the threshold value, historical cost and replacement cost profit rates would show equal percentage changes; an example of such a period for the U.S economy is the whole postwar period 1946–2010. Moreover, trends in both replacement cost and historical cost profit rates display very similar movements over long periods, making the choice of capital stock valuation irrelevant for empirical analysis of profitability trends. JEL Categories: E01, B51
    Keywords: replacement cost, historical cost, capital stock, profitability trends
    Date: 2012–12
  5. By: Jakob Kapeller (University of Linz, Linz, Austria); Bernhard Schütz (Department of Economics, University of Linz, Linz, Austria)
    Abstract: This paper extends the theoretical concept of wage-led and profit-led demand regimes, first introduced by Amit Bhaduri and Steven Marglin in the early 1990s, by incorporating relative consumption concerns. Specifically, it integrates the Veblenian concept of conspicuous consumption into a typical Bhaduri-Marglin model by assuming that relative consumption concerns matter primarily within the working class. If in such a framework the profit share increases and the corresponding decrease in workers' income is distributed unevenly, efforts to "keep up with the Joneses" may increase consumption and, hence, lead to a consumption- driven profit-led regime. The model's empirical relevance is illustrated with respect to the pre-crisis developments as observed in the U.S.
    JEL: B52 D11 E12 E20
    Date: 2012–12
  6. By: Marco Vivarelli (DISCE, Università Cattolica)
    Abstract: The aim of this study is to provide a microeconomic investigation of the concept of entrepreneurship; in particular, it discusses the following issues: 1) the alternative ways of looking at entrepreneurship, distinguishing “creative destruction” from simple “turbulence”; 2) the different microeconomic determinants of new firm formation, distinguishing “progressive” from “regressive” drivers; 3) the relationship between ex-ante characteristics (of the founder) and postentry performance (of the new firm); and 4) the possible scope for an economic policy aimed at maximizing the impact of entrepreneurship on economic growth. Where possible and appropriate, the paper devotes particular attention to the specific features characterizing entrepreneurship in developing countries.
    Keywords: Entrepreneurship; new firm; innovation, development.
    JEL: L26 O12
    Date: 2012–10
  7. By: Georgarakos, Dimitris; Haliassos, Michalis; Pasini, Giacomo
    Abstract: Debt-induced crises, including the subprime crisis, are usually attributed exclusively to supply-side factors. We examine the role of social influences on debt culture, emanating from perceived average income of peers. Utilizing unique information from a household survey, representative of the Dutch population, that circumvents the issue of defining the social circle, we consider collateralized, consumer, and informal loans. We find robust social effects on borrowing - especially among those who consider themselves poorer than their peers - and on indebtedness, suggesting a link to financial distress. We employ a number of approaches to rule out spurious associations and to handle correlated effects.
    Keywords: consumer credit; household debt; Household finance; informal loans; mortgages; social interactions
    JEL: E21 G11
    Date: 2012–12
  8. By: Eva Yamila Catela; Mario Cimoli; Gabriel Porcile
    Abstract: This paper discusses the evolution of firmsù productivity and structural heterogeneity (SH) in the Brazilian manufacturing industry in the 2000s. SH is defined (following the Latin American structuralist tradition) as a situation in which a large share of total firms is in the lowest productivity groups of the production structure, and there are very large differences in labour productivity between groups and firms. The paper combines and makes compatible several databases on manufacturing production, innovation and micro-social data for Brazil, in order to measure productivity and SH, to analyze its evolution between 2000 and 2008, and to discuss its determinants. Econometric analyses (k-means cluster methodology to identify productivity groups, and ordered probit models to analyse the determinants of SH) show that increasing returns in innovation and learning prevailed in the 2000s, while policies failed to encourage the catching up process by laggard firms. As a result, SH did not fall in the Brazilian manufacturing sector.
    Keywords: Structural heterogeneity; technological change; productivity growth; technological asymmetries
    Date: 2012–11–29
  9. By: Martin Borowiecki; Bernhard Dachs; Doris Hanzl-Weiss (The Vienna Institute for International Economic Studies, wiiw); Steffen Kinkel; Johannes Pöschl (The Vienna Institute for International Economic Studies, wiiw); Magdolna Sass; Thomas Christian Schmall; Robert Stehrer (The Vienna Institute for International Economic Studies, wiiw); Andrea Szalavetz
    Abstract: (Report based on Background Study for European Competitiveness Report 2012, see http // ongoing internationalization of production has altered the economic landscape. Many products used to be produced locally using inputs drawn largely from the domestic economy, which implied that most of the value chains or production processes used to be located in the country where a firm had its headquarters. Technological development has facilitated the geographical fragmentation of production processes, resulting in the emergence of global value chains. Different parts of a firm’s production processes can now be located in different parts of the world, according to the comparative advantages of the locations. This ‘slicing up of the value chains’, and the dispersal of the various elements to different parts of the world has given rise to increased trade with the use of imported intermediate goods in manufacturing industries having been increased globally, thereby involving more industries and countries in the value chains. Focusing on four important manufacturing industries (chemicals, chemical products and man-made fibres; machinery and equipment; electrical and optical equipment; and transport equipment) the ongoing trends of the internationalization of production is studied. To account for the multi-faceted phenomenon of the internationalization of production processes and its consequences, a comprehensive review of the literature is provided first. This is followed by an overview of the patterns and trends in vertical specialization across countries for the four selected industries. This section is based on the World Input-Output Database (WIOD), which allows the integration of production patterns and processes to be studied at a global level. As this is accompanied by similar trends in trade before and over the crisis the next section focuses on the changes in trade patterns of these industries which is based on detailed Harmonized System (HS) 6-digit trade data allowing for a differentiation between use categories of products trade in parts and components is important for the machinery and equipment, electrical and optical equipment and transport equipment industries, while trade in semi-finished products is important for the chemicals industry. As the offshoring decisions are made at company level it is important to understand the motives leading firms to offshore, the drivers of the decisions with respect to characteristics of the host and the destination country and the characteristics of the offshoring firms. Section 5 therefore focuses on the offshoring decisions at the company level it analyses the motives and determinants of company strategies with respect to the relocation of production. Section 6 provides a summary.
