nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2008‒04‒12
nine papers chosen by
Erik Thomson
University of Chicago

  1. The Virtues and Vices of Equilibrium and the Future of Financial Economics By J. Doyne Farmer; John Geanakoplos
  2. Publications: German Economic Research Institutes on Track By Ketzler, Rolf; Zimmermann, Klaus F
  4. An Unworkable Idea or a Promising Alternative? Sen's Capability Approach Re-examined. By Ingrid Robeyns
  5. Risk, Uncertainty and Financial Stability By Charles Goodhart
  6. Topological Social Choice. By Luc Lauwers
  7. To Each the Same and to Each His Own. A Proposal to Measure Responsibility-Sensitive Income Inequality By Kurt Devooght
  8. Foundations of Intrinsic Habit Formation By Kareen Rozen
  9. Ideology By Bénabou, Roland

  1. By: J. Doyne Farmer; John Geanakoplos
    Date: 2008–04–04
  2. By: Ketzler, Rolf; Zimmermann, Klaus F
    Abstract: The request for a strengthening of academic research at the German economic research institutes by the German Science Council more than a decade ago was founded on the crucial insight that sound policy advice - the traditional task of the institutes - can only be guaranteed in the long term if it is based on applied research carried out within the institutes themselves. Based on publications in academic journals, the central criterion of research evaluation, research output has improved remarkably in scope and quality and has involved an ever rising number of scholars within the institutes. It can be considered to be a substantial success of German reform policy, which should be internationally recognized. The present study demonstrates the implications of different methods of filtering and weighting research output to measure publication performance. The ranking of the institutes computed here on the basis of a wide range of alternative concepts provides fairly robust findings. The results are distorted, however, if they are based on a highly selective list of journals as was the case in previous literature.
    Keywords: Economic research institutes; publication measurement; research evaluation
    JEL: A11 I23 L31
    Date: 2008–01
  3. By: Alain Béraud (Théma, UMR 8184, Université de Cergy-Pontoise - 33, boulevard du Port 95011 Cergy-Pontoise, Cedex)
    Abstract: La notion de chômage involontaire a longtemps occupé dans la théorie économique un rôle central. L’expression apparaît très tôt, dès le début du 20ème siècle, quand les économistes commencèrent à s’intéresser au chômage. Elle désigne simplement les chômeurs qui accepteraient de travailler au taux de salaire courant. Keynes donna de cette expression une définition différente, beaucoup plus étroite. Le chômage involontaire est, selon lui, le chômage qui trouve son origine dans l’insuffisance de la demande de biens. Au début des années 1970, Phelps, Alchian et Holt lui opposèrent une analyse où les agents ne disposent que d’une information imparfaite sur les salaires et les emplois. Leur idées furent reprises et développées notamment par Diamond, Mortensen et Pissarides. Dans la théorie du chômage d’équilibre, l’opposition entre chômage volontaire et chômage involontaire n’a pas de sens, que l’on définisse le chômage involontaire comme le faisait Keynes ou, plus simplement, comme l’offre de travail excédentaire. Mais, plus fondamentalement, ce que cette approche rejette c’est l’idée que l’on peut faire abstraction du « chômage frictionnel » dans l’analyse de la détermination du niveau de l’emploi. La décomposition du chômage en une série de catégories — frictionnel, cyclique, volontaire, involontaire… — n’est pas susceptible de nous aider dans une analyse théorique ou empirique du chômage.
    Keywords: Chômage volontaire, chômage involontaire, chômage d’équilibre, solution de marchandage de Nash, rigidité des salaires, fonction d’appariement, Keynes, Beveridge, Phelps, Diamond, Mortensen, Pissarides.
    Date: 2008
  4. By: Ingrid Robeyns
    Abstract: This paper presents an analysis and an assessment of Amartya Sen’s capability approach. In the first part, it gives a detailed explanation of the capability approach. It analyses the core concepts and tries to clarify confusions in the literature by looking at different interpretations and usages. In the second part of the paper the major critiques on the capability approach are scrutinised. It is argued that some of those critiques are based on mistaken interpretations, while others follow from a too narrow reading. At the same time it is recognised that theoretical and empirical applications of the capability approach nevertheless remain to address a number of difficulties. The paper also includes an annotated survey of the existing empirical applications. Ultimately, both the assessment of the critiques as well as the survey of applications provide support for Sen’s claim to see the capability approach as a framework of thought, which can address diverse problems and can be applied in quite different ways.
