nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2011‒05‒24
sixteen papers chosen by
Erik Thomson
University of Manitoba

  1. The role of experts in the public assessment of England´s trade crisis of the early 1620´s By Carlos Eduardo Suprinyak
  2. "Was Keynes's Monetary Policy, a outrance in the Treatise, a Forerunnner of ZIRP and QE? Did He Change His Mind in the General Theory?" By Jan Kregel
  3. Portrait of the Economist as a Young Man: Raúl Prebisch’s evolving views on the business cycle and money, 1919-1949 By Esteban Pérez Caldentey and Matías Vernengo
  4. The making of heterodox microeconomics By Lee, Frederic
  5. The pure logic of value, profit, interest By Kakarot-Handtke, Egmont
  6. Contextual Risk and Its Relevance in Economics By Diederik Aerts; Sandro Sozzo
  7. Law as a Precondition for Religious Freedom By Christoph Engel
  8. Besonderes Verwaltungsrecht und ökonomische Theorie By Christoph Engel
  9. Expectations, employment and prices: a suggested interpretation of the new 'farmerian' economics By Guerrazzi, Marco
  10. A Contextual Risk Model for the Ellsberg Paradox By Diederik Aerts; Sandro Sozzo
  11. The Role of Theory in Field Experiments By David Card; Stefano DellaVigna; Ulrike Malmendier
  12. Cognitive load in the multi-player prisoner's dilemma game By Duffy, Sean; Smith, John
  13. Perfect equilibrium in games with compact action spaces By Bajoori Elnaz; Flesch János; Vermeulen Dries
  14. Patience, Cognitive Skill and Coordination in the Repeated Stag Hunt By Omar Al-Ubaydli; Garett Jones; Jaap Weel
  15. Intertemporal evaluation criteria for climate change policy: the basic ethical issues By Buchholz, Wolfgang; Schymura, Michael
  16. What motivates academic scientists to engage in research commercialization: ‘gold’, ‘ribbon’ or ‘puzzle’? By Lam, Alice

  1. By: Carlos Eduardo Suprinyak (Cedeplar-UFMG)
    Abstract: Economic pamphleteering in England during the early 17th century has often been described as an attempt to influence the course of public policy with the aim of either protecting vested interests or else promoting in earnest the adoption of a few mercantilist doctrines. However, these judgments pass over a more basic question: to what extent, if any, could members of the English business community influence public opinion and the policy decision-making process? Special consultations over pressing economic issues offered an opportunity for their voices to be heard, but the growing financial difficulties which the English crown faced at that time opened the main path available for their active engagement with public administration. Lionel Cranfield was by far the most successful of such cases during the period at hand, playing a leading role throughout the public debates which surrounded the trade crisis of the early 1620’s – over which the pamphlet literature, in contrast, seems to have exerted a much more limited impact.
    Keywords: pre-classical economics; mercantilism; 17th century; Stuart England; Lionel Cranfield.
    JEL: B11
    Date: 2011–05
  2. By: Jan Kregel
    Abstract: At the end of 1930, as the 1929 US stock market crash was starting to have an impact on the real economy in the form of falling commodity prices, falling output, and rising unemployment, John Maynard Keynes, in the concluding chapters of his Treatise on Money, launched a challenge to monetary authorities to take "deliberate and vigorous action" to reduce interest rates and reverse the crisis. He argues that until "extraordinary," "unorthodox" monetary policy action "has been taken along such lines as these and has failed, need we, in the light of the argument of this treatise, admit that the banking system can not, on this occasion, control the rate of investment, and, therefore, the level of prices." The "unorthodox" policies that Keynes recommends are a near-perfect description of the Japanese central bank's experiment with a zero interest rate policy (ZIRP) in the 1990s and the Federal Reserve's experiment with ZIRP, accompanied by quantitative easing (QE1 and QE2), during the recent crisis. These experiments may be considered a response to Keynes's challenge, and to provide a clear test of his belief in the power of monetary policy to counter financial crisis. That response would appear to be an unequivocal No.
    Date: 2011–05
  3. By: Esteban Pérez Caldentey and Matías Vernengo
    Abstract: This paper analyzes Raúl Prebisch’s less familiar contributions to economic theory, related to the business cycle, and heavily informed by the Argentinean experience. His views of the cycle emphasize the common nature of the cycle in the center and the periphery as one unified phenomenon. While his rejection of orthodoxy is less than complete, some elements of what would become a more Keynesian position are developed. In particular, a preoccupation with the management of the balance of payments and the need for capital controls as a macroeconomic management tool, considerably before Keynes and White’s plans led to the Bretton Woods agreement. In the process it is clear that Prebisch developed several ideas that are still relevant to understand cyclical fluctuations in the periphery, and became more concerned with the capacity of taking advantage of cyclical booms to maintain sustained economic growth.
