nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2011‒01‒16
seventeen papers chosen by
Erik Thomson
University of Manitoba

  1. The General Theory of Employment, Interest, and Money After 75 Years: The Importance of Being in the Right Place at the Right Time By Matthew N. Luzzetti; Lee E. Ohanian
  2. A New Economics for the 21st Century By Goodwin, Neva
  3. Developmentalism By Erik S. Reinert
  4. Martha Nussbaum’s Outcome-Oriented Theory of Justice: Philosophical Comments By Cathrine Holst
  5. Identifying Strategies and Beliefs without Rationality Assumptions By Amos Golan; James Bono
  6. On the Impossibility of Regret Minimization in Repeated Games By Karl Schlag; Andriy Zapechelnyuk
  7. The emerging empirics of evolutionary economic geography By Ron Boschma; Koen Frenken
  8. Economics of co-authorship By Bruno, Bruno
  9. Learning (Not) To Yield: An Experimental Study of Evolving Ultimatum Game Behavior By Judith Avrahami; Werner Güth; Ralph Hertwig; Yaakov Kareev; Hironori Otsubo
  10. Nash Equilibrium and Robust Stability in Dynamic Games: A Small-Gain Perspective By Karafyllis, Iasson; Jiang, Zhong-Ping; Athanasiou, George
  11. Poverty, Population, Inequality, and Development: the Historical Perspective By Chilosi, Alberto
  12. International Happiness By David G. Blanchflower; Andrew J. Oswald
  13. Elemente der Neuen Ökonomischen Geographie By Klaus Schöler
  14. Patience, cognitive skill and coordination in the repeated stag hunt By Al-Ubaydli, Omar; Jones, Garett; Weel, Jaap
  15. How Amsterdam got fiat money By Stephen Quinn; William Roberds
  16. Revisiting the 1929 Crisis: Was the Fed Pre-Keynesian? New Lessons from the Past. By Claude Diebolt; Antoine Parent; Jamel Trabelsi
  17. Splitting Games: Nash Equilibrium and the Optimisation Problem By Ana Paula Martins

  1. By: Matthew N. Luzzetti; Lee E. Ohanian
    Abstract: This paper studies why the General Theory had so much impact on the economics profession through the 1960s, why that impact began to wane in the 1970s, and why many economic policymakers cling to many of the tenets of the General Theory. We discuss three key elements along these lines, including the fact macroeconomic time series through the 1960s seemed to conform qualitatively to patterns discussed in the General Theory, that econometric developments in the area of simultaneous equations made advanced the General Theory to a quantitative enterprise, and that the General Theory was published during the Great Depression, when there was a search for alternative frameworks for understanding economic crises.
    JEL: E12 E32
    Date: 2010–12
  2. By: Goodwin, Neva
    Abstract: The critical role for economic theory is no longer simply to explain how the existing system works, but also to explore how the economic system can be changed to become more adaptive and resilient in the face of the challenges of the 21st century, and how it can be more directly designed to support human well-being, in the present and the future. Simultaneous changes are needed, in both the actual economy (how it functions, by what rules, how it can be made responsive to constraints) and also in economic theory.
    Keywords: Contextual economics; economic theory; economic goals; bias in economic theory
    JEL: Z13 B00
    Date: 2010
  3. By: Erik S. Reinert
    Abstract: Develpmentalism . or the idea of the .developmental stateÿ . was one of the most spectacularly successful ideologies of the 20th century. The Cold War and the division of most ideas into a camp of either being politically to the .rightÿ or to the .leftÿ has obliterated the fact that Developmentalism was successfully performed along the whole political axis, from fascism via social democracy to communism. In their emphasis on economic growth built on industrial mass production . on the idea that only a certain type of national economic structure is conducive to increased wealth . Stalin, Hitler and the Scandinavian social democracies all represented Developmentalism. With the growth and eventual dominance of neo-classical economics and economic neoliberalism, Developmentalism gradually disappeared along the whole political axis, with the exception of Asia and to some extent Brazil.
