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on History and Philosophy of Economics |
| By: | Martin Shubik |
| Abstract: | There are many analogies among fortune hunting in business, politics, and science. The prime task of the gold digger was to go to the Klondikes, find the right mine and mine the richest veins. This task requires motivation, sense of purpose and ability. Techniques and equipment must be developed. Fortune hunting in New England was provided at one time by hunting for whales. One went to a great whalers' station such as New Bedford and joined the whale hunters. The hunt in academic research is similar. A single-minded passion is called for. These notes here are the wrap-up comments containing some terminal observations of mine on a hunt for a theory money and financial institutions. |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1807.09577&r=hpe |
| By: | Angus Deaton (Princeton University); Nancy Cartwright (Durham University and University of California San Diego) |
| Abstract: | RCTs are valuable tools whose use is spreading in economics and in other social sciences. They are seen as desirable aids in scientific discovery and for generating evidence for policy. Yet some of the enthusiasm for RCTs appears to be based on misunderstandings: that randomization provides a fair test by equalizing everything but the treatment and so allows a precise estimate of the treatment alone; that randomization is required to solve selection problems; that lack of blinding does little to compromise inference; and that statistical inference in RCTs is straightforward, because it requires only the comparison of two means. None of these statements is true. RCTs do indeed require minimal assumptions and can operate with little prior knowledge, an advantage when persuading distrustful audiences, but a crucial disadvantage for cumulative scientific progress, where randomization adds noise and undermines precision. The lack of connection between RCTs and other scientific knowledge makes it hard to use them outside of the exact context in which they are conducted. Yet, once they are seen as part of a cumulative program, they can play a role in building general knowledge and useful predictions, provided they are combined with other methods, including conceptual and theoretical development, to discover not "what works," but why things work. Unless we are prepared to make assumptions, and to stand on what we know, making statements that will be incredible to some, all the credibility of RCTs is for naught. |
| JEL: | C53 |
| Date: | 2017–10 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cheawb:2017-10&r=hpe |
| By: | Cristina Bicchieri; Eugen Dimant (Philosophy, Politics and Economics, University of Pennsylvania); ; |
| Abstract: | We explore the relationship between norm-uncertainty and lying. Lies are ubiquitous, and people often lie for their own benefit or for the benefit of others. Research in environments in which social norms are clearly defined and communicated finds that social norms in fluence personal decisions, even when they are not in our own self-interest. We deviate from this approach and study lying under norm uncertainty with scope for opportunistic interpretation of the norm. We introduce variation along three dimensions: salience of different types of norm-uncertainty (normative/empirical), the beneficiary of the lie (self/other), and ex-ante knowledge about the opportunity to tell a lie in order to tease out potential belief-distortion mechanisms. We also find compelling evidence that individuals engage in self-serving belief distortion to increase lying overall. However, we observe this only when uncertainty about what others do (empirical uncertainty), but not when uncertainty about what others approve of (normative uncertainty) is made salient. We also observe conditional liars, but only when the lie is self-serving rather than to the benefit of a third party. We discuss policy implications to improve the effectiveness of norm-based interventions. |
| Keywords: | Cheating, Experiment, Lying, Social Norms, Uncertainty |
| JEL: | C72 C91 D8 D9 |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:ppc:wpaper:0012&r=hpe |
| By: | Laurent Linnemer (CREST; ENSAE); Michael Visser (CREST; ENSAE; CNRS; CRED) |
| Abstract: | This profile of Jean-Michel Grandmont is based on several interviews we had with him between September 2016 and April 2017. The interviews took place at our CREST offices, located at that time in Malakoff, just south of Paris. The objective of the profile is twofold. First, we trace the career of this highly influential mathematical economist who made seminal contributions to the fields of monetary economics, temporary equilibrium, business cycle theory, and aggregation of individual behavior. Second, we show how Grandmont and his colleagues contributed to changing the French landscape of economic research. |
| Keywords: | General Equilibrium, Money, Nonlinear Dynamics |
| JEL: | B31 D5 D7 E3 |
| Date: | 2018–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2018-06&r=hpe |
| By: | Josef Falkinger (University of Zurich); Michel Habib (University of Zurich and Swiss Finance Institute) |
| Abstract: | When should shareholders afford a manager the discretion to be opportunistic and when should they constrain him to be principled? We show that discretion is associated with lower powered incentives than is constraint: opportunism may put shareholder capital at risk; shareholder can lessen that risk by lowering the power of managerial incentives, thereby decreasing the manager’s incentives to spurn principle for opportunity. We further show that the cost of capital plays a central role in favoring discretion over constraint: the use of capital constitutes an externality; when the cost of capital is low, the externality is of relatively little importance, and the manager is afforded the discretion to be opportunistic. |