    Keywords: Business Cycle, Macroeconomic Policy, History of Economic Thought JEL Codes: B31, E32, E65
    Date: 2011
  4. By: Lee, Frederic
    Abstract: This paper constitutes the first chapter in my work-in-progress manuscript, Microeconomic Theory: A Heterodox Approach. Because many heterodox feel that the only micro theory is mainstream micro, the paper starts with a brief rejection of mainstream theory. It then proceeds to give an overview of heterodox economic theory. The third section defines heterodox microeconomic theory and relates it to heterodox value theory. Since heterodox economic theory and particularly microeconomic theory is not already formed, it has to be created. Thus the fourth section of the paper delineates the heterodox methodology of theory creation, which includes critical realism and the method of grounded theory, and discusses various methodological issues such as data, case studies, mathematics and modeling, and econometrics. The following section deals with the historical character of heterodox economic theories; and the paper ends with a discussion about the making of heterodox microeconomic theory that will take place in the subsequent chapters of the book.
    Keywords: Heterodox; Microeconomics; Critical Realism; Grounded Theory
    JEL: B50 D00 B41
    Date: 2011–05–12
  5. By: Kakarot-Handtke, Egmont
    Abstract: Standard economic models are based on axioms that epitomize the fundamental behavioral assumptions. This approach is not conductive to convincing results. The suggested change of perspective is guided by the question: what is the minimum set of propositions for the consistent reconstruction of the evolving money economy? We start with three structural axioms and determine their real world implications. The claim of generality entails that it should be possible to demonstrate that well-understood parts of theoretical economics fit consistently into the structural axiomatic framework. We focus here on the classical theory of value as expounded by J. S. Mill.
    Keywords: New framework of concepts; Structure-centric; Axiom set; Labour theory of value; Structural value theorem; Profit; Distributed profit; Rate of interest; Reproducibility
    JEL: E43 B12 D00 B41
    Date: 2011–05–11
  6. By: Diederik Aerts; Sandro Sozzo
    Abstract: Uncertainty in economics still poses some fundamental problems illustrated, e.g., by the Allais and Ellsberg paradoxes. To overcome these difficulties, economists have introduced an interesting distinction between 'risk' and 'ambiguity' depending on the existence of a (classical Kolmogorovian) probabilistic structure modeling these uncertainty situations. On the other hand, evidence of everyday life suggests that 'context' plays a fundamental role in human decisions under uncertainty. Moreover, it is well known from physics that any probabilistic structure modeling contextual interactions between entities structurally needs a non-Kolmogorovian quantum-like framework. In this paper we introduce the notion of 'contextual risk' with the aim of modeling a substantial part of the situations in which usually only 'ambiguity' is present. More precisely, we firstly introduce the essentials of an operational formalism called 'the hidden measurement approach' in which probability is introduced as a consequence of fluctuations in the interaction between entities and contexts. Within the hidden measurement approach we propose a 'sphere model' as a mathematical tool for situations in which contextual risk occurs. We show that a probabilistic model of this kind is necessarily non-Kolmogorovian, hence it requires either the formalism of quantum mechanics or a generalization of it. This insight is relevant, for it explains the presence of quantum or, better, quantum-like, structures in economics, as suggested by some authors, and can serve to solve the aforementioned paradoxes.
    Date: 2011–05
  7. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: Throughout history, people have suffered for the sake of their religion. Religious organisations have been forbidden or governments have tightly controlled them. The constitutional protection of freedom of religion is a necessity. In a religiously pluralistic world, granting the guarantee is also in the state’s best interest. Yet religions have been hesitant to embrace the guarantee. It implies secularism. Religious freedom is balanced against other freedoms, and against legitimate state interests. Government is faced with social forces that are grounded in eternity and that cannot be proven to be wrong. Seemingly the constitutional protection is a threatening for religions and the state as it is beneficial. Yet the essentially pragmatic nature of law overcomes the tragic dilemma – albeit only at the price of acknowledging that jurisprudence is policy-making.