    Date: 2010–12
  4. By: Cathrine Holst
    Abstract: The capability approach developed by Martha Nussbaum and Amartya Sen has received substantial attention in recent years, in philosophical exchanges as well as in more applied discussions on policy-making, in particular in developing countries, but lately also in Western countries, including Europe and the EU. This paper contributes to the philosophical exchanges of Nussbaum’s version of the capability approach. Nussbaum herself presents her contribution as an alternative to John Rawls’ theory of justice, and following her lead, this paper compares Nussbaum and Rawls. The first part presents Nussbaum’s position and how it differs from Rawls’; the second and third parts develop arguments against substituting primary goods and a procedural justification of justice (Rawls) with capabilities and an ethical justification of justice (Nussbaum); the fourth part highlights some problems with Nussbaum’s conception of justice compared to Rawls’. The fifth and final part discusses how the critical points of the first four parts relate to European studies discussions on legitimacy in general and to RECON’s normative framework in particular. The merits of Nussbaum’s approach from a gender perspective are given particular attention.
    Keywords: democracy; gender policy; legitimacy
    Date: 2010–12–15
  5. By: Amos Golan; James Bono
    Abstract: In this paper we formulate a solution concept without making assumptions about expected utility maximization, common knowledge or beliefs. Beliefs, strate- gies and the degree to which players are expected utility maximizers are endoge- nously determined as part of the solution. To achieve this, rather than solving the game from the players' point of view, we analyze the game as an "observer" who is not engaged in the process of the game. Our approach is an information theoretic one in which the observer utilizes an observation of play and the Maximum Entropy principle. We compare our solution concept with Bayesian Nash equilibrium and over the entropy ratio test as a method for determining the appropriateness of common modeling assumptions. We also demonstrate that the QRE concept can be signicantly generalized when viewed from the observer's perspective. For games of incomplete information we discover that alternative uses of the observer's information lead to alternative interpretations of rationality. These alternative in- terpretations of rationality may prove useful, especially in the context of ex post arbitration, as they indicate who is motivating whom.
    Keywords: incomplete information, entropy, information theory, pairwise rationality, QRE, endogenous rationality JEL Codes: C70, C79
    Date: 2010–05
  6. By: Karl Schlag (University of Vienna); Andriy Zapechelnyuk (Queen Mary, University of London)
    Abstract: Regret minimizing strategies for repeated games have been receiving increasing attention in the literature. These are simple adaptive behavior rules that exhibit nice convergence properties. If all players follow regret minimizing strategies, their average joint play converges to the set of correlated equilibria or to the Hannan set (depending on the notion of regret in use), or even to Nash equilibrium on certain classes of games. In this note we raise the question of validity of the regret minimization objective. By example we show that regret minimization can lead to unrealistic behavior, since it fails to take into account the effect of one's actions on subsequent behavior of the opponents. An amended notion of regret that corrects this defect is not very useful either, since achieving a no-regret objective is not guaranteed in that case.
    Keywords: Repeated games, Regret minimization, No-regret strategy
    JEL: C73 D81
    Date: 2010–12
  7. By: Ron Boschma; Koen Frenken
    Abstract: Following last decadeÕs programmatic papers on Evolutionary Economic Geography, we report on recent empirical advances and how this empirical work can be positioned vis-ˆ-vis other strands of research in economic geography. First, we review studies on the path dependent nature of clustering, and how the evolutionary perspective relates to that of New Economic Geography. Second, we discuss research on agglomeration externalities in Regional Science, and how Evolutionary Economic Geography contributed to this literature with the concepts of cognitive proximity and related variety. Third, we go into the role of institutions in Evolutionary Economic Geography, and we relate this to the way Institutional Economic Geography tends to view institutions. From this discussion, a number of new research challenges are derived.
