nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2016‒04‒04
fifteen papers chosen by
Erik Thomson
University of Manitoba

  1. Labor Economics in a Planned Economy: F. A. Hayek and John Jewkes on the Impossibility of Democratic Socialism By Makovi, Michael
  2. The Schumpeter Legacy By Accolley, Delali
  3. Hypothetical Bargaining and the Equilibrium Selection Problem in Non-Cooperative Games By Radzvilas, Mantas
  4. Price flexibility and full employment: barking up the wrong (neoclassical) tree By Roy H Grieve
  5. Capital, growth and inequality in Piketty's approach. Is it able to explain level and changes of inequality in the personal income distribution? By Renata Targetti Lenti
  6. Preference purification and the inner rational agent: A critique of the conventional wisdom of behavioural welfare economics By Gerardo Infante; Guilhem Lecouteux; Robert Sugden
  7. The Logic of Love By Aviv Keren
  8. Pouvoir de marché, stratégies et régulation: Les contributions de Jean Tirole, Prix Nobel d'Economie 2014 By David Encaoua
  9. What Did We Learn from the Financial Crisis, the Great Recession, and the Pathetic Recovery? By Alan S. Blinder
  10. The Foreign Policy of a Democratic Socialist Regime: From Intervention to Protection to Warfare By Makovi, Michael
  11. Неокласична економска теорија и проблеми економског развоја By Bukvić, Rajko; Pavlović, Radica
  12. Political Business Cycles 40 Years after Nordhaus By Eric Dubois
  13. Networks in Economics: A Perspective on the Literature By Sanjeev Goyal; ; ;
  14. On Simple Outcomes and Cores By Marilda Sotomayor

  1. By: Makovi, Michael
    Abstract: Milton Friedman (1962) is associated with the claim that political and economic freedom cannot be distinguished (cf. Lawson and Clark 2010), using the famous example that there can be no freedom of speech where the government owns the printing presses. Less well-known is F. A. Hayek's example, drawn from labor economics, used to illustrate the same principle. Hayek was joined in this by his less well-known colleague, John Jewkes. Hayek and Jewkes argued that without a freely operating price system, central economic planning cannot function without compulsory regimentation of labor. Similarly, no state may simultaneously fix “fair” wages and demand a given pattern of productive output and employment. It is impossible to both achieve income equality and accomplish an economic plan. Hayek's and Jewkes's examples help explain why democratic socialism is impossible, in the sense that it cannot accomplish what its advocates desire.
    Keywords: Hayek; Road to Serfdom; democratic socialism; market socialism; economic democracy; totalitarianism; public choice; government failure; impossibility; corvee; corvée; serfdom; slavery; involuntary; coercive; compulsion; compulsory; labor; servitude
    JEL: A12 B24 B25 B51 B53 D7 J0 J00 J20 J30 J47 P10 P20 P30 P50
    Date: 2016–03–21
  2. By: Accolley, Delali
    Abstract: This is a biography of Joseph Alois Schumpeter, the father of both the concept of creative destruction and the elite theory of democracy. The influence of his works has gone beyond the Economics field. He has influenced both economists through his explanations of business cycles and innovations and Political Scientists through his theories of democracy. Recently, in the wake of the 2008 financial crisis, Schumpeter's thesis on the self-destruction of capitalism has been revisited by economists.
    Keywords: Schumpeter, creative destruction, innovation
    JEL: B3
    Date: 2011–03–20
  3. By: Radzvilas, Mantas
    Abstract: Orthodox game theory is often criticized for its inability to single out intuitively compelling Nash equilibria in non-cooperative games. The theory of virtual bargaining, developed by Misyak and Chater (2014) suggests that players resolve non-cooperative games by making their strategy choices on the basis of what they would agree to play if they could openly bargain. The proposed formal model of bargaining, however, has limited applicability in non-cooperative games due to its reliance on the existence of a unique non-agreement point – a condition that is not satisfied by games with multiple Nash equilibria. In this paper, I propose a model of ordinal hypothetical bargaining, called the Benefit-Equilibration Reasoning, which does not rely on the existence of a unique reference point, and offers a solution to the equilibrium selection problem in a broad class of non-cooperative games. I provide a formal characterization of the solution, and discuss the theoretical predictions of the suggested model in several experimentally relevant games.
