nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2010‒03‒20
ten papers chosen by
Erik Thomson
University of Manitoba

  1. New Monetarist Economics: Models By Williamson, Stephen D.; Wright, Randall
  2. Is the veil of ignorance transparent ?. By Gaël Giraud; Cécile Renouard
  3. Hume: The power of abduction and simple observation in economics By Jorge Streb
  4. Commerce in Braudel and the Marxists By McCloskey, Deirdre Nansen
  5. On the legitimacy of citizen participation in pollution permits markets: economic efficiency and ethical concerns (In French) By Sylvie FERRARI (GREThA UMR CNRS 5113); Mohammed Mehdi MEKNI (GREThA UMR CNRS 5113); Emmanuel PETIT (GREThA UMR CNRS 5113); Sébastien ROUILLON (GREThA UMR CNRS 5113)
  6. The role of regret in the persistence of anomalies in financial markets (In French) By Emmanuel PETIT (GREThA UMR CNRS 5113)
  7. Wither The Economics of Agricultural Development? By James Roumasset
  8. Applications of Weak Convergence for Hedging of Game Options By Yan Dolinsky
  9. Are bygones bygones? By Robin Cubitt; Maria Ruiz-Martos; Chris Starmer
  10. ‘Expressive’ Obligations in Public Good Games: Crowding-in and Crowding-out Effects. By Michele Bernasconi; Luca Corazzini; Anna Marenzi

