nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2016‒05‒21
eighteen papers chosen by
Erik Thomson
University of Manitoba

  1. Comments on Paul Davidson’s “Full Employment, Open Economy Macroeconomics, and Keynes’ General Theory: Does the Swan Diagram Suffice?†By Peter Temin; David Vines
  2. Conspicuous Consumption and Darwin's Critical Sexual Selection Dynamic That Thorstein Veblen Missed By Jon D. Wisman
  3. Hayek on Expectations: The Interplay between two Complex Systems By Agnès Festré; Pierre Garrouste
  4. Financialization and the crises of capitalism By Dünhaupt, Petra
  5. Theory and Measurement: Emergence, Consolidation and Erosion of a Consensus By Jeff E. Biddle; Daniel S. Hamermesh
  6. Lionel Robbins’ first-step individualism and the prehistory of microfoundations By Thiago Dumont Oliveira; Carlos Eduardo Suprinyak
  7. Identification of Biased Beliefs in Games of Incomplete Information Using Experimental Data By Victor Aguirregabiria; Erhao Xie
  8. A Note on The Evolution of Preferences By Oliver Enrique Pardo Reinoso
  9. The middle-income trap - definitions, theories and countries concerned: a literature survey By Glawe, Linda; Wagner, Helmut
  10. Markets and manipulation : time for a paradigm shift ? By Basu,Kaushik
  11. Understanding the Great Recession: Some Fundamental Keynesian and Post-Keynesian Insights, with an Analysis of Possible Mechanisms to Achieve a Sustained Recovery By Mario Seccareccia; Marc Lavoie
  12. A systemic crisis in the context of globalization: the Great Recession in the perspective of economic history, 1970-2008 By Carles Manera
  13. Le retour de l'économie Keynesienne By Xavier Ragot
  14. Why have asset price properties changed so little in 200 years By Jean-Philippe Bouchaud; Damien Challet
  15. Happiness and Preferences in a Legality Social Dilemma By Becchetti, Leonardo; Corrado, Germana; Pelligra, Vittorio; Rossetti, Fiammetta
  16. The Sorry Clause By Srivastava, Vatsalya
  17. Let's Put Demography Back into Economics: Population Pyramids in Excel By Humberto Barreto
  18. What matters and how it matters: A choice-theoretic representation of moral theories By Dietrich, Franz; List, Christian

  1. By: Peter Temin (MIT); David Vines (Oxford University)
    Abstract: This is a response to a critique by Paul Davidson of our 2013 book Keynes: Useful Economics for the World Economy and related work,3 where we describe, amongst other things, how the Swan diagram can be used to show how economies can use policy tools to achieve internal and external balance. In his article “Full Employment, Open Economy Macroeconomics, and Keynes’ General Theory: Does the Swan Diagram Suffice?†Davidson rejects our use of the Swan diagram and argues that it distorts Keynes’ own views. We show here why Davidson’s critique is incorrect, inconsistent and ahistorical.
    Keywords: Swan Diagram, balance of payments, fiscal policy, neoclassical Synthesis Keynesianism, Post Keynesianism.
    JEL: B3 E12 E42 E61 F33 F41
    Date: 2015–12
  2. By: Jon D. Wisman
    Abstract: Thorstein Veblen's theory of conspicuous consumption is one of his most powerful contributions to social science. Conspicuous consumption is undertaken in an attempt to maintain or increase social standing. But why do humans seek to acquire status through their consumption practices? Or more fundamentally, why do they seek status? Veblen does not present it as grounded in an instinct such as his instincts of parental bent, workmanship or idle curiosity, although he claims that "the propensity for emulation is probably the strongest and most alert and persistent of the economic motives proper… a pervading trait of human nature." But why? Had he read Darwin, or read him more carefully, he would have picked up on Darwin's concept of sexual selection and recognized it as the driving force behind conspicuous consumption as well as much other behavior intended to favorably impress others, if not the driving force behind all of his instincts. Sexual selection is a form of natural selection that works through mate selection as opposed to physical survival. How much an individual can consume signals an ability to command resources essential for successfully raising children. This article adds the Darwinian depth that Veblen missed to his important concept of conspicuous consumption, and in doing so adds clarity to humanity's prospects.