    Keywords: Nash equilibrium, bargaining, equilibrium selection problem, Nash bargaining solution, correlated equilibrium, virtual bargaining, best-response reasoning
    JEL: C70 C71 C72 C78
    Date: 2016–03–24
  4. By: Roy H Grieve (Department of Economics, University of Strathclyde)
    Abstract: This paper (a revised version of Strathclyde Paper 2004-07) questions the thesis (again in fashion) that price flexibility ensures full employment. (See most standard macro textbooks.) We make the point that explanation of unemployment in terms of price/wage stickiness typified much pre-Keynesian analysis, but not Keynes’s theory of involuntary unemployment. Under uncertainty - an essential aspect of the Keynes conception - no set of prices consistent with full employment may actually exist: if so, price inflexibility is not the critical obstacle to the attainment of full employment. Finally, with respect to current use of the AD/AS model, we note that once-rejected ideas have returned to the mainstream and that the strong arguments against attribution of necessarily beneficent effects to price and wage flexibility, which ought to be well-known, seem now to be forgotten.
    Keywords: price adjustment - the rate of iterest, wages, the price level, classical and Keynesian perspectives, "counting equations and unknowns", the ADAS model
    JEL: B13 B22
    Date: 2016–03
  5. By: Renata Targetti Lenti
    Abstract: The paper is a critical review of Piketty’s book “Capital in the XXI Century”. The book provides a general theory of the functioning of a capitalist economy. Piketty’s intent is to link the functional and personal income distribution to the economic growth. The setting can be called "classic". However Piketty is not interested in explaining the role of capital accumulation on economic growth, but instead the inverse relation, that is the role of economic growth on the increase of the returns to capital, on the concentration of wealth and of income’s inequality in capitalist economies. In this review Piketty’s framework is discussed arguing that it can explain only partially level and changes of the personal income distribution. The factors which explain the dynamic of wealth (accumulation of capital) are different from those which explain the dynamics of labor income (demand and supply of skills and education, technology). It is very difficult, therefore, to reach a consensus on a shared theory of personal income distribution. Piketty links in a very innovative way the returns from capital r to the rate of growth of national income g comparing them in a macroeconomic framework. He claims that when returns on capital rise more quickly than the overall economy and taxes on capital remain low, a vicious circle of ever-growing dynastic wealth, and growing inequality, takes place. However the fact that r exceeds g explains nothing about the rise in inequality. An analysis of the generation of personal incomes, and consequently of inequality, requires a suitable framework that links personal endowments to incomes. At the end I will indicate some steps that could be required by framework suitable to analyze the personal income generation process.
    Keywords: Capitalism, Inequality, Income Distribution
    JEL: P16 P48 D31
  6. By: Gerardo Infante (University of East Anglia); Guilhem Lecouteux (Ecole Polytechnique); Robert Sugden (University of East Anglia)
    Abstract: Neoclassical economics assumes that individuals have stable and context-independent preferences, and uses preference-satisfaction as a normative criterion. By calling this assumption into question, behavioural findings cause fundamental problems for normative economics. A common response to these problems is to treat deviations from conventional rational-choice theory as mistakes, and to try to reconstruct the preferences that individuals would have acted on, had they reasoned correctly. We argue that this preference purification approach implicitly uses a dualistic model of the human being, in which an inner rational agent is trapped in an outer psychological shell. This model is psychologically and philosophically problematic.
    Keywords: preference purification, inner rational agent, behavioural welfare economics, libertarian paternalism, context-dependent preferences
    JEL: B41 D03 D60
    Date: 2016–02
  7. By: Aviv Keren
    Abstract: This philosophical work lays the groundwork for a game-theoretic account of (romantic) love, substantiating the folk-psychological conception of love as 'a unification of souls'. It does so by setting up an appropriate universal framework of cognitive agency, that accommodates such unifications and motivates them. This framework applies the gene’s eye view of evolution to the evolution of cognition, integrating it with a distributed, dynamic theory of selfhood – and the game-theoretic principles of agent-unification that govern these dynamics. The application of this framework to particular biological settings produces love as a theoretical evolutionary prediction (unveiling its rationality). Through this, the connection of the strategic normativity to love's real-life behavioral and phenomenological expressions is systematically explored.
