nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2014‒07‒28
25 papers chosen by
Erik Thomson
University of Manitoba

  1. Milton Friedmans economics and political economy: an old Keynesian critique By Thomas I. Palley
  2. Who cooperates in repeated games: The role of altruism, inequity aversion, and demographics By Dreber-Almenberg, Anna; Fudenberg, Drew; Rand, David G.
  3. Economists as political philosophers : a critique of normative trade theory By Robert Lepenies
  4. Consistency in Pluralism and Microfoundations By Sheila C Dow
  5. Oskar Lange or how IS-LM came to be interpreted as a Walrasian model By Goulven Rubin
  6. FLOATING A “LIFEBOAT”: THE BANQUE DE FRANCE AND THE CRISIS OF 1889 By Eugene White; Pierre-Cyrille Hautcoeur; Angelo Riva
  7. I Cannot Cheat on You after We Talk By Cristina Bicchieri; Alessandro Sontuoso; ;
  8. Countervailing Conflict Interventions as a (Potentially Preventable) Prisoner’s Dilemma Outcome By Dulal, Rajendra
  9. What is ambiguity? By AMARANTE, Massimiliano
  10. It's A Sin - Contraceptive Use, Religious Beliefs, and Long-Run Economic Development By Prettner, Klaus; Strulik, Holger
  11. Field Theory of Macroeconomics By Heribert Genreith
  12. Shifting Mandates: The Federal Reserve's First Centennial By Reinhart, Carmen M.; Rogoff, Kenneth S.
  13. Delayed-response strategies in repeated games with observation lags By Fudenberg, Drew; Ishii, Yuhta; Kominers, Scott Duke
  14. Corruption, Intimidation, and Whistle-blowing: a Theory of Inference from Unverifiable Reports By Sylvain Chassang; Gerard Padró i Miquel
  15. From Resilient Regions to Bioregions: An Exploration of Green Post-Keynesianism By Rhydian Fôn James; Molly Scott Cato
  16. What Goes Up Must Come Down? Experimental Evidence on Intuitive Forecasting By Beshears, John Leonard; Choi, James J; Fuster, Andreas; Laibson, David I.; Madrian, Brigitte
  17. Bribing in First-Price Auctions: Corrigendum By Kotowski, Maciej Henryk; Rachmilevitch, Shiran
  18. A Note on Kuhn’s Theorem with Ambiguity Averse Players By Aryal, Gaurab; Stauber, Ronald
  19. Behavior in Contests By Sheremeta, Roman
  20. Valuing Compromise for the Common Good By Gutmann, Amy; Thompson, Dennis F.
  21. Economic Science: From the Ideal Gas Law Economy to Piketty and Beyond By Song, Edward
  22. National Happiness and Genetic Distance: A Cautious Exploration By Proto, Eugenio; Oswald, Andrew J.
  23. An Interview with Kotaro Suzumura By Bossert, Walter; Fleurbaey, Marc
  24. Does corruption erode trust in government? Evidence from a recent surge of local scandals in Spain By Albert Solé-Ollé; Pilar Sorribas-Navarro
  25. Good Disclosure, Bad Disclosure By Liyan Yang; Itay Goldstein

  1. By: Thomas I. Palley
    Abstract: Milton Friedman's influence on the economics profession has been enormous. In part, his success was due to political forces that have made neoliberalism the dominant global ideology, but Friedman also rode those forces and contributed to them. Friedman's professional triumph is testament to the weak intellectual foundations of the economics profession which accepted ideas that are conceptually and empirically flawed. His success has taken economics back in a pre-Keynesian direction and squeezed Keynesianism out of the academy. Friedman's thinking also frames so-called new Keynesian economics which is simply new classical macroeconomics with the addition of imperfect competition and nominal rigidities. By enabling the claim that macroeconomics is fully characterized by a divide between new Keynesian and new classical macroeconomics, new Keynesianism closes the pincer that excludes old Keynesianism. As long as that pincer holds, economics will remain under Friedman's shadow.
