nep-hme New Economics Papers
on Heterodox Microeconomics
Issue of 2023‒09‒25
thirteen papers chosen by
Carlo D’Ippoliti, Università degli Studi di Roma “La Sapienza”

  1. Ecological Accounting : How to organize information for biodiversity conservation decision and action at the national, business and ecosystem levels? By C. Feger; Harold Levrel; Alexandre Rambaud
  2. Same old song: On the macroeconomic and distributional effects of leaving a Low Interest Rate Environment By Alberto Botta; Eugenio Caverzasi; Alberto Russo
  3. "Guinea Pig Trials" Utilizing GPT: A Novel Smart Agent-Based Modeling Approach for Studying Firm Competition and Collusion By Xu Han; Zengqing Wu; Chuan Xiao
  4. Market-reach into social reproduction and transnational labour mobility in Europe By Plomien, Ania; Schwartz, Gregory
  5. General Constrained Dynamic Models in Economics - General Dynamic Theory of Economic Variables - Beyond Walras and Keynes By Glötzl, Erhard; Glötzl, Florentin; Richters, Oliver; Binter, Lucas
  6. Environmental Sustainability and the Economic Complexity: Policy Implications for a New Developmentalism Strategy By Daniel Moura da Costa Teixeira; Helder Lara Ferreira Filho; Jose Luis Oreiro
  7. The Cycle of Value The Cycle of Value -- A Conservationist Approach to Economics By Nick Harkiolakis
  8. The socio-economics of the 2023 fuel subsidy removal in Nigeria By Evans, Olaniyi; Nwaogwugwu, Isaac; Vincent, Olusegun; Wale-Awe, Olawale; Mesagan, Ekundayo; Ojapinwa, Taiwo
  9. Detecting Financial Market Manipulation with Statistical Physics Tools By Haochen Li; Maria Polukarova; Carmine Ventre
  10. Liquidity Spirals By Farmer, J. Doyne; Wiersema, Garbrand; Kemp, Esti
  11. Green or greedy: the relationship between perceived benefits and homeowners' intention to adopt residential low-carbon technologies By Fabian Scheller; Karyn Morrissey; Karsten Neuhoff; Dogan Keles
  12. Network-based allocation of responsibility for GHG emissions By Rosa van den Ende; Antoine Mandel; Agnieszka Rusinowska
  13. ON THE APPEAL OF COMPLEXITY By Brice Corgnet; Roberto Hernán González

  1. By: C. Feger (AgroParisTech, MRM - Montpellier Research in Management - UM1 - Université Montpellier 1 - UPVM - Université Paul-Valéry - Montpellier 3 - UM2 - Université Montpellier 2 - Sciences et Techniques - UPVD - Université de Perpignan Via Domitia - Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School); Harold Levrel (AgroParisTech, CIRED - Centre International de Recherche sur l'Environnement et le Développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École des Ponts ParisTech - Université Paris-Saclay - CNRS - Centre National de la Recherche Scientifique); Alexandre Rambaud
    Abstract: Outline – The first part of this paper will discuss our reasons to turn to the academic and practical field of ecological accounting at different levels of decision and organization (national, business and ecosystem); and our choice to adopt a strong sustainability and maintenance cost-based approach. Based on these foundations, we will then present three complementary ecological accounting methods at the national level (the Unpaid ecological costs approach); at the business level (the Comprehensive Accounting in Respect of Ecology model) and at ecosystem management level (the Ecosystem-centric management accounting approach). We will conclude by highlighting the need to continue to progress towards the interlinking of these methods. Issue addressed in this paper – In order to contribute to the multiple efforts for the transformation of our economy into a system that effectively maintains and restores biodiversity, we introduce a proposal aimed at going further in the integration of ecosystem-interdependencies information at the heart of organizational processes and decision-making procedures at different levels. These methods also aim to take into consideration the great variety of decision-making and action contexts that characterize the realm of biodiversity conservation. We argue that such an endeavor requires to turn to the field of "ecological accounting", both on a conceptual level and on a practical level, to put forward concrete methods and tools for collective decision and action. The paper hence addresses the following question: what kind of ecological accounting concepts and methods can be sense-making and scientifically sound, to support the management of biodiversity-related risks and reorganize our economic system towards the achievement of biodiversity conservation/restoration goals ?