    Keywords: Darwin, sexual selection, status, inequality, evolution
    JEL: B15 B52 D11 P47
    Date: 2016
  3. By: Agnès Festré (GREDEG CNRS; University of Nice Sophia Antipolis, France); Pierre Garrouste (GREDEG CNRS; University of Nice Sophia Antipolis, France)
    Abstract: In this paper we argue that Hayek’s expectations approach can be better understood by taking account of the interplay between two related complex systems: the complex system of cognition and the complex system of behavioral rules of action. The former is located at the individual level and concerns the way human beings perceive the physical world as and well as their fellow men. The second one concerns how human beings behave (essentially how they follow rules) and form expectations based on the properties of their cognitive systems, such that the system of rules to which they adhere provides higher order regularities which preserve their existence over time, that is, the existence of societies. The article is organized as follows. Section 1 provides a detailed description of these complex systems and emphasizes their differences. Section 2 deals with the interplay between these two systems, and discusses the consequences of forming expectations. Section 3 sums up the paper’s main arguments.
    Keywords: Hayek, emergence, complexity, knowledge, expectations
    JEL: B25 B4 B53 D84
    Date: 2016–05
  4. By: Dünhaupt, Petra
    Abstract: Since the 1980s, the financial sector and its role have increased significantly. This development is often referred to as financialization. Authors working in the heterodox tradition have raised the question whether the changing role of finance manifests a new era in the history of capitalism. The present article first provides some general discussion on the term financialization and presents some stylized facts which highlight the rise of finance. Then, it proceeds by briefly reviewing the main arguments in the Marxian framework that proposedly lead to crisis. Next, two schools of thought in the Marxian tradition are reviewed which consider financialization as the latest stage of capitalism. They highlight the contradictions imposed by financialization that disrupt the growth process and also stress the fragilities imposed by the new growth regime. The two approaches introduced here are the Social Structure of Accumulation Theory and Monthly Review School. The subsequent part proceeds with the Post-Keynesian theory, first introducing potential destabilizing factors before discussing financialization and the finance-led growth regime. The last section provides a comparative summary. While the basic narrative in all approaches considered here is quite similar, major differences stem from the relationship between neoliberalism and financialization and, moreover, from the question of whether financialization can be considered cause or effect.
    Keywords: Financialization,Crisis,Periods of Capitalism,Heterodox Economics
    JEL: E02 E11 E12 P16 P51
    Date: 2016
  5. By: Jeff E. Biddle; Daniel S. Hamermesh
    Abstract: We identify three separate stages in the post-World War II history of applied microeconomic research: A generally non-mathematical period; a period of consensus (from the 1960s through the early 1990s) characterized by the use of mathematical models, optimization and equilibrium to generate and test hypotheses about economic behavior; and (from the late 1990s) a partial abandonment of economic theory in applied work in the “experimentalist paradigm.” We document the changes implied by the changing paradigms in the profession by coding the content of all applied micro articles published in the “Top 5 journals” in 1951-55, 1974-75 and 2007-08. We also show that, despite the partial abandonment of theory by applied microeconomists, the labor market for economists still pays a wage premium to theorists.
    JEL: B21 B23
    Date: 2016–05
  6. By: Thiago Dumont Oliveira (N/A); Carlos Eduardo Suprinyak (Cedeplar-UFMG)
    Abstract: Robbins belongs to the prehistory of microfoundations, for his definition of economics helped to buttress the centrality that individual choice acquired after the Second World War. This, however, was an unintended effect of his seminal Essay. Our claim is that, underlying his definition of economics, a novel approach to methodological individualism is advanced, in which the isolated individual plays the role of a temporary device. The economic man is but a first step in order to analyze more complex social phenomena. More specifically, three types of methodological individualism are outlined and it is argued that Robbins’ approach cannot be classified as any of them; we thus propose a different category, that of ‘first-step individualism’. Robbins’ rationale for focusing on the isolated individual is not that social phenomena can be reduced to individual behaviour, but rather that this is the best starting point for economics, if it is to progress and be able to deal with more complex phenomena in the future.
