nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2020‒01‒27
nineteen papers chosen by
Erik Thomson
University of Manitoba

  1. Antipathy for Heidelberg, sympathy for Freiburg? Vincent Ostrom on Max Weber, Walter Eucken, and the compound history of order By Kolev, Stefan
  2. Veblen's Evolutionary Methodology and Its Implications for Heterodox Economics in the Calculable Future By Jo, Tae-Hee
  3. The Doors of Perception By Gary Charness; Alessandro Sontuoso
  4. Trust, Trustworthiness, and the Behavioral Foundations of Corporate Law By Blair, Margaret M; Stout, Lynn; Library, Cornell
  5. Expected Value Under Normative Uncertainty By Franz Dietrich; Brian Jabarian
  6. Textbooks in the Historiography of Recent Economics By Giraud, Yann
  7. The Trouble with Human Capital Theory By Fix, Blair
  8. The relation between degrees of belief and binary beliefs: A general impossibility theorem By Franz Dietrich; Christian List
  9. The new spirit of neoliberalism: equality and economic prosperity By Hélène Périvier; Réjane Sénac
  10. New Thinking on "Shareholder Primacy" By Stout, Lynn; Library, Cornell
  11. Should the Law Do Anything about Economic Inequality By Dimick, Matthew; Library, Cornell
  12. Fundamental Utilitarianism and Intergenerational Equity with Extinction Discounting By Chichilnisky, Graciela; Hammond, Peter J.; Stern, Nicholas
  13. The Legacy of Industrial Pluralism: The Tension Between Individual Employment Rights and the New Deal Collective Bargaining System By Stone, Katherine V.W.; Library, Cornell
  14. Social Epistemology By Franz Dietrich; Kai Spiekermann
  15. Categorizing and Ranking Graphs in the American Economic Review Over the Last Century By Schwabish, Jonathan
  16. The Rational Group By Franz Dietrich
  17. Contested Visions: The Value of Systems Theory for Corporate Law By Belinfanti, Tamara; Stout, Lynn; Library, Cornell
  18. Getting to the Core of Culture By John C. Williams
  19. Enfranchising Foreigners: What Drives Natives’ Willingness to Share Power? By Anna Maria Koukal; Reiner Eichenberger; Patricia Schafera

  1. By: Kolev, Stefan
    Abstract: Vincent Ostrom's legacy is revisited in this paper along three dimensions: Ostrom's contributions as a historian of politico-economic thought, as a complexity theorist, and as an epistemologist. All three dimensions are captured from a perspective which has seldom been studied systematically before: The paper reconstructs Ostrom as a reader and interpreter of German politico-economic thought, especially of Max Weber's theory of bureaucracy and of Walter Eucken's theory of social and epistemic orders. The systems of these two German social scientists embody for Ostrom the two types of social order central to his own typology. The paper incorporates archival sources from the Elinor and Vincent Ostrom Papers, including unpublished papers and correspondence with German social scientists he met during the Ostroms' 1981/1982 stay at Bielefeld University's Center for Interdisciplinary Research (ZiF). Overall, this narrative focuses on what Ostrom called in his reception of the Freiburg School "Eucken's challenge": A set of inquiries about the relevance of political economy for the study of polycentric orders.
    Keywords: Bloomington School,Freiburg School,political theory,history of economics,economic sociology,polycentricity,epistemology
    JEL: A12 B25 B41 D73 H11 H41 Z13
    Date: 2019
  2. By: Jo, Tae-Hee
    Abstract: Critics have repeatedly claimed that heterodox economics has failed in that it has limited acceptance by the mainstream of the economics profession and little influence on other approaches and policies. They blame heterodox economists for their own failure. I subject this claim to critical examination from the perspective of Veblen’s evolutionary methodology. Veblen’s theory of the business enterprise will be used as an example, which exemplifies the case that a ‘blasphemous’ theory is ignored and marginalized even though it provides rich insights into economy and society. Heterodox economics has shown a similar path. It is also argued that social science does not follow the biological principle of natural selection. What survives does not necessarily mean the fittest in the social realm. The history of science is replete with paradoxical incidents that an incoherent, irrelevant, or even wrong theory becomes dominant and widely accepted because it is one that serves the vested interests in academia and society. Economics is no exception.
