nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2015‒03‒22
24 papers chosen by
Erik Thomson
University of Manitoba

  1. Frederic S. Lee’s contributions to heterodox economics By Tae-Hee Jo; Zdravka Todorova
  2. Heterodox economics, social ontology, and the use of mathematics By Mark Setterfield
  3. The liquidity preference theory: a critical analysis By Giancarlo Bertocco; Andrea Kalajzic
  4. A Global Game with Strategic Substitutes and Complements: Note By Eric Hoffmann; Tarun Sabarwal
  5. Essentials of Constructive Heterodoxy: Employment By Kakarot-Handtke, Egmont
  6. Theories of finance and financial crisis: Lessons for the Great Recession By Dodig, Nina; Herr, Hansjörg
  7. The Jurisdiction of the Man Within – Introspection, Identity, and Cooperation in a Public Good Experiment By Christoph Engel; Michael Kurschilgen
  8. Das zukünftige Verhältnis von Kapitalismus und Demokratie aus ökonomischer Sicht By Gebhard Kirchgässner
  9. Systems and systemic risk in finance and economics By Jean-Pierre Zigrand
  10. The Demise of Marx’s Labour Theory of Value and the ‘New Interpretation’: A Recap Note By Ernesto Screpanti
  11. Garegnani on a way to avoid the value capital endowment in Wicksell (1898) By Fabio Petri
  12. The Economics of Ethical Consumption By Martha A. Starr
  13. Trends of Rent-seeking Theory By Latkov, Andrey
  14. The formal-informal economy dualism in a retrospective of economic thought since the 1940s By Clement, Christine
  15. Friedrich Hayek and his Visitis to Chile By Leonidas Montes; Bruce Caldwell
  16. The Institutions of Roman Markets By Benito Arruñada
  17. A critique of full reserve banking By Sheila Dow; Guðrún Johnsen; Alberto Montagnoli
  18. Taxes on risky returns — an update By Wolfgang Buchholz; Kai A. Konrad
  19. Gordon Tullock's theory of dictatorship and revolution By Apolte, Thomas
  20. The role of proximity and social comparisons on subjective well-being By Elena Bárcena-Martín; Cortés Aguilar Alexandra; Ana I. Moro Egido
  21. The value of information under unawareness By Galanis, Spyros
  22. The victim matters: Experimental evidence on lying, moral costs and moral cleansing By Meub, Lukas; Proeger, Till; Schneider, Tim; Bizer, Kilian
  23. Toward a Theory of Human Security By Tanaka, Akihiko
  24. Uncertain Rationality and Robustness in Games with Incomplete Information By Fabrizio Germano; Peio Zuazo-Garin

  1. By: Tae-Hee Jo (SUNY Buffalo State); Zdravka Todorova
    Abstract: The community of heterodox economists has lost Fred Lee, one of its fervent leaders, who has been at the center of the heterodox movement for the past three decades. The paper delineates Fred Lee’s wide-ranging contributions to heterodox economics focusing on the making of the history and identity of heterodox economics, on heterodox microeconomic theory, and on the analysis of the social provisioning process. What do these contributions mean for heterodox economics? Fred Lee has left us heterodox theories, institutions, and goodwill that will continue developing in the work of economists who are concerned with establishing an alternative critical theory to the status quo.
    Keywords: Frederic S. Lee; heterodox economics; heterodox theory; heterodox microfoundations; heterodox microeconomics; surplus approach.
    JEL: B3 B5 D2 D4 P1
    Date: 2015–03
  2. By: Mark Setterfield (Department of Economics, New School for Social Research)
    Abstract: In a recent article (Lawson, 2013), Tony Lawson argues for a Veblenian interpretation of the term “neoclassical”, according to which a neoclassical economist is one whose methodology is at odds with their ontological presuppositions. This leads him to categorize many heterodox economists as neoclassical on the basis that their use of mathematical modeling is at odds with their (implicit) acceptance of an open-systems ontology. The reason is that, according to Lawson, mathematical modeling is deductivist: it presupposes that social systems are closed. The argument advanced in this paper is that this last claim is true only some of the time, and problematic only some of the time that it is true. It therefore amounts to a defense of mathematical modeling by heterodox economists that is, at the same time, sympathetic to Lawson’s claims that the social realm is structured but open and that this ontology is (implicitly) accepted by many heterodox economists.
