nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2015‒11‒15
eighteen papers chosen by
Erik Thomson
University of Manitoba

  1. Ludwig M. Lachmann Against the Cambridge School. Macroeconomics, Microfoundations, Expectations, Rate of Profit, Equilibrium and Innovations. By Ferlito, Carmelo
  2. F. A. Hayek and the Economic Calculus By Bruce Caldwell
  3. Nash’s interpretations of equilibrium: Solving the objections to Cournot By Jorge M. Streb
  4. Teorie economiche e scelte di politica economica: un approccio storicistico By Giuseppe Capuano
  5. Modeling Economic Growth: Domar on Moving Equilibrium By Mauro Boianovsky
  6. Anthropology of freedom and tax justice: between exchange and gift. Thoughts for an interdisciplinary research agenda By Silvestri, Paolo
  7. Living in a Stochastic World and Managing Complex Risks By Dacorogna, Michel; Kratz, Marie
  8. Disputed (Disciplinary) Boundaries. Philosophy, Economics and Value Judgments By silvestri, paolo
  9. Truth-telling under Oath By Nicolas Jacquemet; Stéphane Luchini; Julie Rosaz; Jason Shogren
  10. Nash equilibrium uniqueness in nice games with isotone best replies By Ceparano, Maria Carmela; Quartieri, Federico
  11. Subgame Perfect Equilibrium in a Bargaining Model with Deterministic Procedures By Mao, Liang
  12. On Human Rationality and Government Control By Phaneuf, Emile; Ferlito, Carmelo
  13. Entrepreneurship: State of grace or human action? Schumpeter’s leadership vs Kirzner’s alertness. By Ferlito, Carmelo
  14. Helping Cost, Assortative Matching and Production Cycles in the Dynamic Humean Farmer Game By Raul V. Fabella
  15. Minding the Happiness Gap: Political Institutions and Perceived Quality of Life in Transition By Nikolova, Milena
  16. Rueff, Allais, et le chômage d’équilibre By Georges Prat
  17. Nash equilibria for non zero-sum ergodic stochastic differential games By Samuel N. Cohen; Victor Fedyashov
  18. Your language or mine? By Ramon Caminal; Antonio Di Paolo

  1. By: Ferlito, Carmelo
    Abstract: While in the early 1930s Keynes and Hayek were the major figures in a heated academic debate about money and capital, in which Keynes also and especially involved the Italian Piero Sraffa, it might seem at first sight that the Austrian economist set aside an organic demolition of the ideas expressed in 1936 by his rival in the General Theory. But the ‘Austrian knight’ of a new Vienna-Cambridge debate, in the subsequent decades, was the German economist Ludwig M. Lachmann (1906-1990), a student of Hayek at LSE during the 1930s and later a professor in Johannesburg and New York. Lachmann was one of the protagonists of the Austrian revival after 1974 and the founding leader of the ‘hermeneutic stream’, opposed by the Rothbardian stream. Lachmann, defending Keynes’s subjectivism and expectation theory, revived the Vienna-Cambridge controversy, criticising not Keynes but his followers, in particular the ‘new’ Cambridge School, developed by Joan Robinson and Piero Sraffa.
    Keywords: Lachmann, Sraffa, Hayek, Keynes, Economic Crises, Business Cycles.
    JEL: B13 B24 B25 B31 E32
    Date: 2014–11–30
  2. By: Bruce Caldwell
    Abstract: The paper offers a revisionist account of certain episodes in the development of F. A. Hayek's thought. It offers a new reading of his 1937 paper, "Economics and Knowledge," that draws on unpublished lecture notes in which he articulated more fully the distinctions he made in the paper between a "pure logic of choice," or the economic calculus, and an "empirical element," which he would later call the competitive market order. Next, the paper shows that Hayek continued to try to develop his ideas about the role of the economic calculus through the 1950s and early 1960s, an effort that has been missed because it never led to any published work. Finally, the paper examines Hayek's attempt to articulate a theory of the market process, one that would be at the same level of generality as the economic calculus, in lectures he gave at the University of Virginia. He never developed a full ‐ fledged formal theory, but his failed efforts still bore fruit in leading him to his contributions on spontaneous orders and the (verbal) theory of complex phenomena. This work anticipated contributions by others who were more technically trained.
