nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2017‒04‒09
23 papers chosen by
Erik Thomson
University of Manitoba

  1. Experimental investigations of binary threshold public good games By Spiller, Jörg; Bolle, Friedel
  2. Stabilizing unstable outcomes in prediction games By Brams, Steven; Kilgour, Marc
  3. Modeling Economic Systems as Locally-Constructive Sequential Games By Tesfatsion, Leigh
  4. Punishing greediness in Divide-the-dollar games By Shiran Rachmilevitch
  5. A behavioral theory of equilibrium selection By Bolle, Friedel
  6. The Heckscher-Ohlin-Samuelson Model and the Cambridge Capital Controversies By Kazuhiro Kurose; Naoki Yoshihara
  7. Wisdom of the institutional crowd By Kevin Primicerio; Damien Challet; Stanislao Gualdi
  8. Just Another Niche in the Wall? How Specialization Is Changing the Face of Mainstream Economics. By Cedrini, Mario; Magda, Fontana
  9. Fair Utilitarianism By Marc Fleurbaey; Stéphane Zuber
  10. Aristotle’s Politics: On Constitutions, Justice, Laws and Stability By Krishna K Ladha
  11. Stability in Matching with Couples having Non-Responsive Preferences By Khare, Shashwat; Roy, Souvik
  12. Externalities in Economies with Endogenous Sharing Rules By Philippe Bich; Rida Laraki
  13. Le problème de la justification du concept de bien méritoire en perspective By Maxime Desmarais-Tremblay
  14. A Naïve Approach to Bidding By Paul Pezanis-Christou; Hang Wu
  15. Mindreading and Endogenous Beliefs in Games By Lauren Larrouy; Guilhem Lecouteux
  16. Insurance and Insurance Markets By Dionne, Georges; Harrington, Scott
  17. Friends or Strangers? Strategic Uncertainty and Cooperation across Experimental Games of Strategic Complements and Substitutes By Gabriele Chierchia; Fabio Tufano; Giorgio Coricelli
  18. One is not enough! An economic history perspective on world trade collapses and deglobalization By van Bergeijk, P.A.G.
  19. The Rule of Law: Measurement and Deep Roots By Gutmann, Jerg; Voigt, Stefan
  20. Simultaneous and sequential voting under general decision rules By Bolle, Friedel
  21. Computation of Cournot-Nash equilibria by entropic regularization By Blanchet, Adrien; Carlier, Guillaume; Nenna, Luca
  22. Theories of (Un)sustainable Consumption By Clive L. Spash; Karin Dobernig
  23. Knowledge Properties and Economic Policy: A New Look By Antonelli, Cristiano

  1. By: Spiller, Jörg; Bolle, Friedel
    Abstract: In Binary Threshold Public Good (BTPG) games n players contribute or not to the production of a public good which is produced if and only if there are at least k contributors. The BTPG games with the highest (k=n) and the lowest (k=1) threshold are the Stag Hunt game and the Volunteer's Dilemma. There is a plethora of equilibria in BTPG games. We experimentally investigate 16 different symmetric and asymmetric BTPG games with n=4 and k=1,2,3,4 and test general theoretical attributes of equilibria and whether equilibrium play can apply at all. As theory predicts, neither magnitude effects nor a negative instead of a positive frame affect behavior which is contrary to the bulk of the experimental literature. In the Stag Hunt game, which is often used to discriminate between payoff dominance and risk dominance, risk dominance as a description of behavior is clearly rejected and payoff dominance is moderately supported. We show that no theory with homogeneous players can describe behavior.
    Keywords: Binary Threshold Public Goods,framing,equilibrium selection,payoff dominance,risk dominance,efficiency,experiment
    JEL: C72 D72 H41
    Date: 2017
  2. By: Brams, Steven; Kilgour, Marc
    Abstract: Assume in a 2-person game that one player, Predictor (P), does not have a dominant strategy but can predict with probability p > 1/2 the strategy choice of an opponent, Predictee (Q). Q chooses a strategy that maximizes her expected payoff, given that she knows p—but not P’s prediction—and that P will act according to his prediction. In all 2 2 strict ordinal games in which there is a unique Pareto-inferior Nash equilibrium (Class I) or no pure-strategy equilibrium (Class II), and which also has a Pareto-optimal non-Nash “cooperative outcome,” P can induce this outcome if p is sufficiently high. This scenario helps to explain the observed outcomes of a Class I game modeling the 1962 Cuban missile crisis between the United States and the Soviet Union, and a Class II game modeling the 2015 conflict between Iran and Israel over Iran’s possible development of nuclear weapons.
