nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2021‒01‒18
nineteen papers chosen by
Erik Thomson
University of Manitoba

  1. Who's Afraid of Incoherence? Behavioural Welfare Economics and the Sovereignty of the Neoclassical Consumer By Guilhem Lecouteux
  2. A Machine-Learning History of English Caselaw and Legal Ideas Prior to the Industrial Revolution I: Generating and Interpreting the Estimates By Peter Grajzl; Peter Murrell
  3. A Machine-Learning History of English Caselaw and Legal Ideas Prior to the Industrial Revolution II: Applications By Peter Grajzl; Peter Murrell
  4. Unbridgeable: Why Political Economists Cannot Accept Capital as Power By Nitzan, Jonathan; Bichler, Shimshon
  5. Macroeconomics under Pressure: The Feedback Effects of Economic Expertise By Matthieu Renault
  6. The complementary nature of trust and contract enforcement By Björn Bartling; Ernst Fehr; David Huffman; Nick Netzer
  7. Rules and Mutation - A Theory of How Efficiency and Rawlsian Egalitarianism/Symmetry May Emerge By Juang, W-T.; Sabourian, H.
  8. Essays in Honor of Professor Badi H Baltagi: Editorial By Li, Qi; Sarafidis, Vasilis; Westerlund, Joakim
  9. Introduction: Whose Social Problems? By Fontaine, Philippe; Pooley, Jefferson
  10. Model Uncertainty in Climate Change Economics: A Review and Proposed Framework for Future Research By Loïc Berger; Massimo Marinacci
  11. How Covid-19 Pandemic Changes the Theory of Economics? By Matti Estola
  12. Bias and Discrimination: What Do We Know? By Della Giusta, Marina; Bosworth, Steven J.
  13. Kantians Defy the Economists' Mantra of Uniform Pigovian Emissions Taxes By Thomas Eichner; Rüdiger Pethig
  14. Burdens, Sludge, Ordeals, Red Tape, Oh My! A User’s Guide to the Study of Frictions By Madsen, Jonas Krogh; Mikkelsen, Kim Sass; Moynihan, Donald
  15. Academic in-group bias in economics By Lutmar, Carmela; Reingewertz, Yaniv
  16. Comments on the Western ideological homogeneity in entrepreneurial finance research By Le, Tri Tam
  17. Crouching Beliefs, Hidden Biases: The Rise and Fall of Growth Narratives By Reda Cherif; Marc Engher; Fuad Hasanov
  18. The Spirit of Capitalism and Consumption Inequality By Yulei Luo; Jun Nie; Heng-fu Zou
  19. Three layers of uncertainty and the role of model misspecification By Ilke Aydogan; Loïc Berger; Valentina Bosetti; Ning Liu

  1. By: Guilhem Lecouteux (Université Côte d'Azur; GREDEG CNRS)
    Abstract: The aim of this paper is to critically assess the argument advanced in behavioural welfare economics that preference inconsistency and violations of rational choice theory are the result of errors, and offer a direct justification for paternalistic regulations. I argue that (i) this position relies on a psychologically and philosophically problematic account of agency, (ii) the normative argument in favour of coherence is considerably weaker than usually considered, and (iii) BWE fails to justify why agents ought to be coherent by neoclassical standards. I conclude by discussing how BWE could still justify paternalistic regulations by endorsing a more institutionalist perspective.
    Keywords: behavioural welfare economics; preference inconsistency; consumer sovereignty; paternalism
    JEL: B40 D01 D60 D91
    Date: 2021–01
  2. By: Peter Grajzl; Peter Murrell
    Abstract: The history of England’s institutions has long informed research on comparative economic development. Yet to date there exists no quantitative evidence on a core aspect of England’s institutional evolution, that embodied in the accumulated decisions of English courts. Focusing on the two centuries before the Industrial Revolution, we generate and analyze the first quantitative estimates of the development of English caselaw and its associated legal ideas. We achieve this in two companion papers. In this, the first of the pair, we build a comprehensive corpus of 52,949 reports of cases heard in England's high courts before 1765. Estimating a 100-topic structural topic model, we name and interpret all topics, each of which reflects a distinctive aspect of English legal thought. We produce time series of the estimated topic prevalences. To interpret the topic timelines, we develop a tractable model of the evolution of legal-cultural ideas and their prominence in case reports. In the companion paper, we will illustrate with multiple applications the usefulness of the large amount of new information generated by our approach.
