nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2016‒11‒27
fifteen papers chosen by
Erik Thomson
University of Manitoba

  1. The past, contemporaneity and close posterity of Francisco Suárez on the discussion of the political rule By Rui Coimbra Gonçalves
  3. Economic Forecasting in Theory and Practice : An Interview with David F. Hendry By Neil R. Ericsson
  4. Vertragstheorie: Zum Nobelpreis 2016 für Oliver Hart und Bengt Holmström By Müller, Daniel; Schmitz, Patrick W.
  5. Liberal Foundations of Basic Income. Argument Combining Philosophy and Economics. By Claude Gamel
  6. The Rise of a Mainstream in Economics By Michel De Vroey; Luca Pensieroso
  7. Asymptotic value in frequency-dependent games: A differential approach By Joseph Abdou; Nikolaos Pnevmatikos
  8. Is Cash Dead? Using Economic Concepts To Motivate Learning and Economic Thinking By Philip Gunby; Stephen Hickson
  9. Fair trade: global problems and individual responsibilities By Sarah C. Goff
  10. Inequality, financialisation and economic decline By Pasquale Tridico; Riccardo Pariboni
  11. What was fair in actuarial fairness? By Antonio Heras Martínez; David Teira; Pierre-Charles Pradier
  12. Conformity and Influence By David Goldbaum
  13. In Praise of (Some) Red Tape: A New Approach to Regulation By Gordon Menzies; Peter Dixon; Maureen Rimmer
  14. Robust Social Decisions By Eric Danan; Thibault Gajdos; Brian Hill; Jean-Marc Tallon
  15. Girl power and ‘selfie humanitarianism’ By Ofra Koffman; Shani Orgad; Rosalind Gill

  1. By: Rui Coimbra Gonçalves (Center of Classical and Humanistic Studies, Faculty of Arts and Humanities of the University of Coimbra)
    Abstract: Since the elucidation displayed by the medieval authors, such as Saint Thomas Aquinas and Dante, on the purpose of the way to safeguard the common good, the monarchy was considered ideal as political system of governance in opposition to aristocracy and democracy. In the bosom of the Spanish Second Scholasticism and according in particular to a Jesuit author like Francisco Suárez, and his personal conception about the ruler based on limitation of powers by an ideal Res publica of citizens and the exercise of duties towards Church, the sovereign could be thrown down from his throne by reasons of political abuse of power competences and by means of recovery of legitimacy claimed by their peoples. There was the theory of the right King that could become a tyrant and then replaced by a new King or a righteous leader. The novelty here was for the XVIIth century the admission of the illegitimacy of governance due to reasons of power usurpation and the chance of plebiscite of a mighty leader, a kind of choice conceded to the population settled under his authority.Moreover, in order to define law Hugo Grotius proceeds like Suárez while combining two concepts in a same definition, those of power (potestas) and rule (lex). In his work of 1625 De jure belli ac pacis (On the law of war and peace), this concept results confined by Grotius to the simple notion of all things not classified as unfair. So it is unfair whatever could be blamed by the society of the beings endowed with reason.Suárez even anticipates the notion of social contract as it would be thought one century and a half later by Jean-Jacques Rousseau while allowing the first the admission of a kind of confessional rebellion against an impious prince. The only valid way in this level for Rousseau, as we can read in his essay On the social contract of 1762, would be the pact of association between the citizens and the state. In his turn, Suárez outlines that the popular consent to the ruler could be obtained by an original order or accepting a beneficial tyranny instituted as a mean of get away further kinds of oppression through a general plebiscite at a later period.So the aim of this study is to determine how Suárez led the discussion in the bosom of his intellectual tradition on the nascent modern political philosophy.
    Keywords: Scholasticism, Saint Thomas Aquinas, Francisco Suárez, Hugo Grotius, Political sovereignty
  2. By: Philippe Bich (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Rida Laraki (Ecole Polytechnique [Palaiseau])
    Abstract: This paper studies the existence of equilibrium solution concepts in a large class of economic models with discontinuous payoff functions. The issue is well understood for Nash equilibria, thanks to Reny's better-reply security condition (Reny (1999)), and its recent improvements (Barelli and Meneghel (2013); McLennan et al. (2011); Reny (2009, 2011)). We propose new approaches, related to Reny's work, and obtain tight conditions for the existence of approximate equilibria and of sharing rule solutions in pure and mixed strategies (Simon and Zame (1990)). As byproducts, we prove that many auction games with correlated types admit an approximate equilibrium, and that many competition models have a sharing rule solution.
