nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2012‒03‒21
sixteen papers chosen by
Erik Thomson
University of Manitoba

  1. Governments in economic crisis: What is the 99% and why does it exist? By Punabantu, Siize
  2. Kantian Optimization, Social Ethos, and Pareto Efficiency By John E. Roemer
  3. Status Quo Effects in Fairness Games: Reciprocal Responses to Acts of Commission vs. Acts of Omission By James C. Cox; Maroš Servátka; Radovan Vadovic
  4. The Idea of Good (Enough) Governance. A Look from Complexity Economics By Łukasz Hardt
  5. Towards an understanding of the endogenous nature of group identification in games By Smith, John; Bezrukova, Katerina
  6. The silence of the archive: post-colonialism and the practice of historical reconstruction from archival evidence By Decker, Stephanie
  7. Karl Marx Labor Theory of Value. Delusion or Truth? By Билыч Геннадий
  8. Experimental Evidence of Self-Image Concerns as Motivation for Giving By Tonin, Mirco; Vlassopoulos, Michael
  9. I Prefer Not to Know! Analyzing the Decision of Getting Information about your Ability By Paulina Granados Zambrano
  10. The labor productivity puzzle By Ellen R. McGrattan; Edward C. Prescott
  11. Contributions to oligopoly theory By Pavlopoulos, Antonios
  12. The Second Fundamental Theorem of Positive Economics. By Mukherji, Anjan
  13. Seizing the Opportunity: Towards a Historiography of Information Systems By Nathalie Mitev; François-Xavier De Vaujany
  14. The global crisis: Have we learned the right lessons? By György Surányi
  15. Asymmetric Awareness and Moral Hazard By Sarah Auster
  16. The Disappearance of Hard Constraints in Neoclassical Economics By William M. Wadman

  1. By: Punabantu, Siize
    Abstract: What is the 99% and why does it exist? In this paper an attempt is made to explain why socio-economic unrest remains a modern problem. An effort has to be made to understand the origins of strife in systemic design of modern economics. Without this knowledge it may not be possible to fix the very fundamental problems that lead to a broken society.
    Keywords: Scarcity; banking; credit creation; banks; resource creation; implosion; poverty; wealth; money; price; mark-up; cost plus pricing; rationality; operating level economics; economic growth; paradox
    JEL: A22 A23 A13 F02 A10 A11
    Date: 2012–03–12
  2. By: John E. Roemer (Dept. of Political Science, Yale University)
    Abstract: Although evidence accrues in biology, anthropology and experimental economics that homo sapiens is a cooperative species, the reigning assumption in economic theory is that individuals optimize in an autarkic manner (as in Nash and Walrasian equilibrium). I here postulate an interdependent kind of optimizing behavior, called Kantian. It is shown that in simple economic models, when there are negative externalities (such as congestion effects from use of a commonly owned resource) or positive externalities (such as a social ethos reflected in individuals’ preferences), Kantian equilibria dominate Nash-Walras equilibria in terms of efficiency. While economists schooled in Nash equilibrium may view the Kantian behavior as utopian, there is some -- perhaps much -- evidence that it exists. If cultures evolve through group selection, the hypothesis that Kantian behavior is more prevalent than we may think is supported by the efficiency results here demonstrated.
    Keywords: Kantian equilibrium, Social ethos, Implementation
    JEL: D60 D62 D64 C70 H30
    Date: 2012–03
  3. By: James C. Cox; Maroš Servátka; Radovan Vadovic
    Abstract: Both the law and culture make a central distinction between acts of commission that overturn the status quo and acts of omission that uphold it. In everyday life acts of commission often elicit stronger reciprocal responses than do acts of omission. In this paper we compare reciprocal responses to both types of acts and ask whether behavior of subjects in two experiments is consistent with existing theory. The design of the experiments focuses on the axioms of revealed altruism theory (Cox, Friedman, and Sadiraj, 2008) that make it observationally distinct from other theories, Axiom R (for reciprocity) and Axiom S (for status quo). We find support for this theory in both experiments.
