nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2011‒03‒05
seventeen papers chosen by
Erik Thomson
University of Manitoba

  1. Evolution and Complexity in Economics Revisited By Kurt Dopfer
  2. Reconsideration of Dimensions and Curve Fitting Practice in Economics Elaborating on Georgescu-Roegen’s Economic Methodology By Kozo Mayumi; Mario Giampietro; Jesus Ramos-Martin
  3. The Economics of Excise Taxation By Sijbren Cnossen
  4. The Inference Fallacy From Bernoulli to Kolmogorov By Xavier De Scheemaekere; Ariane Szafarz
  5. Risk and Uncertainty in Environmental Economics: From Theory to Policy By Lobb, Alexandra E.
  6. Experiment on the Demand for Encompassment By Klein, Daniel; Pan, Xiaofei; Houser, Daniel; Schwarz, Gonzalo
  7. The Irish Crisis By Philip Lane
  8. 'Hiding behind a small cake' in a newspaper dictator game By Axel Ockenfels; Peter Werner
  9. United they diverge? From conflicts of law to constitutional theory? On Christian Joerges’ theory By Agustín José Menéndez
  10. Common reasoning in games: a Lewisian analysis of common knowledge of rationality By Robin Cubitt; Robert Sugden
  11. Cooperation amongst competing agents in minority games By Deepak Dhar; V. Sasidevan; Bikas K. Chakrabarti
  12. The normalized CES production function: theory and empirics By Rainer Klump; Peter McAdam; Alpo Willman
  14. A Century of American Economic Review By Benno Torgler; Marco Piatti
  15. The Winner's Curse under Behavioral Institutions By Nadine Chalß
  16. Generalisation of Samet's (2010) agreement theorem By Tarbush, Bassel
  17. A Model of Total Factor Productivity Built on Hayek’s View of Knowledge: What Really Went Wrong with Socialist Planned Economies? By Harashima, Taiji

  1. By: Kurt Dopfer
    Abstract: The paper discusses recent trends in the sister sciences of evolutionary economics and complexity economics. It suggests that a unifying approach that marries the two strands is needed when reconstructing economics as a science capable of tackling the two key questions of the discipline: complex economic structure and evolutionary economic change. Physics, biology and the cultural sciences are investigated in terms of their usefulness as both paradigmatic orientation and as toolbox. The micro–meso–macro architecture delineated puts meso centre stage, highlighting its significance as structure component and as process component alike, thereby allowing us to handle the key issues of structure and change.
    Keywords: Length 39 pages
    Date: 2011–02
  2. By: Kozo Mayumi (Faculty of Integrated Arts and Sciences, The University of Tokushima); Mario Giampietro (Institut de Ciencia i Tecnologia Ambientals, Universitat Autònoma de Barcelona); Jesus Ramos-Martin (Departament d'Economia i d'Història Econòmica, Universitat Autònoma de Barcelona)
    Abstract: This paper is to examine the proper use of dimensions and curve fitting practices elaborating on Georgescu-Roegen’s economic methodology in relation to the three main concerns of his epistemological orientation. Section 2 introduces two critical issues in relation to dimensions and curve fitting practices in economics in view of Georgescu-Roegen’s economic methodology. Section 3 deals with the logarithmic function (ln z) and shows that z must be a dimensionless pure number, otherwise it is nonsensical. Several unfortunate examples of this analytical error are presented including macroeconomic data analysis conducted by a representative figure in this field. Section 4 deals with the standard Cobb-Douglas function. It is shown that the operational meaning cannot be obtained for capital or labor within the Cobb-Douglas function. Section 4 also deals with economists’ ?curve fitting fetishism?. Section 5 concludes this paper with several epistemological issues in relation to dimensions and curve fitting practices in economics.
    Keywords: dimensions, logarithmic function, Nicholas Georgescu-Roegen, macroeconomics, Cobb-Douglas function, econometrics, curve fitting, transcendental production function
    JEL: B41 C01 E01
    Date: 2011–02
  3. By: Sijbren Cnossen (Univesrity of Maastricht and Erasmus Univeristy Rotterdam)
    Abstract: This paper reviews the economics of taxation. It falls into three parts. The first part examines the rationale of excise taxation by reference to the non-revenue objectives that are pursued through the imposition of the various duties. The second part discusses the instruments that can be applied, i.e. duties, regulations and permits. The third part reviews some issues - discrimination, coordination and earmarking - that often arise in connection with excise taxation.
