nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2014‒09‒25
fifteen papers chosen by
Erik Thomson
University of Manitoba

  1. Application of Minsky’s theory to state-dominated economies By Yulia Vymyatnina; Mikhail Pakhnin
  2. The Life and Work Of Martin Stuart (“Marty”) Feldstein By Charles Yuji Horioka
  3. One Hundred Years Ago - Economic Theory in 1914 By K.Vela Velupillai
  4. Classical Competition and Freedom of Contract in American Laissez Faire Constitutionalism By Nicola Giocoli
  5. Nash equilibria of games when players'preferences are quasi-transitive By Basu, Kaushik; Pattanaik, Prasanta K.
  6. Strongly Symmetric Equilibria in Bandit Games By Hörner, Johannes; Klein, Nicolas; Rady, Sven
  7. On the Cambridge, England, Critique of the Marginal Productivity Theory of Distribution By Geoff C. Harcourt
  8. A Global Game with Strategic Substitutes and Complements: Comment By Eric Hoffmann; Tarun Sabarwal
  9. Cooperation and Institution in Games By Okada, Akira
  10. How Central Banks End Crises By Gary B. Gorton; Guillermo L. Ordoñez
  11. The Liberal Ethics of Non-Interference and the Pareto Principle By Mariotti, Marco; Veneziani, Roberto
  12. The Social Evolution of Terror and Genocide across Time and Geographic Space: Perspectives from Evolutionary Game Theory By Charles Anderton
  13. Sicily and the development of Econophysics: the pioneering work of Ettore Majorana and the Econophysics Workshop in Palermo By Rosario N. Mantegna
  14. Daniel Kahneman, un psychologue en territoire économique By Frederic Teulon
  15. What is trustworthiness and what drives it? By James C. Cox; Rudolf Kerschbamer; Daniel Neururer

  1. By: Yulia Vymyatnina; Mikhail Pakhnin
    Abstract: The global financial crisis of 2007–2008, consequences of which continue to adversely affect the world economy, is often called a ‘Minsky crisis’. A prominent American economist Hyman Philip Minsky studied capitalist economic system paying special attention to its major properties, in particular, instability and high importance of money. He developed a consistent way to explain the nature of economic crises, which, according to him, are generated through financial mechanisms. Minsky’s financial instability hypothesis states that the fragility of financial system increases in periods of booms and thus crises arise from the very structure of business cycles. In this paper we give a short review of Minsky’s ideas and show that the last financial crisis could be persuasively explained in the framework of financial instability hypothesis. Moreover, we provide the extension of Minsky’s hypothesis and apply his insights to the ‘state-dominated economies’. Interesting and vivid examples of such economies are modern Russian economy (characterized by weak institutions, resource curse and dominance of state-related companies in the financial as well as non-financial sectors) and planned economy of the Soviet Union. We analyze the financial crisis 2008–2009 in Russia and the breakdown of the USSR and argue that these events could be interpreted along Minsky’s line of argument.
    Keywords: Hyman Minsky, financial crisis, financial instability hypothesis, endogenous money, planned economies, fall of the USSR, theory of money, business cycles, Minsky moment
    JEL: B50 E12 E32 E42 E44 E5 E60 G01 P2
    Date: 2014–08–22
  2. By: Charles Yuji Horioka (School of Economics, University of the Philippines Diliman)
    Abstract: Martin Stuart (“Marty”) Feldstein, currently George F. Baker Professor of Economics at Harvard University and President Emeritus of the National Bureau of Economic Research, Inc. (NBER), is a renowned American economist who has made important contributions to public finance, macroeconomics, social insurance, health economics, the economics of national security, and many other fields of economics.
    Keywords: Capital accumulation, capital flows, capital gains, capital mobility, charitable contributions, Council of Economic Advisers, depreciation, Feldstein-Horioka paradox, Feldstein-Horioka puzzle, Harvard University, health economics, health insurance
    JEL: B31 D14 D22 F21 F32 F52 H20 H55 I13 J65
    Date: 2014–07
  3. By: K.Vela Velupillai
    Date: 2014
  4. By: Nicola Giocoli
    Abstract: It is impossible to tell the history of American antitrust law and economics during the so-called formative era (1890- 1915) without a preliminary understanding of the economic rationale underlying that major phase of American constitutional law commonly called laissez faire constitutionalism, or Lochner era. The essay is a preliminary effort to locate such a rationale in the almost perfect overlap between classical political economy, especially the notion of competition as the supreme organizing principle of thriving societies, and classical liberalism, in particular the notion of liberty of contract. It is argued that the well-known Progressive interpretation of the Lochner era fails to recognize the true meaning and extent of this overlap. The protagonists of our story are economists Adam Smith, John Stuart Mill and Francis Wayland, and Supreme Court Justices James Wilson, Oliver Wendell Holmes and Rufus Peckham.