    Keywords: biodiversity, accounting, strong sustainability
    Date: 2021–11
  2. By: Alberto Botta (School of Accounting, Finance and Economics, University of Greenwich, London, UK); Eugenio Caverzasi (Department of Economics, Università degli Studi dell’Insubria, Varese, Italy); Alberto Russo (Department of Economics and Social Sciences, Università Politecnica delle Marche, Ancona, Italy and Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: This paper analyzes the macroeconomic and distributional implications of central banks’decisions to raise interest rates after a prolonged period at near the Zero Lower Bound (ZLB). The main goal of our study is to assess the interaction between monetary policy, inequality, and financial fragility, in a financialized economic system. Financialization is here portrayed as the presence in the economy of complex financial products, i.e., assetbacked securities, produced via the securitization of banks’ loans. We do so in the context of a hybrid Agent-Based Model (ABM). We first compare the prevailing macroeconomic and financial features of a low interest rate environment (LIRE) with respect to a “Great Moderation”(GM)-like setting. As expected, we show that LIRE tends to stimulate faster growth and higher employment, and to reduce income and wealth inequality, as well as (poor) households’ indebtedness. Consistent with existing empirical literature, this comes at the cost of higher inflation and some signs of financial system’s fragility, i.e., lower banks’ profitability and Capital Adequacy Ratio (CAR), and higher “search for risk” given by credit extension to poorer households. We then show that increases in the central bank’s policy rate, as motivated by the central bank’s willingness to reduce inflation, effectively curb price dynamics and accomplish with central bank’s inflation targeting mandate. Higher interest rates also improve commercial banks’ CAR and profitability. However, they also cause a pronounced increase in non-performing loans (stronger tan what possibly observed in a GM scenario) and some worrisome macro-financial dynamics. In fact, higher interest rates give rise to higher households’ and overall economy indebtedness as allowed by wealthier households’ demand for high-yield complex financial products and mounting securitization. We finally show how financialization structurally changes the functioning of the economy and the behavior of central banks. Financialization actually contributes to create a (private sector) debt-led economy, which becomes structurally more resistant to central bank’s attempts to control inflation. Central bank’s reaction in terms of higher interest rates could likely come with perverse distributional consequences.
    Keywords: Low interest rate environment, Contractionary monetary policy, Securitization
    JEL: E24 E44 E52
    Date: 2023
  3. By: Xu Han; Zengqing Wu; Chuan Xiao
    Abstract: Firm competition and collusion involve complex dynamics, particularly when considering communication among firms. Such issues can be modeled as problems of complex systems, traditionally approached through experiments involving human subjects or agent-based modeling methods. We propose an innovative framework called Smart Agent-Based Modeling (SABM), wherein smart agents, supported by GPT-4 technologies, represent firms, and interact with one another. We conducted a controlled experiment to study firm price competition and collusion behaviors under various conditions. SABM is more cost-effective and flexible compared to conducting experiments with human subjects. Smart agents possess an extensive knowledge base for decision-making and exhibit human-like strategic abilities, surpassing traditional ABM agents. Furthermore, smart agents can simulate human conversation and be personalized, making them ideal for studying complex situations involving communication. Our results demonstrate that, in the absence of communication, smart agents consistently reach tacit collusion, leading to prices converging at levels higher than the Bertrand equilibrium price but lower than monopoly or cartel prices. When communication is allowed, smart agents achieve a higher-level collusion with prices close to cartel prices. Collusion forms more quickly with communication, while price convergence is smoother without it. These results indicate that communication enhances trust between firms, encouraging frequent small price deviations to explore opportunities for a higher-level win-win situation and reducing the likelihood of triggering a price war. We also assigned different personas to firms to analyze behavioral differences and tested variant models under diverse market structures. The findings showcase the effectiveness and robustness of SABM and provide intriguing insights into competition and collusion.
    Date: 2023–08
  4. By: Plomien, Ania; Schwartz, Gregory
    Abstract: What are the processes and consequences of markets reaching deeper into social reproduction? How do these developments, in the context of Europeanisation underpinned by neoliberalisation and transnationalisation, compel labour mobility? To consider these questions we apply social reproduction theory and the framework of uneven and combined accumulation of capital in Europe to the analysis of the UK, Poland and Ukraine and their food production, housing construction and care provision sectors. We explore how transformations, in these three countries interconnected by labour mobilities and in these three domains key to social reproduction, not only affect the industries that supply food, housing and care, but, crucially, redraw the contours of social reproduction. Theorising social reproduction as a continuum of market, state and household provisioning, we outline its transformation within the specific constellation of Europeanisation and delineate how mobility is both propelled by and advances market-reach into food, housing and care. We argue that market-driven transnational social reproduction is constituted by contradictions stemming from the deepening subordination of reproductive labour to the law of value, progressively depriving households of the promise of prosperity - a complex process that is made visible by our feminist critique of political economy.