    Date: 2010–05–01
  4. By: Xavier De Scheemaekere; Ariane Szafarz
    Abstract: Bernoulli’s (1713) well-known Law of Large Numbers (LLN) establishes a legitimate one-way transition from mathematical probability to observed frequency. However, Bernoulli went one step further and abusively introduced the inverse proposition. Based on a careful analysis of Bernoulli’s original proof, this paper identifies this appealing, but illegitimate, inversion of LLN as a strong driver of confusion among probabilists. Indeed, during more than two centuries this “inference fallacy” hampered the emergence of rigorous mathematical foundations for the theory of probability. In particular, the confusion pertaining to the status of statistical inference was detrimental to both Laplace’s approach based on “equipossibility” and Mises’ approach based on “collectives”. Only Kolmogorov’s (1933) axiomatization made it possible to adequately frame statistical inference within probability theory. This paper argues that a key factor in Kolmogorov’s success has been his ability to overcome the inference fallacy.
    Keywords: Probability; Bernoulli; Kolmogorov; Statistics; Law of Large Numbers
    JEL: N01 B31 C65
    Date: 2011–02
  5. By: Lobb, Alexandra E.
    Abstract: A lack of awareness and understanding of risk and uncertainty can lead to poor decision making and higher costs for policy providers, as not accounting for them may produce policy which is inflexible and with a negative effect on welfare. Further, misunderstanding of and/or failure to account for risk and uncertainty can inhibit research and development for policy to which environmental economics can contribute (for example, in developing effective measures of sustainability). The aim of this project is to develop guidelines for âBest Practiceâ approaches to risk and uncertainty in environmental economics for guiding policy development and implementation, taking into account key issues such as costs, irreversibility, adaptation and dynamics. These guidelines are developed by examining the frameworks commonly used by environmental economists to account for risk and uncertainty (such as the Precautionary Principle and Cost Benefit Analysis) as well as specifically developed theories (e.g. Quigginâs Rank Dependent Utility Theory), borrowing from other disciplines (e.g. Prospect Theory) and drawing attention to lesser known ideas (e.g. Shackleâs Model).
    Keywords: Environmental Economics and Policy,
    Date: 2011
  6. By: Klein, Daniel (George Mason University, Ratio Institute); Pan, Xiaofei (George Mason University); Houser, Daniel (George Mason University); Schwarz, Gonzalo (George Mason University)
    Abstract: The idea of political community is appealing on a gut-level. Hayek suggested that certain genes and instincts still dispose us toward the ethos and mentality of the hunter-gatherer band, and that modern forms of political collectivism have, in part, been atavistic reassertions of such tendencies. Picking up on Hayek, Klein (2005) has suggested a combination of yearnings: 1) a yearning for coordinated sentiment (like Smithian sympathy); and 2) a yearning that the sentiment encompass the whole group. This paper reports on an experiment designed to explore the demand for encompassment by having subjects sing together. In each trial, one person in the room was designated not to sing unless every one of the others in the room had made a payment sufficient so as to have that person sing. Subjects chose to sacrifice money to achieve encompassment 47.4 percent of the time, with 59.6 percent of the subjects doing so in at least one trial. An exit questionnaire showed that subjects’ chief reason for making such a sacrifice was a belief that the singing would be more enjoyable if it encompassed the whole group, and reported enjoyment is significantly higher with encompassment. We discuss the experiment as a parable for a penchant toward political collectivism.
    Keywords: Encompassment; political psychology; Hayek; the people’s romance
    JEL: A13 H89 Z10
    Date: 2011–02–28
  7. By: Philip Lane (Institute for International Integration Studies, Trinity College Dublin)
    Abstract: This paper has three goals. First, it seeks to explain the origins of the Irish crisis. Second, it provides an interim assessment of the Irish government?s management of the crisis. Third, it evaluates the lessons from Ireland for the macroeconomics of monetary unions.
    Keywords: Irish crisis
    JEL: E5 F4
    Date: 2011–02
  8. By: Axel Ockenfels; Peter Werner
    Abstract: We conduct an Internet dictator game experiment in collaboration with the popular German Sunday paper "Welt am Sonntag", employing a wider and more representative subject pool than standard laboratory experiments. Recipients either knew or did not know the size of the cake distributed by the dictator. We find that, in case of incomplete information, some dictators 'hide behind the small cake', supporting the notion that some agents' beliefs directly enter the social utility function.
