nep-hme New Economics Papers
on Heterodox Microeconomics
Issue of 2017‒11‒19
fourteen papers chosen by
Carlo D’Ippoliti
Università degli Studi di Roma “La Sapienza”

  1. What Marx Means Today By Hans-Werner Sinn
  2. Marx and Ricardo on Machinery: A Critical Note. By Miguel D. Ramirez
  3. Metamorphosis in Political Economy A new combination of three disparate ideas By Hanappi, Hardy
  4. Economic shocks and changes in global production structures: Methods for measuring economic resilience By Yoshihiro Hashiguchi; Norihiko Yamano; Colin Webb
  5. The state and class discipline: European labour market policy after the financial crisis By Umney, Charles; Greer, Ian; Onaran, Özlem; Symon, Graham
  6. Microfoundations, Behaviour, and Evolution: Evidence from Experiments By Bogliacino, Francesco; Codagnone, Cristiano
  7. From constrained optimization to constrained dynamics: extending analogies between economics and mechanics By Erhard Gloetzl; Florentin Gloetzl; Oliver Richters
  8. An Overview on the Practice and Issues of Hedging in Islamic Finance By Oubdi, Lahsen; Raghibi, Abdessamad
  9. Has the push for equal gender representation changed the role of women on German supervisory boards? By Viktor Bozhinov; Christopher Koch; Thorsten Schank
  10. Governance and the reversal of women’s rights: The case of abortion in El Salvador By Jocelyn Viterna; Jose Santos Guardado Bautista; Silvia Ivette Juarez Barrios; Alba Evelyn Cortez
  11. The decline of the labour share in Mexico: 1990–2015 By Carlos A. Ibarra; Jaime Ros
  12. How Biased is the Behavior of the Individual Investor in Warrants? By Margarida Abreu
  13. The Selection of Economics Lecturers into the 2014 UK Research Excellence Framework Exercise: Outputs and Gender. By Richard McManus; Karen Mumford; Cristina Sechel
  14. Is Europe Disintegrating? Macroeconomic Divergence, Structural Polarisation, Trade and Fragility By Claudius Gräbner; Philipp Heimberger; Jakob Kapeller; Bernhard Schütz

  1. By: Hans-Werner Sinn
    Abstract: Marx made significant contributions to macroeconomics, laying the grounds for both Keynes’s theory of aggregate demand and Schumpeter’s theory of creative destruction. His law of the tendency of the rate of profit to fall parallels Alvin Hansen’s theory of secular stagnation which has recently received much attention among scholars studying the financial crises in Japan, the US and the Eurozone. This article argues that part of the new stagnation does not result from a natural exhaustion of investment possibilities, but from an overly loose central bank monetary policy that keeps zombie banks and their zombie clients alive and blocks the emergence of new start-up firms.
    Date: 2017
  2. By: Miguel D. Ramirez (Department of Economics, Trinity College)
    Abstract: This paper critically discusses the important and relevant—not to mention controversial— views of Ricardo and Marx on the impact of machinery on labor productivity, the organization of production, and the wages and employment prospects of the working class during the capitalism of their day. First, the paper turns to Ricardo’s assessment of the introduction of machinery and its likely effects on the laborer and the rate of profit and accumulation—one which went through a substantial revision (and reversal) between the first and third editions of his Principles of Political Economy and Taxation. Then we discuss Marx’s own critical analysis of the historical development of machinery and its impact on the labor process, the so-called “compensation principle,” and how the rising organic composition of capital ostensibly generates a “redundant or surplus-population”during the course of capitalism development. We highlight Marx’s intellectual debt to Ricardo (and John Barton) insofar as his theory of technological unemployment is concerned. Lastly, the paper summarizes the views of Ricardo and Marx and offers some concluding remarks.