    Date: 2016–03
  8. By: David Encaoua (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics)
    Abstract: Cet article est consacré à une mise en perspective des travaux réalisés par Jean Tirole sur les thèmes mentionnés par le communiqué du Nobel, à savoir l'analyse du pouvoir de marché, ses modalités de contrôle et la régulation des activités de réseaux et de monopole naturel. Il se développe en trois parties. La première explicite pourquoi et comment ces travaux ont participé à un profond renouveau de l'Economie Industrielle. La seconde présente les contributions participant à l'élaboration d'une véritable économie de l'innovation. La troisième partie se réfère aux travaux sur la régulation. Dans chacune de ces parties, l'accent est mis sur trois aspects : i/ l'état des connaissances au moment de ces travaux, ii/ les instruments d'analyse utilisés, et iii/ les enseignements que l'on peut en tirer. L'article cherche également à illustrer une caractéristique commune à plusieurs de ces travaux, celle de combiner, d'une part, une recherche théorique conduisant à un véritable renouvellement de nos connaissances dans différents champs de l'analyse économique, et d'autre part, un choix de questions motivées par une forte préoccupation à trouver des moyens de résolution de nombreux problèmes économiques contemporains, se fondant sur une sérieuse analyse théorique préalable. Abstract: This article is devoted to a perspective of the works of Jean Tirole on the topics mentioned by the Nobel Committee, namely the analysis of market power, its control mechanisms and the regulation of network activities and natural monopoly. It develops in three parts. The first explains why and how these works have contributed to a profound renewal of the Industrial Organization field by offering strong theoretical foundations. The second presents different contributions that advance our understanding of the Economics of Innovation. The third part refers to the works on the Economics of Regulation. In each part, the focus is on three aspects: i / the state of knowledge at the time of the work, ii / the analytical instruments and iii / the lessons that can be drawn. The article seeks to illustrate a common feature in many of these works, that of combining theoretical research leading to the knowledge's enlargement in various fields of economic analysis, and a choice of questions motivated by a strong concern to find solutions to some contemporary economic problems, based on a serious prior theoretical analysis.
    Keywords: patent pools,two-sided markets,O34 Key words: oligopoly,L51,L42,réseaux,incitations,asymétries informationnelles,standards technologiques,pools de brevets,marchés bifaces,systèmes non propriétaires,non-proprietary systems,vertical restraints,patent race,oligopole,restrictions verticales,forclusion,course au brevet,technological standards,asymmetric information,incentives,networks,regulation
    Date: 2015–02
  9. By: Alan S. Blinder (Princeton University)
    Abstract: This paper comes in three parts. Part 1 reviews a few pertinent facts about the stunning economic events that have occurred in the United States (and elsewhere) since 2007. I choose these particular facts from among many for their relevance to the rest of the paper. The next two parts take up, first, some of the key lessons that we professional economists should have learned from the crisis and its aftermath and, second, some important lessons for teaching economics--especially but not exclusively macroeconomics. The two categories of lessons overlap a bit. But is it perhaps surprising how different they are.
    Date: 2014–11
  10. By: Makovi, Michael
    Abstract: Discussions of democratic socialism have focused on whether that system is compatible with domestic civil liberties. Less attention has been paid to its foreign policy implications. Despite the widespread acceptance of the democratic peace hypothesis, democratic socialism would be incompatible with peaceful foreign relations. Economic intervention and economic planning – even democratic – cannot be successful without insulating the domestic economy from foreign competition. This implies economic nationalism and autarky. Moreover, democratic socialism is often justified by the notion that the democratic will of the people should be absolutely sovereign. Such a conception of democracy has no place for constitutional limits on power. Such an unlimited democracy would soon prove illiberal and liable to be captured by a demagogic authoritarian dictator, and this would only exacerbate the deleterious foreign policy consequences of economic nationalism. Democratic socialism is therefore incompatible with the cosmopolitan and humanitarian values of democratic socialists.