    Keywords: Noncooperative games, prediction, Nash equilibrium, 1962 Cuban missile crisis, 2015 Iran-Israel conflict
    JEL: C72 C78 D81
    Date: 2017–03
  3. By: Tesfatsion, Leigh
    Abstract: Real-world economies are open-ended dynamic systems consisting of heterogeneous interacting participants. Human participants are decision-makers who strategically take into account the past actions and potential future actions of other participants. All participants are forced to be locally constructive, meaning their actions at any given time must be based on their local states; and participant actions at any given time affect future local states. Taken together, these properties imply real-world economies are locally-constructive sequential games. This study discusses a modeling approach, agent-based computational economics (ACE), that permits researchers to study economic systems from this point of view. ACE modeling principles and objectives are first concisely presented. The remainder of the study then highlights challenging issues and edgier explorations that ACE researchers are currently pursuing.
    Date: 2017–03–28
  4. By: Shiran Rachmilevitch (University of Haifa, Department of Economics)
    Abstract: Brams and Taylor (1994) presented a version of the Divide-the-dollar game (DD), which they call DD1. DD1 su ers from the following drawback: when each player demands approximately the entire dollar, then if the least greedy player is unique, then this player obtains approximately the entire dollar even if he is only slightly less greedy than the other players. I introduce a parametrized family of 2-person DD games whose endpoints" (the games that correspond to the extreme points of the parameter space) are (1) a variant of DD1, and (2) a game that completely overcomes the greediness-related problem. I also study an n-person generalization of this family. Finally, I show that the modeling choice between discrete and continuous bids may have far-reaching implications in DD games
    Keywords: Bargaining games; Divide-the-dollar; Fair division
  5. By: Bolle, Friedel
    Abstract: Theories about unique equilibrium selection are often rejected in experimental investigations. We drop the idea of selecting a single prominent equilibrium but suggest the coexistence of different beliefs about "appropriate" equilibrium or non-equilibrium play. Our main selection criterion is efficiency applied to all or only to "fair" equilibria. This assumption is applied to 16 Binary Threshold Public Good games where at least k of four homogeneous or heterogeneous players have to incur fixed costs in order to produce a public good. The case k=4 is the Stag Hunt game which is most often used to test equilibrium selection. Our finite mixture model applies with the same parameters (shares of populations, altruism parameters) to the four thresholds k=1,2,3,4. The estimated shares of populations are similar in four treatments with identical or different cost/benefit ratios of the players. Our results for k=4 clearly contradict selection by Risk Dominance and Global Games. In the two (almost) symmetric treatments the Harsanyi/Selten selection explains 40% of the decisions.
    Keywords: equilibrium selection,Binary Threshold Public Goods,payoff dominance,risk dominance,Global Games,efficiency,experiment
    JEL: C51 C57 C72 D72 H41
    Date: 2017
  6. By: Kazuhiro Kurose; Naoki Yoshihara
    Abstract: This paper examines the validity of the factor price equalisation theorem (FPET) in relation to capital theory. Additionally, it presents a survey of the literature on Heckscher-Ohlin-Samuelson (HOS) models that treat capital as a primary factor, beginning with Samuelson (1953). Furthermore, this paper discusses the Cambridge capital controversy, which contends that marginal productivity theory does not hold when capital is assumed to be as a bundle of reproducible commodities instead of as a primary factor. Consequently, it is shown that under this assumption, the FPET does not hold, even when there is no reversal of capital intensity. This paper also demonstrates that the recent studies on the dynamic HOS trade theory generally ignore the difficulties posed by the capital controversies and are thereby able to conclude that the FPET holds even when capital is modelled as a reproducible factor. Our analysis suggests that there is a need for a basic theory of international trade that does not rely on factor price equalisation and a model that formulates capital as a bundle of reproducible commodities.
    Date: 2016–03–31
  7. By: Kevin Primicerio (MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec); Damien Challet (MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec); Stanislao Gualdi (CFM - Capital Fund Management - Capital Fund Management)
    Abstract: The average portfolio structure of institutional investors is shown to have properties which account for transaction costs in an optimal way. This implies that financial institutions unknowingly display collective rationality, or Wisdom of the Crowd. Individual deviations from the rational benchmark are ample, which illustrates that system-wide rationality does not need nearly rational individuals. Finally we discuss the importance of accounting for constraints when assessing the presence of Wisdom of the Crowd.
