nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2017‒02‒12
fourteen papers chosen by
Erik Thomson
University of Manitoba

  1. Plurality in Teaching Macroeconomics By Azad, Rohit
  2. A taxonomy of learning dynamics in 2 x 2 games By Marco Pangallo; James Sanders; Tobias Galla; Doyne Farmer
  3. Mindreading and Endogenous Beliefs in Games By Lauren Larrouy; Guilhem Lecouteux
  4. Should the marginal tax rate be negative? Ragnar Frisch on the socially optimal amount of work. By Sandmo, Agnar
  5. Moral Costs and Rational Choice: Theory and Experimental Evidence By James C. Cox; John A. List; Michael Price; Vjollca Sadiraj; Anya Samek
  6. Distrust in Experts and the Origins of Disagreement By Alice Hsiaw; Ing-Haw Cheng
  7. The lottery contest is a best-response potential game By Christian Ewerhart
  8. The political economy of exchange rate stability during the gold standard. The case of Spain, 1874-1914 By Nogues-Marco, Pilar; Martínez-Ruiz, Elena
  9. How Economists Can Use the Laws of Physics On the Example of the Notion of Entropy in its Application to Some Economic Conceptions By Liudmyla Vozna
  10. Fairness and well-being measurement By FLEURBAEY, Marc; MANIQUET, François
  11. The Economics of Replication By Mueller-Langer, Frank; Fecher, Benedikt; Harhoff, Dietmar; Wagner, Gert G.
  12. A comment to Fratini's “Rent as a share of product and Sraffa’s price equations” By Yoann Verger
  13. It's your turn: experiments with three-player public good games By Riyanto, Yohanes E.; Roy, Nilanjan
  14. Secrecy and State Capacity : A Look Behind the Iron Curtain By Harrison, Mark

  1. By: Azad, Rohit
    Abstract: The current Great Recession, the worst crisis that capitalism has faced since the Great Depression, has failed, at least so far, to generate a change in the teaching and practice of Macroeconomics. This seems bizarre as if nothing has happened and the economists are just going about doing business as usual. In light of this, the current paper attempts to address how Macroeconomics ought to be taught to students at the advanced intermediate level, which gives them an overall perspective on the subject.
    Keywords: Macroeconomic Teaching, New Keynesian, Post Keynesian, Keynes-Kalecki
    JEL: A2 A22 B4 B50 E3 E4 E5
    Date: 2016–10–01
  2. By: Marco Pangallo; James Sanders; Tobias Galla; Doyne Farmer
    Abstract: Learning would be a convincing method to achieve coordination on a Nash Equilibrium (NE). But does learning converge, and to what? We answer this question in generic 2-player, 2-strategy games, using Experience-Weighted Attraction (EWA), which encompasses most extensively studied learning algorithms. We exhaustively characterize the parameter space of EWA learning, for any payoff matrix, and we understand the generic properties that imply convergent or non-convergent behaviour in 2x2 games. Irrational choice and lack of incentives imply convergence to a mixed strategy in the centre of the strategy simplex, possibly far from the NE. In the opposite limit, in which the players quickly modify their strategies, the behaviour depends on the payoff matrix: (i) a strong discrepancy between the pure strategies describes dominance-solvable games, which show convergence to a unique fixed point close to the NE; (ii) a preference towards profiles of strategies along the main diagonal describes coordination games, with multiple stable fixed points corresponding to the NE; (iii) a cycle of best responses defines discoordination games, which commonly yield limit cycles or low-dimensional chaos. While it is well known that mixed strategy equilibria may be unstable, our approach is novel from several perspectives: we fully analyse EWA and provide explicit thresholds that define the onset of instability; we find an emerging taxonomy of the learning dynamics, without focusing on specific classes of games ex-ante; we show that chaos can occur even in the simplest games; we make a precise theoretical prediction that can be tested against data on experimental learning of discoordination games.
    Date: 2017–01
  3. By: Lauren Larrouy (Université Côte d'Azur; GREDEG CNRS); Guilhem Lecouteux (Université Côte d'Azur; GREDEG CNRS)
    Abstract: We argue that a Bayesian explanation of strategic choices in games requires introducing a psychological theory of belief formation. We highlight that beliefs in epistemic game theory are derived from the actual choice of the players, and cannot therefore explain why Bayesian rational players should play the strategy they actually chose. We introduce the players’ capacity of mindreading in a game theoretical framework with the simulation theory, and characterise the beliefs that Bayes rational players could endogenously form in games. We show in particular that those beliefs need not be ratifiable, and therefore that rational players can form action-dependent beliefs.