    Keywords: Friedman, monetarism, new classical macroeconomics, new Keynesian, neoliberalism
    Date: 2014
  2. By: Dreber-Almenberg, Anna; Fudenberg, Drew; Rand, David G.
    Abstract: We explore the extent to which altruism, as measured by giving in a dictator game (DG), accounts for play in a noisy version of the repeated prisoner's dilemma. We find that DG giving is correlated with cooperation in the repeated game when no cooperative equilibria exist, but not when cooperation is an equilibrium. Furthermore, none of the commonly observed strategies are better explained by inequity aversion or efficiency concerns than money maximization. Various survey questions provide additional evidence for the relative unimportance of social preferences. We conclude that cooperation in repeated games is primarily motivated by long-term payoff maximization and that even though some subjects may have other goals, this does not seem to be the key determinant of how play varies with the parameters of the repeated game. In particular, altruism does not seem to be a major source of the observed diversity of play.
    Date: 2014
  3. By: Robert Lepenies
    Abstract: Economists are political philosophers. This claim is defended based on an investigation of normative arguments made in economics textbooks. The paper aims to explain, reconstruct and contest the neoclassical vision implicit in mainstream economic trade theory. Analyzing arguments made by international economists from the perspective of political philosophy, I show how the contemporary defence of free markets and trade liberalization is linked to a specific normative ideal of the political and social good.
    Keywords: Political philosophy, Neoclassical economics, Normative trade theory, Free trade, Efficiency
    JEL: A12 A13 B21 B50 D60 F11
    Date: 2014–06
  4. By: Sheila C Dow (University of Stirling)
    Abstract: John King has made challenging contributions to our thinking in many areas. This paper focuses on two of these: the case for pluralism and the case against requiring macroeconomic theory to be expressed in terms of its microfoundations. The purpose of this paper is to explore further the relationship between the two, requiring discussion of the relationship between the different levels of philosophy, methodology, theory and reality. A particular focus is put on the role of the concept of consistency in these two papers. This concept is explored further here at different levels and according to different methodological approaches. The contrast is drawn between its meaning in classical logic and in human logic.
    Keywords: consistency, pluralism, microfoundations
    JEL: B4 B5
    Date: 2014–07
  5. By: Goulven Rubin (EQUIPPE - ECONOMIE QUANTITATIVE, INTEGRATION, POLITIQUES PUBLIQUES ET ECONOMETRIE - Université Lille I - Sciences et technologies - Université Lille II - Droit et santé - Université Lille III - Sciences humaines et sociales - PRES Université Lille Nord de France)
    Abstract: A few years after the publication of The General Theory, a number of economists began to present Keynes's model, identified with IS-LM, as a particular case of the Walrasian model. This view of IS-LM has often been rationalized by a basic syllogism: IS-LM was invented by John Hicks, Hicks was a Walrasian, hence IS-LM was Walrasian. But as some historians of macroeconomics have shown, this syllogism is false. Considering this confusion as an established fact, this article studies how and why IS-LM came to be considered as Walrasian. It shows that the standard view took its roots in "The Rate of Interest and the Optimum Propensity to Consume", a paper published by Oskar Lange in 1938, and resulted from a need to clarify the foundations of Keynes's theory.
    Keywords: IS-LM; Oskar Lange; History of macroeconomics; John R. Hicks; Neoclassical Synthesis
    Date: 2014–06–30
  6. By: Eugene White (Rutgers University and NBER); Pierre-Cyrille Hautcoeur (Paris School of Economics and EHESS); Angelo Riva (European Business School)
    Abstract: When faced with a run on a “systemically important” but insolvent bank in 1889, the Banque de France pre-emptively organized a lifeboat to ensure that depositors were protected and an orderly liquidation could proceed. To protect the Banque from losses on its lifeboat loan, a guarantee syndicate was formed, penalizing those who had participated in the copper speculation that had caused the crisis bringing the bank down. Creation of the syndicate and other actions were consistent with mitigating the moral hazard from such an intervention. This episode contrasts the advice given by Bagehot to the Bank of England to counter a panic by lending freely at a high rate on good collateral, allowing insolvent institutions to fail.
