nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2019‒02‒18
sixteen papers chosen by
Erik Thomson
University of Manitoba

  1. "Economic Planning under Capitalism: The New Deal and Postwar France Experiments" By Fernando J. Cardim de Carvalho
  2. The relation between degrees of belief and binary beliefs: A general impossibility theorem By Franz Dietrich; Christian List
  3. Nature humaine et choix rationnel : Pareto contre Walras ? By Richard Arena; Ludovic Ragni
  4. The Economics of Parenting By Matthias Doepke; Giuseppe Sorrenti; Fabrizio Zilibotti
  5. Tom Hertel’s influence and its lessons about academic inquiry By Hillberry, Russell; Hummels, David
  6. Intuitive Mathematical Economics Series. Constrained Maximization and the Method of Lagrange Multipliers By Sergio A. Pernice
  7. Contemporary Criticism of Corporate Behaviour By Rosca, Paula-Carmen
  8. Are we more honest than others think we are? By Claire Mouminoux; Jean-Louis Rullière
  9. Economic Arbitrage and the Econophysics of Income Inequality By Anwar Shaikh; Juan Esteban Jacobo
  10. Ten Years after the Financial Crisis: What Have We Learned from the Renaissance in Fiscal Research? By Valerie A. Ramey
  11. Defining institutions - A review and a synthesis By Claudius Graebner; Amineh Ghorbani
  12. Interview with Charles Goodhart By Lindé, Jesper; Goodhart, C. A. E.
  13. The year 1819 epitomizing the issues and challenges of modernity after the Revolution and Empire By Hubert Bonin
  14. Who Said or What Said? Estimating Ideological Bias in Views Among Economists By Javdani, Moshen; Chang, Ha-Joon
  15. Equity finance: matching liability to power By Goodhart, C. A. E.; Lastra, Rosa M.
  16. Karl Brunner and U.K. Monetary Debate By Edward Nelson

  1. By: Fernando J. Cardim de Carvalho
    Abstract: By the beginning of the 20th century, the possibility and efficacy of economic planning was believed to have been proven by totalitarian experiments in Germany, the Soviet Union, and, to a lesser degree, Fascist Italy; however, the possibilities and limitations of planning in capitalist democracies was unclear. The challenge in the United States in the 1930s and in postwar France was to find ways to make planning work under capitalism and democratic conditions, where private agents were free to not accept its directives. This paper begins by examining the experience with planning during the first years of the New Deal in the United States, centered on the creation and operation of the National Recovery Administration (NRA) and the Agricultural Adjustment Administration (AAA), and continues with a discussion of the French experience with indicative planning in the aftermath of World War II. A digression follows, touching on the proximity between the matters treated in this paper and Keynes's view that macroeconomic stabilization could require a measure of socialization of investments, following James Tobin's hunch that French indicative planning, as well as some social democrat experiences in Northern Europe, could be playing precisely that role. The paper concludes by identifying the lessons one can draw from the two experiences.
    Keywords: New Deal; National Recovery Act (NRA); National Industrial Recovery Act (NIRA); Economic Planning; Economic Cooperation
    JEL: E02 E65 N12 N32 O21
    Date: 2019–02
  2. By: Franz Dietrich (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Christian List (LSE - London School of Economics and Political Science)
    Abstract: Agents are often assumed to have degrees of belief ("credences") and also binary beliefs ("beliefs simpliciter"). How are these related to each other? A much-discussed answer asserts that it is rational to believe a proposition if and only if one has a high enough degree of belief in it. But this answer runs into the "lottery paradox": the set of believed propositions may violate the key rationality conditions of consistency and deductive closure. In earlier work, we showed that this problem generalizes: there exists no local function from degrees of belief to binary beliefs that satisfies some minimal conditions of rationality and non-triviality. "Locality" means that the binary belief in each proposition depends only on the degree of belief in that proposition, not on the degrees of belief in others. One might think that the impossibility can be avoided by dropping the assumption that binary beliefs are a function of degrees of belief. We prove that, even if we drop the "functionality" restriction, there still exists no local relation between degrees of belief and binary beliefs that satisfies some minimal conditions. Thus functionality is not the source of the impossibility; its source is the condition of locality. If there is any non-trivial relation between degrees of belief and binary beliefs at all, it must be a "holistic" one. We explore several concrete forms this "holistic" relation could take.