    Keywords: Lionel Robbins, Methodological Individualism, First Step Individualism
    JEL: B20 B31
    Date: 2016–05
  7. By: Victor Aguirregabiria; Erhao Xie
    Abstract: This paper studies the identification of players' preferences and beliefs in empirical applications of discrete choice games using experimental data. The experiment comprises a set of games with similar features (e.g., two-player coordination games) where each game has different values for the players' monetary payoffs. Each game can be interpreted as an experimental treatment group. The researcher assigns randomly subjects to play these games and observes the outcome of the game as described by the vector of players' actions. Data from this experiment can be described in terms of the empirical distribution of players' actions conditional on the treatment group. The researcher is interested in the nonparametric identification of players' preferences (utility function of money) and players' beliefs about the expected behavior of other players, without imposing restrictions such as unbiased or rational beliefs or a particular functional form for the utility of money. We show that the hypothesis of unbiased/rational beliefs is testable and propose a test of this null hypothesis. We apply our method to two sets of experiments conducted by Goeree and Holt (2001) and Heinemann, Nagel and Ockenfels (2009). Our empirical results suggest that in the matching pennies game, a player is able to correctly predict other player's behavior. In the public good coordination game, our test can reject the null hypothesis of unbiased beliefs when the payoff of the non-cooperative action is relatively low.
    Keywords: Testing biased beliefs; Multiple equilibria; Strategic uncertainty; Coordination game
    JEL: C57 C72
    Date: 2016–05–12
  8. By: Oliver Enrique Pardo Reinoso
    Abstract: This note checks the robustness of a surprising result in Dekel et al. (2007). The result states that strict Nash equilibria might cease to be evolutionary stable when agents are able to observe the opponent’s preferences with a very low probability. This note shows that the result is driven by the assumption that there is no risk for the observed preferences to be mistaken. In particular, when a player may observe a signal correlated with the opponent’s preferences, but the signal is noisy enough, all strict Nash equilibria are evolutionary stable.
    Date: 2015–09–01
  9. By: Glawe, Linda; Wagner, Helmut
    Abstract: In recent years, a growing body of economic literature has focused on the phenomenon of the so-called middle-income trap (MIT). The term usually refers to countries that have experienced rapid growth and thus quickly reached middle-income status, but then failed to overcome that income range to further catch up to the developed countries. This paper surveys the MIT literature. It begins by laying out different approaches to defining the MIT (with a focus on the distinction between absolute and relative approaches) and by presenting as well as classifying the most important empirical studies. After a short overview of the currently identified MIT countries, the article summarizes the main explanatory approaches, taking into account both the theoretical foundations and the empirically identified triggering factors.
    Keywords: middle-income trap; middle-income countries; economic growth; economic development; growth slowdowns; catching up
    JEL: O10 O40
    Date: 2016–05–09
  10. By: Basu,Kaushik
    Abstract: There is a growing appreciation in economics that people have emotional vulnerabilities, commitments to social norms, and systematic irrationalities, which impact their decision making and choice in the marketplace. The flip side of this is that human beings are susceptible to being manipulated by unscrupulous agents who are single-minded about marketing their services and wares. This paper reviews George Akerlof and Robert Shiller's book, Phishing for Phools: The Economics of Manipulation and Deception, alongside other writings in the field, and discusses how this research agenda can be taken forward. The paper shows how this new research can shed light on the ubiquity of corruption in so many societies, and proposes ideas for controlling corruption.
