nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2015‒09‒18
twenty-one papers chosen by
Erik Thomson
University of Manitoba

  1. Alfred Marshall's Puzzles. Between Economics as a Positive Science and Economic Chivalry By Joanna Dzionek-Kozlowska
  2. Agent based simulations visualize Adam Smith's invisible hand by solving Friedrich Hayek's Economic Calculus By Klaus Jaffe
  3. A Critique of Attempts to Introduce Hotelling's rule in Sraffa's Theory By Yoann Verger
  4. Sraffa and the environment By Yoann Verger
  5. Sraffa and ecological economics By Yoann Verger
  6. The Theory of Capital as a Theory of Capitalism – Hidden Austrian Contributions to a Historically Specific Approach to Capital By Eduard Braun
  7. The Guardians of Capitalism: International Consensus and Fascist Technocratic Implementation of Austerity By Clara Elisabetta Mattei
  8. A Complete Characterization of Equilibria in Two-type Common Agency Screening Games By Martimort, David; Semenov, Aggey; Stole, Lars
  9. Preference Cloud Theory: Imprecise Preferences and Preference Reversals By Bayrak, Oben K.; Hey, John D.
  10. Business strategy reimagined: a paradigm shift based on “Creating Shared Value" By Böbel, Ingo
  11. Communication, Leadership and Coordination Failure By Lu Dong; Maria Montero; Alex Possajennikov
  12. Is there a New Economic Sociology Effect? A Topic Model on the Economic Orientation of Sociology, 1890 to 2014 By Adel Daoud; Sebastian Kohl
  13. The Incorrect Usage of Propositional Logic in Game Theory: The Case of Disproving Oneself By Meinhardt, Holger Ingmar
  14. Markov Perfect Equilibria in Stochastic Revision Games By Lovo , Stefano; Tomala , Tristan
  15. No discounting as a moral virtue in intertemporal choice models By Vipul Bhatt
  16. Superstitions, Street Traffic, and Subjective Well-Being By Michael L. Anderson; Fangwen Lu; Yiran Zhang; Jun Yang; Ping Qin
  17. Recht und Ökonomie aus Sicht der Wirtschaftswissenschaften By Baumann, Florian
  18. The rational economist in research: A model By Martin Paldam
  19. Essays on diffusion and categories By van Hugten, Joeri
  20. 15 Years a Consultant By Phil Ender
  21. The order of knowledge and robust action: How to deal with economic uncertainty? By Falkinger, Josef

  1. By: Joanna Dzionek-Kozlowska (University of Lodz)
    Abstract: Alfred Marshall’s approach to economics hides a paradox. On one hand, the ‘father’ of neoclassical economics strongly favoured conducting economics as a positive science. However, the fact that Marshall was such a consistent and determined advocate of this ideal of economic research is puzzling for at least two reasons. Firstly, even a quick glance at his publications allows to notice that his texts are sated with moral teachings. What is more, in referring to the problems of economic policy he not only took into account ethical aspects, but also frequently gave pre-eminence to ethical arguments over conclusions stemming from research grounded solely on the theory of economics. The paper aims to explain the paradox and argues that the complexity of Marshall’s approach arises from his attempts to combine two approaches pointed by Amartya Sen of binding economics and ethics over the centuries: ‘the ethics-related tradition’ with ‘the engineering approach’.
    Keywords: Alfred Marshall, positive economics, normative economics, ethics and economics, economic chivalry
    JEL: B31 M14
    Date: 2015–07
  2. By: Klaus Jaffe
    Abstract: Inspired by Adam Smith and Friedrich Hayek, many economists have postulated the existence of invisible forces that drive economic markets. These market forces interact in complex ways making it difficult to visualize or understand the interactions in every detail. Here I show how these forces can transcend a zero-sum game and become a win-win business interaction, thanks to emergent social synergies triggered by division of labor. Computer simulations with the model Sociodynamica show here the detailed dynamics underlying this phenomenon in a simple virtual economy. In these simulations, independent agents act in an economy exploiting and trading two different goods in a heterogeneous environment. All and each of the various forces and individuals were tracked continuously, allowing to unveil a synergistic effect on economic output produced by the division of labor between agents. Running simulations in a homogeneous environment, for example, eliminated all benefits of division of labor. The simulations showed that the synergies unleashed by division of labor arise if: Economies work in a heterogeneous environment; agents engage in complementary activities whose optimization processes diverge; agents have means to synchronize their activities. This insight, although trivial if viewed a posteriori, improve our understanding of the source and nature of synergies in real economic markets and might render economic and natural sciences more consilient.
