nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2022‒05‒02
six papers chosen by
Erik Thomson
University of Manitoba

  1. The Economics and Econometrics of Gene-Environment Interplay By Pietro Biroli; Titus J. Galama; Stephanie von Hinke; Hans van Kippersluis; Cornelius A. Rietveld; Kevin Thom
  2. Injecting Adam Smith’s Ideas in the Market for Kidney Transplants By Walter Castro; Julio Elias
  3. Action in Economics: Mathematical Derivation of Laws of Economics from the Principle of Least Action in Physics By Kombarov, Sayan
  4. The Problems of Inflation Targeting Originate in the Monetary Theory of Knut Wicksell By Jonung, Lars
  5. Rationality and Relevance Realization By Riedl, Anna; Vervaeke, John
  6. Do economics and political science scholars differ on public choice issues? Survey evidence from Brazil By Abdel-Hameed Nawar

  1. By: Pietro Biroli; Titus J. Galama; Stephanie von Hinke; Hans van Kippersluis; Cornelius A. Rietveld; Kevin Thom
    Abstract: Economists and social scientists have debated the relative importance of nature (one's genes) and nurture (one's environment) for decades, if not centuries. This debate can now be informed by the ready availability of genetic data in a growing number of social science datasets. This paper explores the potential uses of genetic data in economics, with a focus on estimating the interplay between nature (genes) and nurture (environment). We discuss how economists can benefit from incorporating genetic data into their analyses even when they do not have a direct interest in estimating genetic effects. We argue that gene--environment (GxE) studies can be instrumental for (i) testing economic theory, (ii) uncovering economic or behavioral mechanisms, and (iii) analyzing treatment effect heterogeneity, thereby improving the understanding of how (policy) interventions affect population subgroups. We introduce the reader to essential genetic terminology, develop a conceptual economic model to interpret gene-environment interplay, and provide practical guidance to empirical researchers.
    Date: 2022–03
  2. By: Walter Castro; Julio Elias
    Abstract: Organs for transplantation are extremely valuable, and their shortage has become one of the most burning public policy issues in most countries with developed transplant programs. Could the kidney transplantation system benefit from an injection of Adam Smith's ideas? In this paper, we combine Adam Smith’s ideas of both The Theory of Moral Sentiments and The Wealth of Nations to analyze the main developments of the market for kidney transplantation, including kidney exchange, default rules for deceased donations (presumed consent versus informed consent), priority rules, and proposals to pay organ donors. Injecting Adam Smith’s ideas into this problem bring new insights in terms of public policy and market design. For instance, his theory of equalizing differences, exposed in Book I, Chapter X, of the Wealth of Nations, provide a base to estimate what would be the price of a kidney in a legal market (Becker and Elias 2007). His views about human decisions struggling between ‘passions’ and the ‘impartial spectator’ and on the difficulties of organizing the economic life appealing mainly to benevolence, and other sentiments toward close ones, are illuminating for policy design of any system of donation (paid, non-directed donations, or exchanges) by providing an understanding of what motivates people in the context of markets. Considering Adam Smith’s ideas, we also evaluate many restrictions currently in place in the market for kidney transplantations that impose severe limits on individual decisions, some of them to make up for a possible lack of self-command. We hope we show with our analysis not only the topicality of Smith´s ideas but the importance for the economic analysis of combining both the Theory of Moral Sentiments and the Wealth of Nations, and not to consider them separately as isolated masterpieces.
    Date: 2022–04
  3. By: Kombarov, Sayan
    Abstract: The thesis of this paper is mathematical formulation of the laws of Economics with application of the principle of Least Action of classical mechanics. This paper is proposed as the rigorous mathematical approach to Economics provided by the fundamental principle of the physical science – the Principle of Least Action. This approach introduces the principle of Action into main-stream economics and allows to reconcile the main principles Austrian School of Economics with the laws of market, such Say’s law, marginal value and interest rate theory, with the modern results of mathematical economics, such as Capital Asset Pricing Model (CAPM), game theory and behavioral economics. This principle is well known in classical mechanics as the law of conservation of action that governs any system as a whole and all its components. It led to the revolution in physics, as it allows to derive the laws of Newtonian and quantum mechanics and probability. Ludwig von Mises defined Economics is the science of Human Action. Action is introduced into Economics by the founder of Austrian School of Economic, Carl Menger. Production or acquisition of any goods, services and assets are results of purposeful acts in the form of expenditure of work and energy in the form of flow of money and material resources. Humans take them to achieve certain desired goals with given resources and time. Any economic good and service, financial, productive, or real estate asset is the result of such action.
