nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2016‒11‒13
eighteen papers chosen by
Erik Thomson
University of Manitoba

  1. Agents, interaction, and economic laws: An analytical framework for understanding different economic theories By Múñoz, Féliz-Fernando; Encinar, María-Isabel; Cañibano, Carolina
  2. Mixed Strategies in Games with Ambiguity Averse Agents By Calford, Evan
  3. Macroeconomic revolution on shaky grounds: Lucas/Sargent critique’s inherent contradictions By Ronald Schettkat; Sonja Jovicic
  4. De jure and de facto institutions – disentangling the interrelationships By Jacek Lewkowicz; Katarzyna Metelska-Szaniawska
  6. Ordnungsplatonismus By Schlicht, Ekkehart
  7. Testing axiomatizations of ambiguity aversion By Chen, Daniel L.; Schonger, Martin
  8. Institutions Are neither Autistic Maximizers nor Flocks of Birds: Self-organization, Power, and Learning in Human Organizations By Giovanni Dosi; Luigi Marengo; Alessandro Nuvolari
  9. Trading off between equity and efficiency in dictator and trust games By Ambec, Stefan; Garapin, Alexis; Muller, Laurent; Rahali, Bilel
  10. Review of "Cultures Merging" by Eric Jones By Schlicht, Ekkehart
  11. The future of work : the meaning and value of work in Europe By Méda, Dominique.
  12. Social preferences or sacred values? Theroy and evidence of deontological motivations By Chen, Daniel L.; Schonger, Martin
  13. Myopic misery: Maternal depression, child investments, and the neurobiological poverty trap By Strulik, Holger
  14. Do Business Cycles Trigger Corruption? By Kouramoudou Keita; Hannu Laurila
  15. Glimpsing the End of Economic History? Unconditional Convergence and the Missing Middle Income Trap - Working Paper 438 By Sutirtha Roy , Martin Kessler and Arvind Subramanian
  16. From Concept to Policy: 10 Years After the Call for a US Center for Comparative Effectiveness Information By Eugene C. Rich
  17. The myth of economic growth in the United States By De Koning, Kees
  18. Would DSGE Models have predicted the Great Recession in Austria? By Fritz Breuss

  1. By: Múñoz, Féliz-Fernando (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.); Encinar, María-Isabel (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.); Cañibano, Carolina (INGENIO, CSIC and Universidad Politécnica de Valencia.)
    Abstract: This paper provides an analytical framework allowing the accommodation, comparison and classification of different economic theories and schools of economic thought. We provide the basic analytical elements to address the explanatory potential of economic models as well as a criterion for scientific progress. The starting point is that in “modern economic theory”, each particular theory –and all models derived- share a common structure. This common structure is formed by a set of statements S1 which characterize the agent (its properties and modes of interaction) and its action (including choice) space; a set of statements S2 regarding the economic behavior of the characterized agent, and a set of economic laws L which are logical co-implications of the systematic application of S2 over S1. This set or system of statements T={S1,S2,L} forms a theory. It is possible to address the explanation of new economic phenomena or processes by developing new economic models or theories T. This exercise is made possible by adding properties, qualifications or new information to the statement systems S1 and S2 that lead to new laws L. The approach proposed is useful for classifying different economic theories as illustrated by an analysis and characterization of the Neoclassical, Austrian and Keynesian theoretical frameworks.
    Keywords: economic theory, allocative processes, action plans, economic behavior, economic laws
    JEL: B0 B4
    Date: 2016–11
  2. By: Calford, Evan
    Abstract: In normal form games, when agents exhibit ambiguity aversion the exclusion of mixed strategies from agents' choice sets can enlarge the set of equilibria. While it is possible, in a game theoretic experiment, to enforce pure strategy reporting it is not possible to prevent subjects from mixing before reporting a pure strategy. This short paper establishes conditions under which the set of equilibrium in a game with ambiguity averse agents and pure strategy reporting is invariant to the existence of pre-play mixing devices. This result is crucial for the interpretation of recent experimental work on the role of ambiguity aversion in normal form games.