    Keywords: English history, institutional development, machine learning, caselaw, idea diffusion
    JEL: C80 N00 K10 Z10 P10
    Date: 2020
  3. By: Peter Grajzl; Peter Murrell
    Abstract: This is the second of two papers that generate and analyze quantitative estimates of the development of English caselaw and associated legal ideas before the Industrial Revolution. In the first paper, we estimated a 100-topic structural topic model, named the topics, and showed how to interpret topic-prevalence timelines. Here, we provide examples of new insights that can be gained from these estimates. We first provide a bird's-eye view, aggregating the topics into fifteen themes. Procedure is the highest-prevalence theme, but by the mid-18th century attention to procedure decreases sharply, indicating solidification of court institutions. Important ideas on real-property were substantially settled by the mid-17th century and on contracts and torts by the mid-18th century. Thus, crucial elements of caselaw developed before the Industrial Revolution. We then examine the legal ideas associated with England's financial revolution. Many new legal ideas relevant to finance were well accepted before the Glorious Revolution. Finally, we examine the sources of law used in the courts. Emphasis on precedent-based reasoning increases by 1650, but diffusion was gradual, with pertinent ideas solidifying only after 1700. Ideas on statute applicability were accepted by the mid-16th century but debates on the legislature’s intent still occurred in 1750.
    Keywords: English history, institutional development, caselaw, financial revolution, sources of law
    JEL: C80 N00 K10 O43
    Date: 2020
  4. By: Nitzan, Jonathan; Bichler, Shimshon
    Abstract: The theory of capital as power (CasP) is radically different from conventional political economy. In the conventional view, mainstream as well as heterodox, capital is seen a 'real' economic entity engaged in the production of goods and services, and capitalism is thought of as a mode of production and consumption. Finance in this approach is either a mere reflection/lubricant of the real economy (the mainstream view), or a parasitic fiction (the heterodox perspective). CasP rejects this framework. Capital, it argues, is not a productive economic entity, but a symbolic representation of organized societal power writ large, and capitalism should be analysed not as a mode of production and consumption, but as a mode of power. In this approach, finance is neither a reflection nor a fiction, but the symbolic language that organizes and creorders - or creates the order of - capitalized power. These are foundational claims. They go to the very heart of political economy, and they have far-reaching implications. So far-reaching, in fact, that if we accept them, we must rewrite, often from scratch, much of the theory, history and possible futures of the capitalist order. Many have complained about CasP being aloof. Our approach, they have argued, insists on being 'right' - to the exclusion of all others. It shows no interest in 'building bridges'. It dismisses neoclassical liberalism altogether, and although sometimes sympathetic to Marx, it aims not to revise Marxism, but to discard it altogether. In this research note - excerpted and revised from our 2020 invited-then-rejected interview with Revue de la regulation - we explain the basis for these complaints and why CasP and conventional political economy cannot be easily bridged. Stated briefly, the problem is not unwillingness but built-in barriers. As it stands, political economy cannot accept capital as power. Its very foundations prevent it from doing so.
    Keywords: capital as power,Marxism,neoclassical economics,political economy,power,value
    JEL: P16 D46 C18
    Date: 2021
  5. By: Matthieu Renault (Université de Côte d'Azur; CNRS, GREDEG)
    Abstract: Macroeconomics is said to exert a decisive influence on policy-makers/-making through economic expertise. This influence is usually assumed or taken for granted in- and outside academic circles. Yet, the reverse proposal, i.e. policy-makers' influence on macroeconomics, appears to be far less elusive and as significant. This paper sheds light on three such significant "feedback effects" of expertise on macroeconomics based on Edmond Malinvaud's writings. First, expertise has made the discipline highly sensitive to the results of economic policies. Second, expertise has impelled macroeconomics to behave as a tool for decision-making. Third, it has spurred the discipline to search for a consensus since WWII, for this is a necessary condition for economic expertise to be operative.