    Keywords: : Capital; compensation principle; fixed vs. circulating capital; gross vs. net income; machinery; rate of surplus-value (profit); Say’s Law of Markets; surplus-population; time of production; turnover of capital
    JEL: B10 B12 B14
    Date: 2017–11
  3. By: Hanappi, Hardy
    Abstract: Innovation in theory building usually follows the prescription of ‘normal science’ as described by Thomas Kuhn in his account on the history of theoretical physics, see [Kuhn, 1962]. What already had been postulated by Descartes, compare [Descartes, 1637], as a signum of science, namely the systematic advance towards smaller, more specialized, partial problems that are easier to solve, this procedure still prevails in the social sciences till today. Contrary to this piecemeal engineering approach, Joseph Schumpeter made the character mask of the revolutionary entrepreneur to his hero of progress – at least as far as innovation in the production of commodities is concerned, [Schumpeter, 1911]. Of course, history shows that both forms of innovation are alternating: If the slow advance and broadening of a prevailing mainstream gets stuck and the contradictions it produces start to accumulate quickly, then it is time for a revolution – in the material world (compare [Hanappi & Wäckerle, 2016]) as well as in its scientific correlate. It is time for a metamorphosis. In which direction a theoretical innovation in times of metamorphosis shall point clearly has to remain an unanswered question. The best characterization of its general methodological form still seems to be Schumpeter’s dictum. It is a new combination of (existing) elements. The existing elements typically should concern burning problems of the troubled mainstream (compare [Hanappi, 2016]), and the adjective ‘new’ means that they so far are not connected to each other in the stagnating mainstream approach. The global political economy as well as its theoretical reflection in mainstream theory undoubtedly currently is in a state that calls for a revolutionary metamorphosis. This paper therefore sets out to develop a new combination of three seemingly unconnected ideas, which each address a fundamental contradiction. The first idea concerns the contradiction between the rich and the poor parts of the global economy, the second idea concerns the driving force of progress of the human species and its impediments, and the third idea concerns the contradiction between syntax and semantics of the formal representation of the first two contradictions. Contrary to papers in ‘normal science’, which in a conclusion propose a solution for their research question, this paper avoids to pretend a finite horizon of its arguments. As is appropriate for a proposed theoretical innovation it just offers a new open-ended contribution to the rapidly evolving discourse in the middle of metamorphosis.
    Keywords: Political Economy, Innovation in Theory
    JEL: C50 P10 P16
    Date: 2017–10–19
  4. By: Yoshihiro Hashiguchi (OECD); Norihiko Yamano (OECD); Colin Webb (OECD)
    Abstract: Conventional studies on the impacts of economic shocks using global input-output tables (sensitivity analyses) assume stable production structures and thus, only reveal the marginal impacts of changes in final demand. However, when economic shocks occur, whether at home or abroad, economic agents are expected to react to reduce the negative impact or amplify the positive effects. The ability of a country to contain economic losses can be defined as the resilience to economic shocks. Using the OECD's annual Inter-Country Input-Output (ICIO) tables, 1995 to 2011, this paper investigates the relationship between changes in final demand and production structures for 61 economies. Our findings are summarised as follows. Production and final demand structures tend to change to reduce the negative feedbacks from final demand shocks. During economic downturns, structures tend to change so that the dependence on domestic services increases, while the dependence on domestic demand for goods, and the dependence on foreign demand for domestic goods and services, both decrease. Therefore, the domestic service sector seems to play a key role in temporarily containing the negative feedback. Countries that are able to prop up their economy by domestic service sectors instead of domestic goods and foreign sectors are more resilient to negative economic shocks.
    Keywords: economic resilience, global value chains, input-output, structural changes
    JEL: C14 D57 E12 F47
    Date: 2017–11–03
  5. By: Umney, Charles; Greer, Ian; Onaran, Özlem; Symon, Graham
    Abstract: This paper looks at two related labour market policies that have persisted and even proliferated across Europe both before and after the financial crisis: wage restraint, and punitive workfare programmes. It asks why these policies, despite their weak empirical records, have been so durable. Moving beyond comparative-institutionalist explanations which emphasise institutional stickiness, it draws on Marxist and Kaleckian ideas around the concept of ‘class discipline’. It argues that under financialisation, the need for states to implement policies that discipline the working class is intensified, even if these policies do little to enable (and may even counteract) future stability. Wage restraint and punitive active labour market policies are two examples of such measures. Moreover, this disciplinary impetus has subverted and marginalised regulatory labour market institutions, rather than being embedded within them.
    Keywords: Financialisation; Policy systems; Wage restraint; Active labour market policies; Workfare; Marxism
    Date: 2017–11–03
  6. By: Bogliacino, Francesco; Codagnone, Cristiano
    Abstract: The article discusses whether and to what extent experiments can contribute to a research paradigm based on the study of human behaviour in complex evolving environments and on the problem of asymmetric adjustment among different components of economic system along certain trajectories, focusing on the possibility that experimental evidence may represent an external consistency check on this type of heterodox modelling. It considers the evidence on rationality of human agents, and the possibility to identify a microfoundation alternative to homo oeconomicus, discussing the evidence on humans as strong reciprocators, as trusting individuals and as embedded in social norms.