    Keywords: Mathematical modeling, social ontology, open systems, critical realism, heterodox economics
    JEL: B41 B50 C02
    Date: 2015–03
  3. By: Giancarlo Bertocco (Department of Economics, University of Insubria, Italy); Andrea Kalajzic (Department of Economics, University of Insubria, Italy)
    Abstract: Keynes in the General Theory, explains the monetary nature of the interest rate by means of the liquidity preference theory. The objective of this paper is twofold. First, to point out the limits of the liquidity preference theory. Second, to present an explanation of the monetary nature of the interest rate based on the arguments with which Keynes responded to the criticism levelled at the liquidity preference theory by supporters of the loanable funds theory such as Ohlin and Robertson. It is shown that this explanation is consistent with the definition of the non-neutrality of money that Keynes presented in his 1933 works in which he underlines the need to elaborate a monetary theory of production in order to explain the phenomena of the crisis and the fluctuations in income and employment.
    Date: 2014–01
  4. 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 and presents an alternative proof for a finite player version of their model.
    Keywords: Global games, strategic complements, strategic substitutes, monotone games, equilibrium selection
    JEL: C70 C72
    Date: 2015–03
  5. By: Kakarot-Handtke, Egmont
    Abstract: Orthodox economics is founded on behavioral assumptions. This has been the wrong starting point because no way leads from there to an understanding of how the economic system works. Critical Heterodoxy is one step ahead insofar as it does not accept the green cheese assumptionism of optimization and supply-demand-equilibrium, yet this is not sufficient to establish a superior paradigm. What we have at the moment is a plurality of debunked theories. This is not a tenable situation. Consequently, Constructive Heterodoxy is focused on the formally consistent reconstruction of central economic phenomena like market, money, profit, and - in this paper - employment.
    Keywords: new framework of concepts; structure-centric; law of supply and demand; price flexibility; structural labor market inertia; income multiplier; stagflation; deflation
    JEL: B59 E24
    Date: 2015–03–12
  6. By: Dodig, Nina; Herr, Hansjörg
    Abstract: This paper presents an overview of different models which explain financial crises, with the aim of understanding economic developments during and possibly after the Great Recession. In the first part approaches based on efficient markets and rational expectations hypotheses are analyzed, which however do not give any explanation for the occurrence of financial crises and thus cannot suggest any remedies for the present situation. A broad range of theoretical approaches analyzing financial crises from a medium term perspective is then discussed. Within this group we focused on the insights of Marx, Schumpeter, Wicksell, Hayek, Fisher, Keynes, Minsky, and Kindleberger. Subsequently the contributions of the Regulation School, the approach of Social Structures of Accumulation and Post-Keynesian approach, which focus on long-term developments and regime shifts in capitalist development, are presented. International approaches to finance and financial crises are integrated into the analyses. We address the issue of relevance of all these theories for the present crisis and draw some policy implications. The paper has the aim to find out to which extent the different approaches are able to explain the Great Recession, what visions they develop about future development of capitalism and to which extent these different approaches can be synthesized.
    Keywords: theories of crisis,Marxian,Institutional,Keynesian,capitalism,finance,financial crisis
    JEL: B14 B15 B24 B25 E11 E12 E13 E32
    Date: 2015
  7. By: Christoph Engel (Max Planck Institute for Research on Collective Goods, Bonn); Michael Kurschilgen (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: According to Adam Smith (1790), human selfishness can be restrained by introspection. We test the effect of introspection on people’s willingness to cooperate in a public good game. Drawing on the concept of identity utility (George A. Akerlof and Rachel E. Kranton, 2000), we show theoretically that introspection may enhance cooperation by increasing the relative cost of deviating from one’s self-image. Experimentally, we induce introspection through the elicitation of (normative) expectations. Our results show that introspection causally increases cooperation. Both home-grown idealism and the experiences with the cooperativeness of the environment predict individual cooperativeness throughout the game.
