nep-hme New Economics Papers
on Heterodox Microeconomics
Issue of 2013‒03‒09
twelve papers chosen by
Frederic S. Lee
University of Missouri-Kansas City

  1. A Darwinian theory of transformation pressure – the stimuli of negative shocks for productivity and renewal in established firms By Erixon, Lennart
  2. Employer moral hazard, wage rigidity and worker cooperatives: A theoretical appraisal. By Navarra, Cecilia; Tortia, Ermanno
  3. The Sledge on the Slope or: Energy in the Economy, and the Paradox of Theory and Policy By Lindenberger, Dietmar; Kümmel, Reiner
  4. New and Improved? By Eric Schmidbauer
  5. Beyond growth and development: Buen Vivir as an alternative to current paradigms By Salvatore Monni; Massimo Pallottino
  6. New Alternatives in a Plural Society: Care to Dependents and Foreign Care By García Navarro, Esperanza Begoña
  7. My Wage is Unfair! Just a Feeling or Comparison with Peers? By Schneck, Stefan
  8. A Formal Behavioral Model of Firm Boundaries: Why Does Authority Relation Mitigate Ex Post Adaptation Problems? By Yusuke Mori;
  9. Complexity with Heterogeneous Fundamentalists and a Multiplicative Price Mechanism By Ahmad K Naimzada; Giorgio Ricchiuti
  10. What Do We Learn From Schumpeterian Growth Theory? By Aghion, Philippe; Akcigit, Ufuk; Howitt, Peter
  11. What Drives Commodity Prices? By Shu-Ling Chen; John D. Jackson; Hyeongwoo Kim; Pramesti Resiandini
  12. Italy: From Economic Decline to the Current crisis By Pasquale Tridico

  1. By: Erixon, Lennart (Dept. of Economics, Stockholm University)
    Abstract: The theory of transformation pressure maintains that central actors in established firms will be more productive when experiencing an actual fall in profits. Actors fearing that the survival of the firm is at stake will then become more alert, calculating and creative favoring a transformation. The neo-Schumpeterians follow Schumpeter by largely ignoring the importance of negative driving forces for innovations and the productivity performance of firms. In the neoclassical Schumpeterian literature stronger competition and also lower product demand may induce innovations and productivity increases in established firm. But this literature neglects the underlying psychological mechanism. The ideas in the theory of transformation pressure can easily be incorporated into a Darwinian framework emphasizing basic human drives, the struggle for existence and the adaptation to new external circumstances. The results from tests of the theory of transformation pressure are ambiguous. An experiment confirmed that firms are governed by bounded rationally but only partly that they will upgrade their growth strategy in a profit recession. There are arguments in both industrial economics, psychology and neuroscience for a qualified theory of transformation pressure. Productivity is enhanced by moderate pressure or by periodic shifts between hard pressures and good opportunities.
    Keywords: transformation pressure; bounded rationality; creative destruction; negative driving forces; productivity growth; innovations; neuroscience; stress; economic psychology; universal Darwinism
    JEL: B52 D21 E32 L21 O31
    Date: 2013–01–18
  2. By: Navarra, Cecilia (University of Namur); Tortia, Ermanno (University of Trento)
    Abstract: We argue that in a capitalist enterprise the need to fix wages is crucially influenced by the asymmetric distribution of decision-making power, which can entail the use of private information and authority in favour of the strongest contractual party (the employer), and against the weaker contractual party (the employee). The capitalist entrepreneur can take decisions whose negative consequences are borne by workers in terms of lower wages and more intensive work-pace. Excessive wage reductions in the face of negative exogenous shocks, and of too risky investment decision represent the main instances of such opportunistic behaviour. Fixed wages can be thought as workers’ best response to the emerging risk of the employers’ moral hazard, but this implies a heightened risk of lay-off since wages and employment levels cannot be fixed at one and the same time. As a counterexample, we observe worker cooperatives, which depart from the framework of the interaction between a principal and an agent in the presence of contrasting interests and private information. Indeed, several empirical studies show greater employment stability and wage flexibility in worker cooperatives vis à vis capitalist firms.
