nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2015‒01‒09
twelve papers chosen by
Erik Thomson
University of Manitoba

  1. On Schumpeter’s 'The Past and Future of Social Sciences'. A Schumpeterian Theory of Scientific Development? By Lucarelli, Stefano; Baron, Hervé
  2. Maximin equilibrium By Ismail M.S.
  3. Schumpeter and the meanings of rationality By Mário Graça Moura
  4. "Outside Money: The Advantages of Owning the Magic Porridge Pot" By L. Randall Wray
  5. Games on concept lattices: Shapley value and core. By Ulrich Faigle; Michel Grabisch; Andres Jiménez-Losada; Manuel Ordóñez
  6. The Shapley Value for Directed Graph Games By Khmelnitskaya, A.; Selçuk, O.; Talman, A.J.J.
  7. Unprecedented Actions: The Federal Reserve’s Response to the Global Financial Crisis in Historical Perspective By Frederic S. Mishkin; Eugene N. White
  8. Capitalism and Inequality Re-Examined By Jon D. Wisman
  9. Allocation Games with Caps: From Captain Lotto to All-Pay Auctions By Sergiu Hart
  10. Relatedness and synergies of kind and scale in the evolution of helping By Lehmann Laurent; Nöldeke Georg; Peña Jorge
  11. Affective States and the Notion of Happiness: A Preliminary Analysis By Welsch Heinz; Jan Kühling
  12. Pareto and Piketty: The Macroeconomics of Top Income and Wealth Inequality By Charles I. Jones

  1. By: Lucarelli, Stefano; Baron, Hervé
    Abstract: The present paper, taking the cue from the Italian translation of Vergangenheit und Zukunft der Sozialwissenschaften (The Past and Future of Social Sciences), a Schumpeter’s book which was not always well understood in the literature, tries to pose some questions about Schumpeter’s work. Firstly: is it possible, starting from that book, to reconstruct a Schumpeterian theory of scientific development? Subsequently: is Vergangenheit und Zukunft only «a brief outline of what first became the Epochen [der Dogmen– und Methodengeschichte] and finally the History of Economic Analysis», as Elizabeth Boody Schumpeter wrote in the Editor’s Introduction (July 1952) to the History of Economic Analysis (p. XXXII), or should it be read as a complement of Epochen and, possibly, History? Lastly: is it correct to say that Schumpeter’s work had the ambitious objective of developing a ‘comprehensive sociology’ as the eminent Japanese scholar Shionoya did?
    Keywords: Schumpeter, social sciences, method, scientific development.
    JEL: A12 B25 B31 B41
    Date: 2014–04–30
  2. By: Ismail M.S. (GSBE)
    Abstract: We introduce a new concept which extends von Neumann and Morgensterns maximin strategy solution by incorporating individual rationality of the players. Maximin equilibrium, extending Nashs value approach, is based on the evaluation of the strategic uncertainty of the whole game. We show that maximin equilibrium is invariant under strictly increasing transformations of the payoffs. Notably, every finite game possesses a maximin equilibrium in pure strategies. Considering the games in von Neumann-Morgenstern mixed extension, we demonstrate that the maximin equilibrium value is precisely the maximin minimax value and it coincides with the maximin strategies in twoperson zerosum games. We also show that for every Nash equilibrium that is not a maximin equilibrium there exists a maximin equilibrium that Pareto dominates it. Hence, a strong Nash equilibrium is always a maximin equilibrium. In addition, a maximin equilibrium is never Pareto dominated by a Nash equilibrium. Finally, we discuss maximin equilibrium predictions in several games including the travelers dilemma.
    Keywords: Noncooperative Games;
    JEL: C72
    Date: 2014
  3. By: Mário Graça Moura (Universidade do Porto, Faculdade de Economia)
    Abstract: This paper discusses various meanings of rationality distinguished by Schumpeter – as well as related concepts like rationalisation – and connects them with widely remarked tensions or dilemmas in his substantive works. The well-known contrast between Schumpeter’s commitment to equilibrium economics and his heterodox, evolutionary vision is analysed on the basis of the notions of ‘rationality of the observer’ and ‘rationality in the observed’, developed in his article on 'The Meaning of Rationality in the Social Sciences'. Schumpeter’s thesis of the obsolescence of the entrepreneurial function is also scrutinised, by investigating the coherence between his conceptions of rationality and of rationalisation. This topic is in turn connected with Schumpeter’s assessment of the socialist calculation debate.
