nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2009‒02‒14
twenty papers chosen by
Erik Thomson
University of Manitoba

  1. An Archival Case Study: Revisiting The Life and Political Economy of Lauchlin Currie By Roger Sandilands
  2. New Evidence on Allyn Young’s Style and Influence as a Teacher By Roger Sandilands
  3. The Relationship of Economic Theory to Experiments By David K Levine
  4. "After the Bust: The Outlook for Macroeconomics and Macroeconomic Policy" By Thomas I. Palley
  5. Lessons from the Laureates By Breit, William; Hirsch, Barry
  6. Of Managers, Ideas and Jesters By Sevón, Guje; Välikangas, Liisa
  8. Self-serving Dictators By Asheim, Geir B.; Helland, Leif; Hovi, Jon; Hoyland, Bjorn
  9. Some preliminary remarks on the relevance of topological essentiality in general equilibrium theory and game theory By Stefano Demichelis; Jean-Jacques Herings; Dries Vermeulen
  10. An Analysis of the Dismal Theorem By William D. Nordhaus
  11. The End of Peasantries? Rethinking the Role of Peasantries in a World-Historical View By Vanhaute, Eric
  12. Money, Crises, and Transition Essays in Honor of Guillermo A. Calvo: An Introduction By Reinhart, Carmen; Vegh, Carlos; Velasco, Andres
  13. Complexity and Bounded Rationality in Individual Decision Problems By Theodoros M. Diasakos
  14. On Initial Conferment of Individual Rights By Kotaro Suzumura; Naoki Yoshihara
  15. Resurrecting Keynes to Stabilize the International Monetary System By Pietro Alessandrini; Michele Fratianni
  16. How do third parties matter? Theory and evidence in a dynamic psychological game By Loukas Balafoutas
  17. The Great Moderation Flattens Fat Tails: Disappearing Leptokurtosis By WenShwo Fang; Stephen M. Miller; ChunShen Lee
  18. Intergroup Emotion And Diversity By Patricia Garcia-Prieto; Diane Mackie; Eliot R. Smith
  19. Statute Law or Case Law? By Luca Anderlini; Leonardo Felli; Alessandro Riboni

  1. By: Roger Sandilands (Department of Economics, University of Strathclyde)
    Abstract: This paper forms part of a wider project to show the significance of archival material on distinguished economists, in this case Lauchlin Currie (1902-93), who studied and taught at Harvard before entering government service at the US Treasury and Federal Reserve Board as the intellectual leader of Roosevelt’s New Deal, 1934-39, as FDR’s White House economic adviser in peace and war, 1939-45, and as a post-war development economist. It discusses the uses made of the written and oral material available when the author was writing his intellectual biography of Currie (Duke University Press 1990) while Currie was still alive, and the significance of the material that has come to light after Currie’s death.
    Keywords: Lauchlin Currie; economic biography; the New Deal; macroeconomic policy; development economics.
    JEL: A11 B25 E50 O10 O54
    Date: 2009–01
  2. By: Roger Sandilands (Department of Economics, University of Strathclyde)
    Abstract: This paper publishes the hitherto unpublished correspondence between Allyn Abbott Young’s biographer Charles Blitch and 17 of Young’s former students or associates. Together with related biographical and archival material, the paper shows the way in which this adds to our knowledge of Young’s considerable influence as a teacher upon some of the twentieth century’s greatest economists. The correspondents are as follows: James W Angell, Colin Clark, Arthur H Cole, Lauchlin Currie, Melvin G de Chazeau, Eleanor Lansing Dulles, Howard S Ellis, Frank W Fetter, Earl J Hamilton, Seymour S Harris, Richard S Howey, Nicholas Kaldor, Melvin M Knight, Bertil Ohlin, Geoffrey Shepherd, Overton H Taylor, and Gilbert Walker.