    Keywords: crisis
    JEL: E58
    Date: 2014–05–25
  7. By: Cristina Bicchieri; Alessandro Sontuoso (Philosophy, Politics and Economics, University of Pennsylvania); ;
    Abstract: This is a draft of a chapter in a planned book on the Prisoner’s Dilemma, edited by Martin Peterson, to be published by Cambridge University Press. - Experimental evidence on pre-play communication supports a “focusing function of communication” hypothesis. Relevant communication facilitates cooperative, pro-social behavior because it causes a shift in individuals’ focus towards strategies dictated by some salient social norm. After reviewing the formal foundations for a general theory of conformity to social norms, we provide an original application illustrating how a framework that allows for different conjectures about norms is able to capture the focusing function of communication and to explain experimental results.
    Keywords: social norms, social dilemmas
    JEL: C72 C92
    Date: 2014–07
  8. By: Dulal, Rajendra
    Abstract: Scholars and policymakers have devoted much attention to issues of third party intervention in conflict. The present paper considers a conflict that draws two countervailing outside interveners. As in the realist perspective, the outside parties are drawn to intervene through some economic or geostrategic interest that would be promoted through the victory of an ally. Using a simple game theoretic model, I find conditions under which outside interveners fall prey to a Prisoner’s Dilemma outcome and become worse off through their own intervention. This result brings into question the desirability of escalatory conflict intervention. The paper also studies conditions required for the United Nations, or some such supra-national institution, to prevent a Prisoner’s Dilemma outcome and successfully deter escalatory bilateral intervention. The findings show that the United Nations can alter the game equilibrium, and deter escalatory intervention, by imposing sufficient costs on the intervening parties.
    Keywords: Conflict, Prisoner's Dilemma , Game theory
    JEL: F51
    Date: 2013–10
  9. By: AMARANTE, Massimiliano
    Abstract: The concept of Ambiguity designates those situations where the information available to the decision maker is insufficient to form a probabilistic view of the world. Thus, it has provided the motivation for departing from the Subjective Expected Utility (SEU) paradigm. Yet, the formalization of the concept is missing. This is a grave omission as it leaves non-expected utility models hanging on a shaky ground. In particular, it leaves unanswered basic questions such as: (1) Does Ambiguity exist?; (2) If so, which situations should be labeled as ‘ambiguous’?; (3) Why should one depart from Subjective Expected Utility (SEU) in the presence of Ambiguity?; and (4) If so, what kind of behavior should emerge in the presence of Ambiguity? The present paper fills these gaps. Specifically, it identifies those information structures that are incompatible with SEU theory, and shows that their mathematical properties are the formal counterpart of the intuitive idea of insufficient information. These are used to give a formal definition of Ambiguity and, consequently, to distinguish between ambiguous and unambiguous situations. Finally, the paper shows that behavior not conforming to SEU theory must emerge in correspondence of insufficient information and identifies the class of non-EU models that emerge in the face of Ambiguity. The paper also proposes a new comparative definition of Ambiguity, and discusses its relation with some of the existing literature.
    Keywords: Non-expected utility, Information, Ambiguity
    JEL: D81
    Date: 2014
  10. By: Prettner, Klaus (Department of Economics); Strulik, Holger (Department of Business and Economics)
    Abstract: This study presents a novel theory on the interaction of social norms, fertility, education, and their joint impact on long-run economic development. The theory takes into account that sexual intercourse is utility enhancing and that the use of modern contraceptives potentially conflicts with prevailing social norms (religious beliefs). The theory motivates the existence of two steady states. At the traditional steady state, the economy stagnates, fertility is high, education is minimal, and the population sustains a norm according to which modern contraceptives are not used. At the modern steady state, the population has abandoned traditional beliefs, modern contraceptives are used, fertility is low and education and economic growth are high. Social dynamics explain why both equilibria are separated by a saddlepoint-equilibrium (a separatrix), i.e. why it is so hard to transit from the traditional regime to the modern regime. Enhancing the value of education is identified as a promising policy to encourage contraceptive use and to initiate the take-off to long-run growth.