    Date: 2012–02
  4. By: Łukasz Hardt (University of Warsaw, Faculty of Economic Sciences)
    Abstract: Nowadays we observe a consensus in the development literature that the quality of governance matters for economic development. Therefore, many postulate the implementation of good governance principle, however, that very idea is not well defined and conceptualized. This paper offers some insights into the way that concept can be better understood. We do that by applying the conceptual apparatus taken from the complexity economics. What follows is the conclusion that the idea of good governance as seen from the perspective of complexity economics is very similar to the one of good enough governance. Moreover, we present some pragmatic recommendations for both development policies as well as the ways such policies should be prepared.
    Keywords: good governance, good enough governance, complexity economics, economic development
    JEL: H11 O10 B52 D78
    Date: 2012
  5. By: Smith, John; Bezrukova, Katerina
    Abstract: It is commonly assumed that identification with a social group is constant throughout the play of a one-shot game in the absence of feedback. We provide evidence which challenges this assumption. We direct subjects to play one of two versions of the prisoner's dilemma game. These versions are distinguished by the relative attractiveness of the uncooperative action. We refer to the version with a relatively attractive uncooperative action as the Easy Game and the other as the Difficult Game. We find that for the subjects who play the Difficult Game, their change in group identification is significantly related to their action selected. No such relationship exists within the Easy Game. Additionally, we find that the change primarily occurs after the action is selected rather than upon inspection of the game. We discuss the implications of our findings to settings both inside and outside of the laboratory.
    Keywords: Group Identification; Experimental Game Theory; Endogenous Preferences; Social Identity; Decision Difficulty
    JEL: Z10 C91 C72
    Date: 2012–03–14
  6. By: Decker, Stephanie
    Abstract: History as a discipline has been accused of being a-theoretical. For business historians working at business schools, however, the issue of methodology looms larger, as it is hard to make contributions to social science debates without explicating one’s disciplinary methodology. This paper seeks to outline an important aspect of historical methodology, which is data collection from archives. In this area, postcolonialism has made significant methodological contributions not just for non-Western history, as it has emphasized the importance of considering how archives were created, and how one can legitimately use them despite their limitations.
    Keywords: Business History; Historiography; Historical Methodology; Qualitative Methodology; Organization Studies
    JEL: N8 N87 N01 B0 N80 B49
    Date: 2012–02–22
  7. By: Билыч Геннадий
    Abstract: Karl Marx’s labor theory of value has been on the periphery of the economic thought for already more than 100 years. Being a follower of Ricardo D., who, as many believe, never adhered to the labor theory of value (his theory is often called 93% theory of labor value), Marx contended that product value is defined in full by the quantity of invested labor. Presence of capital in manufacturing process should not embarrass anybody: it constitutes paid labor of the creation of instruments of labor, equipment, erections, and the last thought causes no doubts. At such an approach the profit of capitalists and businessmen can be obtained only by way of exploitation, in other words, by the appropriation of a part of the labor. Marx was subjected to severe criticism as early as during his lifetime, the most successful example of the criticism being works by Bohm-Bawerk E. V., on which we are going to dwell later. But other theories, including contemporary ones, suffer from the same shortcomings. Profit is interpreted as payment for a specific production factor “entrepreneurial talent” and is a reward for efficient resources use. Entrepreneurial activity is connected with an extremely high risk and nothing guarantees adequate payback. All this arouses no doubt. But all theories have one hidden defect. The paradox is in the following: if salary is only a part of end value of a product (even if 93% of the value), then how comes that all end products are bought. All workers’ salary is clearly insufficient to buy out all products and services. If one assumes that all the profit is also directed at the purchase of product manufactured, then where is here a place for savings and investments, which we observe in the real world. Savings must be made from workers’ available funds, and those are definitely not enough. How to solve the existing paradox?
    Date: 2011–04–10
  8. By: Tonin, Mirco (University of Southampton); Vlassopoulos, Michael (University of Southampton)
    Abstract: We conduct an experiment in which subjects make a series of decisions of allocating an endowment of £10 between themselves and a passive recipient that is either a charity or the experimenter. When making these decisions subjects are informed that one of them will be chosen randomly at the end to determine payoffs. After all decisions have been made and it has been revealed which decision will determine payoffs we offer subjects an opportunity to opt out from their initial decision and receive £10 instead. We find that around one third of subjects choose to opt out. The fact that a subject decides to revise a decision to give and chooses instead to exit and keep the whole amount – an option that was available when she made the first decision and was not exercised – indicates that giving in the first instance was not motivated solely by altruism toward the recipient. We argue that opting out indicates that giving is also motivated by self-image concerns.