    Keywords: Allyn Young, Harvard University, London School of Economics
    JEL: A11 A20 B31
    Date: 2009–01
  3. By: David K Levine
    Date: 2009–02–03
  4. By: Thomas I. Palley
    Abstract: "Change" was the buzzword of the Obama campaign, in response to a political agenda precipitated by financial turmoil and a global economic crisis. According to Research Associate Thomas Palley, the neoliberal economic policy paradigm underlying that agenda must itself change if there is to be a successful policy response to the crisis. Mainstream economic theory remains unreformed, says Palley, and he warns of a return to failed policies if a deep crisis is averted. Since Post Keynesians accurately predicted that the U.S. economy would implode from within, there is an opportunity for Post Keynesian economics to replace neoliberalism with a more successful approach. Palley notes that there is significant disagreement among economic paradigms about how to ensure full employment and shared prosperity. A salient feature of the neoliberal economy is the disconnect between wages and productivity growth. Workers are boxed in on all sides by globalization, labor market flexibility, inflation concerns, and a belief in “small government” that has eroded economic rights and government services. Financialization, the economic foundation of neoliberalism, serves the interests of financial markets and top management. Thus, reversing the neoliberal paradigm will require a policy agenda that addresses financialization and ensures that financial markets and firms are more closely aligned with the greater public interest.
    Date: 2009–01
  5. By: Breit, William (Trinity University); Hirsch, Barry (Georgia State University)
    Abstract: This paper uses as source material twenty-three autobiographical essays by Nobel economists presented since 1984 at Trinity University (San Antonio, Texas) and published in Lives of the Laureates (MIT Press). A goal of the lecture series is to enhance understanding of the link between biography and the development of modern economic thought. We explore this link and identify common themes in the essays, relying heavily on the words of the laureates. Common themes include the importance of real-world events coupled with a desire for rigor and relevance, the critical influence of teachers, the necessity of scholarly interaction, and the role of luck or happenstance. Most of the laureates view their research program not as one planned in advance but one that evolved via the marketplace for ideas.
    Keywords: Nobel economists, economic thought, autobiography
    JEL: B3 B2 A1
    Date: 2009–01
  6. By: Sevón, Guje (Dept. of Business Administration, Stockholm School of Economics); Välikangas, Liisa (Dept. of Organization and Management)
    Abstract: Ours is an argument for ideas that become us. Illustratory is a statement by a well-known management author who lamented the difficulty of “escaping one’s past ideas”. Viewing himself a prisoner, his past published ideas had devoured him: they limited his ability to imagine or credibly present new, different ideas. The predicament reflects the perspective we wish to develop in this paper: Ideas may be seen as our embodiments rather than what is more often put forth, externalized as objects that we create and dismiss at will. We argue that a way of looking at ideas is to start by considering humans, and managers, as spokespersons for out-there ideas, which inhabit them at a time of readiness. People become possessed; they become imprisoned by certain ideas that they then begin to perform. A jester is an example of a performer of an idea of a fool even if occasionally, as we argue in this paper, the jester may also counterbalance the cognitive inertia of managers. We draw attention to the common difficulty managers have, to move beyond the particular idea that has become them, once – like the jester - they have begun performing the idea(s).
    Keywords: manager; ideas; jesters; change
    Date: 2009–01–20
  7. By: Ahmed, Ali M. (Centre for Labour Market Policy Research (CAFO)); Salas, Osvaldo (Centre for Labour Market Policy Research (CAFO))
    Abstract: This paper examines the supernatural punishment theory. The theory postulates that religion increases cooperation because religious people fear the retributions that may follow if they do not follow the rules and norms provided by the religion. We report results for a public goods experiment conducted in India, Mexico, and Sweden. By asking participants whether they are religious or not, we study whether religiosity has an effect on voluntary cooperation in the public goods game. We found no significant behavioral differences between religious and nonreligious participants in the experiment.
    Keywords: Games; punishment theory; experiments; behavioral economics; religion
    JEL: C71 C90 D01
    Date: 2008–02–01
  8. By: Asheim, Geir B. (Dept. of Economics, University of Oslo); Helland, Leif (BI Norwegian School of Managment); Hovi, Jon (Department of Political Science); Hoyland, Bjorn (Department of Political Science)
    Abstract: We provide experimental evidence of self-serving fairness ideals in a dictator game design that includes treatments where funds can be transferred in two ways to the one player and in one way to the other. Two methods for transferring funds to the recipient produce the same results as the regular dictator game. However, two methods for transferring funds to the dictator reduce her generosity significantly. Hence, the fairness ideal adopted by dictators appears to be equal share per individual in the former case (as in the regular dictator game), and equal share per transfer method in the latter case.