    Keywords: Expertise, Macroeconomics, Keynesianism, Edmond Malinvaud
    JEL: B22 B23 B31 B41
    Date: 2021–01
  6. By: Björn Bartling; Ernst Fehr; David Huffman; Nick Netzer
    Abstract: Under weak contract enforcement the trading parties’ trust, defined as their belief in the other party’s trustworthiness, appears important for realizing gains from trade. In contrast, under strong contract enforcement beliefs about the other party’s trustworthiness appear less important, suggesting that trust and contract enforcement are substitutes. Here, we show, however, that trust and contract enforcement are complements. We demonstrate that in a weak contract enforcement environment trust has no effect on the gains from trade, but when we successively improve contract enforcement, larger effects of trust emerge. We also document that improvements in contract enforcement lead to no, or only small, increases in gains from trade under low initial trust, but generate high increases in gains from trade when initial trust is high. Thus, the effect of improvements in contract enforcement is trust-dependent, and the effect of increases in trust is dependent on the strength of contract enforcement. We identify three key ingredients underlying this complementarity: (1) heterogeneity in trading partners’ trustworthiness; (2) strength of contract enforcement affecting the ability to elicit reciprocal behavior from trustworthy types, and screen out untrustworthy types; (3) trust beliefs determining willingness to try such strategies.
    Keywords: Trust, contract enforcement, complementarity, equilibrium selection, causal effect, screening, belief distortions, institutions
    JEL: C91 D02 D91 E02
    Date: 2021–01
  7. By: Juang, W-T.; Sabourian, H.
    Abstract: For any game, we provide a justification for why in the long-run outcomes are mostly both efficient and egalitarian/symmetric in the Rawlsian sense. We do this by constructing an adaptive dynamic framework with four features. First, agents select rules to implement actions. Second, rule selection satisfies some minimal payoff monotonicity: rules that do best are chosen with a positive probability. Third, in choosing rules agents are subject to "small" random mutation. Fourth mutation is payoff-dependent with agents mutating more when they do badly than when they do well. Our main result is: if the set of feasible rules R is sufficiently rich then outcomes that survive maximise the payoff of the player that does least well. We also show that if R is restricted to those that do best-reply on uniform histories then outcomes that survive are efficient and egalitarian amongst the set of minimum weak CURB sets. Finally, we consider long-run outcomes assuming mutation is payoff-independent; in contrast to our strong selection result above, in this case we show indeterminacy: any outcome can survive if R is sufficiently rich.
    JEL: C70 C72 C73
    Date: 2021–01–04
  8. By: Li, Qi; Sarafidis, Vasilis; Westerlund, Joakim
    Abstract: This special issue celebrates Professor Badi Baltagi’s myriad contributions to the field of econometrics, as well as his long service to Empirical Economics. The influential work carried out by Badi during the past four decades or so is recognised in this issue by nineteen peer-reviewed, state-of-the-art articles, written by some of the leading researchers in econometrics. The diversity of the topics covered constitutes a testament to the wide-ranging scope of Badi's research interests and contributions. We believe we can speak on behalf of the community of econometric scholars when we express our gratitude for all the inspiring work Badi has contributed to the field. We look forward to many more years of his leadership and mentorship.
    Keywords: panel data, econometric theory and practice.
    JEL: C1 C23 C33 C5
    Date: 2020–12
  9. By: Fontaine, Philippe; Pooley, Jefferson (Muhlenberg College)
    Abstract: The social sciences underwent rapid development in postwar America. Problems once framed in social terms gradually became redefined as individual with regards to scope and remedy, with economics and psychology winning influence over the other social sciences. By the 1970s, both economics and psychology had spread their intellectual remits wide: psychology's concepts suffused everyday language, while economists entered a myriad of policy debates. Psychology and economics contributed to, and benefited from, a conception of society that was increasingly skeptical of social explanations and interventions. Sociology, in particular, lost intellectual and policy ground to its peers, even regarding 'social problems' that the discipline long considered its settled domain. This introduction frames the book's ten chapters, each of which explore this shift refracted through a single 'problem': the family, crime, urban concerns, education, discrimination, poverty, addiction, war, and mental health, examining the effects an increasingly individualized lens has had on the way we see these problems.