    Keywords: Ambiguity Aversion, Mixed Strategies, Game Theory, Experimental Economics
    JEL: C72 C92 D03 D81
    Date: 2016–10–31
  3. By: Ronald Schettkat; Sonja Jovicic
    Abstract: Expansionary macroeconomic policy is ineffective because, according to the policy ineffectiveness hypothesis (PIH), which is based on the rational expectations hypothesis (REH), it does not affect the real economy. This conclusion is false for several reasons. In their critique on Keynes’ theory, Lucas and Sargent (1978) argue that economic agents erroneously react with positive output and labor supply responses to expansionary macroeconomic policy. But they learn the long-run solution of the Lucas/Sargent model, which involves price reactions only, and do not repeat their mistakes when again confronted with expansionary macroeconomic policy. Thus, learning makes expansionary macroeconomic policy in the Lucas/Sargent model ineffective. The PIH is derived from models based on neoclassical micro-foundations where economic agents optimize in a stationary environment in ‘logical time.’ Experiencing and learning in ‘logical time’? In this paper, we take historical time seriously; that is, we investigate what economic agents actually experience regarding the effectiveness of expansionary macroeconomic policy in ‘historical time.’ We conclude that even if neoclassical micro-foundations are rigorously applied, if economic agents behave as assumed in the Lucas/Sargent model but that they move through time, the economy will not settle at the predicted long run equilibrium. Instead expansionary macroeconomic policy will be perceived as a virtue.
    Date: 2016–11
  4. By: Jacek Lewkowicz (Faculty of Economic Sciences, University of Warsaw); Katarzyna Metelska-Szaniawska (Faculty of Economi Sciences, University of Warsaw)
    Abstract: In this paper we contribute to the debate on the nature of institutions and their economic effects by extending the focus to the de jure – de facto institutional distinction. Firstly, we define and conceptualize de facto institutions, as well as elaborate on their place in the broad institutional system and identification. Then we investigate the possible interrelationships between de facto and de jure institutions. Finally, we make a link between these interrelationships and economic outcomes. In this way the paper fills an underexploited niche in institutional research, which is a major background for law and economics.
    Keywords: new institutional economics, de jure institutions, de facto institutions, formal institutions, informal institutions, institutional interrelationships
    JEL: B40 B52 K19 P21
    Date: 2016
  5. By: Pavlína Hejduková (Faculty of Economics, University of West Bohemia); Lucie Kureková (Faculty of Economics, University of Economics)
    Abstract: This paper deals with the causal determination of phenomena (briefly causality) as a tool for empirical analysis in economics. Although is the causality difficult to grasp, they are built on the basis of many scientific theories, including economic theory. Causality is very hot topic today, both in philosophy and economics. The causality is used in many multi-sectorial disciplines and the concept of causality is different in various disciplines. In economics, we encounter many assertions that connect cause and effect, but causal relationships are not clearly expressed. At first glance, there may be confusion between cause and effect and the phenomena studied can then be viewed in terms of causality and vice versa. The causality plays very important role in econometric and economics. The paper focused on using of causality in economics and econometric studies. The paper begins with a brief overview of theoretical definition of the causality. Then, the empirical approaches to causality in economics and econometric and selected tools of causality are presented and discussed and the case study of possible using of Granger Causality Test is shown. At the end of the paper we discuss the significance of the Grander Causality Test in economics. The aims of this paper are following: to define the different approaches to causality and describe a short history of this term, to analyse selected econometric methods in interaction with causality and to show on the example of Granger Causality Test using of causality in empirical analysis in economics.
    Keywords: Causality; Economics; Econometric; Empirical Analysis; Granger; Granger Causality Test
    JEL: B16 B23 C10
  6. By: Schlicht, Ekkehart
    Abstract: Hans Albert hat in einigen Arbeiten den apriorischen Charakter des „neoklassischen Denkstils” kritisiert und treffend als „Modellplatonismus” bezeichnet. Die apriorische Denkhaltung findet sich aber nicht nur in der von Albert kritisierten Neoklassik, sondern vielleicht noch ausgeprägterer bei vielen modellfeindlichen Theoretikern, wie etwa den Österreichern, den Ordnungstheoretikern, den Vertretern der „constitutional economics” oder manchen neueren Vertretern der sozialen Marktwirtschaft. Es erscheint mir deshalb sinnvoll, dem Begriff „Modellplatonismus” den Begriff „Ordnungsplatonismus” an die Seite zu stellen. Die folgenden Bemerkungen sollen diese Kritik etwas erläutern.
    Abstract: Abstract The German philosopher Hans Albert has critizised the aprioristic nature of the neoclassical style of thought and has characterized it as 'model Platonism'. Apriorism is not confined to some lines of neoclassical though, however, but is, perhaps even more pronouncedly, present in Austrian economics, Ordo economics, constitutional economics and also to be found with some German proponents of the social market economy. For this reason it appears appropriate to speak not only of 'model Platonism' but of 'Ordo-Platonism' as well. The following remarks elaborate this criticism.