    Keywords: Self-serving Bias; Experimental Economics; Dictator Game
    JEL: C91 D63
    Date: 2008–10–14
  9. By: Stefano Demichelis; Jean-Jacques Herings; Dries Vermeulen
    Abstract: We define an algebro-topological concept of essential map and we use it to prove several results in the theory of general equilibrium and nash equilibrium refinement.
    Keywords: fixed point theory, game theory, equilibrium theory, stability of Nash equilibrium, multiplicity of equilibria
    JEL: C72
    Date: 2008
  10. By: William D. Nordhaus
    Date: 2009–02–04
  11. By: Vanhaute, Eric
    Abstract: This tentative essay tries to understand today's concerns about the decay of the peasantries and the loss of food security on a massive scale within a long-term and global perspective. Guiding questions are: How to handle the local scale of the peasant with the global scale of societal transformations? How to define peasantries? How is the fate of peasantries linked to economic development and social inequality? What can new research on the success and decline of peasantries learn us? Understanding the old and new 'agrarian questions' calls for new historical knowledge of the role of peasantries within capitalist transformations. The existing knowledge is all to often deformed by a twofold myopia, the English Road to capitalist agriculture, and the European Experience of the dissolution of the peasantries within the industrial and post-industrial economies. Laying down the old premisses of westernized development reveals a different picture of a highly productive family based agriculture, promoting local and regional income and survival systems, and internalizing costs of production and reproduction, contrary to the dominant and ultimatelly dead end tendency within historical capitalism.
    Keywords: Peasantries; depeasantization
    JEL: N50 N0
    Date: 2008
  12. By: Reinhart, Carmen; Vegh, Carlos; Velasco, Andres
    Abstract: Most of the chapters in this volume were prepared for a conference in honor of Guillermo Calvo, organized by the International Monetary Fund’s Research Department and held at Fund headquarters in Washington, DC, on April 15–16,2004. At the editors’ request, a couple of chapters were specially prepared after the conference for inclusion in this volume. The Fund was a natural and gracious host since Guillermo had a distinguished affiliation with the Fund’s Research Department from 1987 to 1994. Under his intellectual leadership, the Research Department carried out path-breaking research on, among other issues, capital flows, debt maturity, and inflation stabilization. Guillermo also made important contributions to the internal discussion and formulation of Fund policies, particularly in Eastern Europe, the former Soviet Union, and Latin America.
    Keywords: crises inflation exchange rates debt transition
    JEL: F3 E4
    Date: 2008
  13. By: Theodoros M. Diasakos
    Abstract: I develop a model of endogenous bounded rationality due to search costs, arising implicitly from the decision problem's complexity. The decision maker is not required to know the entire structure of the problem when making choices. She can think ahead, through costly search, to reveal more of its details. However, the costs of search are not assumed exogenously; they are inferred from revealed preferences through choices. Thus, bounded rationality and its extent emerge endogenously: as problems become simpler or as the benefits of deeper search become larger relative to its costs, the choices more closely resemble those of a rational agent. For a fixed decision problem, the costs of search will vary across agents. For a given decision maker, they will vary across problems. The model explains, therefore, why the disparity, between observed choices and those prescribed under rationality, varies across agents and problems. It also suggests, under reasonable assumptions, an identifying prediction: a relation between the benefits of deeper search and the depth of the search. In decision problems with structure that allows the optimal foresight of search to be revealed from choices of plans of action, the relation can be tested on any agent-problem pair, rendering the model falsifiable. Moreover, the relation can be estimated allowing the model to make predictions with respect to how, in a given problem, changes in the terminal payoffs affect the depth of search and, consequently, choices. My approach provides a common framework for depicting the underlying limitations that force departures from rationality in different and unrelated decision-making situations. I show that it is consistent with violations of timing-independence in temporal framing problems, dynamic inconsistency and diversification bias in sequential versus simultaneous choice problems, and with plausible but contrasting risk attitudes across small- and large-stakes gambles.