    Date: 2015–09
  3. By: Yoann Verger (REEDS - REEDS - Centre international de Recherches en Economie écologique, Eco-innovation et ingénierie du Développement Soutenable - UVSQ - Université Versailles Saint-Quentin-en-Yvelines)
    Abstract: This paper argues that the Hotelling’s rule on the rise of royalties during the exhaustion of exhaustible natural resources cannot be retained within a Sraffian framework. At first, a critic of the major attempts that were developed in this domain is conducted. Then this paper brings forward the evidence that the value theory is changed by adding the Hotelling’s rule and is no longer consistent with Sraffa’s thinking. This paper also offers an alternative interpretation in which the rise of the rent on exhaustible natural resources is only dependent on technical requirements.
    Keywords: Sraffa,Rent,Royalty,Hotelling’s rule,Exhaustible resource
    Date: 2015–09–04
  4. By: Yoann Verger (REEDS - REEDS - Centre international de Recherches en Economie écologique, Eco-innovation et ingénierie du Développement Soutenable - UVSQ - Université Versailles Saint-Quentin-en-Yvelines)
    Abstract: In one draft note, Sraffa states that: “The difference between the ‘Physical real costs’ and the Ricardo–Marxian theory of ‘labour costs’ is that the first does, and the latter does not, include in them the natural resources that are used up in the course of production (such as coal, iron, exhaustion of land) [Air, water, etc. are not used up: as there is an unlimited supply, no subtraction can be made from [infinity ]. This is fundamental because it does away with ‘human energy’ and such metaphysical things. ... But how are we going to replace these natural things? There are three cases: a) they can be reproduced by labour (land properties, with manures etc.); b) they can be substituted by labour (coal by hydroelectric plant: or by spending in research and discovery of new sources and new methods of economising); c) they cannot be either reproduced nor substituted - and in this case they cannot find a place in a theory of continuous production and consumption: they are dynamical facts, i.e. a stock that is being gradually exhausted and cannot be renewed, and must ultimately lead to destruction of the society. But this case does not satisfy our conditions of a society that just manages to keep continuously alive” (Sraffa’s Unpublished Papers and Correspondence, Trinity College Library, Cambridge, UK, as catalogued by Jonathan Smith, D3:12:42: 33, dated 25 March 1946; Sraffa’s emphasis, quoted in Kurz et al., 2000). Thus Sraffa states that his theory, the “Physical real costs” theory, is taking into account the natural resources. I argue that this is not true: my position is that Sraffa is not dealing with natural resources, but with commodities produced by industries and exchanged in the market. Thus all resources which are not produced by industries or which are not exchanged in the market (for instance, wastes) are not encompassed by its model, and can not receive a price. And we have a confirmation of this when, in chapter Ⅺ of his book, Sraffa explicitly introduces natural resources: “natural resources which are used in production, such as land and mineral deposits, and which being in short supply enable their owners to obtain a rent, can be said to occupy among means of production a position equivalent to that of 'non-basics' among products. Being employed in production, but not themselves produced, they are the converse of commodities which, although produced, are not used in production” (Sraffa, 1960, § 85). In this chapter, we will see how Sraffa deals with natural resources in his book, through the problematic of the rent, in section [1] (after a short introduction about the introduction of the rent in Quesnay and Ricardo's theories). Then we will see how the neo-Ricardians manage to introduce these resources in their models and how they deals with general environmental problems. First we will see the case of exhaustible resources in section [2] and then we will study the introduction of waste, the management of pollution control and the exploitation of renewable resources in section [3].