    Keywords: experiment, Social Dilemma, Identity, Expectations, Introspection
    JEL: H41 D63 C90
    Date: 2015–01
  8. By: Gebhard Kirchgässner
    Abstract: Whether democracy or capitalism should have normative priority depends on the philosophi- cal point of view but also how both are defined. The more rele vant perspective is, however, the positive one. Formally, politics dominate, bu t the economy often dominates de facto be- cause political decisions against interests of powerful economic players might cause high so- cietal costs. Since the downfall of the Iron Wall capitalism spread out much more than democ- racy. Future development might strongly depend on the development of the new authoritarian market economies: Can high growth continue wh ile political rights are largely suppressed, or do they have to concede more and more to democratic rights in order to ensure further eco- nomic growth? One would like to see the latter one, but this is by no means sure.
    Keywords: Capitalism; Democracy; Economic Development; Market Economy
    JEL: H11 O10
    Date: 2015–03
  9. By: Jean-Pierre Zigrand
    Abstract: This paper examines the concept of systemic risk and provides an intuitive account of the economic thought on systems and the development of the notion of systemic risk. It is illustrated by putting the ideas of system, systemic risk and endogenous risk in a historial perspective.
    JEL: G21 G23 G33
    Date: 2014–01–23
  10. By: Ernesto Screpanti
    Abstract: Marx’s theory of labour value is flawed. This note summarizes the main reasons why this is so. At the same time, it claims that the theory of exploitation does not depend on a labour embodied valuation and can be expounded by resorting to the theory of production prices. Almost all Marxists have now accepted this truth. Most of them have been convinced by a ‘new interpretation’ which has been able to translate the price of net output into an amount of ‘living labour’ and the rate of exploitation into a ratio between unpaid and paid labour. What produced such a surprising result is the use of labour productivity as a numeraire
    Keywords: Marxian Economics, Labour Values, Prices of Production, Theory of Exploitation
    JEL: B14 E11
    Date: 2015–03
  11. By: Fabio Petri
    Abstract: Pierangelo Garegnani has argued that the value capital endowment could have been avoided in Knut Wicksell’s long-period general equilibrium in Value Capital and Rent (1898); the capital endowment might have been specified as an amount of labour embodied in the economy’s stock of capital goods, which would have avoided the vicious circle of a factor endowment dependent on what the equilibrium must determine. The paper argues that this thesis cannot be accepted.
    JEL: B13 D50
    Date: 2015–03
  12. By: Martha A. Starr
    Abstract: Although there has been little economic research on 'ethical consumption' in a general sense, work on its various aspects is growing. This paper reviews economic research on ethical consumption, examining both demand-and supply-side aspects. It is argued that the most promising way to see ethical consumption through an economic lens is via models with heterogeneous consumers, in which some have strong intrinsic motivation to adopt ethical-consumption practices, others will adopt if they perceive a practice to be becoming a social norm and its extra costs are moderate, and others still will be impervious to it. Implications for the spread of ethical consumption and its ability to affect change are considered.
    Keywords: ethical consumption, consumption ethics, socially responsible consumption, corporate social responsibility, sustainable consumption, consumer behavior, pro-social behavior, consumer economics
    JEL: E21 D11 D12 A13 A12 Q5
    Date: 2015
  13. By: Latkov, Andrey
    Abstract: The article discusses the origin and development of the rent-seeking theory. The interim results of the rent-seeking theory are summarized. The main trends in the rent-seeking theory development are presented in modern conditions.
