nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2007‒10‒13
twelve papers chosen by
Erik Thomson
University of Chicago

  1. LA TEORIA DEL CICLO DI HAYEK. ESPOSIZIONE E DISCUSSIONE (Hayek’s Business Cycle Theory) By Hervé Baron
  2. Notes(2) on a Thermodynamic Theory of Economics By John Bryant
  3. Taming the Incomputable, Reconstructing the Nonconstructive and Deciding the Undecidable in Mathematical Economics By K. Vela Velupillai
  4. The dual process account of reasoning: historical roots, problems and perspectives. By Massimo Egidi
  5. Is There a Pessimistic Bias in Individual Beliefs? Evidence from a Simple Survey By Elyès Jouini; Selima Ben Mansour; Clotilde Napp
  6. A Computable Economist’s Perspective on Computational Complexity By K. Vela Velupillai
  7. Personnel Economics By Edward P. Lazear; Paul Oyer
  8. A Brief History of Production Functions By Mishra, SK
  9. The Human version of Moore-Shannon’s Theorem: The Design of Reliable Economic Systems By Michael Christensen; Thorbjørn Knudsen
  10. Numerical solution of linear models in economics: The SP-DG model revisited By T. Andrade, G. Faria, V. Leite, F. Verona, M. Viegas; O. Afonso; P.B. Vasconcelos
  11. Vous avez dit ... "civiliser le marché" ? By Jean-Pierre Galavielle
  12. Interactions between interest rates and the transmission of monetary and economic news: the cases of US and UK. By Tuysuz, Sukriye; Kuhry, Yves

  1. By: Hervé Baron (Università degli Studi di Firenze, Dipartimento di Scienze Economiche)
    Abstract: Here we will deal with Hayek economist and without considering his theoretical production completely. In fact, the purpose of the present work is to expose and discuss Hayek’s theory of economic cycle. To try to develop our assignment in best way, naturally, we have also to deal us with Hayek’s monetary theory as well as to mention his theory of capital and his methodological formulations. During this writing, after having delineated Hayek’s analytical tools and the general characters of his analysis, we will introduce the most important models of the cycle elaborated by him during the years; lot of time will be given to the discussion of the model reported in “Prices and Production”, for the reasons that will be subsequently exposed. Then, we will try to discuss the “internal” problems concerning Hayek’s theory to finally draw some conclusions concerning if this theory is still actual or not.
    Keywords: teoria del ciclo, fluttuazioni cicliche, ciclo economico
    JEL: B13 B31 E13 E32
    Date: 2007
  2. By: John Bryant (Vocat International)
    Abstract: This paper expands on points of a paper by the author, published earlier in 2007. Additional analyses are set out on the issue of the economic cycle and the boundary between products of economic value and flows of value between them.
    Keywords: Thermodynamics, economics, Le Chatelier, entropy, utility, money, equilibrium, value, energy
    Date: 2007–10
  3. By: K. Vela Velupillai
    Abstract: It is natural to claim, as I do in this paper, that the emergence of non-constructivities in economics is entirely due to the formalization of economics by means of "classical" mathematics. I have made similar claims for the emergence of uncomputabilities and undecidabilities in economics in earlier writings. Here, on the other hand, I want to suggest a way of confronting uncomputabilites, and remedying non-constructivities, in economics, and turning them into a positive force for modelling, for example, endogenous growth, as suggested by Stefano Zambelli ([107], [108]). In between, a case is made for economics to take seriously the kind of mathematical methodology fostered by Feynman and Dirac, in particular the way they developed the path integral and the delta-function, respectively. A sketch of a "research program" in mathematical economics, analogous to the way Gödel thought incompleteness and its perplexities should be interpreted and resolved, is also outlined in the concluding section.
