nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2013‒03‒23
nine papers chosen by
Erik Thomson
University of Manitoba

  1. Agent-based and macroscopic modeling of the complex socio-economic systems By Aleksejus Kononovicius; Valentas Daniunas
  2. Towards a pure state theory of money By Ballinger, Clint
  3. Constant Returns to Scale: Can the Neoclassical Economy Exist? By Alam, M. Shahid
  4. The Glue of Democracy: Economics, Warfare and Values in Classical Greece By Kyriazis, Nicholas; Paparrigopoulos, Xenophon; Economou, Emmanouel/Marios/Lazaros
  5. The average tree permission value for games with a permission tree By Brink J.R. van den; Talman A.J.J.; Herings P.J.J.; Laan G. van der
  6. Trembles in Extensive Games with Ambiguity Averse Players By Gaurab Aryal; Ronald Stauber
  7. Behavioral Approach to Repeated Games with Private Monitoring By Hitoshi Matsushima; Tomomi Tanaka; Tomohisa Toyama
  8. The Henderson Question? The Melbourne Institute and fifty years of welfare policy By R. G. Gregory
  9. Lawyers as Agents of the Devil in a Prisoner's Dilemma Game: Evidence from Long Run Play By Ashenfelter, Orley; Bloom, David E.; Dahl, Gordon B.