    Keywords: employment contract; wage rigidity; risk aversion; moral hazard; worker cooperative
    JEL: J54 J64 J83
    Date: 2013–02–01
  3. By: Lindenberger, Dietmar (Energiewirtschaftliches Institut an der Universitaet zu Koeln); Kümmel, Reiner (Universität Würzburg, Theoretische Physik I)
    Abstract: Energy conversion in the production of goods and services, and the resulting emissions associated with entropy production, have not yet been taken into account by the mainstream theory of economic growth. Novel econometric analyses, however, have revealed energy as a production factor whose output elasticity, which measures its productive power, is much higher than its share in total factor cost. This, although being at variance with the notion of orthodox economics, is supported by the standard maximization of profit or time-integrated utility, if one takes technological constraints on capital, labor, and energy into account. The present paper offers an explanation of these findings in the picture of a sledge, which represents the economy, on the slope of a niveous mountain, which represents cost. Historical economic trajectories indicate that the representative entrepreneur at the controls of the sledge steers his vehicle with due regard of the barriers from the technological constraints, observing “soft” constraints, like the legal framework of the market, in addition. We believe that this perspective contributes to resolving the paradox that energy hardly matters in mainstream growth theory, whereas it is an issue of growing importance in international policy.
    Keywords: energy; economic growth; oil price; profit maximization; technological constraints; output elasticities
    JEL: O11 Q43
    Date: 2013–02–18
  4. By: Eric Schmidbauer (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)
    Abstract: Are new versions of products necessarily better? We analyze product innovation by a firm that engages in research and development designed to improve an existing product, the outcome of which is uncertain. If the firm adopts the innovation its modified product appears to consumers as new and improved, but consumers do not immediately know whether or how much the product is better. We find that new products are on average improved and therefore command a pricing premium. This induces some types to exploit the new product signal by selling new versions that are only trivially different from their older version or that require inefficiently high upgrade costs. Nevertheless, the incentive to show off by introducing a new product may improve total welfare by inducing more innovation adoption and thereby mitigating the standard monopoly underinvestment problem. Innovation signaling provides a rational explanation for consumer attraction to new versions of products without resort to behavioral assumptions such as a preference for "newness".
    Keywords: Asymmetric information, Signaling, Innovation
    JEL: L0 D82 O31
    Date: 2013–01
  5. By: Salvatore Monni; Massimo Pallottino
    Abstract: The aim of this paper is to investigate to what extent buen vivir ("good life"), Latin America’s new concept for collective well being, can be considered a way forward beyond current paradigms related to economic growth, development, ideology and state building, with its strengths and potential weaknesses or just a new version of political discourse. In order to answer this question, we will briefly review the literature that can help to trace the buen vivir origins in the cosmovisions of latinoamerican indigenous peoples, and to connect it to reflections made in different areas of social, economic and political sciences, trying to identify the areas in which divergences arise using established approaches and frameworks. In the conclusions we’ll also try to look at the added value brought by the buen vivir towards a renewed understanding of political, social, economic objectives of the associated life.
    Keywords: Buen Vivir, development policy, Latin America, plurinational state, socialism, state building.
    Date: 2013–03
  6. By: García Navarro, Esperanza Begoña (University of Huelva)
    Abstract: Taking care of a dependent person means to supply those needs that this person cannot satisfy by himself due to his lack of independence or autonomy (Henderson). Care is transmitted from one generation to another as a social practice and as a cultural heritage. It is taught through culture and social practices, and it is learnt through personal experience. At the same time, care does not happen in an empty context but in the context of systems and health and social structures, among other things, that finish its shape. When caring, the culture and social practices of a carer from one country (country of origin) are different in comparison with those of the country of destination. The concept of transcultural care of Leinnenger echoes the cultural diversity that this difference or opposition involves, and recommends incorporating it in the professional practice, developing care practice which she defines as culturally competent. Other theoreticians in the field of nursing incorporate additional dimensions such as prejudice, developing approaches in which it is argued that care should be accompanied by an intercultural sensitivity (Campinha-Bacote). This article presents a study on female migrant carers and their care strategies in key areas in the province of Huelva and the city itself, southwest of Spain, where they provide elderly care in different areas of expertise: specialised care in hospitals and care for the family unit at home. After an initial description of the demographic profile of the carers interviewed in our study area, our objective is to know the strategies they develop when caring for people from different backgrounds and how they are integrated into the social, cultural and institutional context of taking care to dependents of the host society.
