nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2009‒07‒03
seventeen papers chosen by
Erik Thomson
University of Manitoba

  1. Marshall and Walras : Incompatible Bedfellows ? By Michel, DE VROEY
  2. From one to many islands : the emergence of search and matching models By Anna, BATYRA; Michel, DE VROEY
  3. Social Ecological Economics By Clive L Spash
  5. Is Behavioral Economics Doomed? By David K Levine
  6. The New Kaldor Facts: Ideas, Institutions, Population, and Human Capital By Charles I. Jones; Paul M. Romer
  7. Rule-Rationality and the Evolutionary Foundations of Hyperbolic Discounting By Hillel Bavli
  8. Kahal as Spontaneous Order By Joseph Isaac Lifshitz
  9. Taking Absurd Theories Seriously 3 essays on Rational Choice Theory and Welfare Analysis By Røgeberg, Ole Jørgen
  10. The Meaning of Entrepreneurship: A Modular Concept By Michael Peneder
  11. Who values the status of the entrepreneur? By Mirjam van Praag
  12. Are Happier People Better Citizens? By Cahit Guven
  13. You Can Get There From Here… By Joseph Grady
  14. The Interaction between Explicit and Relational Incentives: An Experiment By Randolph Sloof; Joep Sonnemans
  15. The Shadows of the Past - How Implicit Institutions Influence Entrepreneurship By Stefan Bauernschuster; Oliver Falck; Robert Gold; Stephan Heblich
  16. “No One Saw This Coming”: Understanding Financial Crisis Through Accounting Models By Bezemer, Dirk J
  17. What Comes to Mind By Nicola Gennaioli; Andrei Shleifer

  1. By: Michel, DE VROEY (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: The standard view about the relation between the Marshallian and the Walrasian approaches is that they are complementary to each other. My aim in this paper is to show that, on the contrary, they constitute alternative sub-research programs within the wider neoclassical paradigm. I make my point by contrasting the two approaches against the following benchmarks : the purpose of economic theory according to Marshall and Walras, their views as the role of mathematics, their ways of looking at the working of the economy as whole, the conception of equilibrium underpinning their theories and finally their trade organization assumptions
    Date: 2009–04–16
  2. By: Anna, BATYRA; Michel, DE VROEY
    Abstract: The notion of frictional unemployment first arose in the writings of Beveridge, PIgou and Hicks. Why did it fail at the time to grow into a fully fledged theory ? Our answer is simple. This failure was due to the fact these economists were unwilling and/or unable to go beyond the then-prevailing Marshallian approach, in particular to depart from its trade organization assumptions. They did not realize that these assumptions excluded any rationing outcome in general, and any unemployment result in particular. We make our claim in three steps. First, we make explicit the trade-organization assumptions underpinning MarshallÕs equilibrium theory. Our second step is a study of the attempts at introducing unemployment in a Marshallian framework. We start with an examination of BeveridgeÕs, PigouÕs and HicksÕs early works on wages and unemployment. We also briefly discuss how and why Keynes was able to shift attention from frictional to involuntary unemployment. Newt, for a reason that will become clear as the paper evolves, we ponder FriedmanÕs celebrated Presidential Address inaugurating the notion of a natural rate of unemployment. In our third and last step we lool at the papers by McCall, Lucas and Prescott, Mortensen and Pissarides that paved the way for the present thriving research literature. We show that their success in providing an equilibrium unemployment result stems from the fact that they have indeed departed from the Marschallian trade-organization assumptions
    Keywords: Supply and Demand; Marshall; Search; Matching
    JEL: B10 B20 B40 J20 J60
    Date: 2009–12–20
  3. By: Clive L Spash (CSIRO Sustainable Ecosystems, Australia)
    Abstract: This paper introduces and explains how ecological economics has developed as a modern movement with its roots in environmentalism and radical environmental economics. Divisions and conflicts within the field are explored to show why material claiming to fall under the title of ecological economics fails to be representative of progress or the vision which drove socio-economic specialists to interact with ecologists in the first place. The argument is then put forward that ecological economics, as a social science engaging with the natural sciences, is a heterodox school of modern political economy.
    Keywords: Ecological economics, methodology, ideology, politics, history
    JEL: B0 B59 Q57
    Date: 2009–06
  4. By: POPESCU, Ion (Universitatea Spiru Haret, Facultatea de Finante si Banci); Bondrea, Aurelian (Universitatea Spiru Haret, Facultatea de Finante si Banci); Constantinescu, Madalina (Universitatea Spiru Haret, Facultatea de Finante si Banci)
    Abstract: Our article offers a survey of behavioral economics and in its actual directions such neuroeconomics, including his historical origins, results, and methods. Our central thesis is that the development of behavioral economics in important respects parallels the development of cognitive science. Neuroeconomics has further bridged the once disparate fields of economics and psychology. Such convergence is almost exclusively attributable to changes within economics. Neuroeconomics has inspired more change within economics than within psychology because the most important findings in Neuroeconomics have posed more of a challenge to the standard economic perspective. The single most important source of inspiration for behavioral economists has been behavioral decision research, which can, in turn, be seen as an integration of ideas from cognitive science and economics. Neuroeconomics has primarily challenged the standard economic assumption that decision making is a unitary process a simple matter of integrated and coherent utility maximization suggesting instead that it is driven by the interaction between automatic and controlled processes. This article reviews neuroeconomic research in areas of interest to both economists and psychologists: decision making under risk and uncertainty, intertemporal choice, and social decision making.