    Keywords: Sraffa,Rent,Hotelling,Exhaustible resources,Renewable Resources,Waste,Pollution,Environment
    Date: 2015–08–21
  5. By: Yoann Verger (REEDS - REEDS - Centre international de Recherches en Economie écologique, Eco-innovation et ingénierie du Développement Soutenable - UVSQ - Université Versailles Saint-Quentin-en-Yvelines)
    Abstract: References to Sraffa and to the neo-Ricardian school is something quite customary in ecological economics. By looking at contributions in this area since the beginning of ecological economics and at contributions on environmental problem from the neo-Ricardian school, we see that a connection between both school still has to be made. This connection should be articulated around the initial aim of Sraffa: to develop a new paradigm, competing against the neoclassical one. Only then it will be possible to develop a real eco-Sraffian approach able to pursue the analysis of the sustainability of the economic system.
    Keywords: Sraffa,neo-Ricardian,ecological economics,value,natural resources,political economy
    Date: 2015–09–04
  6. By: Eduard Braun (Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal))
    Abstract: Before economists and sociologists came up with their own definitions of the term “capital,” it was commonly understood as money invested in businesses by their owners or shareholders, and it continues to be understood this way in everyday business practice. In a recent article, Geoffrey Hodgson (2014) advises economists to return to this pre-Smithian usage of the term. The present paper takes up Hodgson’s demand and develops a theory of capital that is based upon this business notion of capital. It also argues that the Austrian theory of capital, if interpreted correctly, can serve as a starting point. Despite the conviction of its adherents to the contrary, the Austrian theory of capital is not universal or ahistorical, but dovetails with Hodgson’s vision of an approach to capital which analyses historically specific features of capitalism.
    Keywords: Capital Theory; Capitalism; Austrian Economics; Institutional Economics
    JEL: B25 B26 D24
    Date: 2015
  7. By: Clara Elisabetta Mattei
    Abstract: Current debates on austerity often forget that these policies are almost 100 years old .This paper explores how the combination of austerity and technocracy acted as a powerful tool to secure the compliance of European countries to socio-economic stabilization after WWI. Austerity emerged as an economic, moral and technocratic message as economic experts sought to educate the restless post-war civil society. This paper analyses primary austerity documents from the international economic conferences of Brussels (1920) and Genoa (1922). In addition I use a case study of Italy (1922-1925) to show how austerity succeeded under the first years of Fascism, when the government authorized prominent economics professors to implement the international financial codes devised at Brussels and Genoa. This essay considers the scientific writings of De Stefani, Ricci and Pantaleoni to examine the theoretical roots of the technocratic nature of austerity.
    Keywords: Austerity, Technocracy, Post-WWI Financial Conferences, Economists as Consultants, Fascism
    Date: 2015–05–09
  8. By: Martimort, David; Semenov, Aggey; Stole, Lars
    Abstract: We characterize the complete set of equilibrium allocations to a two-type intrinsic common agency screening game as the set of solutions to a self-generating optimization program. The program, in turn, can be thought of as a maximization problem facing a fictional “surrogate” principal with a simple set of incentive constraints that embed the non-cooperative behavior of principals in the underlying game. After providing a complete characterization of equilibrium outcomes, we refine the set by imposing a requirement of biconjugacy on equilibrium tariffs: In biconjugate equilibria, the surrogate principal’s incentive constraints are described by marginal conditions. Biconjugate equilibria always exist, they are simple to compute, and they are robust in the sense that they remain equilibria when “out-of-equilibrium” output-price pairs are pruned. After characterizing the set of biconjugate equilibrium allocations, we ask what is the best equilibrium for the principals from an ex ante perspective. We show that the allocation that maximizes the principals’ ex ante collective payoff among all possible equilibria is distinct from the best allocation in the refined set of biconjugate equilibria, although their qualitative properties remain similar.
    Keywords: Intrinsic common agency, aggregate games, screening contracts.
    JEL: D82 D86
    Date: 2015–08–19
  9. By: Bayrak, Oben K. (CERE and Department of Forest Economics, SLU); Hey, John D. (Department of Economics, University of York)
    Abstract: This paper presents a new theory, called Preference Cloud Theory, of decision-making under uncertainty. This new theory provides an explanation for empirically-observed Preference reversals. Central to the theory is the incorporation of preference imprecision which arises because of individuals’ vague understanding of numerical probabilities. We combine this concept with the use of the Alpha model (which builds on Hurwicz’s criterion) and construct a simple model which helps us to understand various anomalies discovered in the experimental economics literature that standard models cannot explain.