    Date: 2014–06–10
  5. By: Basu, Kaushik; Pattanaik, Prasanta K.
    Abstract: Much of game theory is founded on the assumption that individual players are endowed with preferences that can be represented by a real-valued utility function. However, in reality human preferences are often not transitive. This is especially true for the indifference relation, which can lead an individual to make a series of choices which in their totality would be viewed as erroneous by the same individual. There is a substantial literature that raises intricate questions about individual liberty and the role of government intervention in such contexts. The aim of this paper is not to go into these ethical matters but to provide a formal structure for such analysis by characterizing games where individual preferences are quasi-transitive. The paper identifies a set of axioms which are sufficient for the existence of Nash equilibria in such'games.'
    Keywords: Disease Control&Prevention,Economic Theory&Research,Teaching and Learning,Information Security&Privacy,Biodiversity
    Date: 2014–09–01
  6. By: Hörner, Johannes; Klein, Nicolas; Rady, Sven
    Abstract: This paper studies strongly symmetric equilibria (SSE) in continuous-time games of strategic experimentation with Poisson bandits. SSE payoffs can be studied via two functional equations similar to the HJB equation used for Markov equilibria. This is valuable for three reasons. First, these equations retain the tractability of Markov equilibrium, while allowing for punishments and rewards: the best and worst equilibrium payoff are explicitly solved for. Second, they capture behavior of the discrete-time game: as the period length goes to zero in the discretized game, the SSE payoff set converges to their solution. Third, they encompass a large payoff set: there is no perfect Bayesian equilibrium in the discrete-time game with frequent interactions with higher asymptotic efficiency.
    Keywords: Two-Armed Bandit; Bayesian Learning; Strategic Experimentation; Strongly Symmetric Equilibrium
    JEL: C73 D83
    Date: 2014–08–17
  7. By: Geoff C. Harcourt (School of Economics, Australian School of Business, the University of New South Wales)
  8. By: Eric Hoffmann (Department of Economics, The University of Kansas); Tarun Sabarwal (Department of Economics, University of Kansas)
    Abstract: In a 2007 paper, "A global game with strategic substitutes and complements", by Karp, L., I.H. Lee, and R. Mason, Games and Economic Behavior, 60(1), 155-175, an argument is made to show existence of Bayesian-Nash equilibrim in global games that may include both strategic substitutes and complements. This note documents a gap in the proof of that statement.
    Date: 2014–09
  9. By: Okada, Akira
    Abstract: Based on recent developments in non-cooperative coalitional bargaining theory, I review game theoretical analyses of cooperation and institution. The first part presents basic results of the random-proposer model and applies them to the problem of involuntary unemployment in a labor market. Extensions to cooperative games with externality and incomplete information are discussed. The second part considers enforceability of an agreement as an institutional foundation of cooperation. I re-examine the contractarian approach to the problem of cooperation under the view that individuals may voluntarily create an enforcement institution.
    JEL: C71 C72 C78 D02
    Date: 2014–09
  10. By: Gary B. Gorton (Yale School of Management, National Bureau of Economic Research); Guillermo L. Ordoñez (Department of Economics, University of Pennsylvania, National Bureau of Economic Research)
    Abstract: To end a financial crisis, the central bank is to lend freely, against good collateral, at a high rate, according to Bagehot’s Rule. We argue that in theory and in practice there is a missing ingredient to Bagehot’s Rule: secrecy. Re-creating confidence requires that the central bank lend in secret, hiding the identities of the borrowers, to prevent information about individual collateral from being produced and to create an information externality by raising the perceived value of average collateral. Ironically, the participation of "bad" borrowers, with low quality collateral, in the central bank’s lending program is a desirable part of re-creating confidence because it creates stigma. Stigma is critical to sustain secrecy because no borrower wants to reveal his participation in the lending program, and it is limited by the central bank charging a high rate for its loans.