    Abstract: Il est souvent supposé que des acteurs ont à la fois des degrés de croyance (des « probabilités subjectives ») et des croyances binaires (« croyances » simplement). Comment sont-ils reliés ? Une réponse discutée est qu'il faut croire une proposition si et seulement si l'on a une probabilité subjective suffisamment haute en cette proposition. Mais cette réponse amène au paradoxe de loterie ("lottery paradox") : l'ensemble des propositions crues peut violer deux conditions de rationalité centrales, la cohérence et la clôture déductive. Dans un travail antérieur nous avions généralisé ce paradoxe : il n'existe aucune fonction de binarisation des croyances qui soit "locale" et satisfait des conditions de rationalité et de non trivialité. On aurait pu croire que cette impossibilité puisse être évitée en enlevant la restriction que les croyances binaires sont une fonction des probabilités subjectives. Dans ce papier nous généralisons l'impossibilité en supprimant la restriction de fonctionnalité, c'est-à-dire en partant non pas d'une fonction de binarisation mais d'une relation quelconque entre les deux types de croyances. Ceci montre que la fonctionnalité n'est pas le source du paradoxe de loterie. La seule source en est la « localité ». Nous explorons une série de relations non locales (holistes) entre les deux types de croyances.
    Keywords: binary beliefs (yes/no),subjective probabilities,construction of binary beliefs from subjective probabilities,impossibility theorem,croyances binaires (oui/non),probabilités subjectives,construction de croyances binaires à partir des probabilités subjectives,théorème d'impossibilité
    Date: 2019–01
  3. By: Richard Arena (Université Côte d'Azur, France; GREDEG CNRS); Ludovic Ragni (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: The article shows that there is a profound contrast between the concepts of economics that Walras and Pareto support. This contrast is based on the way each author views human nature and, from this the pricing mechanisms and forms of rationality they assign to the agents. We show that Walras’ approach to human nature structures the connection he proposes between pure, applied and social economics while Pareto’s leads him to methodologically separate his pure economics from his sociology. According to Walras the starting point of the study of economics is not market exchange between rational individuals as many authors propose, but a specific conception of human nature that promotes a synthesis between pure and social economies. However, we show that Pareto separates pure economics and sociology by means of specific representations of real man and homo œconomicus. These differences imply that Walras and Pareto’s works no longer be related in the same way to the Lausanne School.
    Keywords: Walras, Pareto, Lausanne School, Human Nature, Sociology, Rationality
    Date: 2019–02
  4. By: Matthias Doepke; Giuseppe Sorrenti; Fabrizio Zilibotti
    Abstract: Parenting decisions are among the most consequential choices people make throughout their lives. Starting with the work of pioneers such as Gary Becker, economists have used the toolset of their discipline to understand what parents do and how parents' actions affect their children. In recent years, the literature on parenting within economics has increasingly leveraged findings and concepts from related disciplines that also deal with parent-child interactions. For example, economists have developed models to understand the choice between various parenting styles that were first explored in the developmental psychology literature, and have estimated detailed empirical models of children's accumulation of cognitive and noncognitive skills in response to parental and other inputs. In this paper, we survey the economic literature on parenting and point out promising directions for future research.
    JEL: J13 J24 R20
    Date: 2019–02
  5. By: Hillberry, Russell; Hummels, David
    Abstract: Fields of academic inquiry differ in their preferred forms of output, in the ways in which knowledge is accumulated and stored, and so in the ways that academic influence is measured. We compare Tom Hertel’s research record to other international economists of his generation in order to illustrate the unique breadth and influence of his work, and of the GTAP project broadly. We then provide an analytical framework that helps explain the evolution of the field of international economics from a tool-use standpoint. This framework helps us to assess the academic productivity gains from creating the GTAP model and consortium. It also provides a possible answer to a significant puzzle: why is GTAP increasingly influential in the physical and biological sciences, but less so within the international economics community?
    Keywords: Teaching/Communication/Extension/Profession
    Date: 2018–11
  6. By: Sergio A. Pernice
    Abstract: A fundamental assumption in most of economic modeling is that people maximize their utility subject to a budget constraint. This, as well as many other economic problems, math- ematically translate into problems of maximization with constraints. A powerful and widely used method to tackle some of these problems is the method of Lagrange multipliers. Yet, the exposition of such method in standard textbooks is rather formal and utilitarian. In this paper we try to present it emphasising the fundamental intuitions behind the method.
    Keywords: Maximization with constraints, Lagrange multipliers.