    Keywords: Experiments; Causality; Heuristics; Learning; Bounded Rationality; Altruism; Punishment; Trust; Norms
    JEL: C18 C9 D1 D3
    Date: 2017–10
  7. By: Erhard Gloetzl (Institute for the Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria;); Florentin Gloetzl (Institute for Ecological Economics, Department for Socioeconomics, Vienna University of Economics and Business, Austria;); Oliver Richters (University of Oldenburg, Department for Economics)
    Abstract: Since the beginnings of modern economics, economists sought to emulate the revolution in physics initiated by Newton’s ‘Principia’ (1687). Concepts from mechanics have influenced economic models both in terms of methodology and content. The aim of this theoretical paper is to put forward a novel economic modeling framework that extends the analogies between economics and classical mechanics from constrained optimization to constrained dynamics. We introduce the concepts of economic forces and economic power that bear striking resemblance to physical forces and the reciprocal value of mass. In this setup, the change of a variable is determined by the forces agents employ to change it according to their desire, their power to assert their interest, and constraint forces emerging from system constraints. The approach is based on a genuine dynamic out-of-equilibrium analysis and can incorporate heterogeneous agents, prisoner’s dilemma situations, and behavioral assumptions different from rationality and utility maximization. Thereby, it seeks to overcome some restrictions inherent to approaches based on optimization under constraint and provide an out-of-equilibrium foundation for equilibrium models. We transform a static textbook exchange model into a dynamic model, and reflect on advantages, extensions and caveats of our modeling approach.
    Keywords: Economic Model; Economic dynamics; Disequilibrium economics; Classical Mechanics; Constrained Optimization; Constrained Dynamics; General Equilibrium; Edgeworth Box.
    Date: 2017–11
  8. By: Oubdi, Lahsen; Raghibi, Abdessamad
    Abstract: In terms of Islamic banking, which relies on three main pillar of prohibiting Riba, Gharar& Maysir, risk management is still not sufficiently developed. Indeed, Islamic use traditional types of risk management instruments used by conventional banks. Despite Islamic banking has a specific characteristic related essentially to the Profit & Loss Sharing (PLS) principle in Mudarabah & Musharakah contracts. Such instruments change the classic concept of risk in comparison with conventional banks adding new types of risk such as Commodity/Asset price risk and Bundled risk along with neutralizing other type of risks like the liquidity risk. Nevertheless, the rigidity of some Sharia’a scholars has impeded some financial instruments that try to match the real risk management demands by business entities in the global Islamic finance industry. Indeed, it has been widely acknowledged by many observers that the Islamic finance industry will not be able to sustainably continue on this growth trajectory, and may even regress, without a proper market risk management framework that can effectively deal with the complex risks that exist in today’s globalized economy (Chapra& Khan, 2000; Moody's, 2010).The present research article is an attempt to analyze hedging instruments from an Islamic finance perspective. It will approach different fiqhi ruling on them along with the applicability of these instruments in the reality.
    Keywords: Risk Management, Islamic Finance, Hedging, Future
    JEL: G13 G23
    Date: 2017–10–13
  9. By: Viktor Bozhinov (Johannes Gutenberg-University Mainz, Germany); Christopher Koch (Johannes Gutenberg-University Mainz, Germany); Thorsten Schank (Johannes Gutenberg-University Mainz, Germany)
    Abstract: In Germany, an intensive public debate about increasing female participation in leadership positions started in 2009 and proceeded until the beginning of 2015, when the German parliament enacted a board gender quota. In that period, the share of women on supervisory boards for 111 German publicly listedand fully codetermined companies (i.e. those which are affected by the quota law) more than doubled from 10.6 percent in 2009 to 22.6 percent in 2015. In 2016, the first year when the law was effective,the female share increased again by 4.5 percentage points. Using a hand-collected dataset, we investigate whether the rise in female board representation was accompanied by a change in gender differences in board member characteristics and board involvement. We do not find evidence for the “Golden Skirts” phenomenon, i.e., the rise in the female share was not achieved via a few female directors holding multiple board memberships. After controlling for firm heterogeneity, the remuneration of female shareholder (employee) representatives is about 16 (9) percent lower than for males. We interpret this as an overall indication that women are not only underrepresented in German supervisory boards,they are even more underrepresented in importantboard positions. Indeed, women are less likely to become a chairman and are less often assigned to board committees (except for the nominating committee). Moreover, in 2016 the disadvantage of women (as compared to men) to obtain a committee membership is even larger than in 2009.
    Keywords: gender diversity, women on boards, gender quota, board remuneration, committee membership
    Date: 2017–09
  10. By: Jocelyn Viterna; Jose Santos Guardado Bautista; Silvia Ivette Juarez Barrios; Alba Evelyn Cortez
    Abstract: States’ governance of gender is not unidirectional. In addition to ‘stagnation’ and ‘progress’, there can be an active reversal of rights already granted to women. Using the case of abortion rights in El Salvador, this paper investigates the following questions: What are the likely causes of rights reversals? How might rights reversals be more consequential for women’s lives than rights stagnations? And how might studying rights reversals as separate and distinct phenomena improve our scholarly understanding of the relationship between gender and development more broadly? Examining the full range of possible transformations in state governance (reversals, stagnations, and progress), we conclude, results in improved theory and more effective interventions.