    Keywords: religions freedom, neutrality principle, human rights, pragmatism, proportionality principle, balancing, margin of appreciation, regulability
    Date: 2011–04
  8. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: The novel part of this paper is a model of the principle of proportionality, as the cornerstone of the doctrine of fundamental rights. German law, and with some modifications also the law of the European Community and the European Convention on Human Rights, do not categorically outlaw interventions into fundamental freedoms and human rights (as, in principle, the US doctrine). Rather a state measure that is classified as an intervention comes under the scrutiny of the Constitutional Court, the European Court of Justice or the European Court of Human Rights. All courts clear interventions only if government can show that they serve a legitimate aim, and that the concrete measure is conducive to this aim, is least intrusive, and appropriately balances the importance of the legitimate aim with the severity of the intervention. While the doctrine on all these elements is rich, many questions are unsettled. This paper uses simple concepts from microeconomic theory to formalize the steps, and thereby to clarify the doctrine.
    Keywords: principle of proportionality, human right, fundamental freedom, law and economics of constitutional law
    JEL: H41 D01 D02 A12 K10 D61
    Date: 2011–01
  9. By: Guerrazzi, Marco
    Abstract: This paper aims at providing a critical assessment of the new ‘Farmerian’ economics, i.e. the recent Farmer’s attempt to provide a new micro-foundation of the General Theory grounded on modern search and business cycle theories. Specifically, I develop a theoretical model that summarizes the main arguments of the suggested approach by showing that a special importance has to be attached to the search mechanism, the choice of units and ‘animal spirits’ modelling. Thereafter, referring to self-made real-business-cycle experiments, I discuss the main empirical implications of the resulting framework. Finally, I consider its policy implications by stressing the problematic nature of demand management interventions and the advisability of extending the role of the central bank in preventing financial bubbles and crashes.
    Keywords: Old Keynesian Economics; search; demand constrained equilibrium; Shimer puzzle; economic policy.
    JEL: E12 E24
    Date: 2010–05–10
  10. By: Diederik Aerts; Sandro Sozzo
    Abstract: The Allais and Ellsberg paradoxes show that the expected utility hypothesis and Savage's Sure-Thing Principle are violated in real life decisions. The popular explanation in terms of 'ambiguity aversion' is not completely accepted. On the other hand, we have recently introduced a notion of 'contextual risk' to mathematically capture what is known as 'ambiguity' in the economics literature. Situations in which contextual risk occurs cannot be modeled by Kolmogorovian classical probabilistic structures, but a non-Kolmogorovian framework with a quantum-like structure is needed. We prove in this paper that the contextual risk approach can be applied to the Ellsberg paradox, and elaborate a 'sphere model' within our 'hidden measurement formalism' which reveals that it is the overall conceptual landscape that is responsible of the disagreement between actual human decisions and the predictions of expected utility theory, which generates the paradox. This result points to the presence of a 'quantum conceptual layer' in human thought which is superposed to the usually assumed 'classical logical layer'.
    Date: 2011–05
  11. By: David Card; Stefano DellaVigna; Ulrike Malmendier
    Abstract: We propose a new classification of experiments that captures the extent to which the experimental design and analysis are linked to economic theory. We then use this system to classify all published field experiments in the five top economics journals from 1975 to 2010. We find that the vast majority of field experiments (68%) are Descriptive studies that lack any explicit model; 18% are Single Model studies that test a single model-based hypothesis; 6% are Competing Models studies that test competing model-based hypotheses; and 8% are Parameter Estimation studies that estimate structural parameters in a completely specified model. Using the same system to classify laboratory experiments published over the same period, we find that economic theory has played a more central role in the laboratory than in the field. Finally, we discuss in detail three sets of field experiments, on gift exchange, on charitable giving, and on negative income tax, that illustrate both the benefits and the potential costs of a tighter link between experimental design and theoretical underpinnings.
    JEL: C9 C93
    Date: 2011–05
  12. By: Duffy, Sean; Smith, John
    Abstract: We find that differences in the ability to devote cognitive resources to a strategic interaction imply differences in strategic behavior. In our experiment, we manipulate the availability of cognitive resources by applying a differential cognitive load. In cognitive load experiments, subjects are directed to perform a task which occupies cognitive resources, in addition to making a choice in another domain. The greater the cognitive resources required for the task implies that fewer such resources will be available for deliberation on the choice. Although much is known about how subjects make decisions under a cognitive load, little is known about how this affects behavior in strategic games. We run an experiment in which subjects play a repeated multi-player prisoner's dilemma game under two cognitive load treatments. In one treatment, subjects are placed under a high cognitive load (given a 7 digit number to recall) and subjects in the other are placed under a low cognitive load (given a 2 digit number). We find that the individual behavior of the subjects in the low load condition converges to the Subgame Perfect Nash Equilibrium prediction at a faster rate than those in the high load treatment. However, we do not find the corresponding relationship involving outcomes in the game. Specifically, there is no evidence of a significantly different convergence of game outcomes across treatments. As an explanation of these two results, we find evidence that low load subjects are better able to adjust their choice in response to outcomes in previous periods.