    Date: 2018–12
  7. By: Rosca, Paula-Carmen
    Abstract: Abstract: Nowadays, corporations play an important role in the economic, social and political life. During the last century, they contributed to the economic and technological development of our world. We may say that this evolution led to a better wellbeing, which means more wealth, more speed, more options, more freedom and spare time. They have brought mankind, things without which we couldn’t imagine our existence: planes, communication means, computers, pharmaceutical products etc. But at what price? And who is going to pay it? Over the last decades, people and organizations were getting worried about the negative impact that corporations might have on their lives (and the next generations’ live) from an economic, social and environmental perspective. This paper is focused on corporate dominance and its aim is to bring into light the main critics of corporate behaviour classified according to different criteria.
    Keywords: corporations, criticism, sustainability, behaviour, negative impact
    JEL: G34 L2 M14
    Date: 2018–12–17
  8. By: Claire Mouminoux (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon); Jean-Louis Rullière (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)
    Abstract: While the laws are justified on the basis of the efficiency they provide to society, policy makers and researchers focus on the reasons why people violate the law. Crimes and violations induce directly costs. But there is another indirect costs that is generally ignored : the fact that a person can violate the law (whether it does or not) can reduce trust in one's honesty. Thus, even if the economic agent is honest and respects the law, this loss of confidence, which could be unfounded, is also a source of inefficiency. We introduce in an experiment, a normative rule of "decision" in order to elicit both honesty and beliefs about honesty from subjects in the lab. There is no direct transfer of money between both part to avoid any inequality aversion or altruism aversion. The main question remains how individuals trust in the honesty of an anonymous group. Subjects are split into two groups : those who are subject to the temptation of (unverifiable) dishonesty and those who value the dishonesty of others. We inform each participant that we cannot identify defection. We find an important heterogeneity of trust in honesty through subjects. On average, subjects A suggests that participants B are more honest than they are. Moreover, we identify distortion of effective honesty and beliefs about other honesty when the environment of players A is unfavorable.
    Keywords: Behavioral economics,Trust measurement,Honesty,Experiment
    Date: 2019–01–30
  9. By: Anwar Shaikh (Department of Economics, New School for Social Research); Juan Esteban Jacobo (Department of Economics, New School for Social Research and Departamento de Economía, Universidad Externado de Colombia)
    Abstract: Yakovenko and his co-authors have established that the bottom 97-99 percent of individual incomes (labor incomes) follow a near-exponential distribution while the top incomes (property incomes) follow a power law. Traditional econophysics explanations of these patterns rely on various monetary analogues to the physics principle of energy conservation. We turn instead to the fundamental economic principle of turbulent arbitrage, modeled as a mean-reverting drift-diffusion process, to explain the observed distributions of wages, rates of return on assets, and property income. Entropy maximization plays different roles in two approaches. In the physics approach, stationary distributions are derived from the assumption of entropy maximization. In the economics approach, the dynamic paths generated by Fokker-Planck equations give rise to stationary distributions that turn out to be also entropy maximizing.
    Keywords: Economics, arbitrage, econophysics, income distribution, classical statistical mechanics
    Date: 2019–02
  10. By: Valerie A. Ramey
    Abstract: This paper takes stock of what we have learned from the “Renaissance” in fiscal research in the ten years since the financial crisis. I first summarize the new innovations in methodology and discuss the various strengths and weaknesses of the main approaches. Reviewing the estimates, I come to the surprising conclusion that the bulk of the estimates for average spending and tax change multipliers lie in a fairly narrow range, 0.6 to 1 for spending multipliers and -2 to -3 for tax change multipliers. However, I identify economic circumstances in which multipliers lie outside those ranges. I conclude by reviewing the debate on whether multipliers were higher on the stimulus spending in the U.S. and the fiscal consolidations in Europe.
    JEL: E62
    Date: 2019–02
  11. By: Claudius Graebner (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria); Amineh Ghorbani (Delft University of Technology)
    Abstract: Despite being a key term in institutional economics, the term 'institution' seems to be used in various different ways. To what extent is this problematic, given that a shared understanding of key terms among scholars is a necessary condition for scientific progress? We review prominent definitions of the term 'institution' and identify a set of shared elements of these definitions, which can be summarized as institutions being “codifiable systems of social structures (in particular norms and rules) that lead to inclinations for people to act in specific ways†. This suggests that the shared understanding of ‘institutions’ is sufficiently concrete.