    Keywords: Imprecise Preferences; Preference Reversals; Decision under Uncertainty; Anomalies in Expected Utility Theory
    JEL: D81
    Date: 2015–09–08
  10. By: Böbel, Ingo
    Abstract: Now is the time to reimagine Business Strategy (again)! What is the rationale for such a drastic request? We are driven by the insight that we have reached a tipping point caused by the acquisition of a critical mass of theoretical strategy knowledge coupled with sufficient practical business experience that has led to a point of no return (especially in the aftermath of the deep financial crisis that has changed the world since 2008). Consequently, in 2011, a movement was set in motion when Michael Porter’s and Mark Kramer’s article “Creating Shared Value” (HBR 2011) served as the spark to ignite an intellectual revolution which has the potential to become a universal strategy-mind changer among business leaders. In a relatively short period of time, Creating Shared Value (CSV) developed from an “academic idea” to becoming part of the core business strategy in myriad (small, median, large and giant) companies (among them Unilever, GE, and Nestle) to even developing into a continent-wide philosophical movement that under the name “Africapitalism” has achieved notable prominence.
    Keywords: Business Strategy; Shared value; Capitalism; Competition; Competitive Advantage
    JEL: D63 M2 P1
    Date: 2015–08–12
  11. By: Lu Dong (Department of Economics, University of Nottingham); Maria Montero (Department of Economics, University of Nottingham); Alex Possajennikov (Department of Economics, University of Nottingham)
    Abstract: Using experimental methods, this paper investigates the limits of communication and leadership in aiding group coordination in a minimum effort game. Choosing the highest effort is the payoff dominant Nash equilibrium in this game, and communication and leadership are expected to help in coordinating on such an equilibrium. We consider an environment in which the benefits of coordination are low compared to the cost of mis-coordination. In this environment, players converge to the most inefficient equilibrium in the absence of a leader. We look at two types of leaders: a cheap-talk leader-communicator who suggests an effort level but is free to choose a different level from the one suggested, and a first-mover leader whose choice of effort is observed by the rest of the group. We study whether leadership can prevent coordination failure and whether leadership allows coordination on a higher effort after a history of coordination fail- ure. We find that in this tough environment both types of leadership are insufficient to escape from the low-effort equilibrium but leadership has some (limited) ability to prevent coordination failure. With the help of the strategy method for the followers' responses we find that the main reason for the persistence of coordination failure in this environment is the presence of followers who do not follow (or would not have followed) the leader.
    Keywords: minimum effort game, coordination failure, communication, leadership
    Date: 2015
  12. By: Adel Daoud (Department of Sociology and Work Science, University of Gothenburg and Department of Economics, New School for Social Research); Sebastian Kohl (Max Planck Institute for the Study of Societies)
    Abstract: The conventional story tells us that since the birth of the discipline of sociology, the economic orientation of the discipline has peaked twice: the first peak was during the classical era between 1890 and 1920; the second peak was sometime after 1985, marking Granovetter´s Economic Action and Social Structure paper. We have tested this story by using all full-text articles provided by JSTOR between the periods 1890 to 2014: this contains 142 040 articles and 157 journals. We used a combination of topic modelling (machine learning applied to text) and multilevel modelling (regression) to accomplish this. We have found the following. (1) there is strong evidence for the first peak, but contrary to this narrative, we also find a decreasing proportion of economic topics over the last century. (2) The rise of the new economic sociology as a sub-discipline of sociology, comes not in the form of an increasing focus on general economic issues, but rather in the form of a particular topic mix of organization and social-theory research. (3) We show, accordingly, that this particular topic mix reached its bottom and started to rise by the 1929; it peaked by 1989. (4) We suggest, therefore, that Granovetter´s article (and the new economic sociology) does not mark the beginning of a second peak – as the conventional story has it – but it is rather a product of a preceding sociological interests, innovations, and orientation towards socio-economic theory development. (5) Moreover, we discover that neither the classics nor the new economic sociologists contribute much to an empirical (applied) type of economic topic found in industrial relations and political economy research. In conclusion, the future impact that the discipline of sociology might have on economic oriented research in the social sciences, will most likely require (a) less of a within- and between disciplinary fragmentation that is most likely hampering the potential contributions sociologists can make; (b) more of engaging with applied economic affairs and thus bridge current sub-disciplinary divides. This is crucial in the age of austerity and if we seek to conceive of better socio-economic theories than existing economic theories.