    Keywords: Modellplatonismus; Apriorismus; Soziale Marktwirtschaft; Ordnungstheorie; Ordo
    JEL: B2 B4 B5
    Date: 2016–09–09
  7. By: Chen, Daniel L.; Schonger, Martin
    Abstract: The study of the normative and positive theory of choice under uncertainty has made major advances through thought experiments often referred to as paradoxes: the St. Petersburg paradox, the Allais paradox, the Ellsberg paradox, and the Rabin paradox. Machina proposes a new thought experiment which posits a choice between two acts that have three outcomes. As in the Ellsberg paradox there are three events, but while the Ellsberg paradox has two (monetary) outcomes in Machina there are three. Machina shows that four prominent theories of ambiguity aversion predict indifference between the acts. Introspection, however, suggests that many people might very well strictly prefer one act over the other. This paper makes four contributions: first, to our knowledge, it is the first to experimentally implement the Machina thought experiment. Second, we employ a novel method to simultaneously elicit the certainty equivalent of an embedded lottery. Third, our results—across three experiments—indicate non-indifference, which rejects earlier theories of ambiguity aversion, but is consistent with a newer one, which we apply to explain our results. Fourth, we show that independence is a sufficient condition for indifference in the Machina paradox, and thereby explains why so many models predict indifference.
    Keywords: Ellsberg paradox, Machina paradox, uncertainty aversion, independence axiom
    JEL: D81
    Date: 2016–10
  8. By: Giovanni Dosi; Luigi Marengo; Alessandro Nuvolari
    Abstract: In this work we shall attempt an excursus across fundamentally different streams of modern interpretations of the 'primitive entities' constituting the social fabrics of economic systems. Behind each specific interpretative story, there is a set of ceteris paribus assumptions and also some fictitious tale on a 'once upon a time' reconstruction of the theoretical primitives of the story itself. Pushing it to the extreme, as we see it, there are in the social sciences two archetypal (meta) tales. The first says, more or less, that 'once upon a time' there were individuals with reasonably structured and coherent preferences, with adequate cognitive algorithms to solve the decision-action problems at hand, and with self-seeking restrictions on preferences themselves. They met in some openings in the forest and, conditional on the technologies available, undertook some sort of general equilibrium trading or, as an unavoidable second best, built organizations in order to deal with technological non-convexities, trading difficulties, contract enforcements, etc. In the alternative tale, 'once upon a time' there were immediately factors of socialization and preference-formation of individuals, including some institutions like families shaping desires, representations and, possibly, cognitive abilities. Non-exchange mechanisms of interactions appear in the explanation from the start: authority, violence and persuasion of parents upon children; obedience; schools; churches; and, generally, the adaptation to particular social roles. Here 'institutions' are the primitives, while 'preferences' and the very idea of 'rationality' are derived entities. Which of the primitive tale is chosen bears far-reaching consequences for the interpretation of socio-economic organizational forms and their dynamics, and involves different theoretical commitments on the interactions between agencies and structures in human affairs. In this work, we argue for the need of moving away from rationality-cum-equilibrium interpretations and of focusing on the varying balances between selfùorginizing dynamics and institution-shaped constraints.
    Keywords: Institutions, rationality, self-organization, hierarchies,power, endogenous preferences, motivations
    Date: 2016–02–11
  9. By: Ambec, Stefan; Garapin, Alexis; Muller, Laurent; Rahali, Bilel
    Abstract: We investigate how people trade off between equity and efficiency, using variations of tripled dictator and trust games in a lab experiment. Equalizing payoffs reduces the return from the tripled investment in the dictator game. In contrast, in the trust game both equal and maximized payoffs can be achieved, provided that receiver transfers back half of the return from investment. We find that subjects sacrifice efficiency for equity in the dictator game but manage to achieve both in the trust game. Most subjects equalize payoffs when they are placed behind a veil of ignorance about their position in the trust game, regardless of their aversion to risk. They invest less when they pay to obtain their position as investor but do not send back less if they pay to be the receiver. Subjects who modify their investment decision after receiving information about the average investment in their group tend to move closer to the average.
    Keywords: Trust game, triple dictator game, fairness, efficiency, equity, experiment.
