nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2020‒01‒20
eight papers chosen by
Erik Thomson
University of Manitoba

  1. Does Marginal Productivity Mean Anything in Real Economic Life ? By Jael, Paul
  2. Michael Polanyi' Vision of Economics: Spanning Hayek and Keynes By Agnès Festré
  3. Irrational Expectations By Stout, Lynn; Library, Cornell
  4. Observing the Evolution in Macroeconomic Theory By Podshivalov, Georgii
  5. Movements, Moments, and the Eroding Antitrust Consensus By Wolfe, Michael
  6. Moral Hazard and the Property Rights Approach to the Theory of the Firm By Schmitz, Patrick W.
  7. Fundamental Utilitarianism and Intergenerational Equity with Extinction Discounting By Chichilnisky, Graciela; Hammond, Peter J.; Stern, Nicholas
  8. The growth conundrum: Paul Romer’s endogenous growth By Schilirò, Daniele

  1. By: Jael, Paul
    Abstract: The equality between factor pay and marginal product is a major component of the neoclassical paradigm. The paper begins with a brief historical review of this principle. Follows a questioning about the relevance of this law as an argument in the social debates: does marginal product represent the very contribution of the agent and if so, is it a legitimate reference for the setting of remuneration? Our answer to the first part of the question is irresolute; to the second, it is negative. But most of the article is devoted to analysing the economic realism of the said law, both empirically and theoretically. We review some statistical studies present in the literature, with particular attention for the debate regarding the regressions of Cobb and Douglas. Evidence does not strengthen the neoclassical law of retribution. The paper analyses the factors that hinder either the determinateness of marginal product or the equalisation between it and factor's remuneration. Are analysed: - the restrictions inherent in the law of marginal productivity: constant returns to scale and perfect competition - an alternative explanation of interest: the Austrian theory - incentive wage theories: efficiency wage and tournament theory. The article then considers the particular case of the CEO's remuneration.
    Keywords: marginal productivity; income distribution; wage; interest; profit; production function
    JEL: B21 D33
    Date: 2019–02–18
  2. By: Agnès Festré (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: This paper analyses Michael Polanyi’s vision of economics. We stress two major features: first, the radical opposition to central planning and his defence of self-organization as a superior mechanism for coordinating individual plans that he shared with Hayek; second, the strong support for state interventionism in order to fight unemployment and limit income inequalities that he borrowed from Keynes. Polanyi blended these two apparently contradictory influences and provided an original institutionalist approach, which has unfortunately been underrated in the economics literature. We argue that this approach is consistent with Polanyi’s intellectual background and more specifically, his view on tacit knowledge and his critical approach of liberalism.
    Keywords: Michael Polanyi, Hayek, Keynes, spontaneous order, State intervention, liberalism, tacit knowledge, public liberty
    JEL: B25 B31 B41
    Date: 2019–12
  3. By: Stout, Lynn; Library, Cornell
    Abstract: 3 Legal Theory 227 (1997) Rational expectations models have become a staple of economic theory and the basis for a Nobel Prize. This article argues that rational expectations analysis suffers from potentially fatal flaws that seriously undermine its value in understanding many market phenomena. Using the example of financial markets, the article illustrates how the rational expectations approach has worked to obscure, rather than to illuminate, our understanding of speculation and speculative markets. This misguidance raises problems for law and policy.
    Date: 2018–06–25
  4. By: Podshivalov, Georgii
    Abstract: The principal purpose of the given work is to summarize certain observations on the evolution of thought in macroeconomic theory with the original (rather than conventional) notation where appropriate. The observations are organized by topic and supplied with respective references.
    Keywords: Economic Though, Economic History, Macroeconomic Models, Models Derivation, Notation, Expectations, Growth, Consumption, Unemployment, Inflation, Random Walk Hypothesis, Money, Natural Rate
    JEL: B20 E12 E19 E21 E24 E31 E43 E49 E52
    Date: 2019–11–30
  5. By: Wolfe, Michael (Duke University School of Law)
    Abstract: Timothy Wu’s book, The Curse of Bigness, offers a brief history on and critical perspective of antitrust law's development over the last century, calling for a return to a Brandeisian approach to the law. In this review-essay, I use Wu's text as a starting point to explore antitrust law’s current political moment. Tracing the dynamics at play in this debate and Wu’s role in it, I note areas underexplored in Wu’s text regarding the interplay of antitrust law with other forms of industrial regulation, highlighting in particular current difficulties in copyright law as one of the underlying tensions driving popular discontent with the major technology firms or “tech trusts.” I consider the continuing influence of Robert Bork’s The Antitrust Paradox, now more than forty years old, and how the current reform movement might execute a shift as lasting and substantial as the one Bork spearheaded with his book.