    Keywords: bounded rationality, complexity, search
    JEL: D80 D83
    Date: 2008
  14. By: Kotaro Suzumura; Naoki Yoshihara
    Abstract: An extended social choice framework is proposed for the analysis of initial conferment of individual rights. It captures the intuitive conception of decisionmaking procedure as a carrier of intrinsic value along with the instrumental usefulness thereof in realizing valuable culmination outcomes. Our model of social decision-making consists of two stages. In the first stage, the society decides on the game form rights-system to be promulgated. In the second stage, the promulgated game form rights-system, coupled with the revealed profile of individual preference orderings over the set of culmination outcomes, determines a fully-fledged game, the play of which determines a culmination outcome at the Nash equilibrium. A set of sufficient conditions for the existence of a democratic social choice procedure, which chooses a game form in the first stage that is not only liberal, efficient and Nash solvable, but also uniformly workable for every revealed profile of individual preference orderings over the set of culmination outcomes, is identified.
    Keywords: Extended alternative; Extended constitution function; Uniformly rational choice; Liberal game form; Non-consequentialist evaluation of rightssystem
    JEL: D63 D71
    Date: 2008–05
  15. By: Pietro Alessandrini (Universit… Politecnica delle Marche, Department of Economics, MoFiR); Michele Fratianni (Indiana University, Kelly School of Business, Bloomington US, Univ. Plitecnica Marche - Dept of Economics, MoFiR)
    Abstract: We adapt the basic principles of the Keynes Plan and argue for the creation of a supranational bank money that would coexist along side national currencies and for the establishment of a new international clearing union (NICU). These principles remain timely because the fundamental causes of the instability of the international monetary system are as valid today as they were in the early Forties. The new international money would be created against domestic earning assets of the Fed and the ECB. The quantity of this supranational bank money would be demand driven and thus would differ from the helicopter-money Special Drawing Rights. NICU would not hold open positions in assets denominated in national currency and consequently would not bear exchange rate risk. NICU would be more than an office where to record credit and debit entries of the supranational bank money. The financial tsunami that has hit the United States in 2007-2008 provides a unique opportunity for a coordinated strategy.
    Keywords: Keynes Plan, exchange rates, external imbalances, international monetary system, key currency, supranational banl money
    JEL: E42 E52 F33 F36
    Date: 2008–10
  16. By: Loukas Balafoutas
    Abstract: This paper analyses the impact of third party beliefs and payoffs on decision making, in the context of a three person repeated game. Two players can collude and increase their intertemporal payoffs, but doing so generates an externality for an inactive player (third party). The model assumes that some players are guilt averse and conditions their emotional responses on the perceived beliefs of the third party; this leads to a self-fulfilling mechanism, where beliefs tend to be confirmed through their impact on psychological payoffs. The experimental findings reveal that the third party’s beliefs are the dominant factor driving behaviour. On the contrary, third party payoffs do not seem to matter. These results are in line with the predictions of psychological game theory, extending them to third parties. Moreover, they give some insights on the relevant weight of different theories (social preferences, reciprocity, guilt) in the shaping of pro-social behaviour.
    Keywords: psychological games, guilt, third party, corruption
    JEL: C73 C91 D73
    Date: 2009–01
  17. By: WenShwo Fang (Department of Economics, Feng Chia University); Stephen M. Miller (Department of Economics, University of Nevada, Las Vegas); ChunShen Lee (Department of Economics, Feng Chia University)
    Abstract: Recently, Fagiolo et al. (2008) find fat tails in the distribution of economic growth rates after adjusting for outliers, autocorrelation, and heteroskedasticity. This paper employs US quarterly real output growth, showing that this finding of fat tails may reflect the Great Moderation. That is, leptokurtosis disappears after GARCH adjustment once we incorporate the break in the variance equation to account for the Great Moderation.