    Keywords: Religion; fertility; sex; contraceptive use; education; economic growth
    JEL: I25 J10 O40 Z12
    Date: 2014–07–07
  11. By: Heribert Genreith
    Abstract: In this article we will show that the Macro-Economy and its growth can be modelled and explained exactly in principle by commonly known Field Theory from theoretical physics. We will show the main concepts and calculations needed and show that calculation and prediction of economic growth then gets indeed possible in Dollars and Cents. As every field theory it is based on an equation of continuity, which in economic terms means the full balance of all sources and sinks of Capital (Assets) and real Goods (GDP) in the bulk. Uniqueness of field theory of macroeconomics then can be derived from adapting Noether's Theorems, which is based on the notion of invariants to derive unique field equations. We will show that the only assumption which is needed for a self-consistent non-linear macro-economic theory is that the well known Quantity Equation, used in corrected formulation, holds at least locally in time.
    Date: 2014–05
  12. By: Reinhart, Carmen M.; Rogoff, Kenneth S.
    Abstract: The Federal Reserve's mandate has evolved considerably over the organization's hundred-year history. It was changed from an initial focus in 1913 on financial stability, to fiscal financing in World War II and its aftermath, to a strong anti-inflation focus from the late 1970s, and then back to greater emphasis on financial stability since the Great Contraction. Yet, as the Fed's mandate has expanded in recent years, its range of instruments has narrowed, partly based on a misguided belief in the inherent stability of financial markets. We argue for a return to multiple instruments, including a more active role for reserve requirements.
    Date: 2013
  13. By: Fudenberg, Drew; Ishii, Yuhta; Kominers, Scott Duke
    Abstract: We extend the folk theorem of repeated games to two settings in which players' information about others' play arrives with stochastic lags. In our first model, signals are almost-perfect if and when they do arrive, that is, each player either observes an almost-perfect signal of period-t play with some lag or else never sees a signal of period-t play. The second model has the same lag structure, but the information structure corresponds to a lagged form of imperfect public monitoring, and players are allowed to communicate via cheap-talk messages at the end of each period. In each case, we construct equilibria in “delayed-response strategies,†which ensure that players wait long enough to respond to signals that with high probability all relevant signals are received before players respond. To do so, we extend past work on private monitoring to obtain folk theorems despite the small residual amount of private information.
    Date: 2014
  14. By: Sylvain Chassang; Gerard Padró i Miquel
    Abstract: We consider a game between a principal, an agent, and a monitor in which the principal would like to rely on messages by the monitor to target intervention against a misbehaving agent. The difficulty is that the agent can credibly threaten to retaliate against likely whistleblowers in the event of an intervention. In this setting intervention policies that are very responsive to the monitor's message provide very informative signals to the agent, allowing him to shut down communication channels. Successful intervention policies must garble the information provided by monitors and cannot be fully responsive. We show that even if hard evidence is unavailable and monitors have heterogeneous incentives to (mis)report, it is possible to establish robust bounds on equilibrium corruption using only non-verifiable reports. Our analysis suggests a simple heuristic to calibrate intervention policies: first get monitors to complain, then scale up enforcement while keeping the information content of intervention constant.
    JEL: D73 D82 D86
    Date: 2014–07
  15. By: Rhydian Fôn James (Bangor University); Molly Scott Cato
    Abstract: TThis paper develops an answer to the question of what constitutes a resilient region (Bristow, 2010) by arguing that the resilient region can be seen as a prototype bioregion. The transition from a proto-bioregion to a bioregion, and thus from proto-bioregionalism to bioregionalism proper, is examined. The paper begins with a review of the existing literature on regional resilience. The authors then explore the possible heterodox theoretical underpinnings of this approach, drawing on post-Keynesian, Marxian and green economy concepts. The paper’s final section extends the theory to a bioregional conclusion, and discusses the policy approaches that might be applied to extend a resilient region into a bioregion.
