nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2008‒11‒25
nine papers chosen by
Erik Thomson
University of Manitoba

  1. Happiness, Economic Well-being, Social Capital and the Quality of Institutions By Gabriel Leite Mota; Paulo Trigo Pereira
  2. Tobit at Fifty: A Brief History of Tobin's Remarkable Estimator, of Related Empirical Methods, and of Limited Dependent Variable Econometrics in Health Economics By Kohei Enami; John Mullahy
  3. La notion d'addiction en économie : la théorie du choix rationnel à l'épreuve. By Sophie Massin
  4. Israel Kirzner on Coordination and Discovery By Klein, Daniel B.; Briggeman, Jason
  5. Life Satisfaction and Quality of Development By John F. Helliwell
  6. The End of the Great Moderation: “We told you so.” By Barnett, William A.; Chauvet, Marcelle
  7. Socioeconomic Complexity and the Sociological Tradition: New Wine in Old Bottles By João Carlos Graça; João Carlos Lopes
  8. Happiness, habits and high rank: Comparisons in economic and social life By Andrew E. Clark
  9. Stabilization Theory and Policy: 50 Years after the Phillips Curve By Stephen J. Turnovsky

  1. By: Gabriel Leite Mota; Paulo Trigo Pereira
    Abstract: Since Jeremy Bentham, utilitarians have argued that happiness, not just income or wealth, is the maximand of individual and social welfare. By contrast, Rawls and followers argue that to share a common perception of living in a just society is the “ultimate good” and that individuals have a moral ability to evaluate just institutions. In this paper we argue that just institutions, apart from their intrinsic value, also have an instrumental value, both in economic performance and in happiness. Thus happiness -- or subjective well being -- is analyzed as being a function of economic well-being, the quality of public institutions and social ties. Cross section individual data from citizens in OECD countries show that income, education and the perceived quality of institutions have the highest impact on life satisfaction, followed by social capital. Country analysis shows a non linear but positive influence of per capita GDP on life satisfaction, but also that unemployment and inflation reduce average happiness, the former effect being stronger. Finally, better quality public institutions and having more social capital also bring more happiness. We conclude with some policy implications.
    Keywords: Happiness; Democracy; Social Capital; Quality of Institutions
    JEL: D63 D69 D78 J10 Z13
    Date: 2008–07
  2. By: Kohei Enami; John Mullahy
    Abstract: Practitioners of empirical health economics might be forgiven for paying little heed to the recent 50th anniversary of the publication of one of the most important papers in its methodological heritage: James Tobin's widely-cited 1958 Econometrica paper that developed what later became known as the Tobit estimator. This golden anniversary milestone provides a fitting opportunity to reflect on Tobin's contribution and to assess the role that econometric limited dependent variable modeling has played in empirical health economics. Of primary focus here is how Tobin's estimator came to be and came to take root in empirical health economics. The paper provides a brief history of Tobin's estimator and related methods up through about 1971, discusses the early applications of Tobit and related estimators in health economics, i.e. the "technology diffusion" of Tobit in health economics, and offers some concluding remarks.
    JEL: I1
    Date: 2008–11
  3. By: Sophie Massin (Centre d'Economie de la Sorbonne)
    Abstract: The aim of this article is to analyze the economic literature from the last thirty years in the field of addiction and to study its relation to the theory of rational choice (TRC). We show that the application of the TRC to addictive behaviors appeared in a context of reciprocity of stakes, i.e. the promotion of this theoretical framework and the explanation of this a priori irrational behavior. It allowed to emphasize the major influence of economic determinants such as prices, which were previously excluded from the analysis. Recent developments of the economic theory of addiction, via behavioral economics in particular, lead however to operate a distinction between revealed preferences and normative preferences and limit the use of the TRC in a normative perspective.
    Keywords: Addiction, rational choice, habit formation, intertemporal choices, revealed preferences.
    JEL: B41 D11 D91 I18
    Date: 2008–09
  4. By: Klein, Daniel B. (George Mason University); Briggeman, Jason (George Mason University)
    Abstract: Israel Kirzner has been one of the leaders in fashioning an Austrian school of economics. He has tried to marry Friedrich Hayek’s discourse with the deductive, praxeological approach of Ludwig von Mises. The praxeological style stakes its claims to scientific status on purported axioms and categorical, 100-percent deductive truths, as well as the supposed avoidance of any looseness in evaluative judgments. In keeping with the praxeological style of discourse, Kirzner claims that his notion of coordination can be used as a clear-cut criterion of economic goodness. Kirzner wishes to claim that gainful entrepreneurial action in the market is always coordinative. We contend that Kirzner’s efforts to be categorical and to avoid looseness are not successful. We argue that looseness inheres in the economic discussion of the most important things, and associate that viewpoint with Adam Smith. We suggest that Hayek is much closer to Smith than to Mises, and that Kirzner’s appeals to Hayek’s discussions of coordination are spurious. In denying looseness and by trying to cope with the brittleness of categorical claims, Kirzner becomes abstruse. We dissect Kirzner’s discourse and find that it erupts with problems. Kirzner has erred in rejecting the understanding of coordination held by Hayek, Ronald Coase, and their contemporaries in the field at large. Kirzner’s refraining from the looser Smithian perspective stems from his devotion to Misesianism. Beyond all the criticism, however, we affirm the basic thrust of what Kirzner says about economic processes. Once we give up the claim that voluntary profitable activity is always or necessarily coordinative, and once we make peace with the aesthetic aspect of the idea of concatenate coordination, the basic claims of Kirzner can be salvaged: Voluntary profitable activity is usually coordinative, and government intervention is usually discoordinative. But the praxeological style of discourse must be dropped.