    Keywords: dictator game, psychological games, incomplete information, newspaper experiment
    Date: 2011–02–25
  9. By: Agustín José Menéndez
    Abstract: This working paper offers a reconstruction and critical analysis of Joerges’ conflicts theory of European Union law. It is claimed that the theory of European conflicts is structured around three key premises: first, that there are functional and normative reasons to transcend the autarchic national constitutional state; second, that the public philosophy of European constitutional law should operationalise the regulatory ideal of unity in diversity, and that this is better done by having resort to Currie’s democratic theory of conflicts of law; and third, that any European constitutional theory should be ‘grounded’ on the empirical analysis and resolution of specific supranational conflicts. This leads to a theory sensitive to the institutional implications of European integration (to Europeanisation processes of national institutions as an alternative to the European superstate, in particular through mutual recognition of legal standards and through the production of common norms in decentralized structures of which comitology is the paradigmatic example) but deeply interested in the specific problématique of constitutional and infra-constitutional European legal practice. However, the paper also finds that the theory of European conflicts, first, remains incomplete as a constitutional theory, something which comes a long way to explain its downplaying the genuinely federal dimension of European integration; second, fails to provide a satisfactory account of the legitimacy foundations of Community law (as it does not engage either with constitutional beginnings nor with political constitutional transformation); and third, underestimates the structural implications of the combination of the doctrines of primacy, direct effect and mutual recognition, in particular, the resulting structural bias against redistributive politics. All these three factors lead to lack of full attention to the normative and functional sources of stability of European integration and European Union law.
    Keywords: European law; comitology; Constitution for Europe; democracy; integration theory; pluralism; supranationalism; Europeanization
    Date: 2011–02–15
  10. By: Robin Cubitt (School of Economics, University of Nottingham); Robert Sugden (School of Economics, University of East Anglia)
    Abstract: The game-theoretic assumption of ‘common knowledge of rationality’ leads to paradoxes when rationality is represented in a Bayesian framework as cautious expected utility maximisation with independent beliefs (ICEU). We diagnose and resolve these paradoxes by presenting a new class of formal models of players’ reasoning, inspired by David Lewis’s account of common knowledge, in which the analogue of common knowledge is derivability in common reason. We show that such models can consistently incorporate any of a wide range of standards of decision-theoretic practical rationality. We investigate the implications arising when the standard of decision-theoretic rationality so assumed is ICEU.
    Keywords: Common reasoning; common knowledge; common knowledge of rationality; David Lewis; Bayesian models of games
    Date: 2011–01
  11. By: Deepak Dhar; V. Sasidevan; Bikas K. Chakrabarti
    Abstract: We study a variation of the minority game. There are N agents. Each has to choose between one of two alternatives everyday, and there is reward to each member of the smaller group. The agents cannot communicate with each other, but try to guess the choice others will make, based only the past history of number of people choosing the two alternatives. We describe a simple probabilistic strategy using which the agents acting independently, can still maximize the average number of people benefitting every day. The strategy leads to a very efficient utilization of resources, and the average deviation from the maximum possible can be made of order $(N^{\epsilon})$, for any $\epsilon >0$. We also show that a single agent does not expect to gain by not following the strategy.
    Date: 2011–02
  12. By: Rainer Klump (Goethe University, Frankfurt am Main & Center for Financial Studies.); Peter McAdam (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Alpo Willman (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
    Abstract: The elasticity of substitution between capital and labor and, in turn, the direction of technical change are critical parameters in many fields of economics. Until recently, though, the application of production functions with non-unitary substitution elasticities (i.e., non Cobb Douglas) was hampered by empirical and theoretical uncertainties. As has recently been revealed, “normalization” of production functions and production-technology systems holds out the promise of resolving many of those uncertainties. We survey and critically assess the intrinsic links between production (as conceptualized in a macroeconomic production function), factor substitution (as made most explicit in Constant Elasticity of Substitution functions) and normalization (defined by the fixing of baseline values for relevant variables). First, we recall how the normalized CES function came into existence and what normalization implies for its formal properties. Then we deal with the key role of normalization in recent advances in the theory of business cycles and of economic growth. Next, we discuss the benefits normalization brings for empirical estimation and empirical growth research. Finally, we identify promising areas of future research on normalization and factor substitution. JEL Classification: C22, E23, E25, 030, 051.