| Date: | 2018–01 |
| URL: | http://d.repec.org/n?u=RePEc:chf:rpseri:rp1773&r=hpe |
| By: | Goodhart, Charles |
| Abstract: | Yes, Minsky does matter! He had an extraordinarily acute understanding of the interactions between banking, and finance more generally, on one side and the real economy on the other. As the author parades Minsky’s monetary analysis, partly in well-chosen quotations, I was continuously struck by the freshness, even when several decades have elapsed since his death in 1996, and the originality of his monetary analysis |
| JEL: | N0 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:73403&r=hpe |
| By: | Erik S. Reinert |
| Abstract: | Towards a better understanding of convergence and divergence: or, how the present EU strategy –– at the expense of the economic periphery –– neglects the theories that once made Europe successful. |
| Date: | 2017–11 |
| URL: | http://d.repec.org/n?u=RePEc:tth:wpaper:77&r=hpe |
| By: | Erik S. Reinert; Kenneth Carpenter; Fernanda A. Reinert; Sophus A. Reinert |
| Abstract: | 80 Economic Bestsellers before 1850: A Fresh Look at the History of Economic Thought |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:tth:wpaper:74&r=hpe |
| By: | Dmytro Bogatov |
| Abstract: | I present a dynamic, voluntary contribution mechanism, public good game and derive its potential outcomes. In each period, players endogenously determine contribution productivity by engaging in costly investment. The level of contribution productivity carries from period to period, creating a dynamic link between periods. The investment mimics investing in the stock of technology for producing public goods such as national defense or a clean environment. After investing, players decide how much of their remaining money to contribute to provision of the public good, as in traditional public good games. I analyze three kinds of outcomes of the game: the lowest payoff outcome, the Nash Equilibria, and socially optimal behavior. In the lowest payoff outcome, all players receive payoffs of zero. Nash Equilibrium occurs when players invest any amount and contribute all or nothing depending on the contribution productivity. Therefore, there are infinitely many Nash Equilibria strategies. Finally, the socially optimal result occurs when players invest everything in early periods, then at some point switch to contributing everything. My goal is to discover and explain this point. I use mathematical analysis and computer simulation to derive the results. |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1807.04621&r=hpe |
| By: | Eugenio Caverzasi; Alberto Russo |
| Abstract: | The Great Recession that followed the financial crisis of 2007 is not only the largest economic crisis after the Great Depression of the 1930s, it also signals a crisis of economics as a discipline. This is not only the consequence of the inadequacy of mainstream macroeconomics, and specically the DSGE workhorse model, to forecast such a huge event, or at least to detect the worrying tendencies towards it. Even more relevant is the choice to explicitly avoid the modelling of large crises (that for someone is a motivation for not attacking pre-crisis DSGE models focused on the analysis of small deviations from the steady-state), so denying the intrinsic nature of capitalism, a system that necessarily proceeds through cycles and (extended) crises. The replies of the DSGE approach to critics have led to extensions regarding for instance the role of financial frictions, heterogeneous agents, and bounded rationality (though typically in the form of quasi-rational expectations). The alternative paradigm of Agent-Based Macroeconomics can take into account all these elements at once within an evolutionary modelling framework based on heterogeneity and interaction, so capable to endogenously reproduce complex dynamics, from small fluctuations to large crises, due to innovation and industrial dynamics, rising inequality and financial instability, and so on. The integration between Agent-Based Macroeconomics and the (post-Keynesian) Stock-Flow Consistent approach represents a promising way for the future development of this research field. |
| Date: | 2018–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:ssa:lemwps:2018/23&r=hpe |
| By: | Kukushkin, Nikolai S. |
| Abstract: | Several agents choose positions on the real line (e.g., their levels of conspicuous consumption). Each agent's utility depends on her choice and her "status," which, in turn, is determined by the number of agents with greater choices (the fewer, the better). If the rules for the determination of the status are such that the set of the players is partitioned into just two tiers ("top" and "bottom"), then a strong Nash equilibrium exists, which Pareto dominates every other Nash equilibrium. Moreover, the Cournot tatonnement process started anywhere in the set of strategy profiles inevitably reaches a Nash equilibrium in a finite number of steps. If there are three tiers ("top," "middle," and "bottom"), then the existence of a Nash equilibrium is ensured under an additional assumption; however, there may be no Pareto efficient equilibrium. With more than three possible status levels, there seems to be no reasonably general sufficient conditions for Nash equilibrium existence. |
| Keywords: | status game; strong equilibrium; Nash equilibrium; Cournot tatonnement |
| JEL: | C72 |
| Date: | 2018–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:87635&r=hpe |
| By: | Tsikas, Stefanos A.; Wagener, Andreas |
| Abstract: | With a series of public goods games in a 2x2-design, we analyze two channels that might moderate social dilemmas and increase cooperation without using pecuniary incentives: moral framing and shaming. Cooperation increases when non-contributing to a public good is framed as morally debatable and socially harmful tax avoidance. However, cooperation is only durable when free-riders are "shamed" by disclosing their misdemeanor. We find shaming effects to be strong enough to make appeals to morality redundant for participants' decisions. |