    Keywords: Thorstein Veblen, Evolution, Business Enterprise, Heterodox Economics
    JEL: B15 B25 B50 D21
    Date: 2019–12–18
  3. By: Gary Charness (Department of Economics, University of California, Santa Barbara); Alessandro Sontuoso (Smith Institute for Political Economy and Philosophy, Chapman University; Philosophy, Politics and Economics, University of Pennsylvania)
    Abstract: We investigate how a player’s strategic behavior is affected by the set of notions she uses in thinking about the game, i.e., the “frame”. To do so, we consider matching games where two players are presented with a set of objects, from which each player must privately choose one (with the goal of matching the counterpart’s choice). We propose a novel theory positing that different player types are aware of different attributes of the strategy options, hence different frames; we then rationalize why differences in players’ frames may lead to differences in choice behavior. Unlike previous theories of framing, our model features an epistemic structure allowing for the case in which an individual learns new frames, given some initial unawareness (of the fact that her perception of attributes may be incomplete). To test our model, we introduce an experimental design in which we bring about different frames by manipulating subjects’ awareness of various attributes. The experimental results provide strong support for our theory.
    Keywords: Frames; Unawareness; Focal Points; Coordination Games
    JEL: C72 C91
    Date: 2019
  4. By: Blair, Margaret M; Stout, Lynn; Library, Cornell
    Abstract: 149 University of Pennsylvania Law Review 1735 (2001) Conventional legal and economic analysis assumes that opportunistic behavior is discouraged and that cooperation is encouraged within firms primarily through the use of legal and market incentives. This presumption is embedded in the modern view that the corporation is best described as a "nexus of contracts, " a collection of explicit and implicit agreements voluntarily negotiated among the rationally selfish parties who join in the corporate enterprise. In this Article we take a different approach. We start from the observation that, in many circumstances, legal and market sanctions provide, at best, imperfect means of regulating behavior within the firm. We consider an alternate hypothesis: that corporate participants often cooperate with each other not because of external constraints but because of internal ones. In particular, we argue that the behavioral phenomena of internalized trust and trustworthiness play important roles in encouraging cooperation within films. In support of this claim, we survey the extensive experimental evidence that has been produced over the past four decades on human behavior in "social dilemmas." This evidence demonstrates that internalized trust is a common phenomenon, that it is at least in part learned rather than innate, and that different individuals vary in their inclinations toward trust. Most importantly, the experimental evidence indicates that decisions whether or not to trust others are in large part determined by social context rather than external payoffs. By altering social con text-subjects' perceptions of others' beliefs, expectations, likely actions, and relationships to themselves-experimenters can reliably produce in subjects in social dilemmas everything from nearly universal trust to an almost complete absence of trust. In other words, most people behave as if they have two personalities or preference functions. One is competitive and self-regarding. The other is cooperative and other-regarding. Social framing is key in triggering when the cooperative personality emerges. These behavioral findings carry important implications for corporate law. For example, in this Article we demonstrate first that the phenomenon of trust offers insight into the substantive structure of corporate law and particularly into the nature and purpose of that elusive legal concept, fiduciary duty. Second, the experimental evidence on trust sheds light on how corporate law works, by suggesting that judicial opinions in corporate cases influence corporate office' and directors' behavior not only by altering their external incentives but also by changing their internalized preferences. This possibility helps explain the notoriously puzzling relationship between the duty of care and the business judgment rule. Third, trust highlights the limits of law by explaining how cooperative patterns of behavior can sometimes develop within firms even when external incentives, such as legal sanctions, are unavailable or ineffective. In the process, it underscores the dangers of the contractarian approach by suggesting that an excessive emphasis on external sanctions - including formal contract and even the rhetoric of contract - may be not only ineffective but counterproductive, serving to undermine trust and trustworthiness within the firm.