    Keywords: timing games, strategic approximation,auctions,Discontinuous games, better-reply security, sharing rules,approximate equilibrium, Reny equilibrium
    Date: 2016
  3. By: Neil R. Ericsson
    Abstract: David Hendry has made major contributions to many areas of economic forecasting. He has developed a taxonomy of forecast errors and a theory of unpredictability that have yielded valuable insights into the nature of forecasting. He has also provided new perspectives on many existing forecast techniques, including mean square forecast errors, add factors, leading indicators, pooling of forecasts, and multi-step estimation. In addition, David has developed new forecast tools, such as forecast encompassing; and he has improved existing ones, such as nowcasting and robustification to breaks. This interview for the International Journal of Forecasting explores David Hendry’s research on forecasting.
    Keywords: Encompassing ; Equilibrium correction models ; Error correction ; Evaluation ; Exogeneity ; Forecasting ; Modeling ; Nowcasting ; Parameter constancy ; Robustification ; Structural breaks
    JEL: C53
    Date: 2016–11
  4. By: Müller, Daniel; Schmitz, Patrick W.
    Abstract: Oliver Hart and Bengt Holmström have been awarded the 2016 Nobel Prize in Economic Sciences for their contributions to contract theory. In this paper, we provide a brief introduction to the field of contract theory and we discuss some of the laureates' central contributions.
    Keywords: contract theory, moral hazard, hidden actions, incomplete contracts, property rights
    JEL: D86
    Date: 2016–11
  5. By: Claude Gamel (LEST - Laboratoire d'économie et de sociologie du travail - Université de la Méditerranée - Aix-Marseille 2 - Université de Provence - Aix-Marseille 1 - AMU - Aix Marseille Université - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Debates among Liberals on social justice have played a major role in current discussion on basic income (or universal benefit). In this paper, the notion is considered on the basis of the “economics of liberal egalitarianism”, for which the anchor point is to be found in Rawls’ philosophical works. Although this author certainly does not support basic income, he still provides an appropriate general framework to consider it, in particular through the hierarchy of his principles of justice (I). At the third level of this hierarchy, the interpretation of the “principle of difference” appeared controversial concerning the treatment of “Malibu surfers”, through which Van Parijs can have defended the unconditional nature of basic income (II). There remains the transition from the philosophy to the economics of basic income, which allows considering it as a precise alternative of negative income tax. At this stage, a rereading of Friedman’s intuition on this topic results in seeing basic income as a “universal tax credit” (III). We conclude with some brief remarks on the general rules necessary for a possible implementation of this conception of basic income in the case of France (IV).
    Abstract: Les débats entre libéraux sur la justice sociale ont beaucoup alimenté la réflexion contemporaine sur le revenu d’existence (ou allocation universelle). Cette notion est présentée ici comme relevant de « l’économie de l’égalitarisme libéral », dont le point d’ancrage se situe dans l’œuvre philosophique de Rawls. Celui-ci n’est certes pas partisan de l’allocation universelle, mais sa pensée offre néanmoins un cadre général adéquat pour en parler, en particulier par la hiérarchie des principes de justice qu’il défend (I). Au troisième niveau de cette hiérarchie, l’interprétation à donner au « principe de différence » a suscité la controverse des « surfeurs de Malibu », par laquelle Van Parijs a pu défendre le caractère inconditionnel de l’allocation universelle (II). Reste alors à passer de la philosophie à l’économie de l’allocation universelle, en montrant comment cette dernière peut être considérée comme une variante précise d’impôt négatif sur le revenu. A ce stade, une relecture de l’intuition de Friedman sur la question aboutit à considérer le revenu d’existence comme un « crédit d’impôt universel » (III). En conclusion, sont esquissées dans le cas de la France quelques observations sur les modalités éventuelles d’application d’une telle conception du revenu d’existence (IV).
    Keywords: liberalism,basic income,unconditional nature,universal tax credit,libéralisme,revenu d’existence,inconditionnalité,crédit d’impôt universel.
