nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2012‒10‒13
thirteen papers chosen by
Erik Thomson
University of Manitoba

  1. Mainstream Economics in the Early 21st Century: What, How and How Far By Hernán Vallejo
  2. Cooperation, but no reciprocity: Individual strategies in the repeated Prisoner's Dilemma By Breitmoser, Yves
  3. Large Games with a Bio-Social Typology By M. Ali Khan; Kali P. Rath; Yeneng Sun; Haomiao Yu
  4. The Responsibility of Mobile Money Intellectuals? By Donovan, Kevin
  5. A nested contest: Tullock meets the All-Pay Auction By Amegashie, J. Atsu
  6. Geographies of Monetary Economy and the European economic crisis By Jussi Ahokas
  7. Spontaneous order and macroeconomic behaviour By Yong Tao
  8. The Evolution of British Monetarism: 1968-1979 By Aled Davies
  9. Strategic Information Transmission with Budget Constraint By A.K.S. Chand
  10. The dialogue in foresight By Serbulescu, Radu
  11. Notes for a New Guide to Keynes (I): Wages, Aggregate Demand, and Employment By Jordi Galí
  12. Becker meets Ricardo: A social and cognitive skills model of human capabilities By Xianwen Shi; Ronald Wolthoff; Aloysius Siow; Robert McCann
  13. Fear of Losing in a Clock Auction By Peter Cramton; Emel Filiz-Ozbay; Erkut Ozbay; Pacharasut Sujarittanonta

  1. By: Hernán Vallejo
    Abstract: This essay defines economics as a social science characterized by a particular and evolving way of thinking, and explores its scope and limitations. It is argued that economics has a strong normative nature and that it is ideological by construction. Thus, economics is better suited to improve our understanding of economic phenomena, contribute to solve better current problems and generate a sufficiently large and lasting consensus, than to prove anything for sure. Some reasons for persistent differences among economists are trade-offs, problems measuring economic variables and deficient definitions for key concepts. Thus, economics education should seek constructing explicitly the economics way of thinking and maintaining focus on optimal policy intervention, while its practice should aim at clarity, transparency, tractability, consistency, replicability, applicability, relevance and responsibility.
    Date: 2012–08–02
  2. By: Breitmoser, Yves
    Abstract: A recent advance in our understanding of repeated PDs is the detection of a threshold d* at which laboratory subjects start to cooperate predictively. This threshold is substantially above the classic threshold "existence of Grim equilibrium" and has been characterized axiomatically by Blonski, Ockenfels, and Spagnolo (2011, BOS). In this paper, I derive its behavioral foundations. First, I show that the threshold is equivalent to existence of a "Semi-Grim" equilibrium s_cc>s_cd=s_dc>s_dd. It is cooperative (s_cc>0.5), non-reciprocal (s_cd=s_dc), and robust to imperfect monitoring ("belief-free"). Next, I show that the no-reciprocity condition s_cd=s_dc also follows from robustness to random-utility perturbations (logit equilibrium). Finally, I re-analyze strategies in four recent experiments and find that the majority of subjects indeed plays Semi-Grim when it is an equilibrium strategy, which explains d*'s predictive success.
    Keywords: Repeated Prisoner's Dilemma; experiment; equilibrium selection; cooperative behavior; reciprocity; belief-free equilibria; robustness
    JEL: C92 C73 C72
    Date: 2012–10–04
  3. By: M. Ali Khan (Department of Economics, Johns Hopkins University); Kali P. Rath (Department of Economics, University of Notre Dame); Yeneng Sun (Department of Economics, National University of Singapore); Haomiao Yu (Department of Economics, Ryerson University)
    Abstract: We present a comprehensive theory of large games in which players have names and determinate social-types and/or biological traits, and identify through four decisive examples, essentially based on a matching-pennies type game, pathologies arising from the use of a Lebesgue interval for player's names. In a sufficiently general context of traits and actions, we address this dissonance by showing a saturated probability space as being a necessary and sufficient name-space for the existence and upper hemi-continuity of pure-strategy Nash equilibria in large games with traits. We illustrate the idealized results by corresponding asymptotic results for an increasing sequence of finite games.