| Keywords: | shaming; framing; tax avoidance; public goods experiment |
| JEL: | E62 H26 H30 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:han:dpaper:dp-633&r=hpe |
| By: | Carlos Alós-Ferrer; Johannes Buckenmaier |
| Abstract: | Behavioral heterogeneity arising from cognitive differences among economic agents plays a fundamental role in the economy. To explain this heterogeneity, models of iterative thinking assume that certain choices indicate higher cognitive effort. That is, choices are used to infer the cognitive process behind the choices themselves. To establish this link choice data is insufficient, thus an individually-measurable correlate of cognitive effort is required. We argue that deliberation times provide this missing link. We present a simple model of heterogeneous cognitive depth, incorporating stylized facts from the psychophysical literature, which makes predictions on the relation between choices, cognitive effort, incentives, and deliberation times. In an experimental test, the predicted relations are readily observed in the data, but only when the features leading to iterative thinking are salient enough. Hence, the predicted relations become a tool to uncover the limits of models of iterative thinking. |
| Keywords: | Heterogeneity, level-k reasoning, cognitive sophistication, deliberation times, depth of reasoning, cognitive effort |
| JEL: | C72 C91 D80 D91 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:zur:econwp:292&r=hpe |
| By: | Ata Atay (Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences); Marina Núnez (University of Barcelona, Department of Mathematics for Economics, Finance and Actuarial Sciences) |
| Abstract: | In this paper, we study different notions of stability for three-sided assignment games. Since the core may be empty in this case, we first focus on other notions of stability such as the notions of subsolution and von Neumann-Morgenstern stable sets. The dominant diagonal property is necessary for the core to be a stable set, and also sufficient in the case where each sector of the market has two agents. Furthermore, for any three-sided assignment market, we prove that the union of the extended cores of all µ-compatible subgames, for a given optimal matching µ, is the core with respect to those allocations that are compatible with that matching, and this union is always non-empty. |
| Keywords: | Assignment game; core; subsolution; von Neumann-Morgenstern stable set |
| JEL: | C71 C78 |
| Date: | 2018–03 |
| URL: | http://d.repec.org/n?u=RePEc:has:discpr:1806&r=hpe |
| By: | Jagjit S. Chadha (Centre for Macroeconomics (CFM); National Institute of Economic and Social Research (NIESR)) |
| Abstract: | We consider the role of money as a means of payment, store of value and medium of exchange. I outline a number of quantitative and qualitative experiences of monetary management. Successful regimes have sprung up in a variety of surprising places, and been sustained with state (centralised) interventions. Although the link between state and money, and its standard of identity and account may be clear, particularly in earlier stages of economic development, the extent to which the state is widely felt to hold responsibility for 'sound money' is less clear in modern democracies, where there are many other public responsibilities implying on going trade-offs. |
| Keywords: | Money, Gold standard, Paper money, Samuelson |
| JEL: | B22 E02 E31 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1821&r=hpe |
| By: | Rainald Borck |
| Abstract: | A large literature has claimed that higher political participation increases welfare spending. In this paper, I review this literature. I study the theoretical link between participation and redistributive spending. Then, I survey the empirical literature on the link between education, income and political participation, as well as that between political participation and redistribution. |
| Keywords: | political participation, turnout, welfare spending |
| JEL: | D72 H53 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7128&r=hpe |
| By: | Michel Balinski (CREST; CNRS; Ecole Polytechnique) |
| Abstract: | L'article de J.-F. Laslier [26] presente une description tres etrange du nouveau mode de scrutin appele le jugement majoritaire, de ses proprietes, de ses supposes paradoxes et antecedents. Cette reponse clarifie les faits. |
| Date: | 2018–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:crs:wpaper:2018-10&r=hpe |
| By: | Elias Carroni; Paolo Pin; Simone Righi |
| Abstract: | We study the optimal referral strategy of a seller and its relationship with the type of communication channels among consumers. The seller faces a partially uninformed population of consumers, interconnected through a directed social network. In the network, the seller offers rewards to informed consumers (influencers) conditional on inducing purchases by uninformed consumers (influenced). Rewards are needed to bear a communication cost and to induce word-of-mouth (WOM) either privately (cost-per-contact) or publicly (fixed cost to inform all friends). From the seller's viewpoint, eliciting private WOM is more costly than eliciting public WOM. We investigate (i) the incentives for the seller to move to a denser network, inducing either private or public WOM and (ii) the optimal mix between the two types of communication. A denser network is found to be always better, not only for information diffusion but also for seller's profits, as long as private WOM is concerned. Differently, under public WOM, the seller may prefer an environment with less competition between informed consumers and the presence of highly connected influencers (hubs) is the main driver to make network density beneficial to profits. When the seller is able to discriminate between private and public WOM, the optimal strategy is to cheaply incentivize the more connected people to pass on the information publicly and then offer a high bonus for private WOM. |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1807.01994&r=hpe |