    Keywords: Debt Markets,Economic Theory&Research,Access to Finance,Labor Policies,Markets and Market Access
    Date: 2016–04–27
  11. By: Mario Seccareccia (University of Ottawa); Marc Lavoie (University of Ottawa)
    Abstract: Fears of deflation and long-term stagnation have become more commonplace since the Great Recession. Yet, within the mainstream, economists are divided into two camps: those who see the benefits of downward wage and price adjustment, as a private sector stabilizer, and those who fear deflationary pressures because of their destabilizing consequences. This paper reviews this theoretical literature using a simple “New Consensus†framework of analysis and it also seeks to describe how mainstream and heterodox economists analyzing the consequences of deflationary pressures come to very different conclusions on the nature of private sector stabilizers in a recessionary environment. After reviewing the different perspectives, the paper undertakes a comparative analysis of the experience of both the Great Depression and the Great Recession by looking at the behavior of certain key variables in three countries: Canada, the United States and the United Kingdom. The paper concludes that, if it was not for the quick actions of governments in stabilizing the economy through activist macroeconomic policies during the Great Recession, private sector stabilizers were actually less significant during the recent crisis than they were during the 1930s.
    Keywords: Deflation, self-correcting mechanism, private/public sector stabilizers, Great Depression and Great Recession.
    JEL: B22 B5 E1 E3 E5 E6
  12. By: Carles Manera (Universitat de les Illes Balears)
    Abstract: The author argues in this work, the result of three years of research, that the Great Recession has the profile of a systemic crisis, in the sense that it is not only a single financial causes the trigger and at the same time, the crisis has questioned all the mechanisms of the system seemed to guarantee the impossibility of such severe as the crisis phenomenon since 2008. There are other factors to consider: crisis of accumulation, economic regulation and reduction of benefits, which point in this investigation and that, in turn, are the starting points for further work on the research agenda.
    Keywords: Great Recession, economic crises, globalization, American economy, Asian economy, European economy, economic history since 1945
    JEL: N1 N2 B2 F4
    Date: 2016
  13. By: Xavier Ragot (OFCE)
    Abstract: La crise économique a généré une profusion de nouvelles recherches en macroéconomie, qui sont peu connues du grand public. La rationalité limitée, l'utilisation des données historiques et des études de cas sont maintenant des outils reconnus. Derrière cette diversification de la profession, la question des rigidités nominales sur le marché des biens et du travail retrouve une place centrale pour comprendre la dynamique européenne et américaine. Les thèmes de la stagnation séculaire, des taux d'intérêt faibles, de la volatilité excessive sur le marché financier, des effets des politiques fiscales et monétaires reposent sur ces rigidités. Si ces travaux retrouvent certaines des intuitions des modèles à prix-fixes du début des années 1980 (Bénassy-Younes-Malinvaud), les modèles récents sont plus complexes pour être confrontés rigoureusement aux donnés. Le retour de l'économie keynésienne indiqué par le titre de cet article est le retour de la question des rigidités nominales sur plusieurs marchés en équilibre général.
    Keywords: Rigidités nominales; Equilibre macroéconomique; Methode de la macroéconomie
    JEL: B22 B40 E12
    Date: 2016–05
  14. By: Jean-Philippe Bouchaud; Damien Challet
    Abstract: We first review empirical evidence that asset prices have had episodes of large fluctuations and been inefficient for at least 200 years. We briefly review recent theoretical results as well as the neurological basis of trend following and finally argue that these asset price properties can be attributed to two fundamental mechanisms that have not changed for many centuries: an innate preference for trend following and the collective tendency to exploit as much as possible detectable price arbitrage, which leads to destabilizing feedback loops.