    Keywords: Large games, social-type, traits, idealized limit game, saturated probability space, pure-strategy Nash equilibrium, closed-graph property, upper hemi-continuity, asymptotic implementation
    JEL: C62 D50 D82 G13
    Date: 2012–10
  4. By: Donovan, Kevin
    Abstract: [This is a review of three books on microfinance and the cashless society]
    Keywords: microfinance; casless society; economic history
    JEL: N8 L96 E42 H23 G21
    Date: 2012
  5. By: Amegashie, J. Atsu
    Abstract: I present a two-player nested contest which is a convex combination of two widely studied contests: the Tullock (lottery) contest and the all-pay auction. A Nash equilibrium exists for all parameters of the nested contest. If and only if the contest is sufficiently asymmetric, then there is an equilibrium in pure strategies. In this equilibrium, individual and aggregate efforts are lower relative to the efforts in a Tullock contest. This leads to the surprising result that if aggregate efforts in the all-pay auction are higher than the aggregate efforts in the Tullock contest, then aggregate efforts in the nested contest may not lie between aggregate efforts in the all-pay auction and aggregate efforts in the Tullock contest. When the contest is symmetric or asymmetric, I find a mixed-strategy equilibrium and describe some properties of the equilibrium distribution function; I also find the equilibrium payoffs and expected bids. When the weight on the all-pay auction component of this nested contest lies in an intermediate range, then there exist multiple non-payoff-equivalent equilibria such that there is an all-pay auction equilibrium as defined in Alcade and Dahm (2010) and another equilibrium which is not an all-pay auction equilibrium; these equilibria cannot be ranked using the Pareto criterion. If the goal of a contest-designer is to reduce aggregate effort (i.e., wasteful rent-seeking efforts), then this nested contest may be better than both the Tullock contest and the all-pay auction.
    Keywords: all-pay auction; discontinuous games; mixed strategy; pure strategy; Tullock contest
    JEL: B21 D44 D72 C72
    Date: 2012–06–19
  6. By: Jussi Ahokas
    Abstract: The paper deals with the geographies of the European economic crisis that had its origins in the global financial crisis of 2008-09. The crisis pushed many European economies into a deep recession and caused a mass unemployment in many countries. The crisis is analysed in a monetary economy framework that builds upon the post-Keynesian economic theories such as the monetary theory of production and the chartalist theory of money. These theories focus on the operational realities of banking, credit creation and finance as well as processes of production, income creation and government spending. Hence, the theoretical framework constructed in the paper provides a comprehensive analytical tool for examining relationships between money, finance and production, the key elements of the monetary economy. It is argued in the paper that the monetary economy perspective has a lot to offer for the geographical analysis of the economic crises and the contemporary economic system in general. In other words, it is argued that economists and economic geographers need to pay more attention to the central dynamics of monetary economy. The geographical investigation of the commanding processes of monetary economy conducted in the paper brings up the essential dynamics behind the European economic crisis. The analysis will be focused on the processes that turned the financial crisis into a recession of real economy. In addition, a brief look is taken at the anatomy of the European sovereign debt crisis. The empirical analysis shows that the geographical differences in demand structures, in the liquidity preferences of different economic actors and in the basic institutional structures of monetary economy were essential elements of the crisis. The first conclusion of the paper is that the European economic crisis was a characteristic crisis of monetary economy where money and monetary conditions affect motives and decisions of the economic actors. The second conclusion is that the geographical perspective is necessary in order to expose the central dynamics of the crisis and dynamics of monetary economy in general. Therefore, the theoretical framework constructed in the paper should be utilized more widely in the geographical analysis of contemporary economic system in the future. Keywords: Financial crisis, Economic crisis, Monetary economy, Regional development JEL: G01, R00, E59
    Date: 2012–10
  7. By: Yong Tao
    Abstract: This paper presents a model of spontaneous economic order within the framework of general equilibrium theory. Our study shows that if a competitive economy is enough free and fair, then a spontaneous economic order shall emerge in long-period competitive equilibrium so that social members together occupy an optimally economic allocation. Despite this, the spontaneous order may degenerate in the form of economic crisis whenever an equilibrium economy approaches the extreme competition. Remarkably, such a theoretical framework of spontaneous order presents a bridge connecting Austrian economics and Neoclassical economics, where we indeed comprehend a truth: "Freedom drives economic development".
    Date: 2012–10
  8. By: Aled Davies (Mansfield College, University of Oxford)
    Abstract: How far were monetary targets imposed on the post-1974 Labour Government by international and domestic financial markets enthused with the doctrines of ‘monetarism’? The following paper attempts to answer this question by demonstrating the complex and contingent nature of the ascent of British ‘monetarism’ after 1968. It describes the post-devaluation valorisation of the ‘money supply’ which led investors to realign their expectations with the behaviour of the monetary aggregates. The collapse of the global fixed-exchange rate regime, coupled with vast domestic inflationary pressures after 1973, determined that investors came to employ the ‘money supply’ as a convenient new measure with which to assess the ‘soundness’ of British economic management. The critical juncture of the 1976 Sterling crisis forced the Labour Government into a reluctant adoption of monetary targets as part of a desperate attempt to regain market confidence. The result was to impose significant constraints on the Government’s economic policymaking freedom, as attempts were made to retain favourable money supply figures exposed to the short-term volatility of increasingly-globalised and highly-capitalized financial markets.