    Date: 2018–04–15
  5. By: Franz Dietrich (CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Brian Jabarian (UP1 UFR10 - Université Panthéon-Sorbonne - UFR Philosophie - UP1 - Université Panthéon-Sorbonne)
    Abstract: Maximising expected value is the classic doctrine in choice theory under empirical uncertainty, and a prominent proposal in the emerging philosophical literature on normative uncertainty, i.e., uncertainty about the standard of evaluation. But how should Expectationalism be stated in general, when we can face both uncertainties simultaneously , as is common in life? Surprisingly, different possibilities arise, ranging from Ex-Ante to Ex-Post Expectationalism, with several hybrid versions. The difference lies in the perspective from which expectations are taken, or equivalently the amount of uncertainty packed into the prospect evaluated. Expectationalism thus faces the classic dilemma between ex-ante and ex-post approaches, familiar elsewhere in ethics and aggregation theory under uncertainty. We analyse the spectrum of expectational theories, showing that they reach diverging evaluations, use different modes of reasoning, take different attitudes to normative risk as well as empirical risk, but converge under an interesting (necessary and sufficient) condition.
    Date: 2020–01–08
  6. By: Giraud, Yann (Université de Cergy-Pontoise)
    Abstract: Textbooks are both neglected and at times overused as objects in the history of economics. They are neglected because most historians, borrowing from Kuhn, tend to regard them as passive receptacles of past knowledge, yet they are also overused as shortcuts to study the state of economic doctrine at a certain point in time. Looking at the existing historical literature that studies or uses textbooks, this chapter shows how a better understanding of the specific pedagogical and institutional environments in which textbooks operate can help build thicker and more accurate histories of the role they have played, not just in disseminating, but also in creating and transforming economic knowledge.
    Date: 2018–02–26
  7. By: Fix, Blair (York University)
    Abstract: Human capital theory is the dominant approach for understanding personal income distribution. According to this theory, individual income is the result of ‘human capital’. The idea is that human capital makes people more productive, which leads to higher income. But is this really the case? This paper takes a critical look at human capital theory and its explanation of personal income distribution. I find that human capital theory’s claims are dubious at best. In most cases, the theory is either not supported by evidence, is so vague that it is untestable, or is based on circular reasoning. In short, human capital theory is a barrier to the scientific study of income distribution.
    Date: 2018–08–15
  8. By: Franz Dietrich (CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); 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.
    Date: 2020–01–08
  9. By: Hélène Périvier (OFCE - Observatoire Français des Conjonctures économiques - Institut d'Études Politiques [IEP] - Paris - Fondation Nationale des Sciences Politiques [FNSP]); Réjane Sénac (CEVIPOF - Centre de recherches politiques de Sciences Po - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The 21st century began with a global crisis that is both economic and political in nature. In this context, an approach based on demonstrating how equality policies and the struggle against various types of discriminations are ‘performing' has emerged. The approach is designed to show that priority must be given to implementation of the principle of equality, with ‘performance' measured in terms of a cost-benefit analysis from an economic and social perspective. We analyze public justification of contemporary policies on gender equality and the fight against discrimination to highlight the consequences of this approach. We look at the role of equality in market regulation in order to shed light on the complex links between economic development and social progress. We show that justifications of equality policies draw on a cost-benefit analysis which legitimates them in the name of the economic and social benefits expected. We conclude that the foundations of equality and social justice are weakened by the importance accorded to the supposed or imagined benefits of equality policies and anti-discrimination. Equality thus submitted to a demonstration of its performance is no longer a principle but rather an option dependent on such demonstration.