    Keywords: Central Bank, Discount Window, Financial Crisis, Confidence
    JEL: E32 E44 E58
    Date: 2014–09–02
  11. By: Mariotti, Marco; Veneziani, Roberto
    Abstract: We analyse the liberal ethics of non-interference applied to social choice. A liberal principle capturing noninterfering views of society and inspired by John Stuart Mill s conception of liberty, is examined. The principle captures the idea that society should not penalise agents after changes in their situation that do not a¤ect others. An impossibility for liberal approaches is highlighted: every social decision rule that satis es unanimity and a general principle of noninterference must be dictatorial. This raises some important issues for liberal approaches in social choice and political philosophy.
    Keywords: Liberalism, Harm Principle, Non-Interference, Impossibility,
    Date: 2014
  12. By: Charles Anderton (Department of Economics and Accounting, College of the Holy Cross)
    Abstract: This article uses evolutionary game theory to reveal the interpersonal and geographic characteristics of a society that make it vulnerable to a conquest from within by terrorist organizations and genocide architects. Under conditions identified in the space-less version of the model, entrepreneurs of violence can create the social metamorphosis of a peaceful people group into one that supports or does not resist violence against an out-group. The model is extended into geographic space by analyzing interactions among peaceful and aggressive phenotypes in Moore and von Neumann neighborhoods. The model also reveals policy interventions in which the social evolution of aggression never gets started or comes to a halt if already underway.
    Keywords: Terrorism, Terrorism, Genocide, Game Theory
    JEL: C73 D74 H56
    Date: 2014–09
  13. By: Rosario N. Mantegna
    Abstract: Sicily has played an important role in the development of the new research area named "Econophysics". In fact some key ideas supporting this new hybrid discipline were originally formulated in a pioneering work of the Sicilian born physicist Ettore Majorana. The article he wrote was entitled "The value of statistical laws in physics and social sciences". I will discuss its origin and history that has been recently discovered in the study of Stefano Roncoroni. This recent study documents the true reasons and motivations that triggered the pioneering work of Majorana. It also shows that the description of this work provided by Edoardo Amaldi was shallow and misleading. In the second part of the talk I will recollect the first years of development of econophysics and in particular the role of the "International Workshop on Econophysics and Statistical Finance" held in Palermo on 28-30 September 1998 and the setting in 1999 of the "Observatory of Complex Systems" the research group on Econophysics of Palermo University and Istituto Nazionale di Fisica della Materia.
    Date: 2014–09
  14. By: Frederic Teulon
    Abstract: Daniel Kahneman est un psychologue et économiste américain, spécialiste de l’étude des comportements en situation d’incertitude. Il a conduit ses principaux travaux avec Amos Tversky. Il a reçu le prix Nobel d’économie 2002. Les deux articles fondateurs de Kahneman et Tversky (1974 et 1979) ont donné à la psychologie économique expérimentale ses lettres de noblesse.
    Keywords: Bien-être (évaluation du), Choix (théorie des), Daniel Kahneman, Economie expérimentale, Incertitude, Prospect theory, Psychologie économique, Rationalité limitée.
    Date: 2014–09–01
  15. By: James C. Cox; Rudolf Kerschbamer; Daniel Neururer
    Abstract: This paper reports the results of experiments designed to isolate the impact of various combinations of the following motives on trustworthiness: (i) unconditional other-regarding preferences - like altruism, inequality aversion, quasi-maximin, etc.; (ii) deal-responsiveness - reacting to actions that allow for a mutual improvement by adopting behavior that implies a mutual improvement; (iii) gift-responsiveness - reacting to choices that allow the trustee to obtain an improvement by adopting actions that benefit the trustor; and (iv) vulnerability-responsiveness - reacting to the vulnerability of the trustor by adopting actions that do not hurt the trustor. Our results indicate that - besides unconditional other-regarding preferences - vulnerability-responsiveness is an important determinant of trustworthiness even in cases where the vulnerability of the trustor does not come together with a gift to the trustee. Motivated by our empirical findings we provide formal definitions of trust and trustworthiness based on revealed willingness to accept vulnerability and the response to it.
    Keywords: trustworthiness, trust, trust game, investment game, deal-responsiveness, gift-responsiveness, vulnerability-responsiveness, generosity, reciprocity
    JEL: C70 C91 D63 D64
    Date: 2014–09

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