    Keywords: prior beliefs, mindreading, simulation, action-dependent beliefs, choice under uncertainty
    JEL: B41 C72 D81
    Date: 2017–01
  4. By: Sandmo, Agnar (Dept. of Economics, Norwegian School of Economics and Business Administration)
    Abstract: In the late 1940s, Ragnar Frisch published two articles in Norwegian that constitute a pioneering attempt to apply welfare economics to a problem of economic policy. The main contention of the articles is that there exists a fundamental externality in the labour market because the marginal productivity of labour depends both on input in the individual unit and on total labour use in the economy. While inspired by the problems of postwar reconstruction, Frisch came to regard it as a general problem in a decentralized economy, and he explores its consequences for wage and tax policy. While Frisch attached great importance to the analysis, it has received little attention in the subsequent literature.
    Keywords: Economic policy; wage; tax policy
    JEL: E20
    Date: 2017–01–23
  5. By: James C. Cox; John A. List; Michael Price; Vjollca Sadiraj; Anya Samek
    Abstract: The literature exploring other regarding behavior sheds important light on interesting social phenomena, yet less attention has been given to how the received results speak to foundational assumptions within economics. Our study synthesizes the empirical evidence, showing that recent work challenges convex preference theory but is largely consistent with rational choice theory. Guided by this understanding, we design a new, more demanding test of a central tenet of economics—the contraction axiom—within a sharing framework. Making use of more than 325 dictators participating in a series of allocation games, we show that sharing choices violate the contraction axiom. We advance a new theory that augments standard models with moral reference points to explain our experimental data. Our theory also organizes the broader sharing patterns in the received literature.
    Keywords: experiment, giving, taking, altruism, moral cost
    JEL: C93 D03 D64
    Date: 2016–05
  6. By: Alice Hsiaw (Brandeis University); Ing-Haw Cheng (Brandeis University)
    Abstract: Disagreements about substance and expert credibility often go hand-in-hand and are hard to resolve on several issues including economics, climate science, and medicine. We argue that disagreement arises because individuals overinterpret how much they can learn when both substance and credibility are uncertain. Our learning bias predicts that: 1) Disagreement about credibility drives disagreement about substance, 2) First impressions of credibility drive long-lasting disagreement, 3) Under-trust is difficult to unravel, 4) Encountering experts in different order generates disagreement, and 5) Confirmation bias and/or its opposite arise endogenously. These effects provide a theory for the origins of disagreement.
    Keywords: disagreement, polarization, learning, expectations, experts
    Date: 2016–10
  7. By: Christian Ewerhart
    Abstract: It is shown that the n-player lottery contest admits a best-response potential (Voorneveld, 2000, Economics Letters). This is true also when the contest technology reflects the possibility of a draw. The result implies, in particular, the existence of a nontrivial example of a strictly competitive game that is best-response equivalent to a game with identical payoff functions.
    Keywords: Potential games, Tullock contest, best-response equivalence, zero-sum games
    JEL: C62 C72 D72
    Date: 2017–02
  8. By: Nogues-Marco, Pilar; Martínez-Ruiz, Elena
    Abstract: This article contributes to the literature on the commitment to gold during the classical period of the gold standard. We use the case of Spain to analyse how national institutional design determined adherence to gold in peripheral countries, and argue that institutional design was the result of negotiation between the government and the central bank. We construct indicators of the relative bargaining power of the two actors to assess their respective influence in determining adherence to gold. Our results show that a powerful government facilitated adherence to the gold standard, but an independent central bank hindered it, especially if confronted by an unstable political authority. Central banks were private institutions whose objective was profit maximization, not monetary stability. Strongly independent private central banks operating in politically very weak countries avoided the responsibility of defending the national currency, even in a stable macroeconomic situation. In peripheral countries, therefore, adherence (or not) to gold was determined by the institutional design in which the monetary system operated.