    Keywords: evolutionary economic geography, clusters, related variety, institutions, regional branching
    JEL: B25 B52 D85 L25 R0 R1
    Date: 2011–01
  8. By: Bruno, Bruno
    Abstract: Starting from the literature on the rising incidence of co-authorship in economics, choices about co-authorship are analyzed with a theoretical model, assuming that authors optimize the returns from publications. Results show that co-authorship behavior depends both on the technology of the production of economic research and on the reward system that a researcher faces. Two pay structures are considered, one that is proportional to the number of authors and one that is not. The researchers’ heterogeneity implies a trade-off for the policy maker between the objective of effort maximization and the objective of selection of better researchers. The trade-off is more relevant when low-quality researchers choose to engage in opportunistic behavior to gain from higher-quality collaborations.
    Keywords: Co-authorship; Academic research; returns from publications
    JEL: D0 J40 A11
    Date: 2010–12
  9. By: Judith Avrahami (The Hebrew University of Jerusalem, Center for the Study of Rationality and School of Education); Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena); Ralph Hertwig (University of Basel, Department of Psychology); Yaakov Kareev (The Hebrew University of Jerusalem, Center for the Study of Rationality and School of Education); Hironori Otsubo (Max Planck Institute of Economics, Strategic Interaction Group, Jena)
    Abstract: Whether behavior converges toward rational play or fair play in repeated ultimatum games depends on which player yields first. If responders concede first by accepting low offers, proposers would not need to learn to offer more, and play would converge toward unequal sharing. By the same token, if proposers learn fast that low offers are doomed to be rejected and adjust their offers accordingly, pressure would be lifted from responders to learn to accept such offers. Play would converge toward equal sharing. Here we tested the hypothesis that it is regret-both material and strategic-which determines how players modify their behavior. We conducted a repeated ultimatum game experiment with random strangers, in which one treatment does and another does not provide population feedback in addition to informing players about their own outcome. Our results show that regret is a good predictor of the dynamics of play. Specifically, we will turn to the dynamics that unfold when players make repeated decisions in the ultimatum game with randomly changing opponents, and when they learn not only about their own outcome in the previous round but also find out how the population on average has adapted to previous results (path dependence).
    Keywords: Ultimatum bargaining game, Reputation, Regret, Learning, Experiment
    JEL: C78 C92
    Date: 2010–12–15
  10. By: Karafyllis, Iasson; Jiang, Zhong-Ping; Athanasiou, George
    Abstract: This paper develops a novel methodology to study robust stability properties of Nash equilibrium points in dynamic games. Small-gain techniques in modern mathematical control theory are used for the first time to derive conditions guaranteeing uniqueness and global asymptotic stability of Nash equilibrium point for economic models described by functional difference equations. Specification to a Cournot oligopoly game is studied in detail to demonstrate the power of the proposed methodology.
    Keywords: Dynamic game; Cournot oligopoly; Nash equilibrium; Robust stability; Small gain
    JEL: C0 C02 C61 C70 C62
    Date: 2010–01–07
  11. By: Chilosi, Alberto
    Abstract: Seen in historical perspective the main economic predicaments of the present world (such as poverty, inequality, backwardness) appear in a somewhat different light than in many current discussions, especially by sociologists, radical economists and political scientists. In the present paper the achievements of the modern age, and in particular of the post- World War II period, are considered in the perspective of economic and demographic history, and in their connection with the systems of production and of international relations. Some considerations concerning future possible developments conclude the paper.
    Keywords: poverty; population; development; distribution; globalization
    JEL: O10 P00 N00
    Date: 2010
  12. By: David G. Blanchflower; Andrew J. Oswald
    Abstract: This paper describes the findings from a new, and intrinsically interdisciplinary, literature on happiness and human well-being. The paper focuses on international evidence. We report the patterns in modern data; we discuss what has been persuasively established and what has not; we suggest paths for future research. Looking ahead, our instinct is that this social-science research avenue will gradually merge with a related literature -- from the medical, epidemiological, and biological sciences -- on biomarkers and health. Nevertheless, we expect that intellectual convergence to happen slowly.