    Keywords: social reproduction; transnational labour mobility; Europeanisation; market-reach; Poland; Ukraine; T&F deal
    JEL: R14 J01
    Date: 2023–08–10
  5. By: Glötzl, Erhard; Glötzl, Florentin; Richters, Oliver; Binter, Lucas
    Abstract: For more than 100 years economists have tried to describe economics in analogy to physics, more precisely to classical Newtonian mechanics. The development of the Neoclassical General Equilibrium Theory has to be understood as the result of these efforts. But there are many reasons why General Equilibrium Theory is inadequate: 1. No genuine dynamics. 2. The assumption of the existence of utility functions and the possibility to aggregate them to one “master” utility function. 3. The impossibility to describe situations as in “Prisoners Dilemma”, where individual optimization does not lead to a collective optimum. This book aims at overcoming these problems. It illustrates how not only equilibria of economic systems, but also the general dynamics of these systems can be described in close analogy to classical mechanics. To this end, this book makes the case for an approach based on the concept of constrained dynamics, analyzing the economy from the perspective of “economic forces” and “economic power” based on the concept of physical forces and the reciprocal value of mass. Realizing that accounting identities constitute constraints in the economy, the concept of constrained dynamics, which is part of the standard models of classical mechanics, can be applied to economics. Therefore, it is reasonable to denote such models as General Constraint Dynamic Models (GCD-Models) Such a framework allows understanding both Keynesian and neoclassical models as special cases of GCD-Models in which the power relationships with respect to certain variables are one-sided. As mixed power relationships occur more frequently in reality than purely one-sided power constellations, GCD-models are better suited to describe the economy than standard Keynesian or Neoclassic models. A GCD-model can be understood as “Continuous Time”, “Stock Flow Consistent”, “Microfounded”, where the behaviour of the agents is described with a general differential equation for every agent. In the special case where the differential equations can be described with utility functions, the behaviour of every agent can be understood as an individual optimization strategy. He thus seeks to maximize his utility. However, while the core assumption of neoclassical models is that due to the “invisible hand” such egoistic individual behaviour leads to an optimal result for all agents, reality is often defined by “Prisoners Dilemma” situations, in which individual optimization leads to the worst outcome for all. One advantage of GCD-models over standard models is that they are able to describe also such situations, where an individual optimization strategy does not lead to an optimum result for all agents. In conclusion, the big merit and effort of Newton was, to formalize the right terms (physical force, inertial mass, change of velocity) and to set them into the right relation. Analogously the appropriate terms of economics are economic force, economic power and change of variables. GCD-Models allow formalizing them and setting them into the right relation to each other.
    Keywords: Stephen Smale, Problem 8, macroeconomic models, constraint dynamics, GCD, DSGE, out-of-equilibrium dynamics, Lagrangian mechanics, stock flow consistent, SFC, demand shock, supply shock, price shock, intertemporal utility function
    JEL: A12 B13 B41 B59 C02 C30 C54 C60 E10
    Date: 2023–06–01
  6. By: Daniel Moura da Costa Teixeira; Helder Lara Ferreira Filho; Jose Luis Oreiro
    Abstract: For most of human history, the economic system has operated according to the environment’s support capacity, but this relationship changed radically after the Industrial Revolution. Since then, the economy has achieved sufficiently great scale and scope to make the rate of natural resource and energy consumption as well as waste generation rival the environment’s support capacity. Hence, sustainable development requires the economy to expand at diminishing rates of natural resource consumption and pollutant emissions, including GHGs, as well as allow the long-term restoration of natural capital stocks. This purpose is only achieved through an Ecological Structural Change, which doesn’t occur spontaneously due to several market failures and risks involved in investments in cleaner technologies and innovations, requiring a set of public policies. Therefore, this paper discusses the relationship between environmental sustainability, ecological structural change, economic complexity, and the implications for environmental policies in an eco-developmental (and broader) strategy. The insights obtained point out that it is the State's role to coordinate and provide information during policy management, acting as an identifier of opportunities for diversification of the economy that contribute to environmental sustainability. Besides that, to avoid corruption and rent-seeking processes, it is important to establish a proper institutional framework for effective interaction between the market and public sectors, mechanisms for transparency and accountability as well as the national eco-developmental strategy must have a high status in the governmental agenda
    Keywords: Green New Developmentalism; Climate Change; Forest Change; Economic Complexity; Policy Coordination
    JEL: Q01 Q32 Q55 Q56
    Date: 2023–09
  7. By: Nick Harkiolakis
    Abstract: A representation of economic activity in the form of a law of conservation of value is presented based on the definition of value as potential to act in an environment. This allows the encapsulation of the term as a conserved quantity throughout transactions. Marginal value and speed of marginal value are defined as derivatives of value and marginal value, respectively. Traditional economic statements are represented here as cycles of value where value is conserved. Producer-consumer dyads, shortage and surplus, as well as the role of the value in representing the market and the economy are explored. The role of the government in the economy is also explained through the cycles of value the government is involved in. Traditional economic statements and assumptions produce existing hypotheses as outcomes of the law of conservation of value.
