nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2009‒11‒27
nine papers chosen by
Erik Thomson
University of Manitoba

  1. A Economia em Ebulição: Integrando o Plural e a Moral numa Ciência Económica Satisfatória By Pinto, Hugo
  2. Group Membership, Team Preferences, and Expectations By Francesco Guala; Luigi Mittone; Matteo Ploner
  3. How Good is Trust?: Measuring Trust and its Role for the Progress of Societies By Adolfo Morrone; Noemi Tontoranelli; Giulia Ranuzzi
  4. The macroeconomics of "financialisation" and the deeper origins of the world economic crisis By Till van Treeck
  5. Ecological intuition versus economic "reason" By Olivier Guéant; Roger Guesnerie; Jean-Michel Lasry
  6. Political Constraints on Monetary Policy During the U.S. Great Inflation By Weise, Charles L.
  7. Markets for Reputation: Evidence on Quality and Quantity in Academe By Daniel S. Hamermesh; Gerard A. Pfann
  8. Why Pay Taxes When No One Else Does? By Gil S. Epstein; Ira N. Gang
  9. Money in monetary policy design: Monetary cross-checking in the New-Keynesian model By Beck, Günter; Wieland, Volker

  1. By: Pinto, Hugo
    Abstract: The crisis in (financial) markets led to the failure of orthodoxy and should bring out a new theoretical and methodological framework to Economics. This essay discusses what is Economics and if it needs to move away from its normative dimension to assert itself as a producer of scientific knowledge. The economist should not be the only scientist who studies the behavior of rational agents and the allocation of scarce resources slave method and quantitative formalism. The economist has to be someone who understands that there is no scientific analysis of the economic realm excluding its main components: the unpredictable nature of individuals and the social and moral condition that exists in each person.
    Keywords: Economics; Orthodoxy; Mainstream; Pluralism; Moral
    JEL: B52 B41
    Date: 2009–10–01
  2. By: Francesco Guala; Luigi Mittone; Matteo Ploner
    Abstract: Group membership increases cooperation in social dilemma games, altruistic donation in dictator games, and fair offers in ultimatum games. While the empirical study of group action has grown rapidly over the years, there is little agreement at the theoretical level on exactly why and how group membership changes individual behaviour. According to most theorists, the effect of group framing is channelled primarily via the beliefs of group members, while a dissenting minority identifies changes in preference as the key explanatory mechanism. We report an experiment using the minimal group paradigm and a prisoner’s dilemma with multiple actions, in which we manipulate players’ beliefs and show that mutual knowledge of group affiliation is not necessary for group action. Our results question previous empirical findings, refute theories of social norms based on mutual expectations, and support a specific theory of team preferences based on “circumspect reasoning”
    Keywords: group identity, team preferences, social dilemmas, experimental economics.
    JEL: C72 C91 H41
    Date: 2009
  3. By: Adolfo Morrone; Noemi Tontoranelli; Giulia Ranuzzi
    Abstract: This paper investigates the notion and role of trust in modern societies as a first step towards the construction of indicators that could better inform our understanding of societal progress. Trust is commonly viewed as a proxy indicator of social capital, and a high level of trust is considered a factor that can enhance economic growth and social well-being. Indicators of trust inform about the quality of people’s interactions with others, hence on their assessment of the extent to which other people in the community are perceived as potential partners rather than as rivals. The paper, starting from the various notions and theories of trust provided in literature, discusses different definitions of trust, its various dimensions (i.e. interpersonal and institutional trust), their relation to the broader notion of social capital, and the different factors that affect it. It then overviews the measures currently used to assess trust, discussing their advantages and disadvantages. Questions assessing the degree of trust of respondents towards other people and institutions have been asked in dozens of large-scale surveys worldwide, and these data highlight systematic relations between trust and various dimensions of economic and social well-being. The paper concludes by noting the limits of available evidence and the scope for improvements through better survey design and more comparable survey questions.
    Date: 2009–10–23
  4. By: Till van Treeck (IMK at the Hans Boeckler Foundation)
    Abstract: In recent years, the interdisciplinary literature on financialisation has become one of the most quickly developing areas in the social sciences, including (Post Keynesian) macroeconomics. We discuss the relevance of the financialisation hypothesis in a non-technical manner from a macroeconomic perspective. Our interpretation of financialisation allows one to analyse the fundamental changes that the US and other economies have undergone over the past three decades or so. In particular, it helps to understand how the US economy has turned from a "debt-led" system, combining relatively weak physical investment activity, strong consumer spending, high income inequality and increasing indebtedness of firms and private households, to a "debt-burdened" system. In light of the current world economic crisis, the Keynesian financialisation hypothesis now seems to be increasingly shared among policy makers and economists.