    Date: 2017–03–08
  8. By: Cedrini, Mario; Magda, Fontana (University of Turin)
    Abstract: There is considerable discussion on so-called ‘mainstream pluralism’, that is, on the co-presence of a variety of research programmes in today’s mainstream economics that: 1. significantly deviate from the neoclassical core; 2. are pursued by different, often separate communities of researchers; 3. have their origins outside economics. The literature tends to regard mainstream pluralism as a transitory state towards a new, post-neoclassical, mainstream. This paper advances a new interpretation: it suggests that the changing and fragmented state of mainstream economics is likely to persist over time under the impact of specialization (as a self-reinforcing mechanism) and the creation of new specialties and approaches, also through collaboration with researchers from other disciplines.
    Date: 2017–03
  9. By: Marc Fleurbaey (Woodrow Wilson School and Center for Human Values - Princeton University [Pinceton]); Stéphane Zuber (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: Utilitarianism is a prominent approach to social justice that has played a central role in economic theory. A key issue for utilitarianism is to define how utilities should be measured and compared. This paper draws on Harsanyi's approach (Harsanyi, 1955) to derive utilities from choices in risky situations. We introduce a new normalization of utilities that ensures that: 1) a transfer from a rich to a poor is welfare enhancing, and 2) populations with more risk averse people have lower welfare. We propose normative principles that reflect these fairness requirements and characterize fair utilitarianism. We also study some implications of fair utilitarianism for risk sharing and collective risk aversion.
    Keywords: Fairness,utilitarianism,risk sharing,collective risk aversion
    Date: 2017–01
  10. By: Krishna K Ladha (Indian Institute of Management Kozhikode)
    Abstract: Aristotle's Politics can be divided into two inquiries, each amenable to mathematical representation. The first inquiry assumes, probably idealistically, that individuals act in the collective interest and leads to the following theorem: polity (a rule of many good men) is better than aristocracy (few good men), and aristocracy is better than monarchy (one good man). The second inquiry assumes, more realistically, that individuals act in self-interest and leads to the following theorem as a justification for democracy: Among various systems of government, democracy (a mixed constitution with a rule of law sustained by competing factions) offers the best prospect to deliver two things at once: justice (pursuit of the common interest) and stability (obedience of the rule of law). The latter theorem implies that institutionalization of competing factions governed by good laws is likely to be just and stable. It applies to nations, corporations and towns facing the tragedy of the commons, externalities and reneging.
  11. By: Khare, Shashwat (Quantitative Economics); Roy, Souvik (QE / Mathematical economics and game the)
    Abstract: The paper studies matching markets where institutions are matched with possibly more than one individual. The matching market contains some couples who view the pair of jobs as complements. We specify that the couples have a "weak'' preference to be matched together. We first assume that the institutions have common preference over all the individuals. We then characterize under which weak preferences of couples a stable matching exists. We then impose further conditions on the common preference of institutions over the individuals and prove existence of stable matching for unrestricted couple preferences. Finally, we establish a result on stability by relaxing the condition on common preference of institutions over individuals and assuming different preferences for different institutions.
    Keywords: two-sided matching, stability, weak responsiveness
    JEL: C78 D47
    Date: 2017
  12. By: Philippe Bich (PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Rida Laraki (Ecole Polytechnique [Palaiseau])
    Abstract: Endogenous sharing rules were introduced by Simon and Zame [16] to model payoff indeterminacy in discontinuous games. They prove the existence in every compact strategic game of a mixed Nash equilibrium and an associated sharing rule. We extend their result to economies with externalities [1] where, by definition, players are restricted to pure strategies. We also provide a new interpretation of payoff indeterminacy in Simon and Zame's model in terms of preference incompleteness.
    Keywords: Economies, Generalized Games, Endogenous Sharing Rules, Wal-,rasian Equilibrium, Incomplete and Discontinuous Preferences, Better Reply Security,JEL Classification: C02, C62, C72, D50
    Date: 2017
  13. By: Maxime Desmarais-Tremblay (Centre Walras-Pareto - Université de Lausanne, LSE (CPNSS) - London School of Economics, Centre for Philosophy of Natural and Social Science (CPNSS) - LSE - London School of Economics and Political Science, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Le concept de bien méritoire (merit good) a été inventé par Richard A. Musgrave dans le cadre de sa Theory of Public Finance publiée en 1959. Le but de cet article est de situer le débat sur la justification du concept de bien méritoire dans une perspective historique. Les différentes prises de position reflètent et participent à l’évolution de l’économie du bien-être des années 1950 à aujourd’hui. Dans la première section, je reconstruis le contexte de la théorisation des dépenses publiques en économie en identifiant plus spécifiquement l’apport de Musgrave. Dans les deux sections suivantes, je montre que l’on peut distinguer deux grandes familles dans le corpus sur la justification du concept de biens méritoires. Dans la deuxième section, je montre comment certains auteurs justifient les biens méritoires en adaptant légèrement les hypothèses de l’économie du bien-être. Dans la troisième section, je discute les usages du concept qui remettent en question la dominance des préférences individuelles dans l’évaluation du bien-être, notamment en admettant des responsabilités de l’État socialement irréductibles aux demandes individuelles.