    Keywords: F. A. Hayek, economic calculus, market process, pure logic of choice, structure of economic theory, spontaneous orders
    Date: 2015
  3. By: Jorge M. Streb
    Abstract: A Nash equilibrium can also be seen as a Cournot-Nash equilibrium, though this is debated because Cournot provided a specific application, not a general formulation. In my view, another of Nash’s fundamental contributions stands out when contrasting him to Cournot. Cournot treated economic decisions as optimization problems, but his stability analysis of duopoly led to endless discussions because players did not use the available information. Nash solves this with his rational interpretation: when players know the structure of the game, they can use the solution to predict the equilibrium. He thus introduces rational expectations. Nash additionally offers an adaptive interpretation: when players do not know the structure of the game, they can adjust their strategies to maximize payoffs. These adaptive expectations were anticipated by Cournot in his analysis of monopoly. In brief, Nash was not only extraordinary as a mathematician; his deep insights allow solving decades-long debates in economics.
    Keywords: equilibrium, rational players, consistent beliefs, adaptive expectations, rational expectations
    JEL: B1 B2 B3 C7
    Date: 2015–11
  4. By: Giuseppe Capuano
    Abstract: The principal objective of the article is to show how the economic theory is not an exact science. It does no't have universal value and it is not just link to mathematics, because it does not make itself as a scientific discipline. For this economics has not to use too much mathematics to imitate the exact sciences, The approach that we would like to propose in this article is a " historicist " vision of the economic theories. It wants to be more pragmaticas and less dogmatic to the advantage to deliver unassailable theories from economists, but simply ideas with solid scientific bases and supported by some statistic bases. It represents exactly what a policy maker needs to make decision in a right historical moment.
    Keywords: economic theory; mathematics; vision "historicist"; policy makers
    JEL: A11
    Date: 2015–11–05
  5. By: Mauro Boianovsky
    Abstract: The paper investigates Evsey’s Domar’s introduction of the rate of growth as a variable in economics in the 1940s and 1950s . Domar investigated the nature of what he called the “moving equilibrium” of ec onomic processes with infinite duration. Reactions to Domar’ s approach at the time brought about methodological assertions on the distinction between models and theories. Domar’s model was an open one, in the sense that his growth equation allowed different closures. A main feature of the model was its relatively stable capital - output ratio, whi ch reflected the terms of the debate about A.H. Hansen’s stagnation thesis in the 1940s and the notion of limits to capital deepening. At the empirical level, Domar referred to some features of time series, such as the positive trend of output per capita. Differently from Harrod, t he real economy was supposed to be stable, although the model itself was not perfectly consistent with that. The estimation of the Residual (a term coined by Domar) by Solow and others led Domar to rethin k aspec ts of his original model
    Keywords: Domar, growth economics, models, capital - output ratio, stability
    JEL: B21 C6 C92 B4 D03 D61 G28
    Date: 2015
  6. By: Silvestri, Paolo
    Abstract: With this paper I try to sketch a research agenda on the basis of which humanities and social sciences might interact with each other, searching for a human common ground in tax issues. To this purpose I shall proceed as follows: (§2) I will sketch two working hypotheses showing how and why tax system raises anthropological issues at the intersection of Philosophy of law, Politics and Economics; to restrict the field of enquiry, I will then analyse, firstly (§2.1), the most common theories of taxation – benefit-cost principle and ability-to-pay principle – usually meant as attempts to answer the demand for tax justice; and, secondly (§2.2), the issue of freedom in taxation as a problem of legal-political and economic obligation. I will then show how the research might gain some insight from both (§3.1) the literature on homo reciprocans, and (§3.2) the literature on gift-giving, which might allow us to better articulate the demands for justice and freedom, as well as to glimpse the human foundations of a new fiscal democracy.
    Keywords: freedom; justice; tax; ability-to-pay principle; benefit-received principle; gift; exchange; voluntary exchange; trust; reciprocity; fiscal democracy.
    JEL: A12 A13 D63 D64 H20 Z13
    Date: 2015–10
  7. By: Dacorogna, Michel (SCOR SE); Kratz, Marie (ESSEC Business School)
    Abstract: If there is a concept that has gained awareness during the financial crisis of 2008/2009, it is certainly the concept of risk and its consequence in risk management. The failure of many financial institutions to grasp the risks they were taking appeared so clearly and was so costly that the subject became central both with the regulators and more generally within society. Even though risk is an old concept, its perception has changed over the ages. In this century, the increase of wealth and the advances of scientific techniques may give the illusion to mankind that it has full power over Nature. People are either risk adverse or risk prone, without accepting its possible negative consequences, reactions that could be qualified as extreme and silly. Looking at it in a binary way does not help us cope with it. There is indeed little rational behavior when risk is concerned. Instead we should consider its right definition to be able to manage it. Already in the XVIII th century, philosophers came to realize that risk could contain two aspects as summarized by the French thinker Etienne Bonnot de Condillac (1714-1780) who qualified risk as " The chance of incurring a bad outcome, coupled, with the hope, if we escape it, to achieve a good one. " We see here the birth of a notion that will become prevalent in finance and economics during the XX th century.
