nep-hme New Economics Papers
on Heterodox Microeconomics
Issue of 2013‒02‒08
eight papers chosen by
Frederic S. Lee
University of Missouri-Kansas City

  1. Signalling to whom? Conspicuous spending and the local density of the social group income distribution By Andreas Chai; Wolfhard Kaus
  2. Quantitative versus qualitative in neuromarketing research By Berca, Monica Diana
  3. Basic analytical tool-kit for input-output tables with multiple related outputs: Applications to physical input-output tables with disposals to nature By Aleix Altimiras-Martin
  4. The Oomph in economic philosophy: a bibliometric analysis of the main trends, from the 1960s to the present By Yalcintas, Altug
  5. Arquitectura de decisiones y paternalismo libertario: hacia una microeconomía empíricamente fundamentada By Abitbol, Pablo
  6. Economic Rationales for Central Banking: Historical Evolution, Policy Space, Institutional Integrity, and Paradigm Challenges By Poomjai Nacaskul; Kritchaya Janjaroen; Suparit Suwanik
  7. Product Market Predatory Threats and the Use of Performance-sensitive Debt By Kjenstad, Einar; Su, Xunhua
  8. How to create a financial crisis by trying to avoid one: the Brazilian 1999-financial collapse as "Macho-Monetarism" can't handle "Bubble Thy Neighbour" levels of inflows By Palma, J.G.

  1. By: Andreas Chai; Wolfhard Kaus
    Abstract: We empirically evaluate two competing explanations about how the dispersion of income within social groups affects household spending on visible goods. Using South African household expenditure data, we find evidence that precisely the reverse of the effect predicted by Charles et al. (2009) takes place in that rich households tend to reduce, rather than increase, spending on visible goods as the dispersion of social group income increases. Our results instead support rank-based models of status competition since the number of within-group peers who possess a similar income level is found to be positively correlated with household spending on visible goods. Moreover, we find that the effect of this 'local' density tends to be stronger in the tail regions of the distribution and performs better than other proxies for the overall income distribution used in recent studies. How the range of visible goods used to signal wealth expands as household income grows is also explored.
    Keywords: Conspicuous consumption, Signaling, Status, South Africa, Income distribution
    JEL: D12 D83 J15 O12
    Date: 2013–01–29
  2. By: Berca, Monica Diana
    Abstract: Marketing research methods continuously develop and over the last decade technology offered solutions to improve this area. Traditional marketing research methods fail at some point in certain cases, and since emotions are mediators of how consumers process marketing messages, understanding of cognitive responses to advertisements have always been a challenge in methodology. Neuromarketing is the branch of neuroscience research that aims to better understand the consumer through his unconscious processes and has application in marketing, explaining consumer's preferences, motivations and expectations, predicting his behavior and evaluating successes or failures of advertising messages. In this context, this study aims to analyze relatively new alternative techniques in neuromarketing research, from quantitative and qualitative perspectives. After presenting the common space between quantitative research and neuromarketing research, respectively between qualitative research and neuromarketing research, the study will conclude on whether neuromarketing research is closer to a quantitative approach, or to a qualitative one.
    Keywords: neuromarketing; quantitative research; qualitative research; marketing research
    JEL: M31 M30 D87
    Date: 2013–02–02
  3. By: Aleix Altimiras-Martin (Cambridge Centre for Climate Change Mitigation Research, Department of Land Economy, University of Cambridge; NEREUS, Faculty of Economics and Administration, University of Sao Paulo)
    Abstract: Physical Input-Output Tables (PIOTs) are a powerful accounting framework since they trace simultaneously all physical flows of the economy, including goods and emission. However, there is no IO model able to operate them and, thus, they cannot be used for analytical purposes - only descriptive. A series of papers suggested different methods to operate them but without clearly identifying a IO model matching the specificities of PIOTs (Hubacek and Giljum 2003; Giljum and Hubacek 2004; Suh 2004; Giljum, Hubacek, and Sun 2004; Dietzenbacher 2005; Dietzenbacher et al. 2009; Xu and Zhang 2009). This paper aims to develop an output-driven and an input-driven IO model to operate PIOTs, which would constitute the basic analytical tool-kit to analyse such tables. First, section 2 compares the operation of the traditional Input-Output Tables (IOTs) with PIOTs. It identifies a new type of table - a multiple related outputs IOT - that matches the specificities of a PIOT: it has several outputs (goods and emissions) and one of the outputs - the emissions - is related to the total sectoral throughput by the technology of production. Then, it is shown that the related output causes traditional output-driven IO models such as the Leontief one to underestimate the total outputs. Then, section 3 devises a new IO model by assuming a linear relationship between the related outputs (emissions) and the total throughput (total output or input); consequently, the related outputs such as the emissions can be endogenised in the structure of production and, thus, the model can be driven with final goods alone. Section 3.2 generalises the model for any number of multiple related outputs and shows how to operate a PIOT with five types of simultaneous emissions. Then, section 3.3 shows that Suh's (2004) method is in fact a change of total output units that transforms the PIOT - a multiple related outputs IOT - into a single output IOT that can then be operated with traditional IO models. For completeness, section 4 examines the use of input-driven models with multiple related output tables and finds that no special modification of the input-driven model is required. Thus, this paper provides the theoretical background to analyse PIOTs and any other multiple related outputs IOTs. It is expected that this new model will revive the momentum in PIOT development and analysis which had been lost because of the lack of robust analytical tools.