    Date: 2020–12–09
  10. By: Loïc Berger; Massimo Marinacci (Bocconi University [Milan, Italy])
    Abstract: We review recent models of choices under uncertainty that have been proposed in the economic literature. In particular, we show how different concepts and methods of economic decision theory can be directly useful for problems in environmental economics. The framework we propose is general and can be applied in many different fields of environmental economics. To illustrate, we provide a simple application in the context of an optimal mitigation policy under climate change.
    Keywords: Ambiguity,non-expected utility,model uncertainty,climate change
    Date: 2020–09–19
  11. By: Matti Estola
    Abstract: During its history, the ultimate goal of economics has been to develop similar frameworks for modeling economic behavior as invented in physics. This has not been successful, however, and current state of the process is the neoclassical framework that bases on static optimization. By using a static framework, however, we cannot model and forecast the time paths of economic quantities because for a growing firm or a firm going into bankruptcy, a positive profit maximizing flow of production does not exist. Due to these problems, we present a dynamic theory for the production of a profit-seeking firm where the adjustment may be stable or unstable. This is important, currently, because we should be able to forecast the possible future bankruptcies of firms due to the Covid-19 pandemic. By using the model, we can solve the time moment of bankruptcy of a firm as a function of several parameters. The proposed model is mathematically identical with Newtonian model of a particle moving in a resisting medium, and so the model explains the reasons that stop the motion too. The frameworks for modeling dynamic events in physics are thus applicable in economics, and we give reasons why physics is more important for the development of economics than pure mathematics. (JEL D21, O12) Keywords: Limitations of neoclassical framework, Dynamics of production, Economic force, Connections between economics and physics.
    Date: 2020–12
  12. By: Della Giusta, Marina (University of Reading); Bosworth, Steven J. (University of Reading)
    Abstract: The paper presents the economic literature on gender bias, illustrating the underpinnings in the psychology of bias and stereotyping; the incorporation of these insights into current theoretical and empirical research in economics, and the literature on methods to contrast bias presenting evidence (where it exists) of their effectiveness. The second part of the paper presents results of an experiment in revealing unconscious bias.
    Keywords: discrimination, gender, unconscoius bias, licensing
    JEL: D9 J7
    Date: 2020–12
  13. By: Thomas Eichner; Rüdiger Pethig
    Abstract: This paper analyzes the efficient emissions taxation in economies with individuals who are morally motivated to reduce their emissions footprint. They are heterogenous with respect to their morality and their consumption preferences. We distinguish between the concepts of moral and conventional utilitarian (= material) welfare. The materially efficient tax rates turn out to be consumer-type specific; they are smaller than the Pigovian tax rate; and the smaller, the higher the individuals’ propensity to act morally. Finally, we briefly characterize the second-best uniform emissions tax.
    Keywords: Pigovian tax, material, moral, Kantian, consumer-type tax
    JEL: H21 Q58
    Date: 2020
  14. By: Madsen, Jonas Krogh; Mikkelsen, Kim Sass; Moynihan, Donald
    Abstract: Recent years has seen dramatic growth to the study of frictions that individuals experience, especially in their interactions with the public sector, creating both the potential for new research opportunities and conceptual confusion. We seek to head off the latter by providing, in one place, a definition, description of the development, and comparison of four dominant conceptions of frictions: ordeal mechanisms, red tape, administrative burden, and sludge. In particular, we discuss the four concepts' definition and use in terms of their objectivity, distributive effects, object and domain, and deliberate design. The paper helps researchers to understand the overlap and distinctions between these concepts, and the role of public administration in these different traditions. Comparisons of the different approaches' thinking also suggest opportunities for mutual learning.