| By: | Mehrdad Vahabi (CEPN - Centre d'Economie de l'Université Paris Nord - UP13 - Université Paris 13 - USPC - Université Sorbonne Paris Cité - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | There is a vast literature and several surveys on the economic and political resource curse. However, the surveys often fail to capture two points: 1) they disregard the relationship between this recent literature and the staple theory and the staple trap; 2) the appropriability issue has only been treated tangentially and has never been the focus of any survey. The present work fills these gaps. This paper shows that the political resource curse approach initially focused on the appropriability issue through the lens of 'looting' behavior of rebels and distinguished 'lootable' and 'unlootable' goods. However, lootability casts light on mobility of resources or resistance to appropriation rather than state appropriability. Borrowing upon Baldwin's distinction between 'point-source' and 'diffuse' resources, the resource curse literature has recently suggested that state appropriability is related to pointy-resources. The resource curse/blessing assumes that the technical dimension of appropriability and mobility (geographical or purely physical qualities) plays primary role whereas institutional dimensions are either absent or play a secondary role. An alternative approach gives pride of place to the institutional dimension: the same agricultural product such as cereals or coffee can be appropriable or not depending on the institutional structure. Finally, while the literature suffers from a confusion between mobility and appropriability, its relevance in enhancing an appropriative perspective of the state will be underlined. |
| Keywords: | Captive and fugitive assets, Lootable goods, Natural resource curse, Pointy versus diffuse resources, Predatory state, Staple theory |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01583559&r=hpe |
| By: | Jean-Baptiste Michau; Yoshiyasu Ono; Matthias Schlegl |
| Abstract: | We consider a neoclassical economy where households derive utility from holding wealth. We show that, under some conditions, there can be rational bubbles. Hence, we provide a microfoundation for bubbles that relies on a frictionless infinite-horizon economy without any heterogeneity across households. While our bubbly equilibria are very similar to those obtained by Tirole (1985) in an overlapping generation economy, the underlying economics is different. Turning to public debt, we show that Ponzi schemes can be sustainable. Hence, in general, the limit on the accumulation of public debt by the government is not given by its no-Ponzi condi-tion but, instead, by the representative household’s transversality condition. The Ricardian equivalence must hold in any of our equilibria. Finally, in the presence of money, the real equilibrium structure of the economy remains unchanged. We carefully investigate the effects of helicopter drops of money on the possibility of Ponzi schemes and of speculative hyperinflation or deflation. |
| Keywords: | Ponzi scheme, rational bubble, wealth preference |
| JEL: | E13 E44 G12 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7148&r=hpe |
| By: | Fairfield, Tasha; Charman, Andrew |
| Abstract: | We advance efforts to explicate and improve inference in qualitative research that iterates between theory development, data collection, and data analysis, rather than proceeding linearly from hypothesizing to testing. We draw on the school of Bayesian “probability as extended logic,” where probabilities represent rational degrees of belief in propositions given limited information, to provide a solid foundation for iterative research that has been lacking in the qualitative methods literature. We argue that mechanisms for distinguishing exploratory from confirmatory stages of analysis that have been suggested in the context of APSA’s DA-RT transparency initiative are unnecessary for qualitative research that is guided by logical Bayesianism, because new evidence has no special status relative to old evidence for testing hypotheses within this inferential framework. Bayesian probability not only fits naturally with how we intuitively move back and forth between theory and data, but also provides a framework for rational reasoning that mitigates confirmation bias and ad-hoc hypothesizing—two common problems associated with iterative research. Moreover, logical Bayesianism facilitates scrutiny of findings by the academic community for signs of sloppy or motivated reasoning. We illustrate these points with an application to recent research on state building. |
| JEL: | C1 |
| Date: | 2018–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:89261&r=hpe |
| By: | Kenneth N. Kuttner (Williams College) |
| Abstract: | This paper provides an overview of unconventional monetary policy as implemented by the U.S. Federal Reserve after the global financial crisis. First, it reviews the key features of the Fed’s Quantitative Easing and Forward Guidance policies. Second, it discusses the mechanisms through which the two policies may have affected financial markets, institutions, and the overall economy. Third, it surveys the evidence on the policies’ financial and economic impacts. Fourth, it considers some of the policies’ unintended side effects. The paper concludes with some thoughts on how unconventional monetary policy might be used in the future. |
| Date: | 2018–08 |
| URL: | http://d.repec.org/n?u=RePEc:wil:wileco:2018-04&r=hpe |