    Keywords: Physical input-output tables, Input-output analysis, Environmental Accounts, Waste, Emission, Material Flow Analysis, EW-MFA
    JEL: Q57 Q53 C67
    Date: 2012–12
  4. By: Yalcintas, Altug
    Abstract: In this essay, I quantitatively analyze the significance of scholarship in economic philosophy since the 1960s. In order to do so, I examine, through the number of publications and citations, the evolution of the main trends in economic philosophy over a fifty years period. This paper will develop a better conception of how the pathways of major debates, in particular rhetoric of economics (RoE) versus realism in economics (RiE), helped economic philosophy achieve its present status in economics. Viewed through this lens, it is clear that the main trends in the recent history of the discipline have emerged out of the concerns of non-mainstream economists since the 1980s.
    Keywords: rhetoric of economics; realism in economics; bibliometric analysis
    JEL: B25 B24 B41
    Date: 2013
  5. By: Abitbol, Pablo
    Abstract: One of the most important debates in the philosophy of economic science refers to the disjunctive between instrumentalism and realism. Nudge, by Richard Thaler and Cass Sunstein, represents a milestone in the development, and possibly the consolidation, of a new realist paradigm - of an empirically-based microeconomics, as the one Herbert Simon demanded - which might displace the instrumentalist paradigm that has predominated over more than a century as the theoretical foundation of political economy. Thaler and Sunstein manage to, firstly, condense a complex characterization of economic agents, based on the empirical findings that cognitive psychology and behavioral economics have been achieving over the last thirty years; and, secondly, they manage to articulate such positive characterization of economic agents to a normative proposal on public policy and institucional design.
    Keywords: Nudge; instrumentalism; realism; cognitive psychology; behavioral economics
    JEL: D01
    Date: 2012–12
  6. By: Poomjai Nacaskul (Bank of Thailand); Kritchaya Janjaroen (Bank of Thailand); Suparit Suwanik (Bank of Thailand)
    Abstract: The late-2000s global financial crisis saw increased public profiles and balance sheets of both the US and European central banks, their combined series of financial rescue measures in effect pushing the envelope of central banking modus operandi. And in general, somewhat anecdotally amongst non-crisis Asia-Pacific/emerging economies, central banks are under increased pressure to pursue growth agenda, or at least being publicly called to task as to whether strict inflation regime is all that necessary. All the while, orthodox economics appear to be bursting at the seams, as the world witnesses extreme financial-capital market events increasingly becoming the ‘new normal’, globalised banking system portending knife-edged stability dynamics consistent with high degree of epidemic, network-like systemic interconnectivities, and global catastrophe phenomena reflecting energy/ecological/environmental imbalances more and more frequently materialising as economic disequilibria. Taken together, it is only becoming more difficult to reconcile historical evolution of central banks (the institutions) and central banking (the mandate) with ever mounting stabilisation policy demands and global ‘mega-trend’ challenges over the next decades. This essay details our positive and normative analysis and posits our conceptual arguments concerning the very essence of central banks (the institutions) and central banking (the discipline). We begin with Historical Evolution, from the genesis of early ‘proto’ central banks to the emergence of modern consensus on central banking. Stylised facts and conceptual schemas drawn from that exercise then enables us to formulate the notion of Policy Space as a generalization of central bank role and responsibility. We then employ economic rationales to argue for and advocate key elements and principles in terms of Institutional Integrity as an imperative foundation for the pursuit of policy goals. The emerging evolutionary perspective also compels us to postulate a number of Paradigm Challenges facing current and future generations of central bankers.
