nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2016‒08‒28
twenty papers chosen by
Erik Thomson
University of Manitoba

  1. New economic windows on income and wealth: The k-generalized family of distributions By F. Clementi; M. Gallegati
  2. Doing Rawls justice: Evidence from the PSID By Abatemarco, Antonio
  3. The Rise of New Institutional Economics and Assessment its Contributions to the Post Washington Consensus By Babayev, Bahruz
  4. Nature and significance of Islamic economics By Hasan, Zubair
  5. Trades unions, real wages and full employment By Mark Hayes
  6. From Chronic Inflation to Chronic Deflation: Focusing on Expectations and Liquidity Disarray Since WWII By Guillermo A. Calvo
  7. Dividing Goods or Bads Under Additive Utilities By Anna Bogomolnaia; Herve Moulin; Fedor Sandomirskiy; Elena Yanovskaya
  8. A Possible Explanation of the ‘Exchange Rate Disconnect Puzzle’: A Common Solution to Three Major Macroeconomic Puzzles? By Horioka, Charles Yuji; Ford, Nicholas
  9. Political Foundations of the Lender of Last Resort: A Global Historical Narrative By Calomiris, Charles; Flandreau, Marc; Laeven, Luc
  10. Calvin's reformation in Geneva: self and social signalling By Gilat Levy; Ronny Razin
  11. Common law and the origin of shareholder protection By Acheson, Graeme G.; Campbell, Gareth; Turner, John D.
  12. The Bank of England and the genesis of modern management By Murphy, Anne L.
  13. A Pound of Flesh for the King By Garcia, Daniel
  14. Protocol Invariance and the Timing of Decisions in Dynamic Games By Doraszelski, Ulrich; Escobar, Juan
  15. Strategic Ambiguity and Decision-making: An Experimental Study By David Kelsey; Sara le Roux
  16. Monopolistic competition without apology By Thisse, Jacques-François; Ushchev, Philip
  17. Das bedingungslose Grundeinkommen By Kotzab, Mario; Pflug, Maximilian
  18. The I Theory of Money By Markus K. Brunnermeier; Yuliy Sannikov
  19. Happiness and Alleviation of Income Poverty: Impacts of an unconditional cash transfer programme using a subjective well-being approach By Sudhanshu Handa; Kelly Kilburn; Gustavo Angeles; Peter Mvula; Maxton Tsoka; UNICEF Office of Research - Innocenti
  20. The Principle of Reciprocity in the 21st Century By David R. DeRemer

  1. By: F. Clementi; M. Gallegati
    Abstract: Over the last decades, the distribution of income and wealth has been deteriorating in many countries, leading to increased inequalities within and between societies. This tendency has revived the interest in the subject greatly, yet it still receives very little attention within the realm of mainstream economic thinking. One reason for this is that the basic paradigm of "standard economics", the representative-agent General Equilibrium framework, is badly equipped to cope with distributional issues. Here we argue that when the economy is treated as a complex system composed of many heterogeneous interacting agents who give rise to emergent phenomena, to address the main stylized facts of income/wealth distribution requires leaving the toolbox of mainstream economics in favour of alternative approaches. The "k-generalized" family of income/wealth distributions, building on the categories of complexity, is an example of how advances in the field can be achieved within new interdisciplinary research contexts.
    Date: 2016–08
  2. By: Abatemarco, Antonio
    Abstract: Distributive value judgments based on the 'origins' of economic inequalities (e.g. circumstances and responsible choices) are increasingly evoked to argue that 'the worst form of inequality is to try to make unequal things equal'. However, one may reasonably agree that distributive value judgments should also account for the 'consequences' of economic inequalities in such a way as to (i) improve economic efficiency and (ii) prevent from subordination, exploitation and humiliation. In this way of thinking, by resorting the well-known Rawlsian 'fair equality of opportunity' and 'difference principle', the author proposes a pragmatical non-parametric estimation strategy to compare income distributions in terms of Rawlsian inequity and its contribution to overall inequality. The latter methodology is applied to PSID data from 1999 to 2013 and compared with existing empirical evidences on Roemer's (A Pragmatic Theory of Responsibility for the Egalitarian Planner, 1993, and Equality of Opportunity, 1998) inequality of opportunity. Remarkably, Rawlsian inequity is found between 56% and 65% of the overall income inequality, with an increasing pattern originating from the recent economic crisis.