    JEL: C72 C90 D03 D63
    Date: 2016–10
  10. By: Schlicht, Ekkehart
    Abstract: This is an electronic reprint of a review of the book "Cultures Merging: A Historical and Economic Critique of Culture" by Eric L. Jones, Princeton: Princeton University Press that appeared in the Journal of Institutional and Theoretical Economics 2007, vol. 163, issue 3, pages 526-529, URL \url{ 0}.
    Keywords: Long-term economic growth; growth culture; culture and economics; cultural fixity; cultural nullity; cultural reciprocity; industrialization; protestantism; Konfucianism; A13; N10; N13; N15
    Date: 2016
  11. By: Méda, Dominique.
    Abstract: This paper looks at the notion of work historically and how new meanings have enriched this notion over centuries. It then analyses the importance Europeans give to the concept of work, and presents the ongoing discourse on technological revolution and its impact on work and employment. The paper then examines the future of work in the coming decades in the light of three broad scenarios, which are competing to present a mid-term view of the future of work. First, the consequences of a scenario called “dismantling the labour law†are considered. Second, the validity of the propositions announcing the end of work within the scope of automation and digitalization (scenario of the technological revolution) are examined. Finally, a third scenario, the “ecological conversion†, which seems to be the most compatible with the need to combat the unbearable features of our present model of development and seems capable of satisfying the expectations placed on work is examined. It is this third scenario – “ecological conversion†– that seems best able to respond to the high expectations that Europeans continue to place on work while ensuring the continuation of our societies.
    Date: 2016
  12. By: Chen, Daniel L.; Schonger, Martin
    Abstract: Recent advances in economic theory, largely motivated by experimental findings, have led to the adoption of models of human behavior where a decision-maker not only takes into consideration her own payoff but also others’ payoffs and any potential consequences of these payoffs. Investigations of deontological motivations, where a decision-maker makes her choice not only based on the consequences of a decision but also the decision per se have been rare. We propose an experimental method that can detect an individual’s deontological motivations by varying the probability of the decision-maker’s decision having consequences. It uses two states of the world, one where the decision has consequences and one where it has none. We show that a purely consequentialist decision-maker whose preferences satisfy first-order stochastic dominance will choose the decision that leads to the best consequences regardless of the probability of the consequential state. A purely deontological decision-maker is also invariant to the probability. However, a mixed consequentialist-deontological decision-maker’s choice changes with the probability. The direction of change gives insight into the location of the optimand for one’s duty. We provide a formal interpretation of major moral philosophies and a revealed preference method to detect deontological motivations and discuss the relevance of the theory and method for economics and law.
    Keywords: Consequentialism, deontological motivations, normative commitments, social preferences, revealed preference, decision theory, first order stochastic dominance, random lottery incentive method
    JEL: D6 K2
    Date: 2016–10
  13. By: Strulik, Holger
    Abstract: In this paper, I explore in an overlapping generations framework, a mechanism motivating a neurobiological poverty trap. Poverty causes stress and depression in individuals susceptible to depression. Poor and depressed individuals discount the future at a higher rate and invest less in the human capital of their children than mentally healthy or rich individuals. This gene-environment interaction generates a vicious cycle in which poor individuals inherit not only susceptibility to depression but also stress and poverty. I show that a successful one-time intervention has the power to permanently eliminate the neurobiological poverty trap.
    Keywords: child investment,development,depression,discounting,intergenerational transmission,gene-environment interaction
    JEL: O12 O15 D10 D91 I15 I25 I30
    Date: 2016
  14. By: Kouramoudou Keita; Hannu Laurila (School of Management, University of Tampere)
    Abstract: In the economic literature, the nexus between economic growth and corruption is well covered, but there are only few empirical studies on cyclical variation of corruption. Gokcekus & Suzuki (2011) in one such study. It finds that transitory income and corruption vary in parallel, thus confirming the famous claim of Galbraith (1997) that embezzlement flourishes in business booms and withers in recessions. This paper tests the general validity of the finding by using a more extensive dataset. The results are conflicting: corruption is found to shrink with the increase in transitory income and vice versa. In other words, economic booms foster integrity, and recessions make corruption bloom.