    Keywords: Definitions, institutions, epistemology
    Date: 2019–02
  12. By: Lindé, Jesper; Goodhart, C. A. E.
    JEL: N0
    Date: 2018–12–01
  13. By: Hubert Bonin
    Abstract: After the recess imposed by the intensification of Napoleonic wars and defeat in 1810-1815, the Restauration regime had to restart the leverage forces of growth. Economic and academic elites struggled to conceive the paths of renewal of innovative and entrepreneurial spirits, in order to foster French competitiveness. The philosophy of liberalism was renewed; calls for innovation, for spreading new techniques across industry, and to stimulate refreshed flows of savings and banking loans constituted a package able to renew with the hopes of the 1795-1810 years. Thus the 1819 year could be inserted into intercrossing schemes of narrative and business histories as it gathered so many signs of such a renewal and of the move towards the first industriel and banking revolutions.
    Keywords: First industrial revolution, Merchant banking, economic take-off, liberalism, philanthropy, entrepreneurialism, innovation
    JEL: N13 N23 N33 N53 N63
    Date: 2019
  14. By: Javdani, Moshen; Chang, Ha-Joon
    Abstract: There exists a long-standing debate about the influence of ideology in economics. Surprisingly, however, there is no concrete empirical evidence to examine this critical issue. Using an online randomized controlled experiment involving economists in 19 countries, we examine the effect of ideological bias on views among economists. Participants were asked to evaluate statements from prominent economists on different topics, while source attribution for each statement was randomized without participants’ knowledge. For each statement, participants either received a mainstream source, an ideologically different less-/non-mainstream source, or no source. We find that changing source attributions from mainstream to less-/non-mainstream, or removing them, significantly reduces economists’ reported agreement with statements. Using a model of Bayesian updating we examine two competing hypotheses as potential explanations for these results: unbiased Bayesian updating versus ideologically-biased Bayesian updating. While we find no evidence in support of unbiased updating, our results are consistent with biased Bayesian updating. More specifically, we find that changing/removing sources (1) has no impact on economists’ reported confidence with their evaluations; (2) similarly affects experts/non-experts in relevant areas; and (3) affects those at the far right of the political spectrum much more significantly than those at the far left. Finally, we find significant heterogeneity in our results by gender, country, PhD completion country, research area, and undergraduate major, with patterns consistent with the existence of ideological bias.
    Keywords: Ideology, ideological bias, authority bias, Bayesian updating, views among economists
    JEL: A11 A14 C93 D83
    Date: 2019–02–04
  15. By: Goodhart, C. A. E.; Lastra, Rosa M.
    Abstract: There is widespread concern that the bonus culture for senior managers in limited liability companies is having adverse effects, e.g. on risk-taking, leverage and lower longer-term investment. The moral hazard of limited liability was appreciated in the 19th century, when unlimited or multiple liability, especially for bankers, was widely adopted. Whereas outside, notably retail, investors still need the protection of limited liability, we advocate moving towards a two-tier equity system, primarily for banks, with insiders, senior managers and others with influence over corporate decisions, becoming subject to multiple liability. But the transition costs of doing so suddenly would be great, so our proposal is to start by applying this initially just to Systemically Important Financial Intermediaries.
    Keywords: banking; banks; corporate governance; institutional investors; limited liabiltiy; Senior Management Regime; Tow Tier Equity
    JEL: G30 G32 G39 K20 K22 L14 M14 N20 N22 N23 P10
    Date: 2019–01
  16. By: Edward Nelson
    Abstract: Although he was based in the United States, leading monetarist Karl Brunner participated in debates in the United Kingdom on monetary analysis and policy from the 1960s to the 1980s. During the 1960s, his participation in the debates was limited to research papers, but in the 1970s, as monetarism attracted national attention, Brunner made contributions to U.K. media discussions. In the pre-1979 period, he was highly critical of the U.K. authorities’ nonmonetary approach to the analysis and control of inflation-an approach supported by leading U.K. Keynesians. In the early 1980s, Brunner had direct interaction with Prime Minister Margaret Thatcher on issues relating to monetary control and monetary strategy. He was unsuccessful in persuading her to use the monetary base-instead of a short-term interest rate-as the instrument for implementing monetary policy. However, following his interventions, the U.K. authorities during the 1980s assigned weight to the monetary b ase as an indicator and target of monetary policy. Brunner’s imprint on U.K. monetary policy has also been felt in the twenty-first century. Brunner’s analysis, with Allan Meltzer, of the monetary transmission mechanism helped provide the basis for the policy of quantitative easing followed by the Bank of England.
    Keywords: Karl Brunner ; U.K. monetary policy ; Monetarism ; Monetary base control ; Transmission mechanism
    JEL: E51 E58 E52
    Date: 2019–02–01

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