    Keywords: cognitive resources; experimental economics; experimental game theory; public goods game
    JEL: C72 C91
    Date: 2011–05–11
  13. By: Bajoori Elnaz; Flesch János; Vermeulen Dries (METEOR)
    Abstract: We investigate the relations between different types of perfect equilibrium, introduced by Simon and Stinchcombe (1995) for games with compact action spaces and continuous payoffs. Simon and Stinchcombe distinguish two approaches to perfect equilibrium in this context, the classical "trembling hand'''' approach, and the so-called "finitistic'''' approach.We propose an improved definition of the finitistic approach, called global-limit-of-finite perfection, and prove its existence. Despite the fact that the finitistic approach appeals to basic intuition, our results---specifically examples (1) and (2)---seem to imply a severe critique on this approach. In the first example any version of finitistic perfect equilibrium admits a Nash equilibrium strategy profile that is not limit admissible. The second example gives a completely mixed (and hence trembling hand perfect) Nash equilibrium that is not finitistically perfect. Further examples illustrate the relations between the two approaches to perfect equilibrium and the relation to admissibility and undominatedness of strategies.
    Keywords: mathematical economics;
    Date: 2011
  14. By: Omar Al-Ubaydli (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Garett Jones (Department of Economics, George Mason University); Jaap Weel (Department of Economics, George Mason University)
    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: D02 D23 O12 O43
    Date: 2011–05
  15. By: Buchholz, Wolfgang; Schymura, Michael
    Abstract: The evaluation of long-term effects of climate change in cost-benefit analysis has a long tradition in environmental economics. Since the publication of the Stern Review in 2006 the debate about the 'appropriate' discounting of future welfare and utility levels was revived and the most renowned scholars of the profession participated in this debate. But it seems that some contributions dealing with the Stern Review and the Review itself mixed up normative and positive issues to defend the own position. Furthermore, as we argue in this contribution, it also seems that the debate misses the heart of the problem. The aim of this work is to bring together economic and philosophical reasoning about justice and intergenerational equity in the context of climate change. So we adopt the normative view in order to present the most important ethical issues that, particularly in the context of climate policy, are most relevant for the choice of intertemporal welfare criteria. Subsequently we explore whether ethical considerations may also be helpful to determine the parameter values (or at least to delimit their range) which, after the choice of some type of intertemporal social welfare function, are needed to specify the concrete criterion that is employed to make decisions on climate policy. --
    Keywords: Intertemporal ethics,Distribution,Discounting,Climate Change
    JEL: Q53
    Date: 2011
  16. By: Lam, Alice
    Abstract: This paper employs the three concepts of ‘gold’ (financial rewards), ‘ribbon’ (reputational/career rewards) and ‘puzzle’ (intrinsic satisfaction) to examine the extrinsic and intrinsic aspects of scientists’ motivation for pursuing commercial activities. The study is based on 36 individual interviews and an on-line questionnaire survey of 735 scientists from five major UK research universities. It finds that there is a diversity of motivations for commercial engagement, and that many do so for reputational and intrinsic reasons and that financial rewards play a relatively small part. The paper draws on self-determination theory in social psychology to analyse the relationship between scientists’ value orientations with regard to commercial engagement and their personal motivations. It finds that those with traditional beliefs about the separation of science from commerce are more likely to be extrinsically motivated, using commercialization as a means to obtain resources to support their quest for the ‘ribbon’. In contrast, those identify closely with entrepreneurial norms are intrinsically motivated by the autonomy and ‘puzzle-solving’ involved in applied commercial research while also motivated by the ‘gold’. The study highlights the primacy of scientists’ self motivation, and suggests that a fuller explanation of their commercial behaviour will need to consider a broader mix of motives to include the social and affective aspects of intrinsic motivation. In conclusion, the paper argues that policy to encourage commercial engagement should build on reputational and intrinsic rather than purely financial motivations.
    Keywords: Academic scientists; entrepreneurial university; motivation; scientific norms and values; self-determination theory; research commercialization; knowledge transfer
    JEL: L2 I23 O31
    Date: 2010–12

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