    Date: 2016–05
  15. By: Becchetti, Leonardo (Associazione Italiana per la Cultura della Cooperazione e del Non Profit); Corrado, Germana (Associazione Italiana per la Cultura della Cooperazione e del Non Profit); Pelligra, Vittorio (Associazione Italiana per la Cultura della Cooperazione e del Non Profit); Rossetti, Fiammetta (Associazione Italiana per la Cultura della Cooperazione e del Non Profit)
    Abstract: We investigate players’ preferences in a multiplayer prisoner’s dilemma by comparing results from a direct (satisfaction based) and an indirect (choice based) approach. Both approaches provide strong evidence of preference heterogeneity, with players who cooperate above median being less affected in their choice by monetary payoffs vis-à-vis the public good component. The combination of a legality frame plus a conformity information design reduces further the relative preference (satisfaction) for the non-cooperative choice for such players. Our findings support the hypothesis that (part of the) players have, in addition to the standard self-interest component, an other-regarding preference argument that is further satisfied in the legality frame plus conformity design.
    Keywords: Analysis of Collective Decision-Making; Corruption; Laboratoty Experiment; Legality Game; Redistribution; Conformity
    JEL: C92 D70 D73 H20
    Date: 2016–02–11
  16. By: Srivastava, Vatsalya (Tilburg University, TILEC)
    Abstract: When players face uncertainty in choosing actions, undesirable outcomes cannot be avoided. Accidental defections caused by uncertainty, that does not depend on the level of care, require a mechanism to reconcile the players. This paper shows the existence of a perfect sorry equilibrium in a game of imperfect public monitoring. In the sorry equilibrium, costly apology is self-imposed in case of accidental defections, making private information public and allowing cooperation to resume. Cost of the apology required to sustain this equilibrium is calculated, the efficiency characteristics of the equilibrium evaluated and outcomes compared to those from other bilateral social governance mechanisms and formal legal systems. It is argued that with the possibility of accidental defections, other social mechanisms have limitations, while formal legal systems can generate perverse incentives. Therefore, apologies can serve as a useful economic governance institution.
    Keywords: apology; sorry; imperfect public monitoring; uncertainty; social norms; economics governance; Legal institutions; incentives
    JEL: D80 K40 K41 K42 D02
    Date: 2016
  17. By: Humberto Barreto (Department of Economics and Management, DePauw University)
    Abstract: In 1960, George Stigler wrote that, “In 1830, no general work in economics would omit a discussion of population, and in 1930, hardly any general work said anything about population.” Today, the economics curriculum remains largely devoid of demography and this needs to change immediately. After witnessing a population explosion in the last half of the 20th century, fertility rates are crashing throughout the world. We are in the midst of another demographic sea change, slamming on the brakes right after accelerating faster than ever before. This has important consequences for economies everywhere. Instead of glibly tossing a dependency ratio onto a slide, this paper offers an easy way to improve demographic literacy in undergraduate economics students using population pyramids. Hypothetical data are used to explain the pyramid and teach its dynamic properties, then real-world data are used to provide historical context, current demographic snapshots, and a glimpse of the future. Throughout, Microsoft Excel is used and its ability to download data directly from the US Census Bureau’s International Data Base with a single click of a button provides a flexible, powerful tool to explore various countries. Download PopulationPyramid.xlsm from and follow along with the instructions provided in this paper.
    Keywords: teaching, pedagogy, education, cohort, ageing, demographics
    JEL: A1 A2 J1
    Date: 2016–05
  18. By: Dietrich, Franz; List, Christian
    Abstract: We present a new “reason-based” approach to the formal representation of moral theories, drawing on recent decision-theoretic work. We show that any moral theory within a very large class can be represented in terms of two parameters: (i) a specification of which properties of the objects of moral choice matter in any given context, and (ii) a specification of how these properties matter. Reason-based representations provide a very general taxonomy of moral theories, as differences among theories can be attributed to differences in their two key parameters. We can thus formalize several important distinctions, such as between consequentialist and non-consequentialist theories, between universalist and relativist theories, between agent-neutral and agent-relative theories, between monistic and pluralistic theories, between atomistic and holistic theories, and between theories with a teleological structure and those without.
    Keywords: moral choice, reason-based choice, consequentialism versus deontology, universalism versus relativism, agent-neutrality versus agent-relativity, monism versus pluralism, atomism versus holism, teleology versus non-teleology
    JEL: B0 B4 B40 D6 D63
    Date: 2016–02

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