    Date: 2015–09
  13. By: Meinhardt, Holger Ingmar
    Abstract: Recently, we had to realize that more and more game theoretical articles have been published in peer-reviewed journals with severe logical deficiencies. In particular, we observed that the indirect proof was not applied correctly. These authors confuse between statements of propositional logic. They apply an indirect proof while assuming a prerequisite in order to get a contradiction. For instance, to find out that ``if A then B'' is valid, they suppose that the assumptions ``A and not B'' are valid to derive a contradiction in order to deduce ``if A then B''. Hence, they want to establish the equivalent proposition ``A and not B implies A and not A'' to conclude that ``if A then B''is valid. In fact, they prove that a truth implies a falsehood, which is a wrong statement. As a consequence, ``if A then B'' is invalid, disproving their own results. We present and discuss some selected cases from the literature with severe logical flaws, invalidating the articles.
    Keywords: Transferable Utility Game; Solution Concepts; Axiomatization; Propositional Logic, Material Implication; Circular Reasoning (circulus in probando); Indirect Proof; Proof by Contradiction; Proof by Contraposition; Cooperative Oligopoly Games
    JEL: C71
    Date: 2015–09–14
  14. By: Lovo , Stefano (HEC); Tomala , Tristan
    Abstract: We introduce the model of Stochastic Revision Games where a finite set of players control a state variable and receive payoffs as a function of the state at a terminal deadline. There is a Poisson clock which dictates when players are called to choose of revise their actions. This paper studies the existence of Markov perfect equilibria in those games. We give an existence proof assuming some form of correlation.
    Keywords: Stochastic Revision Games; Games Theory; Equilibria
    JEL: C73
    Date: 2015–09–01
  15. By: Vipul Bhatt (Department of Economics, James Madison University)
    Abstract: Should we discount our own future or should we apply an equal concern to all parts of our life? Many moral philosophers regard no discounting as a virtue. We present arguments on both sides of this debate. A critical comparison of the two conflicting viewpoints on the issue of discounting yields two conclusions. First, no discounting may have undesirable implications in certain economic settings and is often inconsistent with observed individual behavior. Although important in its own right, such an argument falls short of providing a moral basis for discounting. Second, from a normative perspective, there is a strong ethical foundation for no discounting in models of intertemporal choice.
    Keywords: Intertemporal discounting, Moral virtues, Time Preference, Discount Factor, Ethics
    JEL: D91 H43
    Date: 2014–08
  16. By: Michael L. Anderson; Fangwen Lu; Yiran Zhang; Jun Yang; Ping Qin
    Abstract: Congestion plays a central role in urban and transportation economics. Existing estimates of congestion costs rely on stated or revealed preferences studies. We explore a complementary measure of congestion costs based on self-reported happiness. Exploiting quasi-random variation in daily congestion in Beijing that arises because of superstitions about the number four, we estimate a strong effect of daily congestion on self-reported happiness. When benchmarking this effect against the relationship between income and self-reported happiness we compute implied congestion costs that are several times larger than conventional estimates. Several factors, including the value of reliability and externalities on non-travelers, can reconcile our alternative estimates with the existing literature.