    Keywords: extreme risk; risk management
    JEL: C51 C53 C73 D81 G17 G22
    Date: 2015–10
  8. By: silvestri, paolo
    Abstract: The paper aims to address the following two questions: what kind of discourse is that which attempt to found or defend the autonomy or the boundaries of a discipline? Why do such discourses tend to turn into normative, dogmatic-excommunicating discourses between disciplines, schools or scholars? I will argue that an adequate answer may be found if we conceive disciplines as dogmatics, where such discourses often take the form of a discourse on the foundation of a discipline, a foundation in the name of which the scholar speaks and with which he/she entertains an identity relationship. To this purpose I will re-examine the methodological discourses of (and debates between) Pareto, Croce and Einaudi on the demarcation issue between philosophy, economics and value-judgments as highly instructive to understand such issues.
    Keywords: philosophy, economics, value-judgements, realism, nominalism, economist’s discourse, dogmatics, disciplinary boundaries
    JEL: A12 B31 B41 B59
    Date: 2015–09
  9. By: Nicolas Jacquemet (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, BETA - Bureau d'économie théorique et appliquée - CNRS - Université Nancy 2 - Université de Strasbourg); Stéphane Luchini (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université Paul Cézanne - Aix-Marseille 3 - Université de la Méditerranée - Aix-Marseille 2 - EHESS - École des hautes études en sciences sociales - CNRS - AMU - Aix-Marseille Université); Julie Rosaz (LAMETA - Laboratoire Montpelliérain d'Économie Théorique et Appliquée - CNRS - Institut national de la recherche agronomique (INRA) - UM1 - Université Montpellier 1 - Centre international de hautes études agronomiques méditerranéennes [CIHEAM]); Jason Shogren (Departement of Economics and Finance, University of Wyoming - University of Wyoming)
    Abstract: A growing experimental literature has explored how monetary incentives affect truth-telling and lying behavior. We extend this literature to consider how to non-monetary incentives–a loaded environment and commitment through a truth-telling oath–affect truth-telling and lying behavior. For a loaded environment, we revise the standard lying experiment by making it explicit and clear to the person that “a lie is a lie”. We then combine the lying experiment with a solemn oath procedure, by which subjects commit themselves to tell the truth before entering the laboratory. Both non-monetary incentive devices affect a person's willingness to tell the truth: subjects lie slightly less frequently in the loaded environment, and drastically less after they signed the solemn oath. Interestingly, the loaded environment and oath have distinct effects–the oath changes the incentive to lie only when truthfulness is made meaningful through the loaded environment.
    Abstract: Un nombre croissant de travaux en économie expérimentale s'intéresse à l'effet d'incitations financières sur les comportements d'honnêteté et de mensonge. Nous étudions l'effet de deux incitations non-monétaires – un environnement avec connotation explicite et un engagement à dire la vérité en prêtant serment – sur les comportements d'honnêteté et de mensonge. L'environnement avec connotation explicite correspond à une modification de l'expérience usuelle qui rend explicite et clair le fait qu'un “mensonge est un mensonge”. Cet environnement est également associé à une procédure de serment, par laquelle les sujets s'engagent, avant d'entrer dans le laboratoire, à dire la vérité. Ces deux mécanismes d'incitation non-monétaire ont un effet sur la propension des individus à dire la vérité : les participants de l'expérience mentent légèrement moins dans l'environnement avec connotation explicite et nettement moins après avoir signé un serment. L'environnement avec connotation explicite et le serment ont des effets très différenciés : le serment change l'incitation à mentir uniquement lorsque le comportement de mensonge a été rendu explicite, à travers l'environnement avec connotation explicite.
    Keywords: Deception,lies,truth-telling oath,experiments,Mensonge,serment à dire la vérité,expérience en laboratoire
    Date: 2015–07
  10. By: Ceparano, Maria Carmela; Quartieri, Federico
    Abstract: We prove the existence of a unique pure-strategy Nash equilibrium in nice games with isotone chain-concave best replies and compact strategy sets. We establish a preliminary fixpoint uniqueness argument showing sufficient assumptions on the best replies of a nice game that guarantee the existence of exactly one Nash equilibrium. Then, by means of a comparative statics analysis, we examine the necessity and sufficiency of the conditions on (marginal) utility functions for such assumptions to be satisfied; in particular, we find necessary and sufficient conditions for the isotonicity and chain-concavity of best replies. We extend the results on Nash equilibrium uniqueness to nice games with upper unbounded strategy sets and we present "dual" results for games with isotone chain-convex best replies. A final application to Bayesian games is exhibited.