    Keywords: Hayek; Road to Serfdom; democratic socialism; market socialism; economic democracy; totalitarianism; public choice; government failure; impossibility
    JEL: A12 B24 B25 B51 B53 D70 F0 P10 P20 P30 P50
    Date: 2016–03–25
  11. By: Bukvić, Rajko; Pavlović, Radica
    Abstract: Serbian Abstract. У раду се разматрају карактеристике савремене владајуће неокласичне економске теорије и њен однос према проблемима економског развоја. Показује се да, с претпоставкама једнаке вредности и значаја свих делатности, и свемоћи саморегулишућег тржишта, она нема могућности и снаге да објасни факторе економског развоја, настанка и ширења сиромаштва, како у некој засебно узетој земљи тако и у међународним односима. Као нова парадигма, која треба да је замени, истиче се Други канон, који се заснива на вишевековној традицији и биолошким метафорама. Он води порекло из епохе Ренесансе, потврђен је вишевековним искуством савремених развијених привреда, кроз примену политика које оне данас забрањују за примену неразвијеним земљама, док их оне саме користе. За разлику од неокласичних политика, оваплоћених у (нео)либералној политици Вашингтонског договора, које доводе до деиндустријализације, политике Другог канона, засноване на политикама обрасца Маршаловог плана, доводе насупрот томе до индустријализације као претпоставке изласка неразвијених земаља из кризе и сиромаштва. Замена неокласичне економске парадигме појављује се у том смислу и као претпоставка увећања квалитета макроекономског образовања и дужна је да обезбеди боље разумевање економских проблема и процеса. English Abstract. Paper considers the characteristics of contemporary dominant neoclascical economic theory and theie relation to economic development. It was showed that it, with presumptions of the same value and significance of all economic activities, and borderless power of selfregulated market, not have possibilities and force to explain factors of economic development, genesis and widening of poverty, as in one separate country as in international relations. As new paradigm, that should to change neoclascical, it is emphasized Other canon, that is on many centuries tradition and biological metaphors grounded. That dates back to the Renessaince, was proved through experience of the now developed economies, through the use of policies that in contemporary world are vorbidden for the underdeveloped coutries, while the developed that use. Contrary to neoclassical policies, realized in (neo)liberal politics of Washington consensus, that lead to deindustrialization, policies of the Other canon, on policies like Marshall plan grounded, lead contrary to industrialization as the condition to leave the underdeveloped countries from crisis and poverty. Change of neoclassical economic paradigm in this sense is the condition for the growth of the quality of macroeconomic education and should to ensure better understanding of economic problems and processes.
    Keywords: Неокласична економика, Други канон, индустријализација, неолиберализам, Вашингтонски договор, Маршалов план Neoclassical economics, Other canon, industrialization, neoliberalism, Washington consensus, Marshall plan
    JEL: E13 O10 P27
    Date: 2014–04–08
  12. By: Eric Dubois (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The aim of this article is to survey the huge literature that has emerged in the last four decades following Nordhaus's (1975) publication on political business cycles (PBCs). I first propose some developments in history of thought to examine the context in which this groundbreaking contribution saw the light of the day. I also present a simplified version of Nordhaus's model to highlight his key results. I detail some early critiques of this model and the fields of investigations to which they gave birth. I then focus on the institutional context and examine its influence on political business cycles, the actual research agenda. Finally, I derive some paths for future research.
    Keywords: political business cycles,politico-economic cycles,electoral cycles,opportunistic cycles,conditional political business cycles
    Date: 2016–02–01
  13. By: Sanjeev Goyal; ; ;
    Abstract: It is instructive to view the study of networks in economics as a shift in paradigm, in the sense of Kuhn (1962). This perspective helps us locate the innovation that networks bring to economics, appreciate different strands of the research, assess the current state of the subject and identify the challenges.
    Date: 2015–02–24
  14. By: Marilda Sotomayor
    Abstract: For a general coalitional game with non-transferable utility (NTU game) and a finite set of players, (N,V), Scarf (1967) proved that every balanced game has a non-empty core. Billera (1970) showed, through an example, that this condition is not always necessary when V(N) has a supremum. By using the concepts of simple outcome and Pareto simple outcome, the present paper provides a weaker condition than balancedness, which is sufficient for the non-emptiness of the core in the general case and is necessary when V(N) has a supremum. It is also necessary for any TU game. Our proof avoids the use of balancedness and specialized mathematical tools. Instead, it is elementary and only employs simple combinatorial arguments.
    Keywords: Core; simple payoff vector; Pareto optimal simple outcome
    JEL: C78 D78
    Date: 2016–03–04
  15. By: Marilda Sotomayor
    Abstract: We approach the roommate problem by focusing on well-behaved matchings, which are those individually rational matchings whose blocking pairs, if any, are formed with unmatched agents. We show that the set of stable matchings is non-empty if and only if no well-behaved and unstable matching is Pareto optimal among all well-behaved matchings. The economic intuition underlying this condition is that blocking can be done so that the transactions at any well-behaved and unstable matching need not be undone as agents reach the the set of stable matchings. We also give a sufficient condition on the preferences of the agents for the non-emptiness of the set of stable matchings. New properties of economic interest are proved
    Keywords: Core; Stable matching; well-behaved matching; simple matching.
    JEL: C78 D78
    Date: 2016–03–14

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