    JEL: R41 R48
    Date: 2015–09
  17. By: Baumann, Florian
    Abstract: Diese Arbeit soll einen Einblick in die "Ökonomische Analyse des Rechts" als einer wirtschafswissenschaftlichen Disziplin geben und aktuelle Entwicklungen in diesem Forschungsbereich aufzeigen. Zu diesem Zweck wird zunächst auf den für die moderne ökonomische Analyse des Rechts grundlegenden Aufsatz von Ronald Coase (1960) eingegangen. Anschließend werden auf Basis der These rational handelnder, eigennütziger Akteure die Anreizfunktionen rechtlicher Regelungen untersucht. Die vorhergesagten Verhaltensreaktionen können im nächsten Schritt bei Darlegung der zugrundeliegenden Zielvorstellungen zu einer wohlfahrtsgeleiteten Auswahl von rechtlichen Regeln oder zum Design optimaler Regeln herangezogen werden. Neben diesem klassischen (mikroökonomischen) Vorgehen werden unter anderem die Überprüfung der entwickelten Hypothesen anhand fortgeschrittener ökonometrischer Methoden, die experimentelle Forschung sowie der Einbezug der Erkenntnisse der Verhaltensökonomik als aktuelle Entwicklungen in der ökonomischen Analyse des Rechts beschrieben.
    Date: 2015
  18. By: Martin Paldam (Department of Economics and Business Economics, Aarhus University, Denmark)
    Abstract: Econ is an economist who behaves as predicted by economic theory. His research for a paper reporting the ‘best’ estimate of an important parameter is modeled. The size of his search is determined from the costs and benefits of running regressions. The size determines the relevant supply side as the production possibility frontier. The demand side is the indifference curves generated where Econ’s preferences meet the market in the form of sponsors, referees and editors. The optimal selection appears as usual. It is shown that it is better than the true one, and that the bias has substantial inertia.
    Keywords: Rational economist, publication bias
    JEL: B4 D24
    Date: 2015–01–09
  19. By: van Hugten, Joeri (Tilburg University, School of Economics and Management)
    Abstract: Essay’ derives from the French ‘to try’. Accordingly, in this book, I try three new interpretations of diffusion and categories. That is, I try to divide observations into groups in a new way. Some ways of dividing lead to confusion and frustration. For example, people’s default division seems to be ‘good’ and ‘bad’, or ‘like’ and ‘dislike’. Observations such as, for instance, high rates of domestic violence in marriages of American football players are confusing given this division, because people like football but dislike violence. The fact that the same person is in both of these opposing categories causes cognitive dissonance. In contrast, a meaningful division, such as ‘aggressive people’ and ‘timid people’, leads to consistency and peace of mind; football players are selected for their aggressiveness and domestic violence is an expression of aggressiveness. Likewise, each chapter tries a new way of grouping observations about organizations.<br/>Trying an interpretation involves describing what that interpretation means. The meaning of an interpretation is anchored in less abstract observations that are associated with it (e.g. examples). Practically, this means I make hypotheses about what we would observe if the interpretation were true. For example, in the third chapter I try to interpret industries as being divided into two groups: ‘generic categories are salient’ and ‘specific categories are salient’. Observations such as high correlation between subcategory density and entries in industries with many subcategories are consistent with the associations of the grouping; many subcategories makes specific categories more salient and specific category saliency is expressed in subcategory density’s correlation with entries. If the observations are in line with what the interpretation means, then the interpretation I try is meaningful<br/>
    Date: 2015
  20. By: Phil Ender (UCLA Statistical Consulting Group (Ret))
    Abstract: The origins and evolution of the UCLA Statistical Consulting Group. The presentation will cover the history of the UCLA Statistical Consulting Group as well as one approach to the practice of statistical consulting in an academic environment. UCLA Statistical Consulting provides services to faculty, graduate students and campus researchers. Additionally, Stat Consulting maintains a website popular not only with Stata users but also users of other statistical packages.
    Date: 2015–08–02
  21. By: Falkinger, Josef
    Abstract: Economic uncertainty has to do with the consequences of actions under different circumstances. This raises two questions: First, how sensitive are the outcomes of actions to variations in the environment? Second, how clearly can we distinguish between environments? Robustness comes at the price of targeting actions less narrowly to specific conditions, so we lose gains from specialization. Need for robustness comes from our limited knowledge. Rational dealing with uncertainty requires to accord the degree of specialization to the reliability of knowledge about the relevant circumstances. In practical terms, under such an approach acting under uncertainty is related to guidelines for strategic thinking: Focus on priorities on a broader scale; the most refined set of actions is not always the best one.
    Keywords: limited knowledge,robustness,reliable information,risk and uncertainty,crisis tolerance
    JEL: D80 D81 D83
    Date: 2015

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