    Keywords: Rawlsian justice,equality of opportunity,income distribution
    JEL: D63 I32 D3
    Date: 2016
  3. By: Babayev, Bahruz
    Abstract: The main objective of this article is to describe the rise of New Institutional Economics (NIE) and assess its contributions to the Post Washington Consensus (PWC). This paper argues that the rise of the NIE has provided theoretical ideas for the PWC, but it is still debatable how the contributions of the NIE are effective to tackle development challenges. However, these contributions can still be considered important in the development thinking and their accurate application and implementation in various traditional societies can have long term development impact.
    Keywords: Post Washington Consensus, New Institutional Economics, institutions, World Bank, International Monetary Fund, Consensus.
    JEL: B00 B52
    Date: 2015
  4. By: Hasan, Zubair
    Abstract: Islamic economics has of late landed in confusion and neglect and much concern is being voiced on this state of affairs. The divergence of views on various aspects of the subject tends to grow, cohesive efforts are missing. It is in this context that the present paper takes a look at the nature and significance of Islamic economics and examines the issues of its definition, nature and scope, the questions of methods and methodology, system approach, the problems that seems to hinder its growth, the challenges Islamic economics faces today and how the same can be faced. Since the differences between the Islamic and mainstream economic disciplines stem from the divergent worldviews that condition them, the discussion opens on the topic as background material. This paper is a part of draft Chapter of a book under preparation on Islamic economics and finance. Comments and suggestions are welcome but the paper or its parts cannot be put to any commercial or unfair use.
    Keywords: Islamic economics, worldview, methodology, economic systems, problems challenges
    JEL: D0 D01 D03
    Date: 2016–08–21
  5. By: Mark Hayes (Durham University)
    Abstract: A core proposition of Keynes’s General Theory is that money wages do not determine real wages or employment at the aggregate level in a closed economy. What then is the macroeconomic role of trades unions in the determination of real wages and employment? What are the mechanisms through which bargaining power takes effect? The paper argues that trades unions play important roles in countering employer monopsony as well as in determining the non-wage terms and conditions of employment and the incidence of risk between capital and labour. In the former role, it is the money wage that is relevant, while the latter role is a factor in the determination of aggregate real income and profit, yet the aggregate real wage itself and the wage share are residuals. Trades unions have the potential to support the promotion of full employment with price stability as part of a policy of demand management through the adoption of co-ordinated wage bargaining institutions.
    Keywords: Collective bargaining, wage co-ordination, income distribution
    JEL: E23 E25 J30 J51 J52
    Date: 2016–08
  6. By: Guillermo A. Calvo
    Abstract: The paper discusses policy relevant models, going from (1) chronic inflation in the 20th century after WWII, to (2) credit sudden stop episodes that got exacerbated in Developed Market economies after the 2008 Lehman crisis, and appear to be associated with chronic deflation. The discussion highlights the importance of expectations and liquidity, and warns about the risks of relegating liquidity to a secondary role, as has been the practice in mainstream macro models prior to the Great Recession.
    JEL: E31 E41 E42 E44
    Date: 2016–08
  7. By: Anna Bogomolnaia (National Research University Higher School of Economics); Herve Moulin (National Research University Higher School of Economics); Fedor Sandomirskiy (National Research University Higher School of Economics); Elena Yanovskaya (National Research University Higher School of Economics)
    Abstract: The Competitive Equilibrium with Equal Incomes is an especially appealing ecient and envy-free division of private goods when utilities are additive: it maximizes the Nash product of utilities and is single-valued and continuous in the marginal rates of substitution. The CEEI to divide bads captures similarly the critical points of the Nash product in the ecient frontier. But it is far from resolute, allowing routinely many divisions with sharply di erent welfare consequences. Even the much more permissive No Envy property is profoundly ambiguous in the division of bads: the set of ecient and envy-free allocations can have many connected components, and has no single-valued selection continuous in the marginal rates. The CEEI to divide goods is Resource Monotonic (RM): everyone (weakly) bene ts when the manna increases. But when we divide bads eciently, RM is incompatible with Fair Share Guarantee, a much weaker property than No Envy.
    Keywords: fair division of goods, fair division of bads, competitive equilibrium with equal incomes, Nash product, envy-freeness, resource monotonicity, independence of lost bids.