    Keywords: Transcultural care; Social practices; Female migrant; Dependent person
    JEL: I11
    Date: 2013–02–13
  7. By: Schneck, Stefan
    Abstract: This paper descriptively analyzes the nexus between income comparisons and perceptions of unfair pay. A German household survey reveals that individuals who perceive their wages as unfair earn significantly lower wages than fairly paid individuals with similar characteristics. This suggests that unfairness perceptions with respect to wages are based on sound income comparisons with peers. When asked about a subjectively fair amount in Euros, individuals tend to claim much higher wages than fairly paid individuals with identical characteristics. --
    Keywords: Fairness,Wages
    JEL: J30 J31
    Date: 2013
  8. By: Yusuke Mori;
    Abstract: We explore why authority within firms helps trading parties immediately settle ex post adaptation problems despite the possibility of a subordinate's disobedience to the orders of his boss. By employing three crucial behavioral assumptions (reference-dependent preference, self-serving bias, and shading), we point out that the choice of governance structure affects trading parties' expectations about outcome of ex post adaptations and show that a subordinate is likely to obey orders of his boss because he is expected to do so. Nevertheless, our study also points out that such a positive aspect of authority comes with subordinate's psychological disutility.
    Date: 2013–01
  9. By: Ahmad K Naimzada (DISEI, Università degli studi di Firenze); Giorgio Ricchiuti (DISEI, Università degli studi di Firenze)
    Abstract: In contrast with the canonical models, Naimzada and Ricchiuti (2008, 2009) show that the interaction of groups of agents who have the same trading rule but present different beliefs about the fundamental value could be a source of instability in financial markets. Differently from Naimzada and Ricchiuti (2008, 2009), we assume the market maker employs a so-called multiplicative price mechanism (Tuinstra, 2002 and Zhu et al., 2009). We show that the occurrence of heterogeneity has an ambiguous role: it may either stabilize or destabilize the market.
    Keywords: mathematical economics, chaos, heterogeneous interacting agents, financial markets.
    JEL: C61 G11 G12 D84
    Date: 2013
  10. By: Aghion, Philippe (Harvard University, NBER, and CIFAR.); Akcigit, Ufuk (University of Pennsylvania and NBER.); Howitt, Peter (Brown University and NBER.)
    Abstract: Schumpeterian growth theory has “operationalized” Schumpeter’s notion of creative destruction by developing models based on this concept. These models shed light on several aspects of the growth process which could not be properly addressed by alternative theories. In this survey, we focus on four important aspects, namely: (i) the role of competition and market structure; (ii) firm dynamics; (iii) the relationship between growth and development with the notion of appropriate growth institutions; (iv) the emergence and impact of long-term technological waves. In each case Schumpeterian growth theory delivers predictions that distinguish it from other growth models and which can be tested using micro data.
    Keywords: Creative destruction; entry; exit; competition; firm dynamics; reallocation; R&D; industrial policy; technological frontier; Schumpeterian wave; general purpose technology
    JEL: O10 O11 O12 O30 O31 O33 O40 O43 O47
    Date: 2013–02–18
  11. By: Shu-Ling Chen; John D. Jackson; Hyeongwoo Kim; Pramesti Resiandini
    Abstract: This paper examines common forces driving the prices of 51 highly tradable commodities. We demonstrate that highly persistent movements of these prices are mostly due to the first common component, which is closely related to the US nominal exchange rate. In particular, our simple factor-based model outperforms the random walk model in out-of-sample forecast for the US exchange rate. The second common factor and de-factored idiosyncratic components are consistent with stationarity, implying short-lived deviations from the equilibrium price dynamics. In concert, these results provide an intriguing resolution to the apparent inconsistency arising from stable markets with nonstationary prices.
    Keywords: Commodity Prices; US Nominal Exchange Rate; Panel Analysis of Nonstationarity in Idiosyncratic and Common Components; Cross-Section Dependence; Out-of-Sample Forecast
    JEL: C53 F31
    Date: 2013–02
  12. By: Pasquale Tridico
    Abstract: The objective of this paper is to show that the current global economic crisis, in which also Italy fell in 2008, represents just the last step of a long declining path for the Italian economy which began in the nineties, or to be more precise in 1992and 1993. In particular, I argue the reasons which explain the long Italian decline, and partly also the deeper recession today, as well as the lack of recovery from the current crisis, can be found in the past reforms of the labour market. In particular the labour flexibility introduced in the last 15 years, which had, along with other policies introduced in parallel, cumulative negative consequences on the inequality, on the consumption, on the aggregate demand, on the labour productivity and on the GDP dynamics.
    Keywords: Labour market, labour policies, income distribution, productivity, wage, crisis
    JEL: J01 J08 E25 O47 J30 H12
    Date: 2013–03

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