    Date: 2017
  11. By: Carlos A. Ibarra; Jaime Ros
    Abstract: This paper studies the decline of the labour share in Mexico during the period 1990– 2015. It calculates the wage share and alternative measures of the labour income share (which includes labour income of the self-employed) for the whole economy, the private business sector, and its major economic sectors. It carries out a shift–share analysis showing that the decline in the labour share is mostly explained by reductions within the economy’s major sectors (including within manufacturing, tradables, and non-tradables) rather than by a recomposition of value added towards those with low labour shares. It distinguishes within each major area of economic activity a modern wage-employment sector and an informal self-employment one. In contrast to agriculture—where the labour share fell due a shift of labour force towards the wage-employment sector—in other major areas of the economy the fall in the labour share is explained by reductions within the wage-employment sector. Econometric estimations indicate that parallel declines in the wage share and relative productivity of non-tradables and in the US manufacturing labour share all played a large role in the reduction of the manufacturing wage share in Mexico. More generally, the analysis suggests that the lagging productivity of the informal non-tradable sector of the economy—itself a reflection of the country’s low aggregate rate of economic growth—is a crucial factor in the fall of the labour share in the formal sectors. The paper concludes by discussing possible explanations for the paradox of the slow rate of economic growth in Mexico despite the rise in the profit share, and by pointing out remaining challenges for reconciling the different sources of data in the calculation of the labour share in Mexico.
    Date: 2017
  12. By: Margarida Abreu
    Abstract: Based on the actual trading behavior of individual investors in the Portuguese financial market during almost ten years this paper examines the socio-demographic characteristics of retail investors in warrants, and discusses the hypothesis that some behavioral biases do have an impact on the investors’ predisposition to invest and trade in warrants, a complex financial instrument. One finds that there is a profile of investors in warrants: younger and less educated men are more likely to invest in warrants and that overconfident,disposition-prone and investors exhibiting a gambling attitude are more likely to invest and trade in warrants. Secondly, the gambling motive seems to be a distinguishing characteristic of investors in warrants. In other words, when investors are driven to trade in financial markets for pleasure/fun they tend to trade complex products more and to trade simple and easier to understand financial instruments less. Finally, the higher the intensity of trading the more relevant are the disposition and the gambler’s biases.
    Keywords: Warrants, overconfidence, disposition effect, gambling effect, individual investor behavior
    JEL: G11 G12
    Date: 2017–10
  13. By: Richard McManus; Karen Mumford; Cristina Sechel
    Abstract: We investigate the selection for Lecturers into the 2014 Research Excellence Framework (REF2014) assessment exercise amongst the departments submitting to the Economics and Econometrics Unit of Assessment. Less than half of these Lecturers were submitted: 40% of the women and 53% of the men. After controlling for early career status, research output quantity and quality, co-authorship, department research ranking and location; we find more than half of the variance in selection probability is left unexplained. We also find a conditional (unexplained) gender gap in selection of 9.7%.
    Keywords: research excellence framework, gender, selection, outputs, quality.
    Date: 2017–11
  14. By: Claudius Gräbner; Philipp Heimberger (The Vienna Institute for International Economic Studies, wiiw); Jakob Kapeller; Bernhard Schütz
    Abstract: This paper analyses economic developments in the eurozone since its inception in 1999. In doing so, we document a process of economic divergence and polarisation among those countries that joined the eurozone during its first two years, which fits a typical ‘core – periphery’ pattern. We show how this polarisation process first manifested in increasing current account imbalances before the crisis, before it translated unto the level of general macroeconomic development after the crisis. Empirically, we demonstrate how this divergence is tied to a ‘structural polarisation’ in terms of the sectoral composition of eurozone countries specifically, the emergence of export-driven growth in core countries and debt-driven growth in the European periphery coincides with differences in technological capabilities and firm performance. Pushing for convergence within Europe requires the implementation of three intertwined policy programmes macroprudential financial regulation, active industrial policies aiming at a technological catch-up process in periphery countries, and progressive re‑distributional policies to sustain adequate levels of aggregate demand throughout the eurozone.
    Keywords: polarisation, European Monetary Union, industrial policy, financial regulation, growth trajectories
    JEL: B5 E6
    Date: 2017–09

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