    Keywords: dictator game, charitable giving, opting-out, self-image
    JEL: C91 D03 D64
    Date: 2012–02
  9. By: Paulina Granados Zambrano
    Abstract: The recognition that information is, most of the time, incomplete and imperfect is essential in understanding the nature of the formation of beliefs. To understand human behavior in the area of (academic) performance, the beliefs individuals sustain about their ability become crucial. Before performing a certain task, the agent never knows his/her true ability. He/she only has an ex-ante notion of his/her believed ability and the truth is only revealed ex-post. Once the true ability is known and the payoffs realized, we observe different reactions that range from disappointment to happiness. The logical question is then, who would have preferred not to know the truth? This paper deals with the information acquisition decisions of individuals who face uncertainty about their own ability. At a theoretical level (Bénabou and Tirole, 2002), it has been shown that overconfident individuals (people with beliefs about themselves higher than reality) with time inconsistent preferences have more at stake when they face the decision of learning the truth about themselves than more pessimistic agents. To test this prediction, a field experiment is designed and implemented, where students face the decision of learning, or not, their true ability before performing a test. It will be shown that overconfident students indeed more often decide not to learn their true ability.
    Keywords: overconfidence; beliefs; ability; information acquisition; field experiment
    Date: 2012
  10. By: Ellen R. McGrattan; Edward C. Prescott
    Abstract: Prior to the mid-1980s, labor productivity growth was a useful barometer of the U.S. economy’s performance: it was low during economic recessions and high during expansions. Since then, labor productivity has become significantly less procyclical. In the recent recession of 2008–2009, labor productivity actually rose as GDP plummeted. These facts have motivated the development of new business cycle theories because the conventional view is that they are inconsistent with existing business cycle theory. In this paper, we analyze recent events with existing theory and find that the labor productivity puzzle is much less of a puzzle than previously thought. In light of these findings, we argue that policy agendas arising from new untested theories should be disregarded.
    Date: 2012
  11. By: Pavlopoulos, Antonios
    Abstract: In the context of the Cournot model a demand function parameter is treated as the dual of the firm’s profit. Following the demand theory’s duality approach it’s possible to introduce the concept of the compensated reaction function (or compensated best-response function), as well as the concepts of net strategic complementarity/substitutability. The firm’s reaction function is analysed into a type-1 and a type-2 effect, which are the counterparts, respectively, of the demand theory substitution and income effects. Further, new results are obtained regarding Cournot equilibrium in the case of profit functions which are homogeneous in their arguments.
    Keywords: Cournot model; compensated reaction function; net strategic complementarity/substitutability
    JEL: L13 D43
    Date: 2012–02–25
  12. By: Mukherji, Anjan (National Institute of Public Finance and Policy)
    Abstract: Welfare Economics is fortunate that there are two Fundamental Theorems of Welfare Economics. Positive Economics on the other hand is seemingly endowed with none. One of the fundamental results of Positive Economics is that a competitive equilibrium exists under fairly general conditions; this then may be called the First Fundamental Theorem of Positive Economics (FFTPE). The existing results on uniqueness and stability of competitive equilibrium are far too restrictive to be up for consideration as a Fundamental Theorem. It is to re-examine this question that we revisit the question of stability of competitive equilibrium. It is shown that if, for all distributions of the aggregate endowment, the matrix sum of the Jacobian of the excess demand function plus its transpose, evaluated at the equilibrium, have maximal rank then equilibria will be locally asymptotically stable. When this condition is not met, it is shown how redistributing resources will always make a competitive equilibrium price configuration stable and this need not involve redistributing endowments so that trades do not exist at equilibrium. This last result is quite general and the only requirement is that the rank condition referred to earlier hold at zero trade competitive equilibria and consequently may qualify to be called the Second Fundamental Theorem of Positive Economics (SFTPE).
