nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2008‒05‒10
six papers chosen by
Erik Thomson
University of Chicago

  1. The Human Development Index: A History By Elizabeth Stanton
  2. Real Interest Rates, Intertemporal Prices and Macroeconomic Stabilization A Journey Through the History of Economic Thought By Peter Spahn
  3. When Should Political Scientists Use the Self-Confirming Equilibrium Concept? Benefits, Costs, and an Application to Jury Theorems By Lupia, Arthur; Levine, Adam Seth; Zharinova, Natasha
  4. There is no such thing as an audit society By Maltby, Josephine
  5. Keynesian Models of Deflation and Depression Revisited: Inside Debt and Price Flexibility By Thomas I Palley
  6. Discounting Nordhaus By Thomas R. Michl

  1. By: Elizabeth Stanton
    Abstract: This article recounts the intellectual history of the UNDP’s Human Development Index. It begins with the early history of welfare economics and follows this field through three successive revolutions in thought, culminating in the theory of human development. The first section traces this history from the origins of economic “utility” theory to Amartya Sen’s human capabilities approach. The second section chronicles past and present measures of social welfare used in the fields of economics and development, including national income and a variety of composite measures, up to and including HDI.
    Keywords: human development; well-being; human development index; economic history of thought; social welfare measurement
    Date: 2007
  2. By: Peter Spahn
    Abstract: The notion of a "real rate of interest" has been a centre of confusion in the history of economic thought. In neoclassical economics, real interest rates were designed as relative prices of contemporary and future goods and Böhm-Bawerk believed that misalignments were corrected by market forces, restoring the allocation of saving and investment as well as macroeconomic equilibrium. The intertemporal perspective in goods market analysis was modified in Wicksell and Keynes; the focus shifted to financial markets. According to the new Keynesian theory, monetary policy should be used to support intertemporal consumption smoothing. Because investment is neglected, this approach is unable to grasp the intertemporal coordination problem and delivers poor microfoundations for macroeconomic stabilization.
    Keywords: Zinsspannentheorie, Neukeynesianische Makroökonomik, Realzins
    JEL: E4 B1
    Date: 2007–12
  3. By: Lupia, Arthur; Levine, Adam Seth; Zharinova, Natasha
    Abstract: Many claims about political behavior are based on implicit assumptions about how people think. One such assumption, that political actors use identical conjectures when assessing others’ strategies, is nested within applications of widely-used game theoretic equilibrium concepts. When empirical research calls this assumption into question, the self-confirming equilibrium (SCE) concept is an alternate criterion for deriving theoretical claims. Using a series of examples, we examine opportunities and challenges inherent in applying the SCE concept. Our main example focuses on Feddersen and Pesendorfer’s (1998) claim that unanimity rules can lead juries to convict innocent defendants. Using SCE, we show that the claim depends on the assumption that jurors have identical beliefs about one another’s strategies. When juror beliefs vary in ways that follow from empirical jury research, we show that fewer false convictions can occur in equilibrium. Generally, the SCE confers advantages when actors have different conjectures about one another’s strategies.
    Keywords: jury decision making; self-confirming equilibrium; jury theorem; game theory; political science
    JEL: K0 D83 D72
    Date: 2008–05–07
  4. By: Maltby, Josephine
    Abstract: Tny discussion of Power’s Audit Society paper of 1994 has to start by acknowledging that it has enjoyed an extraordinary degree of success for an academic paper, let alone for an academic paper about audit. His terms audit society and audit explosion have gained very wide currency within the social sciences and on the wider stages of quality journalism and serious-minded websites. Some of this is, admittedly, due to Power’s own copious output on the topic (Power, 1994a,1994b, 1997, 2000a, 2000b, 2000c, 2000d, 2002, 2003a, 2003b, 2005a, 2005b), some to exegeses of it (see for instance Bowerman et al 2000, Humphrey and Owen 2000 and Courville, Parker, and Watchirs 2003)) but a great deal to admirers from all sorts of disciplines.
    Date: 2007
  5. By: Thomas I Palley
    Abstract: This paper extends Tobin’s (1975) Keynesian analysis of deflation to include a range of additional channels through which deflation exacerbates Keynesian unemployment. The paper provides further theoretical reasons why downward price level adjustment may not solve the Keynesian problem. These arguments challenge the received wisdom that Keynes’ <i>General Theory</i> is a special case resting on downwardly rigid prices and nominal wages. This conventional wisdom has led many economists to recommend policies promoting downward flexibility. These policies have created an environment in which deflation is more likely, giving new relevance to Keynesian analysis of deflation.<p></p>
    Keywords: deflation, liquidity trap, Fisher debt effect, price flexibility
    JEL: E30 E31
    Date: 2008
  6. By: Thomas R. Michl
    Abstract: This paper evaluates Nordhaus’s neoclassical complaints about the Stern Review from the vantage point of classical growth theory. Nordhaus argues that the Stern Review exaggerates the effects of global warming because it uses a discount rate that is well below the market rate of return on capital. From the perspective of classical growth theory, Nordhaus’s belief in choosing preference parameters for the social planner based on observed market rates of return filtered through the Ramsey equation is equivalent to assigning the preferences of the capitalist agents to the social planner. This equivalence is an implication of the Cambridge Theorem, which interprets the Ramsey equation as the saving function of the capitalist agents. The classical theory of growth interprets the market return to capital as a reflection of the property relations of capitalist society that does not offer the social planner any information that would be useful in resolving the problem of global warming. Contrary to the viewpoint of neoclassical economic theory, the market return to capital offers no information about preferences for the social welfare function or about the putative “marginal product” of conventional capital.
    Keywords: Global warming, Stern Review, Discounting, Ramsey equation, Cambridge equation, Cambridge Theorem
    JEL: Q5 E6
    Date: 2008

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