    Keywords: Economic Rationales for Central Banking
    JEL: B52 E02 E52 E58 E61 N4
    Date: 2012–10–21
  7. By: Kjenstad, Einar; Su, Xunhua
    Abstract: We use a variant of the Hotelling (1929) model to illustrate that, when a firm faces hard payment constraint(s), financially strong rivals may adopt predatory strategies to drive the firm out of the product market and hence to obtain extra profit from enhanced market power later on. Predation is more likely to occur if the payment constraint is contingent on the firm’s performance. The model predicts that higher predatory threats in the product market reduce firm’s use of performance-sensitive debt and this effect should be more pronounced for small firms with large growth opportunities. Through a sample of over 16,000 bank loans to U.S. borrowers in 1997-2008, we find empirical evidence to support these model predictions.
    Keywords: Financial constraints; PSD; Competition; Hotelling model; HHI
    JEL: L10 D20 G30 G20
    Date: 2012–10
  8. By: Palma, J.G.
    Abstract: Brazil, as the rest of Latin America, has experienced three cycles of capital inflows since the collapse of the Bretton Woods system. The first two ended in financial crises, and at the time of writing the third one is still unfolding, although already showing considerable signs of distress. The first started with the aftermath of the oil-price increase that followed the 1973 ‘Yom Kippur’ war; consisted mostly of bank lending; and finished with Mexico’s 1982 default (and the 1980s ‘debt-crisis’). The second took place between the 1989 ‘Brady bonds’ agreement (which also marked the beginning of neo-liberal reforms in most of Latin America) and the Argentinian 2001 crisis. This second cycle saw a sharp increase in portfolio flows and a rise of FDI, and ended up with four major crises (as well as the 1997 one in East Asia) as newly-liberalised middle-income countries struggled to deal with the problems created by the absorption of those sudden surges of inflows — Mexico (1994), Brazil (1999), and two in Argentina (1995 and 2001). Finally, the third inflow-cycle began in 2003 as soon as international financial markets felt reassured by the surprisingly neoliberal orientation of President Lula’s government; this cycle intensified in 2004 with a (mostly speculative) commodity price-boom, and actually strengthened after a brief interlude following the 2008 global financial crash. The main aim of this paper is to analyse the Brazilian 1999-financial crises during the second inflow-cycle from the perspective of Keynesian/ Minskyian/ Kindlebergian financial economics. I will attempt to show that no matter how diversely the above mentioned countries tried to deal with the inflow absorption problem — and they did follow different routes, none more unique than Brazil — they invariably ended up in a major financial crisis. As a result (and despite the insistence of mainstream analysis and different ‘generation’ models of financial crises), these crises took place mostly due to factors that were ‘intrinsic’ (‘endogenous’ or ‘inherent’) to middle-income countries that opened up their capital account indiscriminately to over-liquid and excessively ‘friendly-regulated’ international financial markets. As such, these crises were both fully deserved and fairly predictable. Therefore, I shall argue that the general mechanisms that led to Brazil’s 1999-financial crisis were in essence endogenous to the workings of an economy facing i) full financial liberalisation; ii) several surges of inflows, especially immediately after the Mexican 1994 and the East Asian 1997 crises — and as a spillover of the respective rescue packages —, following a new ‘bubble thy neighbour’ speculative-strategy by international financial markets, as ever more liquid, volatile, politically-reassured, and progressively unregulated financial markets were anxiously seeking (and allowed to create artificially) new high-yield investment opportunities via a new sequential speculative-strategy; and iii) ineffective domestic financial regulation — especially lack of effective capital controls. I shall also argue that within this general framework, the specificity of the Brazilian crisis was given by having been affected by i) several external shocks; ii) by a naïve ideology directing economic reform; iii) by a exuberant (post-‘second generation’ models)-style monetarism, or ‘macho-monetarism’, that although successful in achieving initially price-stabilisation, and in avoiding that Brazil became ‘another Mexico’ (in terms of keeping Brazil away from an inflow-led Kindlebergianmania), it did so at a growing (and mostly unnecessary) cost; iv) the creation of several major financial fragilities in the banking sector (private and public) and in State finances — leading the Federal Government to sleepwalk into a Minskyian ‘Ponzi-finance’; and v) by this ‘Ponzi’ being turbo-charged by both the Government’s indiscriminate absorption of nonperforming debt, and by it paying a huge amount (mostly in the form of subsidies) in order to get the constitutional reform that would allow the President to run for a second term.
    Keywords: ‘Endogenous’ financial crisis, ‘Second generation’ models, Neo-liberal economic reforms, Ideology, Financial liberalisation, Capital controls, Systemic market failures, Latin America, East Asia, Keynes, Minsky and Kindleberger
    JEL: D7 D81 F21 F32 F4 G15 G28 G38 H12 L51 N2 O16
    Date: 2013–01–29

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