    JEL: D61 D63 D82
    Date: 2016
  8. By: Horioka, Charles Yuji; Ford, Nicholas
    Abstract: Meese and Rogoff (1983) and subsequent studies find that economic fundamentals are apparently not able to explain exchange rate movements, but we argue that this so†called “Exchange Rate Disconnect Puzzle†arose because researchers such as Meese and Rogoff (1983) did not use the right fundamentals and because they did not allow for the forward†looking nature of exchange rate determination. Further, because they apparently were not aware that financial markets by themselves could not equalise interest rates across countries, they did not properly appreciate that the exchange rate is strongly influenced by agents’ expectations of aggregated differences in local returns. Thus, we believe that the same underlying explanation provided by Ford (2015) and Ford and Horioka (2016a and 2016b) for the Feldstein†Horioka (1980) Puzzle and the PPP Puzzle††namely that financial markets alone cannot achieve net transfers of financial capital and cannot equalise real interest rates across countries††also helps explain why previous attempts to connect changes in the exchange rate to economic fundamentals have not been successful, and so can also be said to contribute to solving the Exchange Rate Disconnect Puzzle.
    Keywords: Exchange Rate Disconnect Puzzle, exchange rate determination, exchange rate volatility, Feldstein†Horioka puzzle or paradox, financial market integration, goods market integration, international capital flows, international capital mobility, net transfers of capital, PPP puzzle, purchasing power parity puzzle, real interest rate equalisation, real interest rate parity, Exchange Rate Disconnect Puzzle, exchange rate determination, exchange rate volatility, Feldstein†Horioka puzzle or paradox, financial market integration, goods market integration, international capital flows, international capital mobility, net transfers of capital, PPP puzzle, purchasing power parity puzzle, real interest rate equalisation, real interest rate parity, F21, F31, F32, F36, G15
    Date: 2016–07
  9. By: Calomiris, Charles; Flandreau, Marc; Laeven, Luc
    Abstract: This paper offers a historical perspective on the evolution of central banks as lenders of last resort (LOLR). Countries differ in the statutory powers of the LOLR, which is the outcome of a political bargain. Collateralized LOLR lending as envisioned by Bagehot (1873) requires five key legal and institutional preconditions, all of which required political agreement. LOLR mechanisms evolved to include more than collateralized lending. LOLRs established prior to World War II, with few exceptions, followed policies that can be broadly characterized as implementing "Bagehot's Principles" : seeking to preserve systemic financial stability rather than preventing the failure of particular banks, and limiting the amount of risk absorbed by the LOLR as much as possible when providing financial assistance. After World War II, and especially after the 1970s, generous deposit insurance and ad hoc bank bailouts became the norm. The focus of bank safety net policy changed from targeting systemic stability to preventing depositor loss and the failure of banks. Statutory powers of central banks do not change much over time, or correlate with country characteristics, instead reflecting idiosyncratic political histories.
    Keywords: bank runs; central banks; economic history; Financial crises; lender of last resort
    Date: 2016–08
  10. By: Gilat Levy; Ronny Razin
    Abstract: As Weber (1904) recognized, Calvinistic beliefs about predestination may constitute a powerful incentive for good works; an individual wishes to receive assurances about her future prospects of salvation, and good works may provide a positive signal about such prospects. These beliefs can in turn create a social pressure to behave well, as good works can also signal to others that individuals belong to the “elect” and are therefore likely to behave well in social interactions. Moreover, the Consistory, an institution created by Calvin to monitor and publicize individuals’ behaviour, can allow for such social signalling. We analyze these self and social signalling incentives, and show how religions affect levels of cooperation and coordination.
    JEL: Z12
    Date: 2014–10
  11. By: Acheson, Graeme G.; Campbell, Gareth; Turner, John D.
    Abstract: This paper examines the origins of investor protection under the common law by analysing the development of shareholder protection in Victorian Britain, the home of the common law. In this era, very little was codified, with corporate law simply suggesting a default template of rules. Ultimately, the matter of protection was one for the corporation and its shareholders. Using c.500 articles of association and ownership records of publicly-traded Victorian corporations, we find that corporations afforded investors with just as much protection as is present in modern corporate law and that firms with better shareholder protection had more diffuse ownership.
