nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2018‒09‒03
fifteen papers chosen by
Erik Thomson
University of Manitoba

  1. The story of conflict and cooperation By Mehmet S. Ismail
  2. The Proper Scope of Behavioral Law and Economics By Christoph Engel
  3. Timing Games with Irrational Types: Leverage-Driven Bubbles and Crash-Contingent Claims By Hitoshi Matsushima
  4. The significance of faith proven by decision theory – Pascal's wager game is correct and refutes atheism completely By Weinem, Michael
  5. Kaldor and Piketty's Facts: the Rise of Monopoly Power in the United States By Gauti Eggertsson; Jacob Robbins
  6. Non-Altruistic Equilibria By Ohnishi, Kazuhiro
  7. On the Macroeconomic Consequences of Over-Optimism By Paul Beaudry; Tim Willems
  8. A analise economica do direito : Um Olhar empirista critico By Eric Millard; Luana Heinen
  9. The Unbinding Core for Coalitional Form Games By Takaaki Abe; Yukihiko Funaki
  10. A Human Is Not a Resource By Ewan McGaughey; Centre for Business Research
  11. Beyond "Bounded Rationality": Behaviours and Learning in Complex Evolving Worlds By Giovanni Dosi; Marco Faillo; Luigi Marengo
  12. Self-regulation promotes cooperation in social networks By Dario Madeo; Chiara Mocenni
  13. Schultz et le capital humain : une trajectoire intellectuelle By Charlotte Le Chapelain; Sylvère Matéos
  14. Twenty Years of 'Law & Finance': Time to Take Law Seriously By Gerhard Schnyder; Mathias Siems; Ruth Aguilera; Centre for Business Research
  15. Trust and shareholder voting By Lesmeister, Simon; Limbach, Peter; Goergen, Marc

  1. By: Mehmet S. Ismail
    Abstract: The story of conflict and cooperation has started millions of years ago, and now it is everywhere: In biology, computer science, economics, humanities, law, philosophy, political science, and psychology. Wars, airline alliances, trade, oligopolistic cartels, evolution of species and genes, and team sports are examples of games of conflict and cooperation. However, Nash (1951)'s noncooperative games - in which each player acts independently without collaboration with any of the others - has become the dominant ideology in economics, game theory, and related fields. A simple falsification of this noncooperative theory is scientific publication: It is a rather competitive game, yet collaboration is widespread. In this paper, I propose a novel way to rationally play games of conflict and cooperation under the Principle of Free Will - players are free to cooperate to coordinate their actions or act independently. Anyone with a basic game theory background will be familiar with the setup in this paper, which is based on simple game trees. In fact, one hardly needs any mathematics to follow the arguments.
    Date: 2018–08
  2. By: Christoph Engel (Max Planck Institute for Research on Collective Goods)
    Abstract: Behavioral law and economics applies the conceptual tools of behavioral economics to the analysis of legal problems and legal intervention. These models, and the experiments to test them, assume an institution free state of nature. In modern societies, the law’s subjects never see this state of nature. However a rich arrangement of informal and formal institutions creates generalized trust. If individuals are sufficiently confident that nothing too bad will happen, they are freed up to interact with strangers as if they were in a state of nature. This willingness dramatically reduces transaction cost and enables division of labor. If generalized trust can be assumed, simple economic models are appropriate. But they must be behavioral, since otherwise individuals would not want to run the risk of interaction.