    Keywords: biens méritoires, besoins méritoires, biens sous tutelle, biens collectifs, Richard A. Musgrave
    Date: 2016
  14. By: Paul Pezanis-Christou (School of Economics, University of Adelaide); Hang Wu (Centre for Behavioural Economics, National University of Singapore)
    Abstract: We propose a novel approach to the modelling of bidding behavior in pay-your-bid auctions that builds on the presumption that bidders are mostly concerned with losing an auction if they happen to have the highest signal. Our models assume risk neutrality, no profit maximization and no belief about competitors' behavior. They may entail overbidding in first-price and all-pay auctions and we discuss conditions for the revenue equivalence of standard pay-your-bid auctions to hold. We fit the models to the data of first-price auction experiments and find that they do at least as well as VickreyÂ’s benchmark model for risk neutral bidders. Assuming probability misperception or impulse weighting (when relevant) improves their goodness-of-fit and leads to very similar revenue predictions. An analysis of individuals' heterogeneous behavioral traits suggests that impulse weighting is a more consistent rationale for the observed behavior than a power form of probability misperception.
    Keywords: first-price auctions, all-pay auctions, impulse balance equilibrium, overbidding, bounded rationality, probability distortion, regret, experiments.
    JEL: C44 C72 D44 L2
    Date: 2017–03
  15. By: Lauren Larrouy (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis - CNRS - Centre National de la Recherche Scientifique); Guilhem Lecouteux (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis - CNRS - Centre National de la Recherche Scientifique)
    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: action-dependent beliefs, simulation, prior beliefs, mindreading, choice under uncertainty
    Date: 2017–02–16
  16. By: Dionne, Georges (HEC Montreal, Canada Research Chair in Risk Management); Harrington, Scott (University of Pennsylvania)
    Abstract: Kenneth Arrow and Karl Borch published several important articles in the early 1960s that can be viewed as the beginning of modern economic analysis of insurance activity. This chapter reviews the main theoretical and empirical contributions in insurance economics since that time. The review begins with the role of utility, risk, and risk aversion in the insurance literature and then summarizes work on the demand for insurance, insurance and resource allocation, moral hazard, and adverse selection. It then turns to financial pricing models of insurance and to analyses of price volatility and underwriting cycles; insurance price regulation; insurance company capital adequacy and capital regulation; the development of insurance securitization and insurance-linked securities; and the efficiency, distribution, organizational form, and governance of insurance organizations.
    Keywords: Insurance; insurance market; risk sharing; moral hazard; adverse selection; demand for insurance; financial pricing of insurance; price volatility; insurance regulation; capital regulation; securitization; insurance-linked security; organization form; governance of insurance firms.
    JEL: D80 D81 D82 G22 G30
    Date: 2017–03–30
  17. By: Gabriele Chierchia (Center for Mind/Brain Science, University of Trento; and Planck Institute for Human Cognitive and Brain Sciences, Berlin); Fabio Tufano (School of Economics, University of Nottingham); Giorgio Coricelli (Center for Mind/Brain Science, University of Trento; and Department of Economics, University of Southern California)
    Abstract: It is commonly assumed that friendship should decrease strategic uncertainty in games involving tacit coordination. However, this has never been tested on two “opposite poles†of coordination, namely, games of strategic complements and substitutes. We present an experimental study having participants interacting with either a friend or a stranger in two classic games: (i.) the stag hunt game, which exhibits strategic complementarity; (ii.) the entry game, which exhibits strategic substitutability. Both games capture a frequent trade-off between a potentially high paying but uncertain action and a lower paying but safe alternative. We find that, relative to strangers, friends exhibit a propensity towards uncertainty in the stag hunt game, but an aversion to uncertainty in the entry game. Friends also “trembled†less than strangers in the stag hunt game but this advantage was lost in the entry game. We further investigate the role of interpersonal similarities and friendship qualities on friendship’s differential impact on uncertainty across games of strategic complements and substitutes.
    Keywords: coordination; entry game; friendship; strategic complementarity; strategic substitutability; stag hunt game; strategic uncertainty
    Date: 2017–03
  18. By: van Bergeijk, P.A.G.
    Abstract: This paper provides a comparative economic history perspective on two significant periods of deglobalization: the Great Depression in the 1930s and the period following the Financial Crisis of 2008/9. The paper discusses differences and similarities and provides empirical results regarding the correlates of deglobalization, including the political system (institutions), level of development (GDP per capita) and the share of manufacturing.