    Keywords: neuroeconomics; behavioural economics; affect; behavioral welfare economics; decision making; caeteris paribus
    JEL: D84 D87 I38
    Date: 2009–06–16
  5. By: David K Levine
    Date: 2009–06–20
  6. By: Charles I. Jones; Paul M. Romer
    Abstract: In 1961, Nicholas Kaldor used his list of six "stylized" facts both to summarize the patterns that economists had discovered in national income accounts and to shape the growth models that they were developing to explain them. Redoing this exercise today, nearly fifty years later, shows how much progress we have made. In contrast to Kaldor's facts, which revolved around a single state variable, physical capital, our six updated facts force consideration of four far more interesting variables: ideas, institutions, population, and human capital. Dynamic models have uncovered subtle interactions between these variables and generated important insights about such big questions as: Why has growth accelerated? Why are there gains from trade?
    JEL: O1 O3 O4
    Date: 2009–06
  7. By: Hillel Bavli
    Abstract: Recent studies involving intertemporal choice have prompted many economists to abandon the classical exponential discount utility function in favor of one characterized by hyperbolic discounting. Hyperbolic discounting, however, implies a reversal of preferences over time that is often described as dynamically inconsistent and ultimately irrational. We analyze hyperbolic discounting and its characteristic preference reversal in the context of rule-rationality, an evolutionary approach to rationality that proposes that people do not maximize utility in each of their acts; rather, they adopt rules of behavior that maximize utility in the aggregate, over all decisions to which an adopted rule applies. In this sense, people maximize over rules rather than acts. Rule-rationality provides a framework through which we may examine the rational basis for hyperbolic discounting in fundamental terms, and in terms of its evolutionary foundations. We conclude that although aspects of hyperbolic discounting may contain a certain destructive potential, it is likely that its evolutionary foundations are sound -- and its application may well be as justified and rational today as it was for our foraging ancestors.
    Date: 2009–06
  8. By: Joseph Isaac Lifshitz (Rabbi Yitzhak Yechiel Yeshiva, Shalem Center)
    Abstract: One description of the people of Israel is Kahal, a category that the Talmud is also concerned with. This category was further employed later in the middle ages, and was given to the Jewish community, although some times with a little twist, the Kehila. This paper will focus mainly on the question of the formation of the Kahal as a large political body in the Bible and in the Talmud, and explore the political implications that can be derived from it. The Kahal as a spontaneously-defined, non-organized political body must be clarified. To this end, I will borrow theoretical frameworks of Friedrich Hayek and Michael Polanyi.
    Keywords: Kahal, Jewish Thought, Spontaneous Order, Hayek
    Date: 2009–06
  9. By: Røgeberg, Ole Jørgen (Ragnar Frisch Centre for Economic Research)
    Abstract: The effects of public policies on the welfare of different groups in society are in many cases unclear. Economists often study such effects through welfare analyses based on a mathematical model of an individual decision maker. I show for the case of Rational Addiction theory that we have both theoretical and empirical reasons to think that the model fails to reflect the welfare of real people. I argue that the acceptance and standing of the theory is due to a failure to apply relevant criteria when evaluating such welfare analyses, that this failure makes the profession take absurd theories seriously, and that such welfare analyses should therefore be treated with scepticism and great care.
    Keywords: Welfare Analysis; Rational Choice; Rational; Addiction; Gary Becker; Jon Elster
    JEL: I18
    Date: 2009–06–14
  10. By: Michael Peneder (WIFO)
    Abstract: Entrepreneurship has been characterised as one of the most intriguing but equally elusive concepts in economics. This critical review first surveys its major intellectual roots and then proposes a modular concept of entrepreneurship that preserves essential distinctions along its behavioural, functional, and occupational dimensions. It argues that the behavioural definition identifies the only attribute that is both comprehensive and unique to the nature of entrepreneurship, while the functional and occupational definitions add the specificity required for many analytical purposes. To validate the concept, the paper discusses the appropriate empirical units of observation and maps a general policy framework.
    Keywords: Entrepreneurship, market co-ordination, innovation, technology diffusion, occupational choice
    Date: 2009–03–16
  11. By: Mirjam van Praag (University of Amsterdam)
    Abstract: Parker and Van Praag (2009) showed, based on theory, that the group status of the profession 'entrepreneurship' shapes people's occupational preferences and thus their choice behavior. The current study focuses on the determinants and consequences of the group status of a profession, entrepreneurship in particular. If the group status of entrepreneurship is related to individual choice behavior, it is policy relevant to better understand this relationship and the determinants of the status of the entrepreneur. For reasons outlined in the introduction, this study focuses on (800) students in the Netherlands. We find that the status of occupations is mostly determined by the required level of education, the income level to be expected and respect. Furthermore, our results imply that entrepreneurship is associated with hard work, high incomes, but little power and education. Moreover, we find evidence that individual characteristics, such as entrepreneurship experience, vary systematically with the perceived status of occupations, thereby contributing ammunition to a fundamental discussion in the literature. Finally, we find a strong association between the perceived status of the entrepreneur and the estimated likelihood and willingness to become an entrepreneur.