    Date: 2018–01
  3. By: Hitoshi Matsushima (Faculty of Economics, University of Tokyo)
    Abstract: This study investigates a timing game with irrational types; each player selects a time in a fixed time interval, and the player who selects the earliest time wins the game. We assume the possibility of irrational types in that each player is irrational with a positive probability, thus selecting the terminal time. We show that there exists the unique Nash equilibrium; according to it, every player never selects the initial time. As an application, we analyze a strategic aspect of leverage-driven bubbles; even if a company is unproductive, its stock price grows up according to an exogenous reinforcement pattern. During the bubble, this company is willing to raise huge funds by issuing new shares. We regard players as arbitrageurs, who decide whether to ride the bubble or burst it. We demonstrate two models, which are distinguished by whether crash-contingent claim, i.e., contractual agreement such that the purchaser of this claim receives a promised monetary amount from its seller if and only if the bubble crashes, is available. The availability of this claim deters the bubble; without crash-contingent claim, the bubble emerges and persists even if the degree of reinforcement is insufficient. Without crash-contingent claim, high leverage ratio fosters the bubble, while with crash-contingent claim, it rather deters the bubble.
    Date: 2018–06
  4. By: Weinem, Michael
    Abstract: Pascal's wager game showed that the atheistic view is always inferior compared to the theistic. The reason is that an infinitely high reward for the theist is always opposed to a finite payoff for the atheist, given that the existence of God cannot be excluded. However, an atheist can also obtain the infinite reward just by choosing strategy "believe", i.e. by pretending faith, but without really believing. As God may be demanding and grants the reward only those in firm faith, the inspection of faith by God is needed, which is included in the present analysis, i.e. God tests the faith. In addition, the infinitely high reward is removed from the payoffs, i.e. the believer goes out empty, and is even charged cost of faith. It shows that believing in God and worshipping is still the best option regardless, even if we believe that praying is in vain and has absolutely no value. The analysis also shows that the faith should even be so strong that we give our entire life to God and retain nothing for us since this is not only the safe rescue, but the rationally optimal choice of the extent of worship, and thus the unique salvation. Finally, all common criticisms to the wager game have been reinvestigated in detail; logic and mathematical analysis showed that they fail against the consideration of eternal punishment.
    Keywords: Theism, atheism, proof, faith, God, prayer, decision theory
    JEL: C00
    Date: 2018–04–12
  5. By: Gauti Eggertsson (Brown University); Jacob Robbins (Brown University)
    Abstract: The macroeconomic data of the last thirty years has overturned at least two of Kaldor's famous stylized growth facts: constant interest rates, and a constant labor share. At the same time, the research of Piketty and others has introduced several new and surprising facts: an increase in the financial wealth-to-output ratio in the US, an increase in measured Tobin's Q, and a divergence between the marginal and the average return on capital. In this paper, we argue that these trends can be explained by an increase in market power and pure profits in the US economy, i.e., the emergence of a non-zero-rent economy, along with forces that have led to a persistent long term decline in real interest rates. We make three parsimonious modifications to the standard neoclassical model to explain these trends. Using recent estimates of the increase in markups and the decrease in real interest rates, we show that our model can quantitatively match these new macroeconomic facts.
    Date: 2018
  6. By: Ohnishi, Kazuhiro
    Abstract: Which choice will a player make if he can make one of two choices in which his own payoffs are equal, but his rival’s payoffs are not equal, i.e. one with a large payoff for his rival and the other with a small payoff for his rival? This paper introduces non-altruistic equilibria for normal form games and extensive form non-altruistic equilibria for extensive form games as equilibrium concepts of noncooperative games by discussing such a problem and examines the connections between their equilibrium concepts and Nash and subgame perfect equilibria that are important and frequently encountered equilibrium concepts.
    Keywords: Normal form game, extensive form game, non-altruistic equilibrium.
    JEL: C72
    Date: 2018–08–01
  7. By: Paul Beaudry; Tim Willems
    Abstract: Is over-optimism about a country's future growth perspective good for an economy, or does over-optimism also come with costs? In this paper we document that recessions, fiscal problems, as well as Balance of Payment-difficulties are more likely to arise in countries where past growth expectations have been overly optimistic. We arrive at this conclusion by looking at the medium-run effects of instances of over-optimism or caution in IMF forecasts. To isolate the causal effect of over-optimism we take an instrumental variables approach, where we exploit variation provided by the pseudo-random allocation of IMF Mission Chiefs across countries. As a necessary first step, we document that IMF Mission Chiefs tend to systematically differ in their individual degrees of forecast-optimism or caution. The mechanism that transforms over-optimism into a later recession seems to run through higher debt accumulation, both public and private. Our findings illustrate the potency of unjustified optimism and underline the importance of basing economic forecasts upon realistic medium-term prospects.