    Keywords: Human Action, Say's law of markets, Principle of least action, Energy of money circulation, velocity of money, gold, exchange, value of use, law of diminishing value, marginal value, value of use, normal distribution, interest rate theory, GDP, Game theory, CAMP, The Prospect Theory
    JEL: A10 A12 A13 A20 C20 C22 C25 C52 C55 C58 C61 C62 C65 C70 C72 D00 D01 D03 D4 D40 D46 D50 D51 D53 D80 D83 D84 D86 D90 F0 G0 G01 G02 G11 G12 G14
    Date: 2021–08–24
  4. By: Jonung, Lars (Department of Economics, Lund University)
    Abstract: The theoretical foundation of inflation targeting was laid out by the Swedish economist Knut Wicksell (1851-1926) in his groundbreaking treatise, Interest and Prices, published originally in German in 1898. Here he proposed price stability as the rule for monetary policy. Today, inflation targeting is considered the best-practice approach to monetary policy across the world. It has contributed to stable and low consumer price inflation since the 1990s in many countries. However, inflation targeting has recently been the subject of several objections. Most prominently, the focus on consumer price stability has fostered financial instability, as reflected in the global financial crisis of 2008-09. In addition, the sharp rise in asset prices has led to growing wealth inequality. <p> Why have these problems emerged? This paper provides an answer by comparing Wicksell’s theory of price level determination in a pure credit economy, the “cumulative process”, to the neo-Wicksellian world of today, characterized by inconvertible fiat money, floating exchange rates, advanced financial systems, unregulated interest rates and well-developed asset markets. In this way, it becomes apparent that the neglect of asset markets and asset prices is the source of the flaws of the present Wicksellian regime of unlimited finance. The shortcomings of the neo-Wicksellian approach can be remedied while remaining within a Wicksellian framework. The key is to combine the nominal anchor of price stability with a reformed financial system that maintains credit stability. The paper uses empirical evidence from Sweden and the United States.
    Keywords: Inflation targeting; price level targeting; natural rate; Knut Wicksell; Milton Friedman; financial crises; credit; asset inflation; central banking
    JEL: B10 B22 E10 E31 E40 E50 G01 G20
    Date: 2022–04–11
  5. By: Riedl, Anna; Vervaeke, John
    Abstract: Among the disciplines focusing on the rationality question and ultimately the phenomenon of intelligence in minds, brains, and machines, the Great Rationality Debate 2.0 is taking place between the axiomatic approach to optimality modeling on one side and ecological rationality on the other. The divide between the two stances can be reduced by integrating advancements of each tradition into the other. Traditionally, it is held that taking computational constraints of cognition into account, rational agents face a speed-accuracy trade-off. The resulting lowered normative ceiling of resource-rational optimality is often met by heuristics. We will modify the conception of this trade-off because it lacks a crucial element: Herbert Simon’s scissors analogy indicates that bounded rationality is limited both by internal cognitive constraints as well as the task environment. Examining heuristics through the bias-variance dilemma an organism faces in an unknown territory adds an efficiency-robustness trade-off. These two conflicts cannot be optimized a priori, but have to be negotiated in an emerging bottom-up manner by continuously resolving the frame problem. This process of overcoming the frame problem is referred to as ‘relevance realization’ and it rests on problem transformation, sense-making, abductive reasoning, or insight. The main question of rationality, therefore, changes from a priori optimality to an ongoing optimal fittedness of an organism-environment system. This implies a non-propositional perspective on cognition and a shift of the paradigm to enacted and embodied rationality. Our argument relocates the importance of the axioms of rationality into a sociocultural tool for “small worlds” once the statistical requirements of the large world have been transformed by relevance realization. These cognitive findings have implications for categorization and perception, philosophy of science, economic theory, as well as machine learning, and applied mathematics.
    Date: 2022–03–31
  6. By: Abdel-Hameed Nawar (IPC-IG)
    Keywords: public choice; rationality; free riding; public goods; politics-as-exchange
    Date: 2021–10

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