  1. By: Williamson, Stephen D.; Wright, Randall
    Abstract: he purpose of this paper is to discuss some of the models used in New Monetarist Economics, which is our label for a body of recent work on money, banking, payments systems, asset markets, and related topics. A key principle in New Monetarism is that solid microfoundations are critical for understanding monetary issues. We survey recent papers on monetary theory, showing how they build on common foundations. We then lay out a tractable benchmark version of the model that allows us to address a variety of issues. We use it to analyze some classic economic topics, like the welfare effects of inflation, the relationship between money and capital accumulation, and the Phillips curve. We also extend the benchmark model in new ways, and show how it can be used to generate new insights in the study of payments, banking, and asset markets.
    Keywords: monetarism; monetary theory; monetary policy; banking; financial intermediation
    JEL: E5 E4 E3
    Date: 2010–02–28
  2. By: Gaël Giraud (Centre d'Economie de la Sorbonne); Cécile Renouard
    Abstract: Theories of justice in the spirit of Rawls and Harsanyi argue that fair-minded people should aspire to make choices for society as if in the original position, that is, behind a veil of ignorance that prevents them from knowing their own social positions in society. In this paper, we provide a framework showing that preferences in front of the veil of ignorance (i.e., in face of everyday risky situations) are entirely determined by ethical preferences behind the veil. Moreover, by contrast with Kariv & Zame (2008), in many cases of interest, the converse is not true : ethical decisions cannot be deduced from economic ones. This not only rehabilitates distributive theories of justice but even proves that standard decision theory in economic environments cannot be separated from ethical questioning.
    Keywords: Moral preferences, business ethics, social preferences, distributional justice, theory of justice, social choice, original position, veil of ignorance, utilitarianism, maximin principle.
    JEL: D63
    Date: 2010–01
  3. By: Jorge Streb
    Abstract: In Hume’s epistemology, induction leads to discovery in matters of fact. However, because of the poor data Hume analyzes the balance of trade with a thought experiment, doing what Mill makes explicit afterwards: reason from assumptions, to reach conclusions which are true in the abstract. Hume’s potential explanation, what Peirce later calls abduction, is backed by a case study, the price revolution of the 16th century, which supports half his abductive inference, when money supply is multiplied fivefold. Given that economics reasons abductively, Hume’s attention to realistic hypotheses and the adjustment process matters.
    Keywords: abduction, cases studies, realistic assumptions, Hume, Mill, Peirce, Hayek, Akerlof
    JEL: B1 B4 E4 E5 F1
    Date: 2010–03
  4. By: McCloskey, Deirdre Nansen
    Abstract: “Commercialization” and “monetization” dance with stage theories from Smith to modern growth theory. The sheer growth of traded or the sheer growth of money, though, do not an Industrial Revolution make. The ill-named “Price Revolution,” for example, came from American gold, not from population increases, and did not inspire innovation. Commercialization comes from falling transaction costs, which should be directly studied. Fernand Braudel, however, argued for commercialization as a force transforming “capitalism.” He distinguished “capitalism” from local trade, which no economist would, and assigned blame to the capitalists. Though hardly a Marxist, he---like a brilliant group of leftish economists such as Marglin and Lazonick---puts emphasis on the struggle over the spoils. But it was not such struggles that made the modern world. It was the positive sum arising from innovation.
    Keywords: commercialization; innovation; monetarization; transaction costs; braudel; marglin; lazonick
    JEL: N00
    Date: 2009–07
  5. By: Sylvie FERRARI (GREThA UMR CNRS 5113); Mohammed Mehdi MEKNI (GREThA UMR CNRS 5113); Emmanuel PETIT (GREThA UMR CNRS 5113); Sébastien ROUILLON (GREThA UMR CNRS 5113)
    Abstract: The idea of regulating pollutions by means of tradable emission permits on a competitive market was developed for the first time by Dales in 1968. The question of the citizens’ participation on these markets received little attention in the economic literature. However, people are allowed to buy emission permits and can therefore reduce the level of pollution by removing them from the market. From a practical viewpoint, the citizen’s preferences are not taken into account neither in the elaboration nor in the functioning of pollution permits markets. However, such a situation does not comply with both the democratic values and the prevailing economic principles. This article aims to discuss the legitimacy of a participation of the citizens to a pollution permits market by introducing both the economic efficiency and the ethical dimension. As the problem of free riding is fundamental when the citizen participation takes place, we show that it can be partly solved by funding the citizen demand. In addition, it seems that the free riding behaviour is overestimated by theoretical economics as experimental economics applied to the game of the public good shows. In addition, the ethical stakes associated to the opening of the pollution markets permits to the citizens are analyzed. An ethics based on the freedom and the sovereignty of the citizens commands us to authorize the participation of the citizens to these markets. This point is finally discussed towards the cumulative pollutions and towards the intergenerational dimension of the equity.
    Keywords: equity, altruism, public good, economic efficiency, ethics, tradable emission permits, citizen participation, intergenerational justice, free rider, cumulative pollutions
    JEL: D63 H21 H41 Q58
    Date: 2010
  6. By: Emmanuel PETIT (GREThA UMR CNRS 5113)
    Abstract: In this article, we provide a unified framework which can take into account numerous behavioural anomalies observed in financial markets (disposition effect, under- and overreaction phenomena and so on). Our general theoretical framework uses both cognitive and perceptual theories of emotion. Defining the emotion as a revision process of beliefs and preferences (Livet (2002)), we explain the role of regret in the occurrence and the persistence of many psychological biases recently identified in financial markets (rationalization, conservatism, hindsight and confirmatory biases, etcetera). Specifically, the tendency to sell superior-performing stocks too early (Shefrin and Statman (1985)) is a direct consequence of the investor incapacity of revising a strong false (however protected) belief which appears to sustain crucially his self-confidence. This cognitive resistance towards the emotional process highlights the importance of the individual and social control of the emotions.
    Keywords: Regret, theory of emotions, disposition effect, behavioural finance
    JEL: G10 A12
    Date: 2010
  7. By: James Roumasset (Department of Economics, University of Hawaii at Manoa)
    Abstract: In spite of healthy demand for a renaissance in economic policy for agricultural development, the academic supply response is found wanting. The infusion of public economics into the economics of agricultural development, which thrived during the 1970s and 80s, has stagnated due to the lack of foundations in transaction costs, dynamics, and the co-evolution of specialization and governance. Many of the policy ideas found in the World Bank’s, WDR 08, for example, reflect a post-modern tendency to seek and destroy market failures with new mandates and subsidies for farmer cooperatives, microfinance, crop insurance, and land reform. The new development microeconomics favors form over substance and overemphasizes multiple equilibria, trap theories, new market failures, and the new case for social insurance. Empirical research has likewise suffered from the quest for clever instruments and methods instead of informative results that estimate parameters of established theories, distinguish between competing theories, or challenge theory to explain empirical patterns. These latest fads and fancies have distracted economists from the quest for fundamental explanations of development patterns, especially the nature and causes of specialization as an engine of growth. The stage is set for young dynamic scholars to develop new tools of analysis to explain empirical patterns in behavior and organization in developing agriculture and to build the foundations of a public microeconomics of development.
    Keywords: Post-modern, fundamental explanation, small-farm bias, social insurance, new institutional economics
    JEL: O1 O2 O3 O4 Q1
    Date: 2010–03–04
  8. By: Yan Dolinsky
    Abstract: In this paper we consider Dynkin's games with payoffs which are functions of an underlying process. Assuming extended weak convergence of underlying processes $\{S^{(n)}\}_{n=0}^\infty$ to a limit process $S$ we prove convegence Dynkin's games values corresponding to $\{S^{(n)}\}_{n=0}^\infty$ to the Dynkin's game value corresponding to $S$. We use these results to approximate game options prices with path dependent payoffs in continuous time models by a sequence of game options prices in discrete time models which can be calculated by dynamical programming algorithms. In comparison to previous papers we work under more general convergence of underlying processes, as well as weaker conditions on the payoffs.
    Date: 2009–08
  9. By: Robin Cubitt (School of Economics, University of Nottingham); Maria Ruiz-Martos (Economics Department, University of Warwick); Chris Starmer (School of Economics, University of Nottingham)
    Abstract: The paper reports an experiment which tests the principle of separability, i.e. that behaviour in a dynamic choice problem is independent of history and of unreachable eventualities. Although this is a well-known principle of orthodox decision theory and central to conventional economic modelling, it has been questioned on grounds suggested by non-expected utility models of choice under risk and by the psychology of affective influences on risk-taking. Our experimental design, which provides between-subjects tests of separability using three treatments in which the history preceding a decision is manipulated, is inspired by these concerns. We expose separability to a clean and harsh test, but find no evidence that it is violated.
    Keywords: Separability; history-independence; non-expected utility; risk and affect
    Date: 2010–01
  10. By: Michele Bernasconi (Department of Economics, University Of Venice Cà Foscari); Luca Corazzini (Dipartimento di Scienze Economiche, Università di Padova.); Anna Marenzi (Dipartimento di Economia, Università dell'Insubria.)
    Abstract: We study individual behaviour in a repeated linear public good experiment in which, in each period, subjects are required to contribute a minimum level and face a certain probability to be audited. Audited subjects who contribute less than the minimum level are convicted to pay the difference between the obligation required and the voluntary contribution. We study the ‘expressive’ power of the obligations. While at early stages subjects contribute the minimum level, with repetition contributions decline below the required amount indicating that expressive obligations are not capable to sustain cooperation. We observe that expressive obligations exert a rather robust crowding-out effect on voluntary contributions as compared to a standard public good game. The crowding-out is stronger when payments collected by the monitoring activity are distributed to subjects rather than when they are pure dead-weight-loss.
    Keywords: Expressive law, motivation crowding theory, laboratory experiments
    JEL: C91 H26 H41 K40
    Date: 2010

This nep-hpe issue is ©2010 by Erik Thomson. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.