    Keywords: Law and finance,ADRI,shareholder protection,corporate ownership,common law
    JEL: G32 G34 G38 K22 N23 N43 N83
    Date: 2016
  12. By: Murphy, Anne L.
    Abstract: In 1965 Sidney Pollard published The Genesis of Modern Management, an extended discussion of the problems, during Britain's initial period of industrialisation, of the 'internal management' of the firm. But, in his focus on industry, Pollard ignored one of the largest, most significant and most innovative of the enterprises of the late-eighteenth- and early-nineteenth centuries: The Bank of England. This paper focuses on the Bank as a site of precocious managerial development. It first establishes that the Bank, by the latter part of the eighteenth century, encompassed the complexities of a large-scale industrial enterprise. It employed a workforce of several hundred. Its workers operated in specialised and coordinated capacities. Its managerial hierarchy was diffuse and dependent on employed men, rather than the elected directorate. The Bank, therefore, warrants comparison with the types of enterprises identified by Pollard. Focusing on the 1780s, the paper then explores the Bank's organisational and management structure against Pollard's four aspects of management: 'the creation and training of a class of managers; 'the recruitment, training, disciplining and acculturation of labour'; the use of 'accountancy, and other information ... in the rational determination of their decisions' and finally the question of whether there emerged a 'theory and practice of "management"'. It will demonstrate that, although not always applied effectively, the Bank's senior men did show managerial innovation and skill in training and organising the workforce and were able to make informed decisions which had the potential to improve some of the Bank's processes.
    Keywords: Bank of England,managerial development,organisational structure,banking history
    JEL: N00 N83 L2 J24 J50
    Date: 2016
  13. By: Garcia, Daniel
    Abstract: This paper provides a simple model of banking in the shadow of expropriation, which sheds light on the credit markets of XIIIth Century England and the economic reforms introduced by the Angevin Kings. We argue that the fear of expropriation induced bankers to liquidate loans early and reduced the volume of trade in the credit market. To solve this commitment problem, the nobility imposed a restriction on the ability of the king to profit from the loans that fell into his hands. The subsequent demise of these reforms was likely to contribute to the decay of Jewish bankers under Henry III and their eventual expulsion in 1290.
    Keywords: Magna Carta; Jewish History; Banking
    JEL: G2 G21 K1 K11 N23
    Date: 2016–08–22
  14. By: Doraszelski, Ulrich; Escobar, Juan
    Abstract: The timing of decisions is an essential ingredient in modelling any strategic situation. Yet, determining the most realistic and appropriate protocol of moves can be challenging. We introduce a class of dynamic stochastic games that we call separable dynamic games with noisy transitions and establish that they are protocol invariant provided that periods are sufficiently short. Protocol invariance means that the set of Markov perfect equilibria is nearly the same irrespective of the order in which players are assumed to move within a period. We also show that the equilibria have a remarkably simple structure.
    Keywords: Dynamic games; Markov perfect equilibrium; Protocol of moves
    Date: 2016–08
  15. By: David Kelsey (Department of Economics, University of Exeter); Sara le Roux (Department of Economics, Oxford Brookes University)
    Abstract: We conducted a set of experiments to compare the effect of ambiguity in single person decisions and games. Our results suggest that ambiguity has a bigger impact in games than in ball and urn problems. We ?nd that ambiguity has the opposite effect in games of strategic substitutes and complements. This con?rms a theoretical prediction made by Eichberger and Kelsey (2002). The experiments also test whether subjects' ?perception of ambiguity differs when faced by a local opponent as opposed to a foreign one. Our results show that there is little evidence of more in?uence of ambiguity on behaviour when faced by foreign subjects.
    Keywords: Ambiguity; Choquet expected utility; strategic complements; strategic substitutes; Ellsberg urn.
    JEL: C72 C91 D03 D81
    Date: 2016
  16. By: Thisse, Jacques-François; Ushchev, Philip
    Abstract: We provide a selective survey of what has been accomplished under the heading of monopolistic competition in industrial organization and other economic fields. Among other things, we argue that monopolistic competition is a market structure in its own right, which encompasses a much broader set-up than the celebrated constant elasticity of substitution (CES) model. Although oligopolistic and monopolistic competition compete for adherents within the economics profession, we show that this dichotomy is, to a large extend, unwarranted.