    Keywords: Performance,Equality policies,Discrimination,Social investment
    Date: 2018
  10. By: Stout, Lynn; Library, Cornell
    Abstract: 2 Accounting, Economics, and Law (2012) By the beginning of the twenty-first century, many observers had come to believe that U.S. corporate law should, and does, embrace a "shareholder primacy" rule that requires corporate directors to maximize shareholder wealth as measured by share price. This Essay argues that such a view is mistaken. As a positive matter, U.S. corporate law and practice does not require directors to maximize "shareholder value" but instead grants them a wide range of discretion, constrained only at the margin by market forces, to sacrifice shareholder wealth in order to benefit other constituencies and the firm itself. Although recent "reforms" designed to promote greater shareholder power have begun to limit this discretion, U.S. corporate governance remains director-centric. As a normative matter, several lines of theory have emerged in modem corporate scholarship that independently explain why director governance of public firms is desirable from shareholders' own perspective. These theories suggest that if we want to protect the interests of shareholders as a class over time-rather than the interest of a single shareholder in today's stock price-conventional shareholder primacy thinking is counterproductive. The Essay reviews five of these lines of theory and explores why each gives us reason to believe that shareholder primacy rules in public companies in fact disadvantage shareholders. It concludes that shareholder primacy thinking in its conventional form is on the brink of intellectual collapse, and will be replaced by more sophisticated and nuanced theories of corporate structure and purpose.
    Date: 2018–01–11
  11. By: Dimick, Matthew; Library, Cornell
    Abstract: Cornell Journal of Law and Public Policy: Vol. 26 : Iss. 1 , Article 1 What should be done about rising income and wealth inequality? Should the design and adoption of legal rules take into account their effects on the distribution of income and wealth? Or should the tax-and transfer system be the exclusive means to address concerns about inequality? A widely-held view argues for the latter: only the tax system, and not the legal system, should be used to redistribute income. While this proposition comes in a variety of normative arguments and has support across the political spectrum, there is also a well-known law-and economics version. This argument, known as the “double-distortion” argument, is simply stated. Legal rules that redistribute income only add to the economic distortions that are already present in the tax system. It would therefore be better for everyone, and especially the poor, to instead adopt an efficient, nonredistributive legal rule, and increase redistribution through the tax system. This Article challenges the double-distortion argument from a law and-economics perspective. There are two main arguments, in addition to several other subsidiary points. First, in the abstract, there is no reason to believe that legal rules that have redistributive effects will always reduce efficiency; indeed, they can sometimes increase efficiency. Examples from the regulation of product markets, labor markets, and financial markets underscore this claim. In these cases, legal redistribution is more efficient than redistribution through the tax system. Second, legal rules are likely to be more attractive than taxation precisely in cases where inequality itself or normative concern about inequality is high. Under the optimal tax policy, higher inequality or greater concern about inequality will justify larger tax distortions. Therefore, a particular legal rule is more likely to be more efficient than the optimal tax policy under these circumstances. The ultimate conclusion is that a mix of legal rules and taxation, rather than taxation exclusively, will be the best way to address economic inequality.
    Date: 2018–03–19
  12. By: Chichilnisky, Graciela (Columbia University); Hammond, Peter J. (University of Warwick); Stern, Nicholas (LSE)
    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: D63 D70 D90 Q54 Q56
    Date: 2019
  13. By: Stone, Katherine V.W.; Library, Cornell
    Abstract: 59 University of Chicago Law Review, (1992)
    Date: 2018–04–19
  14. By: Franz Dietrich (CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Kai Spiekermann (LSE - London School of Economics and Political Science)
    Abstract: Social epistemology studies knowledge in social contexts. Knowledge is 'social' when its holder communicates with or learns from others (Epistemology in groups), or when its holder is a group as a whole, literally or metaphorically (Epistemology of groups). Group knowledge can emerge explicitly, through aggregation procedures like voting, or implicitly, through institutions like deliberation or prediction markets. In the truth-tracking paradigm, group beliefs aim at truth, and group decisions at 'correctness', in virtue of external facts that are empirical or normative, real or constructed, universal or relativistic, etc. Procedures and institutions are evaluated by epistemic performance: Are they truth-conducive? Do groups become 'wiser' than their members? We review several procedures and institutions, discussing epistemic successes and failures. Jury theorems provide formal arguments for epistemic success. Some jury theorems misleadingly conclude that 'huge groups are infallible', an artifact of inappropriate premises. Others have defensible premises, and still conclude that groups outperform individuals, without being infallible.