    Keywords: real GDP growth, the Great Moderation, leptokurtosis, GARCH models
    JEL: C32 E32 O40
    Date: 2009–01
  18. By: Patricia Garcia-Prieto (Centre Emile Bernheim, Solvay Brussels School of Economics and Management, Université Libre de Bruxelles, Brussels.); Diane Mackie (Department of Psychology, University of California, Santa Barbara, US.); Eliot R. Smith (Department of Psychology, University of Indiana, US.)
    Abstract: Two studies were designed to investigate the relations among ethnic group membership, ethnic group identification, group based-appraisals, and group-based emotions in determining behavioral tendencies of support and opposition toward diversity initiatives. The two studies confronted participants with the hire of an ethnic minority under a diversity-based procedure. The first study assessed reactions of whites to the hire of an ethnic minority under a diversity-based or a merit-based policy. The second study compared reactions of white and ethnic minorities to the hire of an ethnic minority under a diversity-based policy. The results of the first study showed that white participants appraised a diversity-based hiring decision as significantly more harmful to the ingroup and unjust which in turn engendered greater feelings of anger toward and shame about the diversity policy rather than the merit based policy, and more stated intentional opposition to the policy. Study 2 revealed that whites’ appraisal of the diversity-based policy as unjust and as harmful to the ingroup lead to stronger intentions to oppose because whites felt angry about it. Minorities’ appraisals of the diversity-based policy as harmful to the ingroup lead to stronger intentional opposition because they felt ashamed about it, and appraisals of the policy as unjust also lead to intention to oppose because they felt low pride about it. In both studies we provide evidence that ethnic group identification acted as a moderator of the predictive effect of emotions on behavioral intentions toward the diversity-based hire. Results are discussed within an intergroup emotion theory framework.
    Keywords: intergroup emotion, diversity, whites, minorities
    Date: 2009–02
  19. By: Luca Anderlini; Leonardo Felli; Alessandro Riboni
    Abstract: In a Case Law regime Courts have more flexibility than in a Statute Law regime. Since Statutes are inevitably incomplete, this confers an advantage to the Case Law regime over the Statute Law one. However, all Courts rule ex-post, after most economic decisions are already taken. Therefore, the advantage of flexibility for Case Law is unavoidably paired with the potential for time-inconsistency. Under Case Law, Courts may be tempted to behave myopically and neglect ex-ante welfare because, ex-post, this may afford extra gains from trade for the parties currently in Court. The temptation to behave myopically is traded off against the effect of a Court's ruling, as a precedent, on the rulings of future Courts. When Case Law matures this temptation prevails and Case Law Courts succumb to the time-inconsistency problem. Statute Law, on the other hand pairs the lack of flexibility with the ability to commit in advance to a given (forward looking) rule. This solves the time-inconsistency problem afflicting the Case Law Courts. We conclude that when the nature of the legal environment is sufficiently heterogeneous and/or changes sufficiently often, the Case Law regime is superior: flexibility is the prevailing concern. By the same token, when the legal environment is sufficiently homogeneous and/or does not change very often, the Statute Law regime dominates: the ability to overcome the time-inconsistency problem is the dominant consideration.
    Keywords: Statute Law, Case Law, Flexibility, Rigidity, Time-Inconsistency, Precedents
    JEL: C79 D74 D89 K40 L14
    Date: 2008
  20. By: Bruno S. Frey; David A. Savage (School of Economics and Finance, Queensland University of Technology); Benno Torgler (School of Economics and Finance, Queensland University of Technology)
    Abstract: The sinking of the Titanic in April 1912 took the lives of 68 percent of the people aboard. Who survived? It was women and children who had a higher probability of being saved, not men. Likewise, people traveling in first class had a better chance of survival than those in second and third class. British passengers were more likely to perish than members of other nations. This extreme event represents a rare case of a well-documented life and death situation where social norms were enforced. This paper shows that economic analysis can account for human behavior in such situations.
    Keywords: Decision under Pressure, Tragic Events and Disasters, Survival, Quasi-Natural Experiment, Altruism
    JEL: D63 D64 D71 D81
    Date: 2009–02–06

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