    JEL: E17 E32
    Date: 2018–06
  8. By: Eric Millard (CTAD - Centre de Théorie et Analyse du Droit - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique); Luana Heinen (UFSC - Universidade Federal de Santa Catarina [Florianópolis])
    Abstract: From a critical empiricist perspective, situated in the field of General Theory of Law, the research seeks to understand what are the contributions of the Economic Analysis of Law (EAL) for the Science of Law. The paper is divided into four parts: the first presents a sympathy to the EAL for its oncoming to the empiricist approach; in the second, the author opposes the EAL's conception of science, since it is not intended to describe, but to prescribe; in the third part, the author questions the validity of the reconstruction proposed by the EAL, which aims to replace legal dogmatics by economic criteria to guide the judicial decision, thus indicating its ideological and non-scientific character; in the fourth and last part, there is a possible use of the EAL, but it goes beyond it - to understand how the economic discourse has become effective in the production of law.
    Abstract: A partir de uma perspectiva empirista crítica, situada no terreno da Teoria Geral do Direito, procura-se compreender qual são as contribuições da Análise Econômica do Direito (AED) para a Ciência do Direi-to. O texto está dividido em quatro partes: na primeira apresenta-se uma simpatia à AED por sua aproxima-ção com a abordagem empirista; na segunda, faz-se oposição à concepção de ciência da AED, tendo em vista que ela não visa descrever, mas prescrever; na terceira parte, questiona-se a validade da reconstrução proposta pela AED que visa substituir a dogmática jurídica por meio de critérios econômicos para orien-tarem a decisão judicial, aponta-se, assim, seu caráter ideológico e não científico; na quarta e última parte, apresenta-se um uso possível da AED, mas que a ultrapassa – compreender como o discurso econômico se tornou eficaz na produção do direito.
    Keywords: Economic Analysis of Law,Science,Economic Criteria,Análise Econômica do Direito,Ciência,Critêrios Econômicos
    Date: 2018
  9. By: Takaaki Abe (JSPS Research Fellow. Graduate School of Economics, Waseda University.); Yukihiko Funaki (School of Political Science and Economics, Waseda University.)
    Abstract: In this paper, we introduce a new concept of core by extending the de nition of deviation. The traditional de nition of deviation allows for players to deviate if some pro table allocation exists after their deviation, while our new de nition requires that all possible allocations are pro table. Hence, our core becomes a superset of the traditional core. We examine some properties that our new core satis es and provide a sufficient condition for being nonempty. Moreover, we apply Ray's (1989) credibility to our core.
    Keywords: cooperative game, core, credibility, deviation
    JEL: C71
    Date: 2018–07
  10. By: Ewan McGaughey; Centre for Business Research
    Abstract: The language of "human resource management" treats people as a means to an end. Three core tenets of human resource literature are that it is desirable to have (1) labour "flexibility" and "mobility" in a peripheral workforce, (2) individual (not social) responsibility for employment searching, and (3) a manager’s right to manage, without collective accountability. This article explores the cutting edge evidence, which show human resource theory harms productivity and human development. It explores the effects of "HR" in the UK, EU and international regulation on atypical work, full employment, and union voice. Where human resource beliefs have pervaded the most, the outcomes are the worst: lower productivity, higher unemployment, more inequality, less growth. To advance prosperity, economic risks must be distributed to the organisations best placed to bear them, people must have security to plan for the future, and people must have real votes at work through collective bargaining and corporate governance. Many people who themselves work in "HR" strongly disagree with the essential elements of their discipline. They support equality, security and democracy at work. Just as international law once affirmed that "labour is not a commodity", for social justice in the 21st century there must be a conviction that a human is not a resource. "HR" must change in name and substance, to advance human development and human rights.