    Keywords: Gold Standard, Political Economy, Central Bank Independence, Institutional Design, Monetary Stability, Spain
    JEL: E02 E42 E58 F33 N13
    Date: 2017
  9. By: Liudmyla Vozna
    Abstract: This article deals with the notion of entropy in its applicability to economics. Briefly, it regards some classical cases of such a use as the labour concept of Podolinsky and the bioeconomics of Georgescu-Roegen. This article also attempts to apply the concept of entropy to the analysis of market structures in the example of the perfect competition model. Thus, the article asserts that if we compare different entropy concepts with the main characteristics of a market with perfect competition, we must conclude that the latter is a structure with the maximum level of entropy. But maximum entropy means the system’s death. So, as a system or a structure, a perfectly competitive market cannot exist. When analysing such a model, economists recognise its impossibility in real life from an empirical point of view. However, the application of the entropy concept helps us to repeat this approval also as a methodological one. The use of the entropy concept as a methodological instrument helps to question some other economic models, too.
    Keywords: Entropy, the Second Law of Thermodynamics, Market Structure, Perfect Competition, Uncertainty, Information, Disorder
    JEL: B4 D4 D8
    Date: 2016–12
  10. By: FLEURBAEY, Marc (Princeton University); MANIQUET, François (Université catholique de Louvain, CORE, Belgium)
    Abstract: We assume that economic justice requires resources to be allocated fairly, and we construct individual well-being measures that embody fairness principles in interpersonal comparisons. These measures are required to respect agents’ preferences. Across preferences well-being comparisons are required to depend on comparisons of the bundles of resources consumed by agents. We axiomatically justify two main families of well-being measures reminiscent to the ray utility and money-metric utility functions.
    Keywords: fairness, well-being measure, preferences
    JEL: D63 I32
    Date: 2016–11–22
  11. By: Mueller-Langer, Frank; Fecher, Benedikt; Harhoff, Dietmar; Wagner, Gert G.
    Abstract: Replication studies are considered a hallmark of good scientific practice. Yet they are treated among researchers as an ideal to be professed but not practiced. To provide incentives and favorable boundary conditions for replication practice, the main stakeholders need to be aware of what drives replication. Here we investigate how often replication studies are published in empirical economics and what types of journal articles are replicated. We find that from 1974 to 2014 less than 0.1% of publications in the top-50 economics journals were replications. We do not find empirical support that mandatory data disclosure policies or the availability of data or code have a significant effect on the incidence of replication. The mere provision of data repositories may be ineffective, unless accompanied by appropriate incentives. However, we find that higher-impact articles and articles by authors from leading institutions are more likely to be subject of published replication studies whereas the replication probability is lower for articles published in higher-ranked journals.
    Keywords: Replication; economics of science; science policy; economic methodology
    JEL: A1 B4 C12 C13
    Date: 2017–01–30
  12. By: Yoann Verger (INRA - Institut National de la Recherche Agronomique)
    Abstract: Abstract This comment from Fratini's article “Rent as a share of product and Sraffa's price equations” corrects Fratini's demonstration that rent as a share of the product and rate of profits could both increase at the same time. By doing so, this comment underlines the specificity of Sraffa's theory of value, and especially the need to only analyze systems of production where exchanges are needed to reproduce the system.
    Keywords: Sraffa, rent, rate of profits, self-reproducing process, theory of value
    Date: 2016–12–13
  13. By: Riyanto, Yohanes E.; Roy, Nilanjan
    Abstract: We report results from experiments designed to investigate the prevalence of turn-taking in three-person finitely repeated threshold public good games without communication. Individuals can each make a discrete contribution. If the number of contributors is at least equal to the threshold, a public benefit accrues to all group members. Players take turns to provide the public good each round when the endowments are homogeneous. When the turn-taking path is at odds with efficiency or under private information of endowments, players seldom engage in taking turns. An endogenous-move protocol limits the frequency of mis-coordinated outcomes every round.
    Keywords: Public good provision, Turn-taking, Repeated game, Endogenous move, Experiment
    JEL: C72 C92 D03 D82 H41
    Date: 2017–02–03
  14. By: Harrison, Mark (Department of Economics, University of Warwick)
    Abstract: This paper reviews two decades of research on the political economy of secrecy, based on the records of former Soviet state and party archives. Secrecy was an element of Soviet state capacity, particularly its capacity for decisiveness, free of the pressures and demands for accountability that might have arisen from a better informed citizenry. But secrecy was double-edged. Its uses also incurred substantial costs that weakened the capacity of the Soviet state to direct and decide. The paper details the costs of secrecy associated with “conspirative” government business processes, adverse selection of management personnel, everyday abuses of authority, and an uninformed leadership.
    Keywords: abuse of authority ; adverse selection ; censorship ; military outlays ; secrecy ; state capacity ; transaction costs ; trust
    JEL: N44 P37
    Date: 2017

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