nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2007‒10‒27
fourteen papers chosen by
Erik Thomson
University of Chicago

  1. Aggregate Supply and Demand Analysis - A Note on a 1963 Post Keynesian. Macroeconomic Textbook By Finn Olesen
  2. The Origins and the Evolution of Health Economics: a discipline by itself? Led by economists, practitioners or politics? By Luís Pina Rebelo
  3. An Appreciative Model of Schumpeterian Evolution By Pol, Eduardo-Fernandez
  4. "The U.S. Credit Crunch of 2007: A Minsky Moment" By Charles J. Whalen
  5. Financial Stability, Monetarism and the Wicksell Connection (The 2007 John Kuszczak Memorial Lecture) By David Laidler
  6. New light on von Neumann: politics, psychology and the creation of game theory By Leonard Robert
  7. A note on Rubinstein's ``Why are certain properties of binary relations relatively more common in natural language?" By Beard, Rodney
  8. Cognitive Constraints, Contraction Consistency, and the Satisficing Criterion By Christopher J. Tyson
  9. Increasing elasticity of the value function in the Loewenstein-Prelec theory of intertemporal choice By Ali al-Nowaihi; Sanjit Dhami
  10. Games of strategic complementarities: An application to bayesian games By Vives, Xavier
  11. Measuring Ancient Inequality By Milanovic, Branko; Lindert, Peter; Williamson, Jeffrey
  12. Die manisch-depressiven Preisschwankungen auf den Finanzmärkten – wie macht das die "unsichtbare Hand"? By Stephan Schulmeister
  13. Private takings By Ed Nosal
  14. The Changing Nature of Wage Inequality By Thomas Lemieux

  1. By: Finn Olesen (Department of Environmental and Business Economics, University of Southern Denmark)
    Abstract: In the history of economic thought Post Keynesianism offers a different inter-pretation of John Maynard Keynes’s General Theory than what is known as mainstream Keynesianism. And at least in the Paul Davidson tradition of Post Keynesianism a direct connection to the writings of Keynes is present theoreti-cally as well as methodologically. This paper aims to present and to evaluate a textbook in Post Keynesian macroeconomics that Davidson wrote together with Smolensky in 1963.
    Date: 2007–05
  2. By: Luís Pina Rebelo (Universidade Católica Portuguesa (Porto))
    Abstract: Health has become a dominant economic and political issue over the past 40 years, with nations experiencing rapid rises in health care spending, and the health sector presenting high levels of expansion, rationalization and organization. I describe how by the end of World War II, both the intellectual and financial resources were being made available to answer the emerging empirically driven questions for a new applied branch of economic analysis: Health Economics. I also discuss the driving forces for the evolution of this new field, while identifying two distinct paths in health economic thought: the first rising from a territory previously ploughed, namely by Mushkin (1962), and later developed by Grossman (1972); the second of which stemming from Arrow’s 1963 paper ‘Uncertainty and the Welfare Economics of Medical Care’, a singularity amongst his mathematical economics pearls. Blaug remarked, in 1998, “health economics would seem to be a perfect topic for heterodox dissent and yet, surprisingly enough, radical economists and Marxists have not on the whole been attracted to health economics”. My view is this could have been because “mathematical economists” stepped forward and challenged themselves to solve problems such an unorthodox market posed.
    Keywords: Health Economics, Health Care Sector/ U.S. History, Social Welfare
    JEL: B20 I10 I11 I18 N32 N42
    Date: 2007–10
  3. By: Pol, Eduardo-Fernandez (University of Wollongong)
    Abstract: Schumpeter persistently sought to reconcile innovation with general equilibrium to explain economic evolution. In essence, he was interested in innovatory discontinuities that upset equilibrium and generate a transitional dynamics converging to a different state of technology. There are two central approaches to the analysis of economic evolution which revolve around the Schumpeterian vision: the evolutionary approach as originated in the landmark book by Nelson and Winter An Evolutionary Theory of Economic Change and the neoclassical approach emerging from Romer’s seminal paper “Endogenous Technological Change” Neither of these approaches is able to explain economic evolution in an economy where both general equilibrium and innovatory discontinuities can happen. In this paper I formalize the notion of innovatory discontinuity using the concept of ‘ideas production function’ and present an appreciative model of economic evolution involving equilibrium, innovation and innovatory discontinuities. This (hybrid) model sheds some light on the answer to the question: is economic evolution continuous or discontinuous?