    Keywords: Human Resource Management, Labour Is Not a Commodity, Social Justice, Job Security, Full Employment, Trade Unions, Votes at Work, Productivity, Human Rights
    JEL: J01 K31 L21 L22 L52 P1 P16 F16
    Date: 2018–03
  11. By: Giovanni Dosi; Marco Faillo; Luigi Marengo
    Abstract: This work challenges the very notion of bounded rationality as dangerously too near to some "unbounded rationality" used as a benchmark. Should we assume that there is an "unbounded" rationality as a benchmark? Should one start, in order to describe and interpret human behaviour, from a model which assumes that we, human beings, have complete and well-defined knowledge of our preferences, all possible states of the world, all possible actions (our "technologies"), the mappings among them, and then look for possible "bounds" and "biases"? Our answer is negative. Rather, the question should be: how do human agents and organizations thereof actually behave in complex and changing environments? Answering this question, we suggest, entails also a significant departure from what is now accepted as behavioural economics, often meant as the analysis of more or less significant deviations from the "Olympic rationality". On the contrary, we suggest, human beings and human organizations behave quite distinctively from the prescriptive model derived from the axioms of rationality.
    Keywords: bounded rationality, heuristics, cognition, memory
    Date: 2018–08–26
  12. By: Dario Madeo; Chiara Mocenni
    Abstract: Cooperative behavior in real social dilemmas is often perceived as a phenomenon emerging from norms and punishment. To overcome this paradigm, we highlight the interplay between the influence of social networks on individuals, and the activation of spontaneous self-regulating mechanisms, which may lead them to behave cooperatively, while interacting with others and taking conflicting decisions over time. By extending Evolutionary game theory over networks, we prove that cooperation partially or fully emerges whether self-regulating mechanisms are sufficiently stronger than social pressure. Interestingly, even few cooperative individuals act as catalyzing agents for the cooperation of others, thus activating a recruiting mechanism, eventually driving the whole population to cooperate.
    Date: 2018–07
  13. By: Charlotte Le Chapelain (CLHDPP, BETA, Université Lyon 3); Sylvère Matéos (TRIANGLE, Université Lyon 2)
    Date: 2018
  14. By: Gerhard Schnyder; Mathias Siems; Ruth Aguilera; Centre for Business Research
    Abstract: The Law and Finance School (LFS) has become an important stream of re-search in management and socio-economic studies. This paper provides the first comprehensive discussion of the first 20 years of LFS literature. Draw-ing on legal theory, we show that, despite the centrality of law to the LFS, the LFS is based on a surprisingly 'thin' theory of law. It does not provide a coherent definition of what primary function law plays in the economy, what criterion makes law 'valid' law, and what mechanism links law to ac-tors' behaviours. Therefore, contrary to existing criticisms of the LFS, we argue that the main issue is not that the LFS overstates the importance of law, but rather that it does not take law seriously enough. We propose ways in which future research could develop a more solid conceptual framework to empirically investigate the impact of law on economic and social outcomes.
    Keywords: law, regulation, corporate governance, theory
    JEL: K0 L5 O1
    Date: 2018–03
  15. By: Lesmeister, Simon; Limbach, Peter; Goergen, Marc
    Abstract: We test the hypothesis that a specific aspect of culture - trust in others - affects shareholder voting behavior as it lowers investors' concerns of being expropriated. We find consistent evidence that the percentage of votes cast at shareholder meetings is lower in high-trust countries while the percentage of votes in support of management is higher. Shocks to trust and IV regressions support this result. We also find that shareholder voting is more valuable in low-trust countries, as reflected by a more positive effect on future firm performance, which suggests that managers exploit low levels of monitoring less when trust is high.
    Keywords: Culture,Monitoring,Shareholder expropriation,Shareholder voting,Trust
    JEL: G3 G19 G32
    Date: 2018

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