    Keywords: Rent-seeking, “Virginian School”, criticism, inputs, outputs, effects, trends
    JEL: D33 D72
    Date: 2014–10
  14. By: Clement, Christine
    Abstract: Central to the scientific debate about the 'informal sector' and the validity of the concept used to be a twofold challenge. The crux laid not only in the objective to explain the widely visible persistence of the informal economy in developing countries, but also in the identification of its roots and the proliferation conditions to be met ex ante. The present paper aims at establishing a link between the theories on informality and marginalization which is another important issue that has arisen within the discussions on the causes of persistent poverty a few years ago. Both concepts are interlinked and self-enforcing. On the macroeconomic level, any economy - be it formal or informal - consists of a set of different economic sectors and any of these sectors basically consists of an accumulation of people on the microeconomic level. Every time one looks at the macro level where political and economic conditions frame the dynamics of the formal and the informal economy, one has at the same time to look at the micro-level where the social and economic conditions determine the incentives for every actor to participate either in the formal, the informal or in both economies. Informality has multiple sources depending on whether the agent took a voluntary choice or had to involuntary opt-out from an institutional system. In this paper, the connection between informality and involuntary exclusion shall be examined in a retrospective of economic thought since the 1940s. The roots of the intertwined concepts of informality and economic exclusion have been laid in the dual economy theories of the 1940s-1950s. Recapitulating the works of Julius BOEKE, Arthur LEWIS, John HARRIS & Michael TODARO, Albert HIRSCHMAN and other socio-economists of that time, it will be argued that one of the necessary reasons for the persistence of the informal economy in developing countries is the dualism in institutional frameworks that leads to the marginalization of social groups and their subsequent exclusion from formal economic activities. By referring to the groundbreaking Africa studies of Keith HART (1971) and the INTERNATIONAL LABOUR ORGANIZATION (1972), special emphasis will be given to the causal reciprocity between informality, marginalization and economic exclusion. The paper closes with a brief overview of current schools of thought that deal very differently with the issue of informality and economic exclusion.
    Keywords: economic dualism,informal sector,informal economy,informality,marginalization,economic exclusion,involuntary exclusion,institutions,inequality,traditional sector,urban rural sector,stages of development,Julius Boeke
    JEL: B20 B25 J64 O15 O17 O43 N90 P16
    Date: 2015
  15. By: Leonidas Montes (Escuela de Gobierno, Universidad Adolfo Ibáñez); Bruce Caldwell
    Date: 2013–08
  16. By: Benito Arruñada
    Abstract: I analyze the basis of the market economy in classical Rome, from the perspective of personal-versus-impersonal exchange and focusing on the role of the state in providing market-enabling institutions. I start by reviewing the central conflict in all exchanges between those holding and those acquiring property rights, and how solving it requires reducing information asymmetry without endangering the security of property. Relying on a model of the social choice of institutions, I identify the demand and supply factors driving the institutional choices made by the Romans, and examine the economic circumstances that influenced these factors in the classical period of Roman law. Comparing the predictions of the model with the main solutions used by Roman law in the areas of property, business exchange and the enforcement of personal obligations allows me to propose alternative interpretations for some salient institutions that have been subject to controversy in the literature, and to conclude with an overall positive assessment of the market-enabling role of the Roman state.