    Date: 2016–11–15
  6. By: Michel De Vroey (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES)); Luca Pensieroso (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: Our paper contends that the existence of mainstream economics ought to be understood as a particular case of the now widespread certification phenomenon, which defines good practices on the grounds of a compliance with well-defined standards. Basing our analysis on Leijonhufvud’s vision of the construction of economic theory, we document the fragmentation process which economics has undergone from the marginalist revolution to the present. Studying the evolution of five sub-branches of economics, we show how at the end of the 1970s loose standards for good research practices were replaced by narrower ones in each of them. We claim that this change and the emergence of a mainstream were two faces of the same process.
    Keywords: mainstream, decision tree, neoclassical approach
    JEL: A10 A20 B20
    Date: 2016–11–18
  7. By: Joseph Abdou (Centre d'Economie de la Sorbonne); Nikolaos Pnevmatikos (Centre d'Economie de la Sorbonne)
    Abstract: We study the asymptotic value of a frequency-dependent zero-sum game following a differential approach. In such a game the stage payoffs depend on the current action and on the frequency of actions played so far. We associate in a natural way a differential game to the original game and although it presents an irregularity at the origin, we prove existence of the value on the time interval [0,1]. We conclude, using appropriate approximations, that the limit of Vn as n tends to infinity, exists and that it coincides with the value of the associated continuous time game
    Keywords: stochastic game; frequency dependent payoffs; continuous-time game; Hamilton-Jacobi-Bellman-Isaacs equation
    JEL: C73
    Date: 2016–11
  8. By: Philip Gunby (University of Canterbury); Stephen Hickson (University of Canterbury)
    Abstract: Economics is at its best when used to shed light on questions of interest to students. Even better if the answers are at odds with commonly held but incorrect views. The velocity of circulation is probably the most neglected concept in macroeconomics classes but it can be used to open up a discussion on the behaviour of people and why demand for money may rise or fall. It can be used to address the question "Is Cash Dead?" Despite the rise in the number of ways that people can pay without using cash, there seems to be no drop in the amount of cash people actually wish to hold. This is a puzzle and a good opportunity to get students thinking about why this might be.
    Keywords: Principles of Economics, Velocity of Circulation, Cashless Society
    JEL: A22
    Date: 2016–11–01
  9. By: Sarah C. Goff
    Abstract: The topic of global trade has become central to debates on global justice and on duties to the global poor, two important concerns of contemporary political theory. However, the leading approaches fail to directly address the participants in trade and provide them with normative guidance for making choices in non-ideal circumstances. This paper contributes an account of individuals’ responsibilities for global problems in general, an account of individuals’ responsibilities as market actors, and an explanation of how these responsibilities coexist. The argument is developed through an extended case study of a consumer’s choice between conventional and fair trade coffee. My argument is that the coffee consumer’s choice requires consideration of two distinct responsibilities. First, she has responsibilities to help meet foreigners’ claims for assistance. Second, she has moral responsibilities to ensure that trades, such as between herself and a coffee farmer, are fair rather than exploitative.
    Keywords: fair trade; exploitation; responsibility; global justice; ethical consumerism
    JEL: L81
    Date: 2016–11–06
  10. By: Pasquale Tridico; Riccardo Pariboni
    Abstract: The objective of this paper is to argue that the labour productivity decline experienced in recent years by several advanced countries can be explained, following a Kaldorian-Classical approach, by a weak GDP performance and by a decline in the wage share. Moreover, drawing inspiration from recent Post- Keynesian literature, we identify the ongoing worsening in income equality and the increase in the degree of financialisation as other major explanatory factors of sluggish productivity. The paper will provide a brief literature review concerning non-mainstream attempts to endogenise labour productivity. We will then discuss how labour flexibility and shareholder value orientation, one of the main aspects of financialisation, can negatively affect equality and labour productivity. Finally, we will propose and test an extended version of Sylos Labini’s productivity equation, where productivity is claimed to depend positively on GDP rate of growth and the wage share, and negatively on income inequality and financialisation.
    Keywords: Labour productivity, Inequality, Financialisation.