    Keywords: monopolistic competition; oligopoly; product differentiation; the negligibility hypothesis
    JEL: D43 L11 L13
    Date: 2016–08
  17. By: Kotzab, Mario; Pflug, Maximilian
    Abstract: Der Gedanke, dass jeder Bürger und jede Bürgerin in unserem Staat ein Anrecht auf ein Einkommen - unabhängig von einer Erwerbstätigkeit - hat, ist für viele Menschen verlockend. In diesem Beitrag wird zunächst geklärt, was ein bedingungsloses Grundeinkommen ist und wie sich die Rahmenbedingungen in Deutschland gestalten. Danach erfolgt ein Überblick über die existierenden Grundeinkommensmodelle. Des Weiteren soll betrachtet werden, wie man ein solches Grundeinkommen finanzieren könnte und welche Höhe es mindestens beziehungsweise höchstens haben sollte. Um diese und weitere Fragen zu beantworten, werden einige der bereits bestehenden Modelle genauer betrachtet und bewertet. In dieser Analyse werden auch die ökonomischen und gesellschaftlichen Auswirkungen diskutiert. Ein abschließendes Fazit fasst die persönlichen Eindrücke und Schlussfolgerungen zusammen.
    Keywords: Sozialpolitik,Grundeinkommen,Bürgergeld,negative Einkommensteuer
    JEL: D63 H55 I38
    Date: 2016
  18. By: Markus K. Brunnermeier; Yuliy Sannikov
    Abstract: A theory of money needs a proper place for financial intermediaries. Intermediaries diversify risks and create inside money. In downturns, micro-prudent intermediaries shrink their lending activity, fire-sell assets and supply less inside money, exactly when money demand rises. The resulting Fisher disinflation hurts intermediaries and other borrowers. Shocks are amplified, volatility spikes and risk premia rise. Monetary policy is redistributive. Accommodative monetary policy that boosts assets held by balance sheet-impaired sectors, recapitalizes them and mitigates the adverse liquidity and disinflationary spirals. Since monetary policy cannot provide insurance and control risk-taking separately, adding macroprudential policy that limits leverage attains higher welfare.
    JEL: E32 E41 E44 E51 E52 E58 G01 G11 G21
    Date: 2016–08
  19. By: Sudhanshu Handa; Kelly Kilburn; Gustavo Angeles; Peter Mvula; Maxton Tsoka; UNICEF Office of Research - Innocenti
    Abstract: This study analyzes the impact of an exogenous, positive income shock on caregivers’ subjective well-being in Malawi using panel data from 3,365 households targeted to receive Malawi’s Social Cash Transfer Programme that provides unconditional cash to ultra-poor, labour-constrained households. The study consists of a cluster-randomized, longitudinal design. After the baseline survey, half of these village clusters were randomly selected to receive the transfer and a follow-up survey was conducted 17 months later. Utilizing econometric analysis and panel data methods, we find that household income increases from the cash transfer can have substantial subjective well-being gains among caregivers. Households use the cash to improve their families’ livelihoods, ensuring provision of their basic needs including food, shelter, and clothing. Reduction of these daily stresses makes caregivers happier about their current situations and gives them hope that the future will continue to get better.
    Keywords: agricultural income; cash transfers; family income; household income; low income;
    Date: 2016
  20. By: David R. DeRemer (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: The principle of reciprocity is central to trade cooperation. Economic theory characterizes reciprocal policy changes that guide nations from noncooperative policies to the Pareto efficiency frontier. This paper extends the theory of reciprocity to a wide range of settings relevant for 21st century trade negotiations. Global value chains and rigid institutional constraints can lead to nations lacking the policy space necessary to influence relevant local prices abroad. Trade agreements then have a role in addressing these local price externalities in addition to the usual terms-of-trade externality. Yet we show that the standard concept of reciprocity---policy changes that equally increase net export value at world prices---can nonetheless guide nations toward the efficiency frontier. The crucial condition for reciprocity's application is that the policy changes which undo the terms-of-trade inefficiencies also undo the other inefficiencies. We find a set of policies such that no nation can gain from any reciprocal unwinding of trade commitments, and we show that these policies are globally efficient. Such stable policies are then a suitable prediction for trade negotiation outcomes when local price externalities matter. We derive the new predicted outcome and explore its relevance for existing theory and empirics of trade cooperation, including settings with imperfect competition, political economy, and global value chains.
    Keywords: trade agreements, principle of reciprocity, GATT/WTO, global value chains
    JEL: F12 F13 F15 L24
    Date: 2016–06

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