    Date: 2020
  15. By: Schwabish, Jonathan
    Abstract: The American Economic Review (AER) is one of the most prestigious journals in the field of economics. First published in 1911, the journal has published articles covering every aspect and topic in the field. AER articles are not just in-depth prose; they might also include tables, diagrams, and graphs. In this paper I ask two primary questions: First, do most graphs in the AER use data or are they somc kind of diagram or illustration of a theory or concept? Second, what kinds of graphs—lines, bars, pies, etc.—do economists use to help visualize their arguments in the AER? And third, are those graphs of generally high quality? To help shed some light on those questions, I collect, catalog, and—using Amazon’s Mechanical Turk platform—rate every graph in the first volume of the AER from 1911 to 2017. I find that the share of graphs that use data fell over the first half of the century and then increased from about the early 1980s to today. I also find that economists use a lot of line charts—of the more than 2,600 graphs in total, more than 80% are line charts. Finally, I find a U-shaped curve in perceived graph quality, falling to a low in the early-1960s and rising over the past several decades, on average reaching a level only slightly higher than in the first issues. This research is the first step in understanding how economists use data visualization to communicate their work and can help provide a basis for effective strategies that will enable better communication of that work.
    Date: 2018–08–22
  16. By: Franz Dietrich (CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Can a group be a standard rational agent? This would require the group to hold aggregate preferences which maximise expected utility and change only by Bayesian updating. Group rationality is possible, but the only preference aggregation rules which support it (and are minimally Paretian and continuous) are the linear-geometric rules, which combine individual tastes linearly and individual beliefs geometrically.
    Date: 2020–01–08
  17. By: Belinfanti, Tamara; Stout, Lynn; Library, Cornell
    Abstract: 166 University of Pennsylvania Law Review 579 (2018) Despite the dominant role corporations play in our economy, culture, and politics, the nature and purpose of corporations remains hotly contested. This conflict was brought to the fore in the recent Supreme Court opinions in Citizens United and Hobby Lobby. Although the prevailing narrative for the past quarter-century has been that corporations “belong” to shareholders and should pursue “shareholder value,” support for this approach, which has been justified as essential for managerial accountability, is eroding. It persists today primarily in the form of the argument that corporations should seek “long-term” shareholder value. Yet, as this Article shows, when shareholder value is interpreted to mean “long-term” shareholder value, it no longer offers the sought-after managerial accountability. What can? This Article argues that systems theory offers an answer. Systems theory is a well-developed design and performance measuring methodology routinely applied in fields such as engineering, biology, computer science, and environmental science. It provides an approach to understanding the nature and purpose of corporate entities that is not only consistent with elements of the many otherwise-conflicting visions of the corporation that have been developed, but also with important and otherwise difficult-to-explain features of corporate law and practice. It offers proven methods for measuring corporate performance that recognize the possibility of multiple goals and the importance of sustainability. And it cautions that, by ignoring the lessons of systems theory, shareholder value thinking may have encouraged regulatory and policy interventions into corporate governance that are not only ineffective, but destructive.
    Date: 2018–04–15
  18. By: John C. Williams
    Abstract: Remarks at Working Together; An Interdisciplinary Approach to Organisational Culture, London School of Economics and Political Science, London, U.K.
    Keywords: culture; behavior; values; ethics; ethical dilemma; norms; wrongdoing; organizations; blind spots
    Date: 2020–01–14
  19. By: Anna Maria Koukal; Reiner Eichenberger; Patricia Schafera
    Abstract: Universal suffrage is a core element for the functioning of democracy. However, with growing international mobility, an increasing share of the resident population has no suffrage. This paper analyzes the conditions under which domestic citizens are willing to extend suffrage to foreign residents. We explore a new municipality level dataset of 35 Swiss referenda on the enfranchisement of foreigners at the cantonal level. The Swiss setting provides a unique laboratory for capturing the drivers of the enfranchisement of foreigners, as it allows for measuring the actual native electorate’s revealed preferences. We find evidence that perceived cultural and economic threats hinder the enfranchisement of foreigners.
    Keywords: foreigners’ voting rights; political integration; threat hypothesis; democratization
    JEL: D72 J15 P16
    Date: 2019–12

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