    Keywords: bioregion; green economy; resilient regions; post-Keynesian
    JEL: P16 R1 Q57 B50
    Date: 2014–07
  16. By: Beshears, John Leonard; Choi, James J; Fuster, Andreas; Laibson, David I.; Madrian, Brigitte
    Abstract: Do laboratory subjects correctly perceive the dynamics of a mean-reverting time series? In our experiment, subjects receive historical data and make forecasts at different horizons. The time series process that we use features short-run momentum and long-run partial mean reversion. Half of the subjects see a version of this process in which the momentum and partial mean reversion unfold over ten periods ("fast"), while the other subjects see a version with dynamics that unfold over 50 periods ("slow"). Typical subjects recognize most of the mean reversion of the fast process and none of the mean reversion of the slow process.
    Date: 2013
  17. By: Kotowski, Maciej Henryk; Rachmilevitch, Shiran
    Abstract: We clarify the sufficient condition for a trivial equilibrium to exist in the model of Rachmilevitch (2013). Rachmilevitch (2013), henceforth R13, studies the following game. Two ex ante identical players are about to participate in an independent-private-value first-price, sealed bid auction for one indivisible object. After the risk-neutral players learn their valuations but prior to the actual auction, player 1 can offer a take-it-or-leave-it (TIOLI) bribe to his opponent in exchange for the opponent dropping out of the contest. If the offer is accepted, player 1 is the only bidder and obtains the item for free; otherwise, both players compete non-cooperatively in the auction as usual. This is called the first-price TIOLI game.1 R13 shows that under the restriction to continuous and monotonic bribing strategies for player 1, any equilibrium of this game must be trivial—the equilibrium bribing function employed by player 1, if it is continuous and non-decreasing, must be identically zero. In this note, we clarify the sufficient conditions under which a trivial equilibrium exists. These are less stringent than originally proposed.
    Date: 2013
  18. By: Aryal, Gaurab; Stauber, Ronald
    Abstract: Kuhn’s Theorem shows that extensive games with perfect recall can equivalently be analyzed using mixed or behavioral strategies, as long as players are expected utility maximizers. This note constructs an example that illustrates the limits of Kuhn’s Theorem in an environment with ambiguity averse players who use a maxmin decision rule and full Bayesian updating.
    Keywords: Extensive games; Ambiguity; Maxmin; Dynamic consistency
    JEL: C72 D81
    Date: 2014–06–17
  19. By: Sheremeta, Roman
    Abstract: Standard theoretical prediction is that rational economic agents participating in rent-seeking contests should engage in socially inefficient behavior by exerting costly efforts. Experimental studies find that the actual efforts of participants are significantly higher than predicted and that over-dissipation of rents (or overbidding or over-expenditure of resources) can occur. Although the standard theory cannot explain over-dissipation, this phenomenon can be explained by incorporating behavioral dimensions into the rent-seeking contest, such as (1) the utility of winning, (2) relative payoff maximization, (3) bounded rationality, and (4) judgmental biases. These explanations are not exhaustive, but they provide a coherent picture of important behavioral dimensions that should be considered when studying rent-seeking behavior in theory and in practice.