    Keywords: Nash equilibrium uniqueness; Chain-concave best replies; Nice games; Comparative statics; Strategic complementarity.
    JEL: C61 C72
    Date: 2015–10–05
  11. By: Mao, Liang
    Abstract: Two players, $A$ and $B$, bargain to divide a perfectly divisible pie. In a bargaining model with constant discount factors, $\delta_A$ and $\delta_B$, we extend \cite{Rubinstein82}'s alternating offers procedures to more general deterministic procedures so that any player in any period can be the proposer. We show that each bargaining game with a deterministic procedure has a unique subgame perfect equilibrium (SPE) payoff outcome, which is efficient. Conversely, each efficient division of the pie can be supported as an SPE outcome by some procedure if $\delta_A+\delta_B\geq 1$, while almost no division can ever be supported in SPE if $\delta_A+\delta_B < 1$.
    Keywords: noncooperative bargaining, subgame perfect equilibrium, bargaining procedure
    JEL: C72 C78
    Date: 2015–09–07
  12. By: Phaneuf, Emile; Ferlito, Carmelo
    Abstract: In this paper we first address a long-standing criticism of human rationality and what that means for the role of government. We review and compare much of the literature on rationality and demonstrate that various authors within various fields often mean very different things by the word “rational.” While we make no claims as to whether or not humans always behave rationally, we point out the flawed logic for what is suggested for the role of government as a way of addressing the human irrationality problem. Building on the Mises-Rothbard-Huerta de Soto tradition, we argue that what is more important than perfect rationality is purposeful action. We explain the dynamic nature of the market in which time plays an important role, and humans act with expectations to accomplish goals, learn from past mistakes, discover new information and modify their plans accordingly. Using Hayek’s approach, we discuss the knowledge problem in which data is dispersed among millions of individuals (unknown in its entirety to any central authority) as well as the problems with applying the scientific method exactly as it is used in the natural sciences to the human behavioral sciences. These problems combined, we argue, make for a much more disastrous system than would be a system in which often-irrational individuals would be free to make mistakes for themselves, discover new information and take actions for their own betterment.
    Keywords: Rationality, Government intervention, Equilibrium, Human Action, Purposeful Behaviour
    JEL: B53 D80 D84 H10 H30
    Date: 2014–10–31
  13. By: Ferlito, Carmelo
    Abstract: Joseph A. Schumpeter developed a very well-known theory of entrepreneurs and entrepreneurship, centred on the concept of ‘new combinations’. According to him, innovation and entrepreneurship are destructive elements driving the system beyond an equilibrium position and setting in motion a competitive process, in order to reach a new equilibrium point. Though Austrian, Schumpeter was never a member of the Austrian School of Economics. However, his position as regards entrepreneurship is widely commented on by Austrian School members. In particular, Israel M. Kirzner devoted his research activity to develop an alternative concept of entrepreneurship rooted in Misesian human action and the concept of ‘alertness’. This paper aims to analyze and compare the two positions, in an attempt not so much to stress differences but to find possible common paths for further developments of the concept of entrepreneurship.
    Keywords: Schumpeter, Kirzner, Entrepreneur, Entrepreneurship, Innovation, Austrian School of Economics.
    JEL: B13 B25 B53 L26 O31 O33
    Date: 2015–05–12
  14. By: Raul V. Fabella (School of Economics, University of the Philippines Diliman)
    Abstract: We reformulate the Humean farmer game on the basis of random assignment of advantage and the cost e of helping in another’s harvest. The result is a game that is a coordination game if e < ½ or a dominant strategy Prisoner’s Dilemma Game if e > ½ which allows a joint treatment of the two interpretations of the Humean farmer game. We employ two behavioral types initially: the conditionally cooperative (H-type) and the free riding (NH-type). We employ replication dynamics with assortative matching and multiple production cycles to investigate which evolutionarily stable (EE) monomorphic population it engenders. We show that the ceiling for effort cost e to support an EE monomorphic H-type population in the Stag-Hunt game rises to (1 + b)/2 from 1/2 in pure random matching case. As the assortative index b rises, the basin of attraction of the EE H-type solution rises. When the assortative matching is perfect (b = 1), in the Stag-Hunt game version (0 < e < ½), the monomorphic NH-type population (s* = 0) is no longer EE while the monomorphic H-type solution (s** = 1) is EE; in the Dominant Strategy game version (e > ½), s* = 0 is EE iff e > (3/4) while s** = 1 is EE.