    Keywords: property rights, enforcement, transaction costs, registries, Roman law, impersonal exchange, personal exchange, New Institutional Economics, Law and Economics
    JEL: D1 D23 G38 K11 K12 K14 K22 K36 L22 N13 O17 P48
    Date: 2015–03
  17. By: Sheila Dow (Department of Economics, University of Stirling & University of Victoria); Guðrún Johnsen (University of Iceland); Alberto Montagnoli (Department of Economics, University of Sheffield)
    Abstract: Proposals for full reserve banking have been put forward as a radical way of preventing further financial crises. They rest on the argument that crises are caused by excessive money supply growth brought about by inadequately controlled bank credit creation. Our aim is to provide a critique of the theoretical assumptions underlying the plans for full reserve banking. In particular some of the plans rely on the view that the money supply is a key causal variable and that it is feasible for central banks to identify and enforce an optimal quantity. Second, the plans all rely on an unsupported confidence in the efficiency of financial markets outside the centrally controlled banking system. Third, by removing profit-making opportunities from banks, the proposals may unduly tip the balance further in favour of shadow banking. Finally, as the case of 95% liquidity requirements on Kaupthing, Singer and Friedlander in the wake of the Great Financial Crash shows that modern financial engineering makes such policy-making difficult to execute. A Minskyan analysis rather emphasises the inherent instability of the financial system such that it is subject to systemic crises and the indeterminacy of demand for liquidity, while also emphasising the contribution prudent banking can make to financing economic activity and providing a safe money asset. While a return to a traditional separation of retail banking (regulated and supported by the central bank) from investment banking (regulated differently but not supported) would contribute to financial stability, it is argued that the full reserve banking proposals go too far.
    Keywords: bank regulation, full reserve banking
    JEL: E5 G21 G28
    Date: 2015–03
  18. By: Wolfgang Buchholz; Kai A. Konrad
    Abstract: This paper surveys the theory on taxes on risky returns that originated from Domar and Musgrave (1944). Emphasis is given to the role of complete capital markets and on capital market imperfections arising from limited liability, moral hazard and adverse selection.
    Keywords: risk taking, taxation, capital markets
    JEL: H22 H25
    Date: 2014–07
  19. By: Apolte, Thomas
    Abstract: We assess Gordon Tullock's work on dictatorship and revolutions using a common analytic framework that captures the dynamics of mutually reinforcing perceptions within a potentially rebelling subgroup of a population. We can reconstruct all of Tullock's central findings but we also find him failing to consider revolutions as an unintended result of individual action in certain low-cost situations. That notwithstanding, one central implication of Tullock's analysis remains intact, namely that no relation can consistently be constructed between the degree of deprivation of a population on the one hand and the probability of an enforced regime change in a public uprising, at least not within the limits of methodological individualism. Hence, whoever aims at strictly inferring macro results from micro behavior must still find Tullock's work on autocracies and revolutions path-breaking.
    JEL: D02 D74 H11
    Date: 2015
  20. By: Elena Bárcena-Martín (Dpto. Estadística y Econometría, University of Málaga.); Cortés Aguilar Alexandra (Escuela de Economía y Administración, Universidad Industrial de Santander.); Ana I. Moro Egido (Department of Economic Theory and Economic History, University of Granada.)
    Abstract: Using the German Socio-Economic Panel, we analyze the importance of modeling social comparisons to determine their effect on subjective well-being. The first contribution is the consideration of social comparison measures, which assume that individuals compare themselves to each and all the other individuals along the income distribution and where proximity is a crucial issue in the comparisons. The second contribution is the inclusion of social contacts and values as an influence on the effect of social comparisons on subjective well-being. Interestingly, our results confirm that individuals’ subjective wellbeing is affected by their comparisons with others above and below themselves in the distribution, and the relevant role of proximity. Additionally, we conclude that social and cultural capital modify the effect of social comparisons and proximity on subjective well-being.
    Date: 2013–10–22
  21. By: Galanis, Spyros
    Abstract: The value of information is examined in a single-agent environment with unawareness. Although the agent has a correct prior about events he is aware of and has a clear understanding of his available actions and payoffs, his unawareness may lead him to commit information pro- cessing errors and to behave suboptimally. As a result, the value of information can be negative, contrasting what is true in the standard model with partitional information and no unaware- ness. We show that the source of the agent’s suboptimal behavior is that he misunderstands the information revealed by his varying awareness, treating it asymmetrically. <br><br> Keywords; unawareness, value of information, uncertainty, knowledge, bounded perception, awarenes
    Date: 2015–01–23
  22. By: Meub, Lukas; Proeger, Till; Schneider, Tim; Bizer, Kilian
    Abstract: In an experiment on moral cleansing with an endogenously manipulated moral self-image, we examine the relevance of the addressee of an immoral action. The treatments differ such that cheating on a die roll reduces either the experimenter´s or another subject´s payoff. We find that cheating is highest and moral cleansing lowest when subjects cheat at the expense of the experimenter, while cheating is lowest and moral cleansing highest once cheating harms another subject. A subsequent measurement of subjects´ moral self-image supports our interpretation that the occurrence of moral cleansing crucially depends on the moral costs resulting from immoral actions directed at individuals in different roles. Our results can help to explain the different propensity to cheat and conduct moral cleansing when immoral actions harm either another person or the representatives of an organization.