    Date: 2009
  5. By: Olivier Guéant; Roger Guesnerie; Jean-Michel Lasry
    Abstract: This article discusses the discount rate to be used in projects that aimed at improving the environment. The model has two different goods, one is the usual consumption good whose production may increase exponentially, the other is an environmental good whose quality remains limited. The stylized world we describe is fully determined by four parameters, reflecting basic preferences "ecological" and intergenerational concerns and feasibility constraints. We define an ecological discount rate and examine its connections with the usual interest rate and the optimized growth rate. We discuss, in this simple world, a variety of forms of the precautionary principle.
    Date: 2009
  6. By: Weise, Charles L.
    Abstract: This paper argues that the Federal Reserve’s failure to control inflation during the 1970s was due to constraints imposed by the political environment. Members of the Fed understood that a serious attempt to tackle inflation would be unpopular with the public and would generate opposition from Congress and the Executive branch. The result was a commitment to the policy of gradualism, under which the Fed would attempt to reduce inflation with mild policies that would not trigger an outright recession, and premature abandonment of anti-inflation policies at the first sign of recession. Alternative explanations, in particular misperceptions of the natural rate of unemployment and misunderstandings of the nature of inflation, do not provide a complete explanation for Fed policy at key turning points during the Great Inflation. Evidence for this explanation of Fed behavior is found in Minutes and Transcripts of FOMC meetings and speeches of Fed chairmen. Empirical analysis verifies that references to the political environment at FOMC meetings are correlated with the stance of monetary policy during this period.
    Keywords: Great Inflation; Federal Reserve; monetary policy
    JEL: N1 E5 E6
    Date: 2009–10–10
  7. By: Daniel S. Hamermesh; Gerard A. Pfann
    Abstract: We develop a theory of the market for individual reputation, an indicator of regard by one’s peers and others. The central questions are: 1) Does the quantity of exposures raise reputation independent of their quality? and 2) Assuming that overall quality matters for reputation, does the quality of an individual’s most important exposure have an extra effect on reputation? Using evidence for academic economists, we find that, conditional on its impact, the quantity of output has no or even a negative effect on each of a number of proxies for reputation, and very little evidence that a scholar’s most influential work provides any extra enhancement of reputation. Quality ranking matters more than absolute quality. Data on mobility and salaries show, on the contrary, substantial positive effects of quantity, independent of quality. We test various explanations for the differences between the determinants of reputation and salary.
    JEL: D83 J31 J44
    Date: 2009–11
  8. By: Gil S. Epstein (Bar-Ilan University); Ira N. Gang (Rutgers University)
    Abstract: In this paper we try to understand the phenomena whereby a large proportion of the population evades tax payments. We present a model which incorporates elements from the theory of information cascades with the standard model of tax evasion and analyze the connection between the decision of a potential tax evader, the number of tax evaders and the number caught in previous periods. General conditions exist under which any expected utility maximizing potential tax evaders will decide to emulate other tax evaders.
    Keywords: Tax evasion, Information Cascades, Uncertainty
    JEL: H26 H31 D82
    Date: 2009–04–27
  9. By: Beck, Günter; Wieland, Volker
    Abstract: In the New-Keynesian model, optimal interest rate policy under uncertainty is formulated without reference to monetary aggregates as long as certain standard assumptions on the distributions of unobservables are satisfied. The model has been criticized for failing to explain common trends in money growth and inflation, and that therefore money should be used as a cross-check in policy formulation (see Lucas (2007)). We show that the New-Keynesian model can explain such trends if one allows for the possibility of persistent central bank misperceptions. Such misperceptions motivate the search for policies that include additional robustness checks. In earlier work, we proposed an interest rate rule that is near-optimal in normal times but includes a cross-check with monetary information. In case of unusual monetary trends, interest rates are adjusted. In this paper, we show in detail how to derive the appropriate magnitude of the interest rate adjustment following a significant cross-check with monetary information, when the New-Keynesian model is the central bank's preferred model. The cross-check is shown to be effective in offsetting persistent deviations of inflation due to central bank misperceptions.
    Keywords: European Central Bank; monetary policy; money; New-Keynesian model; policy under uncertainty; quantity theory
    JEL: E32 E41 E43 E52 E58
    Date: 2009–10

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