    Keywords: Schumpeter, methodology, ontology, rationality
    JEL: B3 B4
    Date: 2014–11
  4. By: L. Randall Wray
    Abstract: Over the past two decades there has been a revival of Georg Friedrich Knapp's "state money" approach, also known as chartalism. The modern version has come to be called Modern Money Theory. Much of the recent research has delved into three main areas: mining previous work, applying the theory to analysis of current sovereign monetary operations, and exploring the policy space open to sovereign currency issuers. This paper focuses on "outside" money--the currency issued by the sovereign--and the advantages that accrue to nations that make full use of the policy space provided by outside money.
    Keywords: Central Bank Independence; Chartalism; Fiat Money; Functional Finance; Innes; Keynes; Knapp; Modern Money Theory; Outside Money; Sovereign Currency; State Money
    JEL: B1 B2 B3 B5 E5 E6
    Date: 2014–12
  5. By: Ulrich Faigle (Universität zu Köln - Mathematisches Institut); Michel Grabisch (Centre d'Economie de la Sorbonne - Paris School of Economics); Andres Jiménez-Losada (University of Seville - Escuela Superior de Ingenieros); Manuel Ordóñez (University of Seville - Escuela Superior de Ingenieros)
    Abstract: We introduce cooperative TU-games on concept lattices, where a concept is a pair (S,S') with S being a subset of players or objects, and S' a subset of attributes. Any such game induces a game on the set of players/objects, which appears to be a TU-game whose collection of feasible coalitions is a lattice closed under intersection, and a game on the set of attributes. We propose a Shapley value for each type of game, axiomatize it, and investigate the geometrical properties of the core (nonemptiness, boundedness, pointedness, extremal rays).
    Keywords: Cooperation game, restricted cooperation, concept lattice, core, Shapley value.
    JEL: C71
    Date: 2014–10
  6. By: Khmelnitskaya, A.; Selçuk, O. (Tilburg University, Center For Economic Research); Talman, A.J.J. (Tilburg University, Center For Economic Research)
    Abstract: The Shapley value for directed graph (digraph) games, TU games with limited cooperation introduced by an arbitrary digraph prescribing the dominance relation among the players, is introduced. It is defined as the average of marginal contribution vectors corresponding to all permutations that do not violate the subordination of players. We assume that in order to cooperate players may join only coalitions containing no players dominating them. Properties of this solution are studied and a convexity type condition is provided that guarantees its stability with respect to an appropriately defined core concept. An axiomatization for cycle digraph games for which the digraphs are directed cycles is obtained.
    Keywords: TU game; Shapley value; directed graph; dominance structure; core; convexity
    JEL: C71
    Date: 2014
  7. By: Frederic S. Mishkin; Eugene N. White
    Abstract: Interventions by the Federal Reserve during the financial crisis of 2007-2009 were generally viewed as unprecedented and in violation of the rules—notably Bagehot’s rule—that a central bank should follow to avoid the time-inconsistency problem and moral hazard. Reviewing the evidence for central banks’ crisis management in the U.S., the U.K. and France from the late nineteenth century to the end of the twentieth century, we find that there were precedents for all of the unusual actions taken by the Fed. When these were successful interventions, they followed contingent and target rules that permitted pre-emptive actions to forestall worse crises but were combined with measures to mitigate moral hazard.
    JEL: E58 G01 N10 N20
    Date: 2014–12
  8. By: Jon D. Wisman
    Abstract: Ever since capitalism came to be recognized as a new economic system, it has had vociferous critics, of whom none was more wide-ranging than Karl Marx. Marx recognized that behind its ideological patina of freedom, capitalism, like the exploitative systems of slavery and feudalism, was a social system in which a small class extracted from the mass of producers practically all output above that necessary for bare subsistence. An elite's ability to do so was grounded in its monopoly ownership of the means of production. However, Marx, and other critics faulted it for more than its exploitation and extreme inequality. Sharing much with romanticism, they believed that its very institutions of private property and markets corrupt society and its members. Nevertheless, Marx in particular recognized that capitalism, unlike earlier exploitative systems, was radically dynamic, producing unprecedented wealth, while  transforming not only all it inherited from the past, but also its own nature so as to eventually even empower the producers. Yet his anti-private property and anti-market animus led him to believe that empowered producers would abandon these capitalist institutions. He did not imagine that the dynamism, wealth, and potential freedom that capitalism was delivering might have little chance of flourishing in the absence of these institutions. This article claims that Marx and other critics were wrong to fault capitalism's central institutions for the injustices that accompanied them. These institutions are not the problem. Instead it is the inequality that co-evolved with them and enables them to be used for exploitation.