    Keywords: rent-seeking, contests, experiments, overbidding, over-dissipation
    JEL: C72 C91 C92 D72 D74
    Date: 2014–07–01
  20. By: Gutmann, Amy; Thompson, Dennis F.
    Abstract: Pursuing the common good in a pluralist democracy is not possible without making compromises. Yet the spirit of compromise is in short supply in contemporary American politics. The permanent campaign has made compromise more difficult to achieve, as the uncompromising mindset suitable for campaigning has come to dominate the task of governing. To begin to make compromise more feasible and the common good more attainable, we need to appreciate the distinctive value of compromise and recognize the misconceptions that stand in its way. A common mistake is to assume that compromise requires finding the common ground on which all can agree. That undermines more realistic efforts to seek classic compromises, in which each party gains by sacrificing something valuable to the other, and together they serve the common good by improving upon the status quo. Institutional reforms are desirable, but they, too, cannot get off the ground without the support of leaders and citizens who learn how and when to adopt a compromising mindset.
    Date: 2013
  21. By: Song, Edward
    Abstract: I start with income and wealth inequality data from the Congressional Budget Office (CBO) and Thomas Piketty, and propose approaches taken from science (for example, behavioral evolution theory,) that might be useful in explaining the data and forecasting future economic events. Using a modified production function developed by Robert Solow, I also explore redistributive effects of income when biological restrictions lead to minimum expenditure requirements and satiation conditions. I conclude that redistributing income from the wealthy to the poor can have counter-cyclical effects in recessions. Moreover, redistribution in the form of human capital can have particularly large positive economic growth effects. Finally, I explain how financial crisis may lead to large economic downturns by proposing a model where productive capital formation is dependent on debt financing.
    Keywords: Macroeconomics, Behavioral Macroeconomics, Econophysics.
    JEL: E21 E22 E23 E27 E3 E32 Y90
    Date: 2014–07–16
  22. By: Proto, Eugenio (University of Warwick); Oswald, Andrew J. (University of Warwick)
    Abstract: This paper examines a famous puzzle in social science. Why do some nations report such high happiness? Denmark, for instance, regularly tops the league table of rich nations' well-being; Great Britain and the US enter further down; France and Italy do relatively poorly. Yet the explanation for this ranking – one that holds even after adjustment for GDP and socio-economic and cultural variables – remains unknown. We explore a new avenue. Using data on 131 countries, we document a range of evidence consistent with the hypothesis that certain nations may have a genetic advantage in well-being.
    Keywords: well-being, international, happiness, genes, GDP
    JEL: I30 I31
    Date: 2014–07
  23. By: Bossert, Walter; Fleurbaey, Marc
    Date: 2014–06
  24. By: Albert Solé-Ollé (Universitat de Barcelona & IEB); Pilar Sorribas-Navarro (Universitat de Barcelona & IEB)
    Abstract: We examine whether a corruption scandal in which the incumbent is implicated undermines trust in local government. We use a novel dataset containing information on local corruption scandals reported in Spain during the period 1999-2009, and data on the level of trust expressed in local politicians drawn from a new survey conducted in late 2009. We use matching methods to improve the identification of the effect of corruption scandals on trust, comparing municipalities affected by a scandal with those presenting similar traits but in which no scandal had been reported. We find that corruption scandals have a marked negative effect on trust in local politicians. This effect is even more marked in the case of individuals that have no ideological attachment to the party accused of corruption and/or who obtain their information from the media. Several falsification tests, based on a sample of corruption scandals reported after the survey had been conducted, confirm the causal interpretation of these results.
    Keywords: Corruption, trust
    JEL: P16 D72
    Date: 2014
  25. By: Liyan Yang (Joseph L. Rotman School of Management); Itay Goldstein (University of Pennsylvania)
    Abstract: We study the real-efficiency implications of public information in a model where relevant decision makers learn from the financial market to guide their actions. Whether disclosure is "good" or "bad" depends on the interactions between two effects on real decision makers' forecast. Disclosure has a positive direct effect of providing new information, and it also has an indirect effect of changing the price informativeness. If disclosure is about a variable of which real decision makers are well informed, then the indirect effect is also positive, and overall disclosure improves real efficiency. If disclosure is about a variable that real decision markers care to learn much, then the indirect effect is negative, and it dominates the positive direct effect if and only if the market aggregates information effectively.
    Date: 2014

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