  1. By: Aleksejus Kononovicius; Valentas Daniunas
    Abstract: The current economic crisis has provoked an active response from the interdisciplinary scientific community. As a result many papers suggesting what can be improved in understanding of the complex socio-economics systems were published. Some of the most prominent papers on the topic include (Bouchaud, 2009; Farmer and Foley, 2009; Farmer et al, 2012; Helbing, 2010; Pietronero, 2008). These papers share the idea that agent-based modeling is essential for the better understanding of the complex socio-economic systems and consequently better policy making. Yet in order for an agent-based model to be useful it should also be analytically tractable, possess a macroscopic treatment (Cristelli et al, 2012). In this work we shed a new light on our research group's contributions towards understanding of the correspondence between the inter-individual interactions and collective behavior. We also provide some new insights into the implications of the global and local interactions, the leadership and the predator-prey interactions in the complex socio-economic systems.
    Date: 2013–03
  2. By: Ballinger, Clint
    Abstract: MODERN MONETARY THEORY (MMT) notes correctly that money is a creature of the state, and that important macroeconomic and policy conclusions follow from this understanding, e.g., sovereign states are not revenue constrained and spending is primarily limited by inflation. Taxes give value to state money and maintain its value (i.e., inflation can be controlled through taxes). One (among many) key policy insight is that a job guarantee is possible. A job guarantee not only achieves what many think should for myriad social reasons be a primary goal of macroeconomics but also further creates a buffer stock (the most useful one of any imaginable given the social reasons just mentioned) that achieves an additional primary macroeconomic policy goal – stability. However, there is no state that operates under a pure state system of money. Most of what serves as money in most banking systems in the world is privately created credit money. We can compare the current most common banking system with a pure state system of money:
    Keywords: The chicago plan, Full Reserve Banking, Modern Monetary Theory, 100% reserves, Alfred Mitchell-Innes, Austrian economics, Bagehot, bank reform, banking crisis, chartalism, chartalist, Circuit theory, credit money, endogenous money, financial crisis, Fractional Reserves, Georg Friedrich Knapp, Limited Purpose Banking, Lombard Street, MCT, Misesean banking, mmt, modern monetary theory, narrow banking, neo-chartalism, circuitisme
    JEL: A1 A10 E0 E00 G1 G2 G21
    Date: 2013–03
  3. By: Alam, M. Shahid
    Abstract: Constant returns to scale (CRS) is one of the corner-stones of the competitive general equilibrium paradigm of neoclassical economics. This note argues that the equilibrium solutions of this paradigm are not compatible with CRS. CRS implies that all producers (whatever their scale of production) can produce goods at the same unit costs: and this makes self-production a feasible alternative to market production. In the event, an infinite number of equilibria become possible with a mix of markets and self-production. If labor is the only factor of production, self-production becomes the only option: and the market economy ceases to exist.
    Keywords: Constant returns to scale, competitive paradigm, neoclassical economics, second-best, Lipsey, Lancaster,Samuelson, Arrow, Debreu, Kaldor, Allyn Young, general equilibrium, increasing returns to scale, existence, uniqueness, equilibrium, classical economics, Adam Smith, Ricardo, Pareto-optimality, John Bates Clark, Wicksteed, Mirowski, Austrian
    JEL: B0 B00 B1 B3 B4 B41 D5
    Date: 2013–03–16
  4. By: Kyriazis, Nicholas; Paparrigopoulos, Xenophon; Economou, Emmanouel/Marios/Lazaros
    Abstract: In the present essay we analyse the links between the emergence of new arms and forms of war-emergence, the phalanx and its hoplites, and the trieres at sea, its economic base, and the emergence of democracy in classical Greece. We propose that the unique till then in the world phalanx formation, led to the development of particular values and ethics, which again were the necessary conditions for the emergence of democracy, then again, a unique phenomenon. We then turn to seapower, which according to our analysis was a sufficient condition for the establishment and endurance of democracy, because seapower led to a community of economic interests, on which direct democracies like Ancient Athens, were based.
    Keywords: Democracy, seapower, values, warfare, economic development.
    JEL: B11 N30 N43 O10
    Date: 2013–03–15
  5. By: Brink J.R. van den; Talman A.J.J.; Herings P.J.J.; Laan G. van der (GSBE)
    Abstract: In the literature various models of games with restricted cooperation can be found. In those models, instead of allowing for all subsets of the set of players to form, it is assumed that the set of feasible coalitions is a proper subset of the power set of the set of players. In this paper we consider such sets of feasible coalitions that follow from a permission structure on the set of players, in which players need permission to cooperate with other players. We assume the permission structure to be an oriented tree. This means that there is one player at the top of the permission structure and for every other player there is a unique directed path from the top player to this player. We introduce a new solution for these games based on the idea of the Average Tree value for cycle-free communication graph games. We provide two axiomatizations for this new value and compare it with the conjunctive permission value.
    Keywords: Game Theory and Bargaining Theory: General;
    Date: 2013
  6. By: Gaurab Aryal; Ronald Stauber
    Abstract: We introduce and analyze three definitions of equilibrium for finite extensive games with imperfect information and ambiguity averse players. In a setting where players' preferences are represented by maxmin expected utility as characterized in Gilboa and Schmeidler (1989), our definitions capture the intuition that players may consider the possibility of slight mistakes, analogous to the intuition leading to trembling-hand perfect equilibrium as introduced in Selten (1975). We prove existence for two of our equilibrium notions, and relate our definitions to standard equilibrium concepts with expected utility maximizing players. Our analysis shows that ambiguity aversion can lead to distinct behavioral implications, even if ambiguous beliefs only arise from the possibility of slight mistakes in the implementation of unambiguous strategies.
    Keywords: Extensive games; Ambiguity; Maxmin
    JEL: C72 D81
    Date: 2013–03
  7. By: Hitoshi Matsushima (The University of Tokyo); Tomomi Tanaka (Economic Development & Global Education, LLC); Tomohisa Toyama (Kogakuin University)
    Abstract: We examine repeated prisoners’ dilemma with imperfect private monitoring and random termination where the termination probability is low. We run laboratory experiments and show subjects retaliate more severely when monitoring is more accurate. This experimental result contradicts the prediction of standard game theory. Instead of assuming full rationality and pure self-interest, we introduce naivete and social preferences, i.e., reciprocal concerns, and develop a model that is consistent with, and uniquely predicts, the observed behavior in the experiments. Our behavioral model suggests there is a trade-off between naivete and reciprocity. When people are concerned about reciprocity, they tend to make fewer random choices.
    Date: 2013–03
  8. By: R. G. Gregory
    Abstract: We discuss selected research contributions of the Melbourne Institute of Applied Economics and Social Research, to fifty years of welfare policy for those of work force age and focus particularly on the policy focus of R. F. Henderson, the inaugural director. Following the spirit of his 1960s poverty research, government, in the mid-1970s, doubled unemployment allowances in real terms and increased pensions by approximately forty per cent. Both income support payments were to be indexed by average wage increases. At the time, unemployment was typically around one per cent and the pension take-up was also limited. Today, income support take-up rates have probably increased five-fold. In response, government has adopted a “make work pay’ policy over the last two decades and indexed allowances for CPI increases and allowances have fallen 25-35 per cent, relative to community living standards. We address a range of questions arising from this experience including, Why has government abandoned the Henderson recommendations? Is there any evidence that a “make work pay” policy is working?
    Keywords: make work pay, welfare policy, indexation of welfare payments
    Date: 2013–03
  9. By: Ashenfelter, Orley (Princeton University); Bloom, David E. (Harvard University); Dahl, Gordon B. (University of California, San Diego)
    Abstract: Do the parties in a typical dispute face incentives similar to those in the classic prisoner's dilemma game? In this paper, we explore whether the costs and benefits of legal representation are such that each party seeks legal representation in the hope of exploiting the other party, while knowing full well that failing to do so will open up the possibility of being exploited. The paper first shows how it is possible to test for the presence of such an incentive structure in a typical dispute resolution system. It then reports estimates of the incentives for the parties to obtain legal representation in wage disputes that were settled by final-offer arbitration in New Jersey. The paper also reports briefly on similar studies of data from discharge grievances, court-annexed disputes in Pittsburgh, and child custody disputes in California. In each case, the data provide evidence that the parties face strong individual incentives to obtain legal representation which makes the parties jointly worse off. Using our New Jersey data, we find that expert agents may well have played a productive role in moderating the biases of their clients, but only early on in the history of the system. Over time, the parties slowly evolved to a non-cooperative equilibrium where the use of lawyers becomes nearly universal, despite the fact that agreeing not to hire lawyers is cheaper and does not appear to alter arbitration outcomes.
    Keywords: prisoner's dilemma, arbitration, lawyers
    JEL: J52 K0
    Date: 2013–02

This nep-hpe issue is ©2013 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.