    Date: 2008–03
  5. By: Charles Goodhart
    Abstract: My first-ever essay into quasi-independent research involved an attempt to understand, explain and even possibly extend G.L.S. Shackle’s model of decision-making under uncertainty.  Undergraduates at Cambridge who had done well in Part 1 of the Economics Tripos were encouraged to participate in a joint student/Faculty seminar, called – as I recall – the Monday Club, and each Monday evening of term one of the undergraduates, chosen by drawing lots, was expected to present a paper.  Anyhow when I drew my turn, I constructed a three dimensional graph, out of green plasticine, of Shackle’s focus gain and focus loss, potential surprise, and all that.  I recollect that the marks for technical merit were higher than those for artistic ability.  The approximate date of that presentation was November 1958.
    Date: 2008–04
  6. By: Luc Lauwers
    Abstract: The topological approach to social choice was developed by Graciela Chichilnisky in the beginning of the eighties. The main result in this area (known as the resolution of the topological social choice paradox) shows that a space of preferences admits of a continuous, anonymous, and unanimous aggregation rule for every number of individuals if and only if this space is contractible. Furthermore, connections between the Pareto principle, dictatorship, and manipulation were established. Recently, Baryshnikov used the topological approach to demonstrate that Arrow's impossibility theorem can be reformulated in terms of the non-contractibility of spheres. This paper discusses these results in a self-contained way, emphasizes the social choice interpretation of some topological concepts, and surveys the area of topological aggregation.
    Date: 2008–03
  7. By: Kurt Devooght
    Abstract: This paper deals with the question: How can one incorporate modern responsibility-catering egalitarianism into the economic theory on the measurement of income inequality? We first concisely describe what is meant by responsibility-sensitive egalitarianism and present a particular axiomatic expression of its main aspects, as advocated by Bossert and Fleurbaey [1996]. We defend that only inequality due to factors beyond the scope of one’s responsibility is ethically offensive. Traditional income inequality measurement, however, takes all inequality to be offensive. To measure offensive inequality separately we propose to construct a norm or reference income distribution based upon the axiomatic model to replace the perfectly equal income distribution which is used as norm by all common inequality measures. We then defend the use of a particular measure of distributional change to determine the degree of offensive inequality. Finally, we demonstrate how the method works by applying it to Belgian income data.
    Keywords: Inequality measurement, distributional change, income distribution.
    JEL: D31 D63
    Date: 2008–03
  8. By: Kareen Rozen
    Date: 2008–04–04
  9. By: Bénabou, Roland
    Abstract: I develop a model of ideologies as collectively sustained (yet individually rational) distortions in beliefs concerning the proper scope of governments versus markets. In processing and interpreting signals of the efficacy of public and market provision of education, health insurance, pensions, etc., individuals optimally trade off the value of remaining hopeful about their future prospects (or their children's) versus the costs of misinformed decisions. Because these future outcomes also depend on whether other citizens respond to unpleasant facts with realism or denial, endogenous social cognitions emerge. Thus, an equilibrium in which people acknowledge the limitations of interventionism coexists with one in which they remain obstinately blind to them, embracing a statist ideology and voting for an excessively large government. Conversely, an equilibrium associated with appropriate public responses to market failures coexists with one dominated by a laissez-faire ideology and blind faith in the invisible hand. With public-sector capital, this interplay of beliefs and institutions leads to history-dependent dynamics. The model also explains why societies find it desirable to set up constitutional protections for dissenting views, even when ex-post everyone would prefer to ignore unwelcome news.
    Keywords: cognitive dissonance; ideology; institutions; laissez-faire; political economy; psychology; statism; wishful thinking
    JEL: D72 D83 H11 P16 Z1
    Date: 2008–03

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