    Date: 2007
  4. By: Massimo Egidi
    Abstract: Despite the great effort that has been dedicated to the attempt to redefine expected utility theory on the grounds of new assumptions, modifying or moderating some axioms, none of the alternative theories propounded so far had a statistical confirmation over the full domain of applicability. Moreover, the discrepancy between prescriptions and behaviors is not limited to expected utility theory. In two other fundamental fields, probability and logic, substantial evidence shows that human activities deviate from the prescriptions of the theoretical models. The paper suggests that the discrepancy cannot be ascribed to an imperfect axiomatic description of human choice, but to some more general features of human reasoning and assumes the “dual-process account of reasoning” as a promising explanatory key. This line of thought is based on the distinction between the process of deliberate reasoning and that of intuition; where in a first approximation, “intuition” denotes a mental activity largely automatized and inaccessible from conscious mental activity. The analysis of the interactions between these two processes provides the basis for explaining the persistence of the gap between normative and behavioral patterns. This view will be explored in the following pages: central consideration will be given to the problem of the interactions between rationality and intuition, and the correlated “modularity” of the thought.
    Date: 2007
  5. By: Elyès Jouini (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - [CNRS : UMR7534] - [Université Paris Dauphine - Paris IX]); Selima Ben Mansour (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - [CNRS : UMR7534] - [Université Paris Dauphine - Paris IX]); Clotilde Napp (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - [CNRS : UMR7534] - [Université Paris Dauphine - Paris IX])
    Abstract: It is an important issue for economic and finance applications to determine whether individuals exhibit a behavioral bias towards pessimism in their beliefs, in a lottery or more generally in an investment opportunities framework. In this paper, we analyze the answers of a sample of 1,540 individuals to the following question Imagine that a coin will be flipped 10 times. Each time, if heads, you win 10€. How many times do you think that you will win? The average answer is surprisingly about 3.9 which is below the average 5, and we interpret this as a pessimistic bias. We find that women are more pessimistic than men, as are old people relative to young. We also analyze how our notion of pessimism is related to more general notions of pessimism previously introduced in psychology.
    Keywords: pessimism, judged probability, lottery
    Date: 2006–12–01
  6. By: K. Vela Velupillai
    Abstract: A computable economist.s view of the world of computational complexity theory is described. This means the model of computation underpinning theories of computational complexity plays a central role. The emergence of computational complexity theories from diverse traditions is emphasised. The unifications that emerged in the modern era was codified by means of the notions of efficiency of computations, non-deterministic computations, completeness, reducibility and verifiability - all three of the latter concepts had their origins on what may be called "Post's Program of Research for Higher Recursion Theory". Approximations, computations and constructions are also emphasised. The recent real model of computation as a basis for studying computational complexity in the domain of the reals is also presented and discussed, albeit critically. A brief sceptical section on algorithmic complexity theory is included in an appendix.
    Date: 2007
  7. By: Edward P. Lazear; Paul Oyer
    Abstract: In this review of the personnel economics literature, we introduce key topics of personnel economics, focus on some relatively new findings that have emerged since prior reviews of some or all of the personnel economics literature, and suggest open questions in personnel economics where future research can make valuable contributions to the literature. We explore five aspects of the employment relationship - incentives, matching firms with workers, compensation, skill development, and the organization of work - reviewing the main theories, empirical tests of those theories, and the open questions in each area.
    JEL: J3 J41 M5
    Date: 2007–10
  8. By: Mishra, SK
    Abstract: This paper gives an outline of evolution of the concept and econometrics of production function, which was one of the central apparatus of neo-classical economics. It shows how the famous Cobb-Douglas production function was indeed invented by von Thunen and Wicksell, how the CES production function was formulated, how the elasticity of substitution was made a variable and finally how Sato’s function incorporated biased technical changes. It covers almost all specifications proposed during 1950-1975, and further the LINEX production functions and incorporation of energy as an input. The paper in divided into (1) single product functions, (2) joint product functions, and (3) aggregate production functions. It also discusses the ‘capital controversy’ and its impacts.
    Keywords: Production function; Cobb-Douglas; CES; Transcendental; translog; Zellner-Revankar; VES; Bruno; Kadiyala; Diewert; Kummel; Mundlak; Engineering production function; Multi-output; joint product; Data Envelopment; Household production function; Humbug production function; capital controversy; Cambridge controversy.