    Date: 2020–12–28
  15. By: Lutmar, Carmela; Reingewertz, Yaniv
    Abstract: This paper studies academic in-group bias in the top five economics journals. We examine citation counts for articles published in these journals during the years 2006–2015, and compare counts for articles written by in-group members versus out-group members, where in-group status is defined based on whether at least one author shares the journal’s institutional affiliation. Our results suggest that in-group bias exists in the QJE, but not in the JPE or REStud (the AER and Econometrica are the control group). We thus confirm the existence of academic in-group bias in some, but not all, top five economics journals.
    Keywords: Academic in-group bias, top five, economics journals, editorial favoritism
    JEL: A14 I23 O34
    Date: 2020–12–14
  16. By: Le, Tri Tam
    Abstract: Studies on entrepreneurial finance are dominated by Western authors and institutions, which is a challenge within the field.
    Date: 2021–01–05
  17. By: Reda Cherif; Marc Engher; Fuad Hasanov
    Abstract: The debate among economists about an optimal growth recipe has been the subject of competing “narratives.” We identify four major growth narratives using the text analytics of IMF country reports over 1978-2019. The narrative “Economic Structure”—services, manufacturing, and agriculture—has been on a secular decline overshadowed by the “Structural Reforms”—competitiveness, transparency, and governance. We observe the rise and fall of the “Washington Consensus”—privatization and liberalization— and the rise to dominance of the “Washington Constellation,” a collection of many disparate terms such as productivity, tourism, and inequality. Growth theory concepts such as innovation, technology, and export policy have been marginal while industrial policy, which was once perceived positively, is making a comeback.
    Date: 2020–11–08
  18. By: Yulei Luo (Faculty of Business and Economics, University of Hong Kong); Jun Nie (Research Department, Federal Reserve Bank of Kansas City); Heng-fu Zou (China Economics and Management Academy, Central University of Finance and Economics)
    Abstract: In this paper we argue that Max Weber's (1904-05, German; 1958) theory on "spirit of capitalism" can be modeled via a direct preference for wealth. We incorporate the spirit of capitalism into a general equilibrium consumption-portfolio choice model to examine the effects on consumption inequality, equilibrium interest rate, and equity premium—an unexplored area in the literature. We provide closed-form solutions to help disentangle the effects of the spirit of capitalism in driving the key results. Quantitatively, we show that a small degree of the spirit of capitalism can improve the model’s predictions in all three dimensions (consumption inequality, equilibrium interest rate, and equity premium) simultaneously. We show our results are robust to more general specifications on the income process and to incorporating macroeconomic rare disasters. Finally, we compare the spirit of capitalism with a closely related hypothesis, habit formation, and find that they have opposite effects on equilibrium asset returns and consumption inequality.
    Date: 2021–01–02
  19. By: Ilke Aydogan (IÉSEG School Of Management [Puteaux]); Loïc Berger (CNRS - Centre National de la Recherche Scientifique, IÉSEG School Of Management [Puteaux], EIEE - European Institute on Economics and the Environment, CMCC - Centro Euro-Mediterraneo per i Cambiamenti Climatici [Bologna]); Valentina Bosetti (Bocconi University [Milan, Italy], EIEE - European Institute on Economics and the Environment, CMCC - Centro Euro-Mediterraneo per i Cambiamenti Climatici [Bologna]); Ning Liu (Beihang University)
    Abstract: We explore decision-making under uncertainty using a framework that decomposes uncertainty into three distinct layers: (1) risk, which entails inherent randomness within a given probability model; (2) model uncertainty, which entails subjective uncertainty about the probability model to be used; and (3) model misspecification, which entails uncertainty about the presence of the correct probability model among the set of models considered. Using a new experimental design, we measure individual attitudes towards these di↵erent layers of uncertainty and examine the role of each of them in characterizing attitudes towards ambiguity. In addition to providing new insights into the underlying processes behind ambiguity aversion, our study provides the first empirical evidence of the role of model misspecification in decision-making under uncertainty.
    Keywords: Ambiguity aversion,model uncertainty,model misspecification,non-expected utility,reduction of compound lotteries
    Date: 2020–11–30

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