    Keywords: deglobalization, world trade collapse, economic history, value chains, politics and trade, 1930s, world trade slowdown
    Date: 2017–03–28
  19. By: Gutmann, Jerg; Voigt, Stefan
    Abstract: This paper does three things. First, based on a limited number of theoretically established dimensions, it proposes a new de facto indicator for the rule of law. It is the first such indicator to take the quality of legal norms explicitly into account. Second, using this indicator we shed new light on the relationship between the rule of law and the political system of a country. Third, because political systems hardly predetermine the rule of law level of a country, we investigate the roots of the rule of law. As theory on this specific question is scarce and the rule of law is closely associated with income levels, we draw on a topical literature that deals with the fundamental causes of economic development. Our findings suggest that specific determinants of long-run development operate via the rule of law, whereas others are not related to the rule of law at all.
    Keywords: Rule of Law,Democracy,Dictatorship,Economic Development,Geography,Institutions
    JEL: B41 C81 C82 H11 K00 O17 O43 O57
    Date: 2016
  20. By: Bolle, Friedel
    Abstract: In an economic theory of voting, voters have positive or negative costs of voting in favor of a proposal and positive or negative benefits from an accepted proposal. When votes have equal weight then simultaneous voting mostly has a unique pure strategy Nash equilibrium which is independent of benefits. Voting with respect to (arbitrarily small) costs alone, however, often results in voting against the "true majority". If voting is sequential as in the roll call votes of the US Senate then, in the unique subgame perfect equilibrium, the "true majority" prevails (Groseclose and Milyo, 2010, 2013). In this paper, it is shown that the result for sequential voting holds also with different weights of voters (shareholders) or with multiple necessary majorities (EU decision making). Simultaneous voting in the general model can be plagued by non-existent or non-unique pure strategy equilibria under most preference constellations.
    Keywords: voting,free riding,binary decisions,unique equilibria
    JEL: H41 D71
    Date: 2017
  21. By: Blanchet, Adrien; Carlier, Guillaume; Nenna, Luca
    Abstract: We consider a class of games with continuum of players where equilibria can be obtained by the minimization of a certain functional related to optimal transport as emphasized in [7]. We then use the powerful entropic regularization technique to approximate the problem and solve it numerically in various cases. We also consider the extension to some models with several populations of players.
    Keywords: Optimal transport; entropic regularization ; Cournot-Nash equilibria
    Date: 2017–03
  22. By: Clive L. Spash; Karin Dobernig
    Abstract: In this discussion paper we review and contrast alternative theories of consumption in terms of the intellectual basis they provide for understanding sustainable behaviours. A defining aspect of the modern literature in this field is the emphasis on the individual as a volitional agent who engages wilfully in the decision to consume. This is in stark contrast to earlier literature that concentrated on the structural lock-in of individuals to undesirable consumption patterns and the powers of corporations in creating consumer demand for their products and services. We argue that, in order to unravel consumption in its full complexity, and as a matter of utmost importance, understanding must include both the buy-in of individual agents, whose consumption activities contribute to their self-identity, and the structure imposed by the institutions of society, that frame the context of actors’ decisions. More than this, any move away from the current unsustainable consumption patterns prevalent in modern societies requires a richer conceptualisation of consumption that involves an awareness and examination of the political economy in which humans live.
    Keywords: sustainable consumption, structure, agency, nudging, social practice theory, technostructure, corporate power, social ecological transformation
    Date: 2017
  23. By: Antonelli, Cristiano (University of Turin)
    Abstract: This paper explores the full range of effects of knowledge properties and explains how knowledge properties such as transient appropriability, nonexhaustibility and indivisibility do not only have negative effects, but also positive ones. Knowledge externalities help reduce the cost of knowledge and imitation externalities reduce the revenue and profitability of innovations. Their effects need to be considered jointly in a single analytical framework. An analysis of their combined effects questions the scope of application of the “Arrovian postulate” according to which the limited appropriability of knowledge due to its uncontrolled dissemination reduces invention. This ignores spillovers of outside knowledge, which increase invention. These are the two opposing faces of the limited appropriability of knowledge. Policy implications suggest that along with public interventions designed to support the supply of knowledge and to compensate for missing incentives, much attention should be paid to all interventions that favour the dissemination of knowledge and the knowledge connectivity of the system.
    Date: 2017–03

This nep-hpe issue is ©2017 by Erik Thomson. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.