    Date: 2023–08
  8. By: Evans, Olaniyi; Nwaogwugwu, Isaac; Vincent, Olusegun; Wale-Awe, Olawale; Mesagan, Ekundayo; Ojapinwa, Taiwo
    Abstract: The removal of fuel subsidy in Nigeria in 2023 has triggered a profound shift with far-reaching implications across economic, social, and environmental spheres. This study probes into the complex web of consequences arising from this drastic policy transformation, examining both the direct and indirect effects on the Nigerian society and economy. While the reallocation of resources from subsidies to vital sectors like healthcare, transport and education holds positive transformative potentials, ensuring effective utilization and equitable distribution of these funds warrants meticulous consideration. Achieving tangible improvements in essential services without unintentional negative consequences emerges as a central challenge. Drawing from historical precedents of subsidy removal attempts in Nigeria, the study underscores the importance of managing public sentiment and stakeholder reactions. The complexity arising from the interplay of economic, political, environmental, and societal factors necessitates a holistic approach. The study highlights the significance of informed decision-making to mitigate negative short-term impacts, harness long-term gains, and safeguard the vulnerable segments of the population. Policymakers must adopt a holistic approach that balances economic efficiency, social welfare, environmental sustainability, and inclusive growth. By addressing these multidimensional implications and drawing insights from both domestic and international experiences, Nigeria can navigate the complexities of subsidy removal effectively and work towards a prosperous and egalitarian society.
    Keywords: Fuel subsidy removal; socio-economic implications
    JEL: Q4 Q41 Q42 Q43
    Date: 2023–08–22
  9. By: Haochen Li; Maria Polukarova; Carmine Ventre
    Abstract: We take inspiration from statistical physics to develop a novel conceptual framework for the analysis of financial markets. We model the order book dynamics as a motion of particles and define the momentum measure of the system as a way to summarise and assess the state of the market. Our approach proves useful in capturing salient financial market phenomena: in particular, it helps detect the market manipulation activities called spoofing and layering. We apply our method to identify pathological order book behaviours during the flash crash of the LUNA cryptocurrency, uncovering widespread instances of spoofing and layering in the market. Furthermore, we establish that our technique outperforms the conventional Z-score-based anomaly detection method in identifying market manipulations across both LUNA and Bitcoin cryptocurrency markets.
    Date: 2023–08
  10. By: Farmer, J. Doyne; Wiersema, Garbrand; Kemp, Esti
    Abstract: We introduce a novel method for studying liquidity spirals and use this method to identify spirals before stock prices plummet and funding markets lock up. We show that liquidity spirals may be underestimated or completely overlooked when interactions between contagion channels are ignored, and find that financial stability is greatly affected by how institutions choose to respond to liquidity shocks, with some strategies yielding a \robust-yet-fragile" system. To demonstrate the method, we apply it to a highly granular data set on the South African banking sector and investment fund sector. We find that liquidity spirals are exacerbated when the liquidity positions of institutions worsen, and that central bank-provided liquidity can greatly dampen liquidity spirals. We also show that, depending on the market conditions, a liquidity spirals is sometimes caused by the banking and fund sectors' collective dynamics, but at other times by one sector's individual impact. The approach developed here can be used to formulate interventions that specifically target the sector(s) causing the liquidity spiral.