    JEL: I1 I3
    Date: 2011–01
  13. By: Klaus Schöler
    Abstract: The most important question of regional economics is: What are the reasons for the existence, the growth, and the changes of regional economic structures? Without any doubt, agglomerations which are not based on natural sources belong to the most significant regional structures. The New Economic Geography gives answers - based on a microeconomic total model with different regions and industrial sectors, with heterogeneous goods and different transport costs - to the questions with regard to the reasons of the existence of agglomerations. This book pursues three objectives: First of all, the new paradigm is connected with the historical background of the traditional regional economics and trade theory. Furthermore, the basic model is described in detail and then discussed from a critical point of view. Finally, some possible extensions are introduced, which make it possible to eliminate some criticized elements of the basic model.
    Keywords: New Economic Geography, agglomerations, transport costs, regional economic structures
    JEL: R12
    Date: 2010–12
  14. By: Al-Ubaydli, Omar; Jones, Garett; Weel, Jaap
    Abstract: Coordination games have become a critical tool of analysis in fields such as development and institutional economics. Understanding behavior in coordination games is an important step towards understanding the differing success of teams, firms and nations. This paper investigates the relationship between personal attributes (cognitive ability, risk-aversion, patience) and behavior and outcomes in coordination games, an issue that, to the best of our knowledge, has never been studied before. For the repeated coordination game that we consider, we find that: (1) cognitive ability has no bearing on any aspect of behavior or outcomes; (2) pairs of players who are more patient are more likely to coordinate well and earn higher payoffs; and (3) risk-aversion has no bearing on any aspect of behavior or outcomes. These results are robust to controlling for personality traits and demographic characteristics.
    Keywords: Coordination; IQ; personality; discount rate; patience; risk-aversion
    JEL: D23 D02 O12
    Date: 2010–12–29
  15. By: Stephen Quinn; William Roberds
    Abstract: We investigate a fiat money system introduced by the Bank of Amsterdam in 1683. Using data from the Amsterdam Municipal Archives, we partially reconstruct changes in the bank's balance sheet from 1666 through 1702. Our calculations show that the Bank of Amsterdam, founded in 1609, was engaged in two archetypal central bank activities—lending and open market operations—both before and after its adoption of a fiat standard. After 1683, the bank was able to conduct more regular and aggressive policy interventions, from a virtually nonexistent capital base. The bank's successful experimentation with a fiat standard foreshadows later developments in the history of central banking.
    Date: 2010
  16. By: Claude Diebolt (BETA/CNRS, Université de Strasbourg, France.); Antoine Parent; Jamel Trabelsi
    Date: 2010
  17. By: Ana Paula Martins
    Abstract: This research states the stylised n (more than two) players’ splitting problem as a mathematical programme, relying on definitions of the values of the game and problem stationarity to generate tractable reduced forms, and derives the known solutions according to the properties of pertaining first-order conditions. On the one hand, boundary constraints are taken into consideration, required by the most general formulation possible with respect to the controls. On the other, distinction between FOC’s of optimizing behavior and equilibrium fitness is provided. Finally, the formal proof of the internal insufficiency of the usual approach to determine the equilibrium is advanced, and the imposing additional conditions – affecting cross multipliers - required for model solving forwarded and interpreted. Two different types of protocols (sets of rules of the game) were staged: alternate offers and synchronized ones. Perfect information (and foresight) of the players, infinite horizon, and offers exchange restricted to infinite-term settlements are always assumed. Each player makes a proposition of the division among the n participants. Periodic “outside” alternatives may differ according to whose offer is being analysed, and from those accruing to the players when none is forwarded. The alternate offers protocol is a generalization of the Rubinstein’s structure. At each round of negotiations, one and only one player, exogenously determined, can make an – the – offer. An agent must conciliate – and solve consistently – as many optimization problems as eventual proponents there are in the game.
    Keywords: Non-Cooperative N-Person Games, Infinite Horizon, Mixed Strategy Games, Mixed Strategies under Perfect Information Games, Simultaneous Sequential Bargaining, Matching Equilibrium under Sequential Bargaining, Synchronous (Decisions) Equilibrium under Sequential Bargaining, Mechanism Design, Bargaining Protocols, Dynamic Programming, Stationary Problems (without State Variables).
    JEL: C72 C78 C44 H56 D74 D31 C61 C62
    Date: 2010–08–10

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