    Keywords: Normalization, Constant Elasticity of Substitution Production Function, Factor-Augmenting Technical Change, Growth Theory, Identification, Estimation.
    Date: 2011–02
    Abstract: Employing a risk perception perspective, this paper studies the link between the investment manager’s human capital and his or her attitude towards the appropriability regime in the business proposal, and more specifically whether or not the technology is patent protected. Even though many researchers acknowledge the benefits related to patenting, agency theory suggests that patents may enlarge agency risk and may therefore result in VCs refraining from investing in proposals commercializing patented technology. We find that task-specific human capital, operationalized as the number of years experience as investment manager, positively affects the attitude towards patents. We find that some elements of general human capital, namely consulting experience, financial experience and entrepreneurial experience affect the attitude towards patents.
    Keywords: venture capital, selection behaviour, appropriability, human capital, risk perception
    Date: 2011–01
  14. By: Benno Torgler; Marco Piatti
    Abstract: Using information collected from American Economic Review publications of the last 100 years, we try to provide answers to various questions: Which are the top AER publishing institutions and countries? Which are the top AER papers based on citation success? How frequently is someone able to publish in AER? How equally is citation success distributed? Who are the top AER publishing authors? What is the level of cooperation among the authors? What drives the alphabetical name ordering? What are the individual characteristics of the AER authors, editors, editorial board members, and referees? How frequently do women publish in AER? What is the relationship between academic age, publication performance, and citation success? What are the paper characteristics? What influences the level of technique used in articles? Do connections have an influence on citation success? Who receives awards? Can awards increase the probability of publishing in AER at a later stage?
    Keywords: American Economic Review; publishing economics; rankings; cooperation; authors; editors; board members; referees; connections; awards; paper characteristics; economic history; history of economic thought
    JEL: A10 A11 B00 B31 B40 I23 N01 J00 Z00
    Date: 2011–02
  15. By: Nadine Chalß (Friedrich-Schiller-University Jena, Germany)
    Abstract: Empirically, social dilemma under information asymmetry are often much less pronounced than theory predicts. Traders experience a winner's curse and maintain efficiency enhancing exchange of commodities when theory predicts none. Especially under competition, cursed parties undergo severe losses and thereby fund social welfare. Hence, if one cures the winner's curse, one often decreases social welfare. Here, I test how market efficiency can be maintained without individual losses. In a competitive common value auction, parties sidestep both market inefficiency and a winner's curse by judging quality-by-price, and setting price-by-quality.
    Keywords: imperfect information, common value auction, price-quality relation
    JEL: D61 D82 L13
    Date: 2011–02–25
  16. By: Tarbush, Bassel
    Abstract: We develop a framework that allows us to reproduce the generalised agreement theorem of Samet (2010), and extend it to models with a non-partitional information structure, while highlighting the features that distinguish the result from the classic theorems found in the literature. Furthermore, we produce results that are similar to Samet’s with some modified assumptions.
    Keywords: Agreeing to disagree; knowledge; common knowledge; belief; information; epistemic logic
    JEL: D89 D83 D80
    Date: 2011–02–23
  17. By: Harashima, Taiji
    Abstract: Because Hayek’s view goes beyond the Walrasian framework, his descriptive arguments on socialist planned economies are prone to be misunderstood. This paper clarifies Hayek’s arguments by using them as a basis to construct a model of total factor productivity. The model shows that productivity depends substantially on the intelligence of ordinary workers. The model indicates that the essential reason for the reduced productivity of a socialist economy is that, even though human beings are imperfect and do not know everything about the universe, they are able to utilize their intelligence to innovate. Decentralized market economies are far more productive than socialist economies because they intrinsically can fully utilize human beings’ intelligence, but socialist planned economies cannot, in large part because of the imagined perfect central planning bureau that does not exist.
    Keywords: Hayek; Market economy; Socialist planned economy; Total factor productivity; Innovation; Experience curve effect; China
    JEL: P20 J24 P10 D24 O31
    Date: 2011–02–26

This nep-hpe issue is ©2011 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.
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