    Keywords: embezzlement, permanent income, transitory income
    JEL: D73 E32
    Date: 2016–03
  15. By: Sutirtha Roy , Martin Kessler and Arvind Subramanian
    Abstract: This paper suggests a reinterpretation of global growth—encompassing notions of unconditional convergence and the middle income trap—in the past 50 years through the lens of growth theory. We innovate by studying two modes of convergence: a classic “Solow” model where poorer countries catch up by growing faster on average; and a new “Wilde” model where catch-up growth is interpreted as growing faster than the frontier country, the United States. We apply these modes to both countries and people as units of analysis. We find that convergence has occurred faster and began earlier than widely believed.
    Keywords: economic growth, convergence, middle income trap
    JEL: O10 O15 O47
    Date: 2016–10
  16. By: Eugene C. Rich
    Abstract: This article describes the evolution of comparative effectiveness research since the concept was first discussed by Gail Wilensky in 2006. It illustrates how Wilensky’s policy ideas have resulted in a better understanding of ‘what works best for whom’ in the nation’s health care system.
    Keywords: comparative effectiveness, Wilensky, healthcare, PCORI, CER, clinical
    JEL: I
  17. By: De Koning, Kees
    Abstract: Many economic philosophies –whether subscribed to by left or right wing politicians or economists- have as their shared aim to promote economic growth rates. Such growth in output is seen as the solution to many problems, including reducing unemployment and increasing household income levels. A key area of contention between right and left is whether such growth should be achieved primarily by actions taken in the private sector or those organized by a government. Main drivers to support economic growth include the option of additional fiscal spending and/or the use of monetary policy in which a central bank’s interest rate plays a key role. After 2008, central banks introduced quantitative easing in the policy mix. Output growth reflects a short-term positive change in the volume of goods and services produced. Output growth does not reflect the changes taking place in individual household disposable income levels, their debt obligations or their employment status. Output growth does neither reflect government nor corporate debt levels nor does it reflect the savings built up in pension funds and the lending based on such savings. In the U.S. over the period 1997-2007 total household mortgage debt as a percentage of nominal GDP grew from 43.6% in 1997 to 73.3% by 2007: a debt explosion relative to income growth levels. The Federal Reserve took no action to slow down this debt accumulation when it was happening. In the aftermath, due to its nature, the Federal Reserve was not equipped to help individual households with their subsequent liquidity crisis. It could do nothing for the 23.250 million households who were confronted with foreclosure proceedings over the period 2005-2014. Lowering interest rates does not solve outstanding household debt problems and neither does buying up government bonds or mortgage-backed securities. The commercial banking sector was no help either. Their overriding profit objective forced them to claim back outstanding mortgage debt as quickly as possible, irrespective of the economic consequences. The U.S. government saw its revenues drop by $3 trillion over the period 2007-2015 as a consequence of the household debt crisis. It also borrowed and spent another $7 trillion to help restore economic growth over this period. The result was a lack-luster period of economic growth. Economic evidence supports the view that households should have been helped in overcoming their liquidity squeeze. A lender of last resort for individual households is needed. Once operational, the myth of economic growth will turn into reality.
    Keywords: economic growth in U.S., financial crisis, mortgage debt levels in U.S.,foreclosures, home ownership in U.S., Fed funds rate, quantitative easing, lender of last resort for individual households, National Mortgage Bank, early warning system, home mortgage quality control system,index-linked Treasuries for pensioners
    JEL: E21 E3 E32 E4 E41 E5 E52 E58 E6
    Date: 2016–10–24
  18. By: Fritz Breuss (WIFO)
    Abstract: DSGE (Dynamic stochastic general equilibrium) models are the common workhorse of modern macroeconomic theory. Whereas story-telling and policy analysis were in the forefront of applications since its inception, the forecasting perspective of DSGE models is only recently topical. In this study, we perform a post-mortem analysis of the predictive power of DSGE models in the case of Austria's recession in 2009. For this purpose, 8 DSGE models with different characteristics (small and large models, closed and open economy models, one and two-country models) were used. The initial hypothesis was that DSGE models are inferior in ex-ante forecasting a crisis. Surprisingly however, it turned out that not all but those models which implemented features of the causes of the global financial crisis (like financial frictions or interbank credit flows) could not only detect the turning point of the Austrian business cycle early in 2008 but they also succeeded in forecasting the following severe recession in 2009. In comparison, non-DSGE methods like the ex-ante forecast with the Global Economic (Macro) Model of Oxford Economics and WIFO's expert forecasts performed not better than DSGE models in the crisis.
    Keywords: DSGE models, business cycles, forecasting, open-economy macroeconomics
    Date: 2016–11–08

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