    Keywords: Stability of equilibrium ; Redistribution of resources ; Rank condition ; Fundamental theorems
    Date: 2012–03
  13. By: Nathalie Mitev (ISIG - Information Systems and Innovation Group - Department of Management - London School of Economics and Political Science); François-Xavier De Vaujany (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris IX - Paris Dauphine)
    Abstract: Historical perspectives are only timidly entering the world of IS research compared to historical research in management or organization studies. If major IS outlets have already published history-oriented papers, the number of historical papers - although increasing - remains low. We carried out a thematic analysis of all papers on History and IS published between 1972 and 2009 indexed on ABI and papers indexed in Google ScholarTM for the same period. We used a typology developed by theorists Usdiken and Kieser (2004) who classify historical organisation research into supplementarist, integrationist and reorientationist approaches. We outline their links with the epistemological stances well known in IS research, positivism, interpretivism and critical research; we then focus on their differences and historiographical characteristics. We found that most IS History papers are supplementarist descriptive case studies with limited uses of History. This paper then suggests that IS research could benefit from adopting integrationist and reorientationist historical perspectives and we offer some examples to illustrate how that would contribute to enriching, extending and challenging existing theories.
    Keywords: IS history; historiography; historical methods; historical organization theory
    Date: 2012
  14. By: György Surányi
    Abstract: The global crisis, which was the worst economic and financial downturn since the Great Depression, revealed the fundamental deficiencies in the global financial system and drastically changed the way we view the world and the global financial system. The crisis challenged long-standing views and ideas, and in response, after the most acute phase of the crisis, joint global efforts were launched to put the system on firm footing again and prevent the next crisis. These efforts can only be successful if we fully understand the root causes of the crisis and learn the right lessons from it. In his E-brief Dr. György Surányi focuses on four topics: regulation, external position, monetary policy and the European debt crisis.
    Keywords: Financial sector, Europe, debt crisis, regulation, monetary policy
    Date: 2012–03
  15. By: Sarah Auster
    Abstract: This paper introduces asymmetric awareness into the classical principal-agent model and discusses the optimal contract between a fully aware principal and an unaware agent. The principal enlarges the agent’s awareness strategically when proposing the contract. He faces a trade off between participation and incentives. Leaving the agent unaware allows him to exploit the agent’s incomplete understanding of the world. Making the agent aware enables the principal to use the revealed contingencies as signals about the agent’s action choice. The optimal contract reveals contingencies that have low probability but are highly informative about the agent’s effort.
    Keywords: Unawareness, Moral Hazard, Incomplete Contracts.
    Date: 2011
  16. By: William M. Wadman
    Abstract: This paper introduces variable quality into the general treatment of neoclassical economics. It also introduces subbudget decision making at all levels. The consequences of these introductions are enormous for traditional theory. Most importantly, is the realization that within the market model there exists the prospect that constraints in capitalism are not hard, nor exclusively determined by market prices. In addition to the above, this paper argues for expansion of demand theory, and for expansion of the theory of general equilibrium. The paper argues against the existence of a hard budget constraint, both for households and for firms; in fact, it argues that the constraint is influenced by subbudget decision making and by the selection of levels of quality, and as such, the constraint may become stochastic, not deterministic. It introduces the proposition that Marginal Rates of Substitution are not equal across consumers; that Marginal Rates of Transformation are not equal across firms; that the condition MRS=MRT is not attainable; that the condition, is not the long-run equilibrium for firms; and it presents arguments against lump-sum taxation, specifically, that the theoretical results of a lump-sum tax are unattainable. The paper introduces additional conditions for attainment of Pareto optimality in welfare economics. Ultimately, the paper argues that market forces are not impartial. This behavior surfaces in consumption space and in input space. This phenomenon arises from human decision making regarding the size of subbudgets and levels of quality, and the model explains how these issues influence the position and slope of constraints in consumption space and in input space. The avenue to attainment of these results lies within what has always been the Achilles tendon of neoclassical economics: the homogeneity assumption, or in this case, the assumption of constant quality and the absence of subbudgets in economic decision making. Insertion of these two elements into neoclassical economics demonstrates that the theoretical foundation of neoclassical capitalism (i.e., the Anglo-Saxon version of capitalism) is itself a special case. These results evolve slowly. Initially, the changes are subtle, but build and emerge forcefully as the paper unfolds. Toward the end of the paper the implication of these findings, in terms of evolution and the human condition, are discussed.
    Date: 2012–03–14

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