    Keywords: dictator game,laboratory experiment,lying,moral balancing,moral,cleansing,self-image
    JEL: C91 D1
    Date: 2015
  23. By: Tanaka, Akihiko
    Abstract: “Human security” has occupied a significant place in the global discourses of peace, development, and diplomacy, despite often made criticisms of its conceptual ambiguity. Arguing for the merit of a broader definition of human security, i.e. “the right of people to live in freedom and dignity, free from poverty and despair” (UN Resolution A/RES/66/290), this paper offers an interdisciplinary theoretical framework in which key aspects of human security are systematically laid out: types of threats from physical, living, and social systems; causal structures that produce threats to human security; instruments to deal with these threats; and issues of agency to protect human security. The tripartite differentiation of the sources of threats -- physical, living, and social systems -- roughly corresponds with the objects of inquiry of three groups of academic disciplines: (1) sciences and engineering based on physics and chemistry, (2) biological and ecological sciences, and (3) social sciences and the humanities. This paper argues that a desirable theory of human security should rely on these multiple disciplines for the causal mechanisms that produce human security threats. It also contends that the theory should explore the interaction among different systems because threats to human security impact the physical, biological, and social aspects of human beings. In analyzing human security threats within the social system, this paper stresses the importance of analyzing the "collective action" aspects of human security threats. It argues, for example, the theoretical relevance of the Hobbesian "state of nature" as a condition where human security is chronically threatened socially. As to the types of measures to protect human security, this paper differentiates the instruments to affect the causes of the threat and those affecting the consequences. This paper argues that desirable instruments should be selected based on the analysis of the nature of the threat and its underlying causal mechanism. Finally, this paper discusses the issues of agency to protect human security: who should protect whose human security? Stressing the importance of responsible sovereign states as crucial agents to protect human security, this paper also argues that, given the global and interconnected nature of human security threats, cooperation among various stakeholders -- states, international organizations, the business sector, civil society organizations, academic institutions, and so on -- is essential.
    Keywords: Human Security
    Date: 2015–03–16
  24. By: Fabrizio Germano; Peio Zuazo-Garin
    Abstract: Economic predictions are highly sensitive to model and informational specifications. Weinstein and Yildiz (2007) show that, in static games with incomplete information, only very weak predictions, namely, the interim correlated rationalizable (ICR) actions, are robust to higher-order belief misspecifications. This paper extends their robustness analysis to allow for higher-order uncertainty about rationality. We introduce interim correlated p-rationalizability (ICRp) as a solution concept for games with incomplete information. We first confirm the robustness of the ICR predictions to small departures from common belief in rationality by showing the continuity of ICRp actions at p = 1, where they coincide with ICR. At the same time, we show that Weinstein and Yildiz's (2007) deeper results on the structure of rationalizability, most notably, their discontinuity and generic local uniqueness properties, fail as soon as any arbitrarily small amount of higher-order uncertainty about rationality is introduced. Thus, we find that common belief in rationality is a necessary condition for Weinstein and Yildiz's (2007) discontinuity property to hold. Among other things, this reveals the diminishing strategic impact of higher-order belief constraints.
    Keywords: robustness, rationalizability, uncertain rationality, incomplete information, belief hierarchies
    JEL: C72 D82 D83
    Date: 2015–02

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