    JEL: E02 E12 E24 E44
    Date: 2016–11
  11. By: Antonio Heras Martínez (Departamento de Economía Financiera y Contabilidad 1 - Universidad Complutense de Madrid); David Teira (Departamento de Lógica, Historia y Filosofia de la Ciencia - Universidad Nacional de Educatión a Distancia (UNED)); Pierre-Charles Pradier (Centre d'Economie de la Sorbonne & LabEx RéFi)
    Abstract: The concept of acturial fairness stems from an Aristotelian tradition in which fairness requires equality between the goods exchanged. When dealing with aleatory contracts, this principle evolved, among medieval scholars, into equality in risk: benefits and losses should be proportional to the risks undertaken. The formalization of this principle gave rise to the concept of mathematical expectation, first implemented in the calculation of the fair price of gambles. The concept of an actuarial fair price was first theoretically articulated in the 17th century as an implementation of this same Aristotelian principle in the field of life insurance. For a practical estimation of fair actuarial prices it was necessary to build mortality tables, assuming that the major risk factor was age. Yet, in the 18th and 19th centuries, we find no agreement among proto-actuaries about the proper construction of these tables. Among the obstacles they found, we want to highlight their early awareness of the possibility of adverse selection: buyers and sellers could manipulate the risk assessment for their own private interests, in a way that would either make fair companies collapse or fair customers be cheated. The paradox in the concept of actuarial fairness is that as soon as it was formally articulated, markets made clear it could never be implemented in actual pricing
    Keywords: actuarial fairness; mathematical expectation; life insurance; annuity; risk
    JEL: G22 G28 G01
    Date: 2016–10
  12. By: David Goldbaum (Economics Discipline Group, University of Technology, Sydney)
    Abstract: To better understand trends, this paper models the behavior of decision-makers seeking conformity and in fluence in a connected population. Link formation is one-sided with information flowing from the target to the link's originator. A premium for leading ensures that a link's target benefits more from the link than its originator, and yet a leader serves the population by coordinating decisions. The desire for conformity drives the population to organize into a single hub with the leader at the center. Certain conditions support multiple leader structures as Nash as well. A strong desire to infl uence produces an equilibrium with an unlinked subpopulation.
    Keywords: Opinion leadership; Social networks; Conformity; Non-cooperative games
    JEL: C72 D83 D85
    Date: 2016–03–28
  13. By: Gordon Menzies (Economics Discipline Group, University of Technology, Sydney); Peter Dixon (Victoria University); Maureen Rimmer (Victoria University)
    Abstract: The costs of removing red tape include a lower chance of detecting recession-generating flaws in the financial system. What we call independent dimensions of regulation (IDRs) operate more or less independently to other groupings. If an IDR’s optimality is unknown, it may be risky to remove. Uncertainty thus implies that (some) red tape – i.e. a small amount of overregulation – is justified, in contrast to the Brainard (1967) principle that uncertainty dictates less policy activism. The long run GDP benefit of a 1% improvement in financial services productivity is 0.06% in our CGE model. These relatively modest gains reinforce our conclusion.
    Keywords: Banking; Regulation; Monitoring; Financial Crises; Independent dimension of regulation
    JEL: G01 G18 G28
    Date: 2016–03–01
  14. By: Eric Danan (THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS - Centre National de la Recherche Scientifique); Thibault Gajdos (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - ECM - Ecole Centrale de Marseille - AMU - Aix Marseille Université - EHESS - École des hautes études en sciences sociales - Université Paul Cézanne - Aix-Marseille 3 - Université de la Méditerranée - Aix-Marseille 2 - CNRS - Centre National de la Recherche Scientifique); Brian Hill (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - GROUPE HEC - CNRS - Centre National de la Recherche Scientifique); Jean-Marc Tallon (PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We propose and operationalize normative principles to guide social decisions when individuals potentially have imprecise and heterogeneous beliefs, in addition to conflicting tastes or interests. To do so we adapt the standard Pareto principle to those preference comparisons that are robust to belief imprecision and characterize social preferences that respect this robust principle. We also characterize a suitable restriction of this principle. The former principle provides stronger guidance when it can be satisfied; when it cannot, the latter always provides minimal guidance.
    Keywords: Unambiguous preferences,Pareto dominance,Prefer-ence aggregation,Social choice,Uncertainty
    Date: 2015–12–11
  15. By: Ofra Koffman; Shani Orgad; Rosalind Gill
    JEL: L91 L96
    Date: 2015

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