    Keywords: exploitation, Marx, state power, socialism
    JEL: B51 P11 P16
    Date: 2014
  9. By: Sergiu Hart
    Abstract: A Lotto game is a two-person zero-sum game where each player chooses a distribution on nonnegative real numbers with given expectation, so as to maximize the probability that his realized choice is higher than his opponent's. These games arise in various competitive allocation setups (e.g., contests, research and development races, political campaigns, Colonel Blotto games). A Captain Lotto game is a Lotto game with caps, which are upper bounds on the numbers that may be chosen. First, we solve the Captain Lotto games. Second, we show how to reduce all-pay auctions to simpler games—expenditure games—using the solution of the corresponding Lotto games. As a particular application we solve all-pay auctions with unequal caps, which yield a significant increase in the seller's revenue (or, the players' efforts).
    Date: 2014–11
  10. By: Lehmann Laurent; Nöldeke Georg; Peña Jorge (University of Basel)
    Abstract: Relatedness and synergy affect the selection pressure on cooperation and altruism. Although early work investigated the effect of these factors independently of each other, recent efforts have been aimed at exploring their interplay. Here, we contribute to this ongoing synthesis in two distinct but complementary ways. First, we integrate models of <i>n</i>-player matrix games into the direct fitness approach of inclusive fitness theory, hence providing a framework to consider synergistic social interactions between relatives in family and spatially structured populations. Second, we illustrate the usefulness of this framework by delineating three distinct types of helping traits (“whole-group”, “nonexpresser-only” and “expresser-only”), which are characterized by different synergies of kind (arising from differential fitness effects on individuals expressing or not expressing helping) and can be subjected to different synergies of scale (arising from economies or diseconomies of scale). We find that relatedness and synergies of kind and scale can interact to generate nontrivial evolutionary dynamics, such as cases of bistable coexistence featuring both a stable equilibrium with a positive level of helping and an unstable helping threshold. This broadens the qualitative effects of relatedness (or spatial structure) on the evolution of helping.
    Keywords: evolution of helping, relatedness, synergy, inclusive fitness, evolutionary games
    Date: 2014
  11. By: Welsch Heinz (University of Oldenburg, Department of Economics); Jan Kühling (University of Oldenburg, Department of Economics)
    Abstract: Large-scale social surveys typically elicit levels of happiness and/or life satisfaction. This paper studies how such reports of happiness and life satisfaction are related to measures of positive affect (PA) and negative affect (NA). Major findings are the following: (1) PA and NA levels jointly predict happiness better than they predict life satisfaction. (2) PA levels predict happiness better than do NA levels. (3) NA levels predict life satisfaction better than do PA levels. (4) The PA items that predict happiness include those that predict life satisfaction (but not vice versa). (5) The NA items that predict happiness are distinct from those that predict life satisfaction. The study contributes to the literature by characterizing reported happiness and life satisfaction in terms of the specific positive and negative affects involved, thus clarifying their respective affective state content. Finding (4) is consistent with the mediator model of affective and cognitive well-being, according to which people in part directly rely on the affective component to judge life satisfaction. Our results are robust to several methodological strategies, but preliminary with regard to the small sample size (N = 144).
    Keywords: happiness; life satisfaction; positive affect; negative affect; social welfare
    Date: 2014–11
  12. By: Charles I. Jones
    Abstract: Since the early 2000s, research by Thomas Piketty, Emmanuel Saez, and their coathors has revolutionized our understanding of income and wealth inequality. In this paper, I highlight some of the key empirical facts from this research and comment on how they relate to macroeconomics and to economic theory more generally. One of the key links between data and theory is the Pareto distribution. The paper describes simple mechanisms that give rise to Pareto distributions for income and wealth and considers the economic forces that influence top inequality over time and across countries. For example, it is in this context that the role of the famous r-g expression is best understood.
    JEL: E0
    Date: 2014–12

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