    Keywords: General equilibrium, economic evolution, neoclassical approach, evolutionary economics, mega-invention, innovatory discontinuities, Schumpeterian view
    Date: 2007
  4. By: Charles J. Whalen
    Abstract: It is now clear that most economists underestimated the widening economic impact of the credit crunch that has shaken U.S. financial markets since at least mid-July. A credit crunch is an economic condition in which loans and investment capital are difficult to obtain. In such a period, banks and other lenders become wary of issuing loans, so the price of borrowing rises, often to the point where deals simply do not get done. Financial economist Hyman P. Minsky (1919–1996) was the foremost expert on such crunches, and his ideas remain relevant to understanding the current situation. This brief by Charles J. Whalen demonstrates that the U.S. credit crunch of 2007 can aptly be described as a “Minsky moment.” It begins by taking a look at aspects of this crunch, then examines the notion of a Minsky moment, along with the main ideas informing Minsky’s perspective on economic instability. At the heart of that viewpoint is what Minsky called the “financial instability hypothesis,” which derives from an interpretation of John Maynard Keynes’s work and underscores the value of an evolutionary and institutionally grounded alternative to conventional economics. The brief then returns to the 2007 credit crunch and identifies some of the key elements relevant to fleshing out a Minsky-oriented account of that event.
    Date: 2007–10
  5. By: David Laidler (University of Western Ontario)
    Abstract: In today's discussions of central banking, maintaining macro-financial stability tends to be treated as ancillary to the pursuit of price level goals. This is in strong contrast to the earlier literature, where financial stability was often the main concern of the theory of central banking. This theme is explore first from the point of view of the monetarist tradition, in which a key feature of financial crises was the onset of an excess demand for money which the central bank in its capacity as lender of last resort had an obligation to relieve; and then from that of a later Wicksellian tradition, where co-ordination failures in the inter-temporal allocation of resources that it was monetary policy's task to avoid, were emphasized. Though there are no long-lost sure cures for financial instability awaiting discovery in the older literature, its emphasis on the potential for markets to fail to clear provides a helpful perspective on the phenomenon, often missing from modern models of the conduct of monetary policy.
    Keywords: financial stability; financial instability; crises; co-ordination failure; lender of last resort; inflation; monetarism; forced saving; Wicksell
    JEL: B13 B22 E31 E32 E58
    Date: 2007
  6. By: Leonard Robert
    Date: 2007–07
  7. By: Beard, Rodney
    Abstract: This note examines the complexity of complete transitive binary relations or tournaments using Kolmogorov complexity. The complexity of tournaments calculated using Kolmogorov complexity is then compared to minimally complex tournaments defined in terms of the minimal number of examples needed to describe the tournament. The latter concept is the concept of complexity employed by Rubinstein [6] in his economic theory of language. A proof of Rubinsein's conjecture on the complexity bound of natural language tournaments is provided.
    Keywords: Economics of language; Game theory; Complexity
    JEL: Z13 C79
    Date: 2001
  8. By: Christopher J. Tyson (Queen Mary, University of London)
    Abstract: A theory of decision making is proposed that offers an axiomatic basis for the notion of “satisficing” postulated by Herbert Simon. The theory relaxes the standard assumption that the decision maker always fully perceives his preferences among the available alternatives, requiring instead that his ability to perceive any given preference be decreasing with respect to the complexity of the choice problem at hand. When complexity is aligned with set inclusion, this exercise is shown to be equivalent to abandoning the contraction consistency axiom of classical choice theory.
    Keywords: Choice function, Perception, Revealed preference, Threshold
    JEL: D01 D11 D80
    Date: 2007–10
  9. By: Ali al-Nowaihi; Sanjit Dhami
    Abstract: In a critique of the Loewenstein and Prelec (1992) theory of intertemporal choice, al-Nowaihi and Dhami (2006) point out to four errors. One of the alleged errors was that the value function in prospect theory is decreasing. But it is in fact increasing. We provide a correction and a formal proof. As a corollary, we show that the elasticity of the value function is bounded between zero and one. Nevertheless, all the remaining points in al-Nowaihi and Dhami (2006) remain valid.