    Keywords: Entrepreneurship, self-employment, occupational choice, occupational status, group status, peer group effects
    JEL: J22 J24 L26 M13 M59
    Date: 2009–06–23
  12. By: Cahit Guven
    Abstract: This paper presents evidence on causal influence of happiness on social capital and trust using German Socio-Economic Panel. Exploiting the unexplained cross-sectional variation in individual happiness (residuals) in 1984 to eliminate the endogeneity problem, the paper finds that happier people trust others more, and importantly, help create more social capital. Specifically, they have a higher desire to vote, perform more volunteer work, and more frequently participate in public activities. They also have a higher respect for law and order, hold more association memberships, are more attached to their neighborhood, and extend more help to others. Residual happiness appears to be an indicator of optimism, and has an inverse U-shaped relationship with social capital measures. The findings also suggest that the relationship between happiness and social capital strengthened in the world in the last decade.
    Keywords: happiness, trust, social capital, optimism
    JEL: Z13
    Date: 2009
  13. By: Joseph Grady
    Abstract: This paper addresses a fundamental problem of communication how to effectively talk about an issue. The paper emphasizes the interconnectedness, interdependence, and shared values that are the connective tissue of our society while working to advance economic and social opportunity and reduce inequality. To accelerate progress in eliminating structural inequalities it is necessary to talk more effectively about structures and offer tangible solutions for transforming them.
    Keywords: Inequality; Talk; Communication; Cognitive; Thinking; rhetorical mode; Guilt; Denial; Compassion fatigue; powerlessness
    Date: 2009
  14. By: Randolph Sloof (University of Amsterdam); Joep Sonnemans (University of Amsterdam)
    Abstract: We consider repeated trust game experiments to study the interplay between explicit and relational incentives. After having gained experience with two payoff variations of the trust game, subjects in the final part explicitly choose which of these two variants to play. Theory predicts that subjects will choose the payoff dominated game (representing a bad explicit contract), because this game better sustains (implicit) relational incentives backed by either reputational or reciprocity considerations. We also explicitly test how game choice is affected by the length of the repeated game.
    Keywords: relational contracts; explicit incentives; crowding out; experiments
    JEL: C91 M52 J41
    Date: 2009–04–14
  15. By: Stefan Bauernschuster (University of Jena); Oliver Falck (Ifo Institute for Economic Research); Robert Gold (Max Planck Institute of Economics, Jena); Stephan Heblich (Max Planck Institute of Economics, Jena)
    Abstract: This paper investigates the impact of implicit institutions on the decision to become an entrepreneur. Implicit institutions are here defined as mindsets that have developed as the result of norms and traditions and we expect they will have an influence on risk attitudes and opportunity recognition. We conduct a natural experiment based on Germany's recent history and compare individuals born and raised in the former socialist East Germany (GDR) with their West Germany (FRG) counterparts. Our analysis confirms the expected difference in values between individuals from East and West Germany and also shows that these differences influence the probability of being self-employed. In the process of our analysis, we also sketch the ongoing economical transition process in East Germany, which severely disturbs a proper analysis of the institutional differences from a macro-perspective.
    Keywords: Implicit Institutions, Entrepreneurship, Socialism, Capitalism
    JEL: L26 A13 P39
    Date: 2009–06–15
  16. By: Bezemer, Dirk J
    Abstract: This paper presents evidence that accounting (or flow-of-fund) macroeconomic models helped anticipate the credit crisis and economic recession. Equilibrium models ubiquitous in mainstream policy and research did not. This study identifies core differences, traces their intellectual pedigrees, and includes case studies of both types of models. It so provides constructive recommendations on revising methods of financial stability assessment. Overall, the paper is a plea for research into the link between accounting concepts and practices and macro economic outcomes.
    Keywords: credit crisis, recession, prediction, macroeconomics, flow of funds, financialization, neoclassical economics, accounting research
    JEL: C53 E44 E37 E47
    Date: 2009–06–16
  17. By: Nicola Gennaioli; Andrei Shleifer
    Abstract: We present a model of judgment under uncertainty, in which an agent combines data received from the external world with information retrieved from memory to evaluate a hypothesis. We focus on what comes to mind immediately, as the agent makes quick, intuitive evaluations. Because the automatic retrieval of data from memory is both limited and selected, the agent's evaluations may be severely biased. This framework can account for some of the evidence on heuristics and biases presented by Kahneman and Tversky, including conjunction and disjunction fallacies.
    JEL: D81
    Date: 2009–06

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