    Keywords: Liquidity Spiral, Financial Stability, Systemic Risk, Financial Contagion, Interacting Contagion Channels, Intersectoral Contagion Channels, Multiplex Networks, Stress Test, Solvency-Liquidity Nexus
    JEL: G01 G17 G18 G21 G23 G28
    Date: 2023–09
  11. By: Fabian Scheller; Karyn Morrissey; Karsten Neuhoff; Dogan Keles
    Abstract: Transitioning to a net-zero economy requires a nuanced understanding of homeowners decision-making pathways when considering the adoption of Low Carbon Technologies (LCTs). These LCTs present both personal and collective benefits, with positive perceptions critically influencing attitudes and intentions. Our study analyses the relationship between two primary benefits: the household-level financial gain and the broader environmental advantage. Focusing on the intention to adopt Rooftop Photovoltaic Systems, Energy Efficient Appliances, and Green Electricity Tariffs, we employ Partial Least Squares Structural Equation Modeling to demonstrate that the adoption intention of the LCTs is underpinned by the Theory of Planned Behaviour. Attitudes toward the LCTs are more strongly related to product-specific benefits than affective constructs. In terms of evaluative benefits, environmental benefits exhibit a higher positive association with attitude formation compared to financial benefits. However, this relationship switches as homeowners move through the decision process with the financial benefits of selected LCTs having a consistently higher association with adoption intention. At the same time, financial benefits also positively affect attitudes. Observing this trend across both low- and high-cost LCTs, we recommend that policymakers amplify homeowners' recognition of the individual benefits intrinsic to LCTs and enact measures that ensure these financial benefits.
    Date: 2023–08
  12. By: Rosa van den Ende (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, Universität Bielefeld = Bielefeld University); Antoine Mandel (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We provide an axiomatic approach to the allocation of responsibility for GHG emissions in supply chains. Considering a set of axioms standardly used in networks and decision theory, and consistent with legal principles underlying responsibility, we show that responsibility measures shall be based on exponential discounting of upstream and downstream emissions. From a network theory perspective, the proposed responsibility measure corresponds to a convex combination of the Bonacich centralities for the upstream and downstream weighted adjacency matrices. Scope 1 emissions, consumption-based accounting and income-based accounting are obtained as particular cases of our approach, which also gives a precise meaning to scope 3 emissions while avoiding double-counting. We apply our approach to the assessment of country-level responsibility for global GHG emissions and to sector-level responsibility in the USA. We examine how the responsibility of sectors/countries varies with the discounting of indirect emissions. We identify three groups of countries/sectors: producers of emissions whose responsibility decreases with the discounting factor, consumers of emissions whose responsibility increases with the discounting factor, and an intermediary group whose responsibility mostly depends on the network position and varies non-monotonically with the discounting factor. Overall, our axiomatic approach provides strong normative foundations for the definition of reporting requirements for indirect emissions and for the allocation of responsibility in claims for climate-related loss and damage.
    Keywords: upstream and downstream emission responsibilities, supply chains and networks, responsibility measure, axiomatization, Bonacich centrality
    Date: 2023–08
  13. By: Brice Corgnet (emlyon business school, GATE UMR 5824, F-69130 Ecully, France); Roberto Hernán González (CEREN EA 7477, Burgundy School of Business, Université Bourgogne Franche-Comté, Dijon, France)
    Abstract: Recent works have emphasized the role of complexity as a critical constraint on human behavior following Herbert Simon’s original proposal (complexity-cost hypothesis). By contrast, we propose, in line with recent neuroscience models, that complexity can often be appealing (complexity-value hypothesis). Complexity can attract decision makers because it is associated with a large diversity of outcomes, thus offering many opportunities for the resolution of uncertainty, which is inherently appealing to humans. Using incentivized experiments, we show that, in the absence of immediate feedback on lottery outcomes, decision makers prefer lotteries with less outcomes (low-entropy) in line with the complexity-cost hypothesis. However, when feedback is provided and opportunities for resolving uncertainty are thus offered, this effect disappears in line with the complexity-value hypothesis. We discuss various implications of these findings in human resource management, marketing, and finance.
    Keywords: Complexity, entropy, experiments
    JEL: C91 D01 D81 D87
    Date: 2023

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