    Date: 2012–10–02
  9. By: A.K.S. Chand (Department of Economics, University Of Venice Ca’ Foscari)
    Abstract: In this paper, I discuss a Cheap Talk model that arises during the allocation of a limited budget to multiple Senders by a Receiver with private communication. The Receiver's utility is the sum of the utilities of the Senders. Considering quadratic utility functions, I show that there is no fully revealing equilibrium with budget constraint. I also show that a higher budget facilitates information transmission to the Receiver in terms of ex-ante expected utility by considering (1) an equilibrium where only one Sender reveals truthfully, (2) a symmetric equilibrium with two intervals and (3) a commitment strategy by the Receiver where only one Sender receives his desired amount. The commitment strategy is doing better than the other two types of equilibria for budget more than a particular value. This requires us to look for equilibria with higher number of intervals which does better than the commitment strategy.
    Keywords: Cheap Talk, Multiple Senders, Budget Constraint
    JEL: C72 D82 D83
    Date: 2012
  10. By: Serbulescu, Radu
    Abstract: Abstract Contemporary literature on dialogue focuses particularly on Bohmian dialogue. One argument may be the ability of this dialogue theory to match with modern communication tools, especially through Internet. Also, the major theme of Bohm theory, the open dialogue, has been developed technologically as an “open space” where all dialogues, whatever aims or subject, may possible. This paper states that the dialogue processes differs in nature, and one particular process do not result from an arbitrary option. The foresight, for instance, does not consist in a dialogue related to one specific topic, whatever complex and extended might be. The dialogue, in this case, may be seen as a support action for the foresight activity, or as a resource which may offer solutions for sustaining it. This is a ‘dialogue in’ for the foresight, and the discussions may focus on various related themes: sustainability, science-society dialogue, environmental policy etc. The purpose of this dialogue is to reveal new meanings for ‘foresight’, as a second-order significant. Certainly, words like future, vision, forecast etc. may not be mentioned, but any loss in meaning: in fact, there is a third-order of signification for these words. Dialogue might be also considered as an activity itself, even in relation with foresight. This is a ‘dialogue about’ the subject, which is concerned on a denotative meaning of the word: the dialogue will emphasize the connotations of the related words like future, vision, forecast etc. and the purpose is to negotiate a common meaning for the subject-word, foresight. When a dialogue is an ongoing process, it creates stable communication structures, or dialogical groups. It is natural to consider the emergence of one group having a certain a priori purpose, even it appears accidentally. The word ‘purpose’ might refers to debate a subject, to reach an agreement or to explore the significations of one term. It is also natural to examine how adequate is the structure, and it might be expressed in two ways: how large should be the group, and how many time is necessary to reach the purposed objective. Starting and sustaining dialogical structures depends strongly on nature of the activity to be supported by the dialogue, available resources and objectives. Foresight dialogue is, in fact, a “mix of dialogues” which proves the homogeneity of the field.
    Keywords: Keywords: dialogue; communication; semiotics; dialogue about; dialogue in; efficient dialogue; foresight
    JEL: A12 A14
    Date: 2012–10–04
  11. By: Jordi Galí
    Abstract: I revisit the General Theory's discussion of the role of wages in employment determination through the lens of the New Keynesian model. The analysis points to the key role played by the monetary policy rule in shaping the link between wages and employment, and in determining the welfare impact of enhanced wage flexibility. I show that the latter is not always welfare improving.
    Keywords: wage flexibility, monetary policy rules, employment stability
    JEL: E32
    Date: 2012–09
  12. By: Xianwen Shi (University of Toronto); Ronald Wolthoff (University of Toronto); Aloysius Siow (University of Toronto); Robert McCann (University of Toronto)
    Abstract: This paper studies an equilibrium model of social and cognitive skills interactions in school, work and marriage. The model uses a common team production function in each sector which integrates the complementarity concerns of Becker with the task assigment and comparative advantage concerns of Ricardo. The theory delivers full task specialization in the labor and education markets, incomplete task specialization in marriage. It rationalizes many to one matching, a common feature in labor markets. There is also occupational choice, matching by different skills in different sectors. Equilibrium is equivalent to the solution of an utilitarian social planner solving a linear programming problem.
    Date: 2012
  13. By: Peter Cramton (Economics Department, University of Maryland); Emel Filiz-Ozbay (Economics Department, University of Maryland); Erkut Ozbay (Economics Department, University of Maryland); Pacharasut Sujarittanonta
    Abstract: We examine bidding behavior in a clock auction in which price is set by the lowest-accepted bid and provisional winners are reported each round (the LABpw auction). This format was used in the India 3G spectrum auction. In the standard theory, the auction performs poorly. In particular it yields lower revenues and is less efficient than the more standard clock auction with exit bids and highest-rejected-bid pricing (the HRB auction). However, the LABpw auction performs well in the lab, achieving higher revenues than the HRB auction. We show how fear of losing provides one motivation for the overbidding that causes higher revenues in the LABpw auction.
    Keywords: Auctions, clock auctions, spectrum auctions, behavioral economics, market design
    JEL: D44 C78 L96
    Date: 2012

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