    Keywords: Humean farmer game, helping cost, assortative matching, production cycles, emergence of cooperation
    JEL: B0 B15 B31 C73
    Date: 2015–11
  15. By: Nikolova, Milena (IZA)
    Abstract: Along with political and economic changes, the fall of the socialist regimes in Central and Eastern Europe and the former Soviet Union brought about fundamental institutional reforms. Several studies have examined the causes of the increasing unhappiness which accompanied the transition process, including deteriorating public goods, rising inequality, income volatility, stagnating labor market conditions, and changing norms. Yet, few papers have sought explanations for the life satisfaction differentials between transition and non-transition economies. In this paper, I specifically examine the life satisfaction gap between post-socialist and advanced countries and the role of political institutions in explaining this gap. My results imply that both macroeconomic factors and the rule of law explain the overall life satisfaction differential between the advanced and transition societies. The rule of law had an additional role of reducing the happiness gap in the 1990s and may have even reversed it in the post-crisis years. As institutions and macroeconomic conditions continue to improve, post-socialist countries may complete their transformation processes and achieve quality of life levels comparable with those in the West.
    Keywords: subjective well-being, institutions, transition economies
    JEL: D02 E02 I31 P20
    Date: 2015–11
  16. By: Georges Prat
    Abstract: The « permanent » unemployment concept of Rueff (1925, 1931) represents a classical form of unemployment due to wage rigidities leading to an excess of real wages compared to their theoretical value corresponding to a competitive equilibrium. Relative to this known aspect of the Rueff’s work, this paper shows that the author considered also a “temporary” unemployment due to an insufficient level of the economic activity, and a « minimum » frictional unemployment prevailing in the normal functioning of any economy. Using empirical data in England during the 1920’s, Rueff suggested that the « permanent » component was the main explanation of the unemployment (this is the socalled « law of Rueff »). We conduct simple econometric tests using Rueff’s data that confirm this conclusion, and we show that releasing the assumption of a constant labor productivity (supposed by Rueff) improves the « law of Rueff ». In line with these results, we show that the theoretical approach proposed by Allais (1943) joins the three types of unemployment pointed out by Rueff, renamed as “chronic”, “conjonctural” and “technological”, respectively. Much later, Allais (1980) proposed an unrecognized straightforward econometrical equation comprising these three types of unemployment to represent the french unemployment over the period 1952-78. We confirm that this equation describes a large part of the evolution of unemployment in England during the 1920’s and in France during the period 1970-2008, although the properties of residuals show that this equation is misspecified. Finally, we suggest that, under some restrictive conditions, the three types of unemployment distinguished by Rueff and Allais can be seen from the perspective of the equilibrium unemployment defined by the imperfect competition WS-PS model (Layard-Nickel-Jackman (1991)), hence allowing to indicate how the Allais’ equation is misspecified, thus highlighting the important scientific advances that have been made since.
    Keywords: equilibrium unemployment, wage rigidities, Maurice Allais, Jacques Rueff
    JEL: E24 J2 N34
    Date: 2015
  17. By: Samuel N. Cohen; Victor Fedyashov
    Abstract: In this paper we consider non zero-sum games where multiple players control the drift of a process, and their payoffs depend on its ergodic behaviour. We establish their connection with systems of Ergodic BSDEs, and prove the existence of a Nash equilibrium under the generalised Isaac's conditions. We also study the case of interacting players of different type.
    Date: 2015–11
  18. By: Ramon Caminal (Institut d'Anàlisi Econòmica (CSIC) and Barcelona GSE); Antonio Di Paolo (AQR-Universitat de Barcelona)
    Abstract: Do languages matter beyond their communicative benefits? We explore the potential role of preferences over the language of use, theoretically and empirically. We focus on Catalonia, a bilingual society where everyone is fully proficient in Spanish, to isolate linguistic preferences from communicative benefits. Moreover, we exploit the language-in-education reform of 1983 to identify the causal effects of language skills. Results indicate that the policy change has improved the Catalan proficiency of native Spanish speakers, which in turn increased their propensity to find Catalan-speaking partners. Hence, the acquisition of apparently redundant language skills has expanded cooperation across speech communities.
    Keywords: partnership formation, preferences, segregation, language skills, language use, language policy
    JEL: C26 C78 I28 J12 J15
    Date: 2015–11

This nep-hpe issue is ©2015 by Erik Thomson. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.