    Keywords: vertical integration, trade in intermediates, offshoring
    JEL: F1 F15 F19
    Date: 2012–10
  10. By: Fabián Slonimczyk (Higher School of Economics, Moscow); Peter Skott (University of Massachusetts Amherst)
    Abstract: This paper analyzes the effects of the minimum wage on wage inequality, relative employment and over-education. We show that over-education can be generated endogenously and that an increase in the minimum wage can raise both total and low-skill employment, and produce a fall in inequality. Evidence from the US suggests that these theoretical results are empirically relevant. The over-education rate has been increasing and our regression analysis suggests that the decrease in the minimum wage may have led to a deterioration of the employment and relative wage of low-skill workers. JEL Categories: J31, J41, J42
    Keywords: Minimum wage, earnings inequality,monopsony, effeciency wage, over-education
    Date: 2012–02
  11. By: Richard Dickens (Department of Economics, University of Sussex, UK); Rebecca Riley (National Institute of Economic and Social Research, UK); David Wilkinson (National Institute of Economic and Social Research, UK)
    Abstract: A general consensus has emerged that while the UK National Minimum Wage (NMW) raised the pay of low wage workers it did little to harm their employment prospects. This is in contrast to the US and other countries where a debate over minimum wage effects still rages on. We re-examine the evidence on the introduction of the NMW and look at subsequent increases through the recession focusing on several groups in the labour market. We find a reduction in employment retention among part-time female workers, the group which is most affected by the NMW. These effects deepen in the recession.
    Keywords: Minimum Wage, Employment, Wages, Recession
    JEL: J08 J31 J38
    Date: 2012–12
  12. By: Bartling, Björn (University of Zurich); Fehr, Ernst (University of Zurich); Schmidt, Klaus M. (University of Munich)
    Abstract: Employment contracts give a principal the authority to decide flexibly which task his agent should execute. However, there is a tradeoff, first pointed out by Simon (1951), between flexibility and employer moral hazard. An employment contract allows the principal to adjust the task quickly to the realization of the state of the world, but he may also abuse this flexibility to exploit the agent. We capture this tradeoff in an experimental design and show that principals exhibit a strong preference for the employment contract. However, selfish principals exploit agents in one-shot interactions, inducing them to resist entering into employment contracts. This resistance to employment contracts vanishes if fairness preferences in combination with reputation opportunities keep principals from abusing their power, leading to the widespread, endogenous formation of efficient long-run employment relations. Our results inform the theory of the firm by showing how behavioral forces shape an important transaction cost of integration – the abuse of authority – and by providing an empirical basis for assessing differences between the Marxian and the Coasian view of the firm, as well as Alchian and Demsetz's (1972) critique of the Coasian approach.
    Keywords: theory of the firm, transaction cost economics, authority, power abuse, employment relation, fairness, reputation
    JEL: C91 D23 D86 M5
    Date: 2012–11
  13. By: Kraft, Kornelius; Rammer,Christian; Gottschalk, Sandra
    Abstract: This paper analyses the effects of minimum wages on competition in the German roofing sector. The case is particularly interesting since this sector is faced with a uniform minimum wage despite significant regional disparities in productivity and wages. As a control industry we take the plumbing sector, which shows a similar market structure and demand trend but is not subject to a minimum wage. Employing a comprehensive firm panel data and using a difference-in-difference approach, we estimate the impacts of minimum wages on market entries and exits and firms' profitability. We find significant effects for East Germany which point to a substantial shift in industry structure. Minimum wages decreased both market entries and exits for roofing firms while they increased entries of sole traders. A decreasing number of non-sole traders lowered competition for this group of firms and helped them to increase profitability. The increasing share of sole traders may indicate some type of evasion strategy in eastern Germany, particularly since wages for skilled roofers declined towards the minimum wage. In the western part of the country minimum wages had no impact on competition. --
    Keywords: Minimum Wage,Competition,Firm Performance,Labour Market Policy,Evasion Strategy,Sole Traders
    JEL: D04 J21 J38 L11 L22 L74
    Date: 2012
  14. By: Elise S. Brezis (Bar-Ilan University)
    Abstract: This paper analyzes the interconnection between elites and its effects on economic growth. For decades, the bureaucratic elite has been joining the business elite after leaving office, and this in growing numbers. This relationship has been termed “the revolving door” in English, “pantouflage” in French, and “amakudari” [descent from heaven] in Japanese. The purpose of this paper is to explain why this social behavior takes place, and why the political elite does not try to prevent it. Moreover, this paper shows that the bureaucratic elite obtains excessive bureaucratic power, and that promiscuous elites actually lead to lower economic growth.
    Keywords: elites, bureaucracy, abuse of power, revolving door, economic growth.
    JEL: H10 H70 O11 O43
    Date: 2012–08

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