    Date: 2019–07–11
  6. By: Schmitz, Patrick W.
    Abstract: In the Grossman-Hart-Moore property rights theory, there are no frictions ex post (i.e., after non-contractible investments have been sunk). In contrast, in transaction cost economics ex-post frictions play a central role. In this note, we bring the property rights theory closer to transaction cost economics by allowing for ex-post moral hazard. As a consequence, central conclusions of the Grossman-Hart-Moore theory may be overturned. In particular, even though only party A has to make an investment decision, B-ownership can yield higher investment incentives. Moreover, ownership matters even when investments are fully relationship-specific (i.e., when they have no impact on the parties' disagreement payoffs).
    Keywords: incomplete contracts; ownership rights; investment incentives; relationship specificity; moral hazard
    JEL: D23 D86
    Date: 2020
  7. By: Chichilnisky, Graciela (Columbia University); Hammond, Peter J. (University of Warwick); Stern, Nicholas (London School of Economics)
    Abstract: Ramsey famously condemned discounting “future enjoyments” as “ethically indefensible”. Suppes enunciated an equity criterion which, when social choice is utilitarian, implies giving equal weight to all individuals’ utilities. By contrast, Arrow (1999a, b) accepted, perhaps reluctantly, what he called Koopmans’ (1960) “strong argument” implying that no equitable preference ordering exists for a sufficiently unrestricted domain of infinite utility streams. Here we derive an equitable utilitarian objective for a finite population based on a version of the Vickrey–Harsanyi original position, where there is an equal probability of becoming each person. For a potentially infinite population facing an exogenous stochastic process of extinction, an equitable extinction biased original position requires equal conditional probabilities, given that the individual’s generation survives the extinction process. Such a position is well-defined if and only if survival probabilities decline fast enough for the expected total number of individuals who can ever live to be finite. Then, provided that each individual’s utility is bounded both above and below, maximizing expected “extinction discounted” total utility — as advocated, inter alia, by the Stern Review on climate change — provides a coherent and dynamically consistent equitable objective, even when the population size of each generation can be chosen.
    Keywords: Discounting, time perspective, fundamental preferences, fundamental utilitarianism, consequentialization, Vickrey–Harsanyi original position, Suppes equity, intergenerational equity, sustainable preferences, extinction discounting JEL Classification: D63, D70, D90, Q54, Q56
    Date: 2020
  8. By: Schilirò, Daniele
    Abstract: The explanation and causes of economic growth, the problem of convergence of per capita income among different economies, the low productivity growth in many advanced economies, and the presence of disrupting technological innovations remain at th e center of the debate among economists. The present contribution analyzes the endogenous growth theory of Paul Romer and discusses its features and content through Romer’s main works on the topic. This study on Romer’s work highlights the existence and im portance of increasing returns in the process of growth, the key role of knowledge, the ideas as non rival goods, the existence of externalities, the endogeneity of technological change, and the primary role of human capital, especially in research activity. Institutions, such as property rights are important as well. The state also has a decisive role in education and the research sector. Another relevant aspect is that economic growth and technological change are closely interconnected; they cannot be separated. Romer’s theory of endogenous technological change ties the development of new ideas and economic growth to the number of people working in the knowledge sector. New ideas, being non rival and partially excludable, are fundamental for growth since they make everyone producing physical goods and services more productive. Finally, Romer’s endogenous growth highlights the factors that provide incentives for knowledge creation; thus, his theory can also be considered a significant contribution to the theory of the knowledge-based economy.
    Keywords: endogenous growth; technical change; human capital; knowledge accumulation; externalities; property rights
    JEL: D62 I20 J24 O30 O40
    Date: 2019–05

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