    JEL: C30 C20 D24 B16 B13
    Date: 2007–10–09
  9. By: Michael Christensen; Thorbjørn Knudsen
    Abstract: Moore & Shannon's theorem is the cornerstone in reliability theory, but cannot be applied to human systems in its original form. A generalization to human systems would therefore be of considerable interest because the choice of organization structure can remedy reliability problems that notoriously plaque business operations, financial institutions, military intelligence and other human activities. Our main result is a proof that provides answers to the following three questions. Is it possible to design a reliable social organization from fallible human individuals? How many fallible human agents are required to build an economic system of a certain level of reliability? What is the best way to design an organization of two or more agents in order to minimize error? On the basis of constructive proofs, this paper provides answers to these questions and thus offers a method to analyze any form of decision making structure with respect to its reliability.
    Keywords: Organizational design; reliability theory; decision making; project selection
    Date: 2007
  10. By: T. Andrade, G. Faria, V. Leite, F. Verona, M. Viegas (PhD students at Universidade do Porto, Portugal); O. Afonso (CEMPRE and Faculdade de Economia da Universidade do Porto, Portugal); P.B. Vasconcelos (CMUP and Faculdade de Economia da Universidade do Porto, Portugal)
    Abstract: In general, complex and large dimensional models are needed to solve real economic problems. Due to these characteristics, there is either no analytical solution for them or they are not attainable. As a result, solutions can be only obtained through numerical methods. Thus, the growing importance of computers in Economics is not surprising. This paper focuses on an implementation of the SP-DG model, using Matlab,developed by the students as part of the Computational Economics course. We also discuss some of our teaching/learning experience within the course, given for the first time in the FEP Doctoral Programme in Economics.
    Keywords: SP-DG Model, Output, Inflation, Numerical Simulation, Teaching of Economics
    JEL: A12 A23 C61 C63 E24 E31 E32
    Date: 2007–10
  11. By: Jean-Pierre Galavielle (CES - Centre d'économie de la Sorbonne - [CNRS : UMR8174] - [Université Panthéon-Sorbonne - Paris I])
    Abstract: La globalisation financière a fait exploser le principe d'une régulation sociétale assurée par le politique, réputé inopérant, au profit d'une prise en charge par la société civile. C'est le dogme de l'ingouvernabilité. La société civile, proclamant son expertise, invoque cependant la fatalité du gouvernement des choses et la prégnance de la loi du marché. Se pose alors la question de la légitimité de la régulation par des organismes de statut privé, en dehors d'un contrôle politique démocratique effectif. Le surdéveloppement de la Soft Law et de la judiciarisation des pratiques témoigne d'une recherche effrénée d'identification des responsabilités. Ces réactions constituent un appel à "civiliser le marché". Qui doit s'en charger sinon le politique ?.
    Keywords: Ingouvernabilité, société civile, expert, normes comptables, loi du marché, droit mou, légitimité, BCE.
    Date: 2007–09
  12. By: Tuysuz, Sukriye; Kuhry, Yves
    Abstract: In recent years, economies have become more and more interdependent. The constitution of commercial and monetary unions has increased the level of coordination of public decisions. On the other hand, some countries still have an strong influence at the world or regional levels. This paper studies the evolutions of UK and USA interest rates markets as well as their interactions during the last decade. Thus, we determine empirically the main determinants of interest rates in both countries using several explanatory variables among which, macroeconomic, monetary and financial variables. In particular, it is of interest to determine whether interest rates react and how to the publication of key economic and financial figures. We thus considered in this paper the effects of news, as measured by the difference between anticipated and observed data, on the interest rates means and volatilities. Determining the interest rates dynamics from their national determinants also allow us to evaluate the degrees of transparency and credibility of central banks in both countries. Second, we are interested in measuring the degree of integration of American and British economies by analyzing the spillover and feedback effects between interest rates as well as news spillover effects. In order to take into account the evolutions of interest rates values as well as their volatilities, we use a VAR model where the error term is specified as a multivariate GARCH. Contrary to previous papers in the same area, we do not assume that there is a "small" and a "big" country as we allow any causality to be determined by the data. We find that factors that account for most variations in interest rates are, for both countries, the monetary policy decisions, the price levels and the rate of unemployment. Moreover, the reaction of UK interest rates to US variables tend to be less important in recent years, while we observe the contrary the other way round. Those seemingly contradictory results can gain sense if one takes into account the emergence of EMU as a new economic power.
    Keywords: interest rates; news spillovers; multivariate GARCH
    JEL: C52 F3 E44 E43
    Date: 2007–04–15

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