    Keywords: coordination; concatenation; discovery; entrepreneurship;
    JEL: A10 B00 D02
    Date: 2008–11–17
  5. By: John F. Helliwell
    Abstract: This paper argues that measures of life satisfaction, now being collected annually by the Gallup World Poll in more than 130 countries, permit a much broader view of the quality and consequences of development than other common measures. While these data show the importance of conventionally measured economic development, they also show the importance of many other elements of life that are also affected, whether deliberately or not, by community, national, and international institutions and policies. In estimating the importance of these other factors, this paper pays special attention to the social context of well-being: the norms, networks and relationships within which lives are lived.
    JEL: D6 I3 J1 O0 O10 P51
    Date: 2008–11
  6. By: Barnett, William A.; Chauvet, Marcelle
    Abstract: The current financial crisis followed the “great moderation,” according to which the world’s central banks had gotten so good at countercyclical policy that the business cycle no longer existed. As more and more economists and media people became convinced that the risk of recessions had moderated or ended, lenders and investors became willing to increase their leverage and risk-taking activities. Mortgage lenders, insurance companies, investment banking firms, and home buyers increasingly engaged in activities that would have been considered unreasonably risky, prior to the great moderation that was viewed as having lowered systemic risk. It is the position of this paper that the great moderation did not reflect improved monetary policy, and the perceptions that systemic risk had decreased and that the business cycle had ended were false. Contributing to those misperception was low quality data provided by central banks. Since monetary assets began yielding interest, the simple sum monetary aggregates have had no foundations in economic theory and have sequentially produced one source of misunderstanding after another. The bad data produced by simple sum aggregation have contaminated research in monetary economics, have resulted in needless “paradoxes,” have produced decades of misunderstandings in economic research and policy, and contributed to the widely held views about decreased systemic risk. While better data, based correctly on index number theory and aggregation theory, now exist, the usual official central bank data are not based on that better approach. While aggregation-theoretic monetary aggregates exist for internal use at the European Central Bank, the Bank of Japan, and many other central banks throughout the world, the only central banks that currently make aggregation-theoretic monetary aggregates available to the public are the Bank of England and the St. Louis Federal Reserve Bank. Dual to the aggregation-theoretic monetary aggregates are the aggregation-theoretic user cost and interest rate aggregates, which similarly are not in official use by central banks. No other area of economics has been so seriously damaged by data unrelated to valid index-number and aggregation theory. Many commentators have been quick to blame insolvent financial firms for their “greed” and their presumed self-destructive, reckless risk taking. Perhaps some of those commentators should look more carefully at their own role in propagating the misperceptions of the great moderation that induced those firms to be willing to take such risks.
    Keywords: Measurement error; monetary aggregation; Divisia index; aggregation; monetary policy; index number theory; financial crisis; great moderation; Federal Reserve.
    JEL: C43 E32 E58 E52 E40
    Date: 2008–11–14
  7. By: João Carlos Graça; João Carlos Lopes
    Abstract: Complexity is a purposeful integrating framework for interdisciplinary dialogue, namely between sociologists and economists. After presenting some properties of complex (social) systems, we consider the crucial role of the economic complexity research agenda in challenging the mainstream economic paradigm. This endeavor, we suggest, can greatly benefit from a neglected but relevant aspect, the concern regarding social complexity implicit in the sociological tradition, particularly the emphasis given by Durkheim to the idea of interdependence, a keystone of complexity studies nowadays. As we underline, instead of assuming interdependence/complexity and autonomy/simplicity in a tradeoff relationship, the French sociologist takes interdependence and autonomy as fundamentally complementary and positively correlated characteristics of modern societies. This fact suggests the convenience to conceptualize complexity as a broad socioeconomic, and not just a strict economic, phenomenon. Such a purpose is certainly more damaged than benefited by the existence of the economics/sociology academic divide.
    Keywords: Socioeconomic complexity; interdependence; autonomy; sociological tradition; Durkheim
    Date: 2008–10
  8. By: Andrew E. Clark
    Abstract: The role of money in producing sustained subjective well-being seems to be seriously compromised by social comparisons and habituation. But does that necessarily mean that we would be better off doing something else instead? This paper suggests that the phenomena of comparison and habituation are actually found in a variety of economic and social activities, rendering conclusions regarding well-being policy less straightforward.
    Date: 2008
  9. By: Stephen J. Turnovsky
    Date: 2008–05

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