    Keywords: Anomalies of the DU model; Intertemporal choice; Generalized hyperbolic discounting
    JEL: C60 D91
    Date: 2007–10
  10. By: Vives, Xavier (IESE Business School)
    Abstract: Games of strategic complementarities are those in which any player increases his action in response to an increase in the level of actions of rivals. This paper provides an introduction to the theory of games of strategic complementarities, considers Bayesian games, and provides an application to global games.
    Keywords: Strategic complementarities; games theory;
    Date: 2007–07–07
  11. By: Milanovic, Branko; Lindert, Peter; Williamson, Jeffrey
    Abstract: Is inequality largely the result of the Industrial Revolution? Or, were pre-industrial incomes and life expectancies as unequal as they are today? For want of sufficient data, these questions have not yet been answered. This paper infers inequality for 14 ancient, pre-industrial societies using what are known as social tables, stretching from the Roman Empire 14 AD, to Byzantium in 1000, to England in 1688, to Nueva España around 1790, to China in 1880 and to British India in 1947. It applies two new concepts in making those assessments – what we call the inequality possibility frontier and the inequality extraction ratio. Rather than simply offering measures of actual inequality, we compare the latter with the maximum feasible inequality (or surplus) that could have been extracted by the elite. The results, especially when compared with modern poor countries, give new insights in to the connection between inequality and economic development in the very long run.
    Keywords: Inequality possibility frontier; pre-industrial inequality; history.
    JEL: N3 D3 O1
    Date: 2007–10
  12. By: Stephan Schulmeister (WIFO)
    Abstract: Der Zeithorizont von Transaktionen auf spekulativen Märkten wie jenen für Aktien oder Devisen ist zumeist extrem kurz. Gleichzeitig entwickeln sich Aktien- und Wechselkurse in mehrjährigen Trends nach oben bzw. unten ("bull and bear markets"). Das Paper untersucht am Beispiel des Dollar-Euro-Wechselkurses, auf welche Weise sich kurzfristige Kursbewegungen zu längerfristigen Trends akkumulieren. Demnach schwanken spekulative Preise um "underlying trends". Das Phänomen des "trending" wiederholt sich auf unterschiedlichen Zeitskalen. Längerfristige Trends ergeben sich aus der Akkumulation von Kursschüben auf Basis von Tagesdaten, welche über mehrere Jahre in eine Richtung länger dauern als in die Gegenrichtung. Die Abfolge dieser Trends ergibt das typische Muster der langfristigen Dynamik spekulativer Preise: Sie schwanken in irregulären Zyklen um den Bereich des realwirtschaftlichen Gleichgewichts ohne eine Tendenz, zu diesem Gleichgewicht zu konvergieren.
    Keywords: Finanzmärkte, Handelstechniken, Wechselkursdynamik
    Date: 2007–10–18
  13. By: Ed Nosal
    Abstract: This paper considers the implications associated with a recent Supreme Court ruling that can be interpreted as supporting the use of eminent domain in transferring the property rights of one private agent—a landowner—to another private agent—a developer. Compared to voluntary exchange, when property rights are transferred via eminent domain, landowners’ investments in their properties become more inefficient and, as a result, any any benefit associated with mitigating the holdout problem between landowners and the developer is reduced. Social welfare can only increase if the holdout problem is significant; otherwise, social welfare will fall when property rights are transferred via eminent domain.
    Keywords: Eminent domain
    Date: 2007
  14. By: Thomas Lemieux
    Abstract: The paper reviews recent developments in the literature on wage inequality, with a particular focus on why inequality growth has been particularly concentrated in the top end of the wage distribution over the last 15 years. Several possible institutional and demand-side explanations are discussed for the secular growth in wage inequality in the United States and other advanced industrialized countries. The paper concludes that three promising explanations for the growth in top-end wage inequality are de-unionization, the increased prevalence of pay for performance, and changes in the relative demand for the types of tasks performed by workers in high-paying occupations.
    JEL: J24 J31 J51
    Date: 2007–10

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