NEP-HPE 2011-06-11, 12 papers

NEP: New Economics Papers
History and Philosophy of Economics

Edited by:	Erik Thomson
University of Manitoba
Issue date:	2011-06-11
Papers:	12

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In this issue we have:

1. Schlock economics Azmat, Hayat
2. Beyond the global financial crisis: central banking in a new global financial system Turhan, Ibrahim M.
3. Deliberation and oversight in monetary policy, 1976-2008. Bailey, Andrew; Schonhardt-Bailey, Cheryl
4. Competition as an Ambiguous Discovery Procedure: A Reappraisal of Hayek’s Epistemic Market Liberalism Ulrich Witt
5. Book Review: Constructions of Neoliberal Reason. Stewart, Neil
6. Struggling for Political Economy: an Institutional Issue Bruno Tinel
7. The wondrous effortlessness of unifying circuit-, money-, price- and distribution theory Kakarot-Handtke, Egmont
8. At a time of persistent unemployment, Nobel Laureate Chris Pissarides’s search theory offers significant lessons for policy makers. Petrongolo, Barbara
9. Social Exchange and Risk and Ambiguity Preferences John Engle; Jim Engle-Warnick; Sonia Laszlo
10. Game Theoretic Analysis of Negotiations under Bankruptcy Amira Annabi; Michèle Breton; Pascal François
11. On uniqueness and stability of symmetric equilibria in differentiable symmetric games Andreas Hefti
12. Leadership games with convex strategy sets. von Stengel, Bernhard; Zamir, Shmuel

Contents.

1. Schlock economics
   

   Date:	2010-10-01
   By:	Azmat, Hayat
   URL:	http://d.repec.org/n?u=RePEc:pra:mprapa:31238&r=hpe
   After the collapse of USSR, Communism came to an end in 1990 and Capitalism emerged alone as the only feasible way to organize a modern economy. But the recent financial crisis which erupted in the US and spread almost in the entire globe proved Capitalism as well a failed economic system. Laissez Faire/Non intervention in the market which is the essence of capitalism was the reason for the current financial crisis. The hegemonic west propagates the rules of capitalism through the subject of economics. The professional job of economist is either to create new models or extend the existing one which always gives misleading results for understanding the ground realities of the Universe. For more than 100 years this tradition was unable to give a single solid discovery. Since there is no concept of intervention in the economic affairs of individuals as well as states therefore immoral and unfair practices are used without any hesitation for running the affairs of business. Ground reality exhibits that the science of economics can claim neither scientific laws nor universal truths. In short there is utmost need for reassessing the entire academy of mainstream Economics.
   Keywords:	Errors in capitalism; Unreal; irrelevant and schlock Economics
   JEL:	A13

2. Beyond the global financial crisis: central banking in a new global financial system
   

   Date:	2010-06-24
   By:	Turhan, Ibrahim M.
   URL:	http://d.repec.org/n?u=RePEc:pra:mprapa:31209&r=hpe
   Since the outbreak of the global crisis in mid 2007, there has been an extensive discussion on root causes. Some blame the greed and corruption of financial actors. Others put the blame on central bankers for easy money or regulators who remained idle as too much risks accumulated in financial markets. According to advanced economies, global imbalances have been caused by emerging surplus countries that keep their currency undervalued and their domestic consumption restricted. It is unfortunate that all these arguments and counter arguments, which may be valid in their own way, prevents a more general discussion on the deep-seated conflicts and contradictions in the global economic, social and political paradigm upon which the world order is built. To put it another way, the problems we face today do not arise from some operational failures, but from the system itself and the underlying philosophical framework. In fact this is a crisis of three main pillars of our existing system: the crisis of the economic theory, the crisis of the globalization, and the crisis of market based financial system.
   Keywords:	global financial crisis; economic theory; financial system
   JEL:	E44

3. Deliberation and oversight in monetary policy, 1976-2008.
   

   Date:	2010-11
   By:	Bailey, Andrew Schonhardt-Bailey, Cheryl
   URL:	http://d.repec.org/n?u=RePEc:ner:lselon:http://eprints.lse.ac.uk/30610/&r=hpe
   Also published as Working Paper 8, 2010 of the Political Science and Political Economy Group, London School of Economics and Political Science.

4. Competition as an Ambiguous Discovery Procedure: A Reappraisal of Hayek’s Epistemic Market Liberalism
   

   Date:	2011-05
   By:	Ulrich Witt
   URL:	http://d.repec.org/n?u=RePEc:esi:evopap:2011-06&r=hpe
   Epistemic arguments play a significant role in Hayek’s defense of market liberalism. His claim that market competition is a discovery procedure that serves the common good is a case in point. The hypothesis of the markets’ efficient use of existing knowledge is supplemented by the idea that markets are also most effectively creating new knowledge. However, in his assessment Hayek neglects the role of new technological knowledge. He ignores that the discovery procedure induces not only price and cost competition but also competition by innovations. Thence he overlooks the ambiguity that follows from the unpredictability of the consequences of innovations. This fact is shown to challenge the epistemic foundations and the stringency of Hayek’s version of market liberalism.
   Keywords:	competition, innovation, liberalism, knowledge, self-organization, Hayek Length 15 pages
   JEL:	B25

5. Book Review: Constructions of Neoliberal Reason.
   

   Date:	2011-03-27
   By:	Stewart, Neil
   URL:	http://d.repec.org/n?u=RePEc:ner:lselon:http://eprints.lse.ac.uk/35426/&r=hpe
   Neil Stewart warms to Jamie Peck’s geographic approach to the development of neoliberal ideas as he visits Vienna, Chicago, and the LSE, but is left disappointed by the insufficient connections made between theory and policy.

6. Struggling for Political Economy: an Institutional Issue
   

   Date:	2011-05-20
   By:	Bruno Tinel (CES – Centre d’économie de la Sorbonne – CNRS : UMR8174 – Université Panthéon-Sorbonne – Paris I)
   URL:	http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00596253&r=hpe
   The financial crisis has turned into a real economic crisis and then into a public finance crisis: its political and social implications show very obviously, even to the most unaware people, how much economic matters are a social and political phenomenon. Is political economy going to be more influential on economic policy and in the public debate? It depends on the evolution of social and political struggles in the society as a whole. But it also depends on our ability to built an alternative view of the situation and credible alternative solutions. In order to promote our ideas in the future, we have to deal urgently with our own institutional reproduction. What is happening in France on this issue?
   Keywords:	political economy; academic reproduction; crisis of economic science

7. The wondrous effortlessness of unifying circuit-, money-, price- and distribution theory
   

   Date:	2011-06-05
   By:	Kakarot-Handtke, Egmont
   URL:	http://d.repec.org/n?u=RePEc:pra:mprapa:31279&r=hpe
   When anything goes and nothing fits together this can be euphemized as pluralism, blossoming with fresh ideas. Lacking a common fixed point, discussions between various schools of economic thought actually amount to a repetition of contradicting views with more refined arguments. It seems impossible to find an intersection of the different approaches. Yet there must exist one because the subject matter is the same. The difference of perspectives is due to self-chosen fundamental assumptions. What is called for is a minimalist common set of assumptions. The present paper submits three structural axioms as an open formal platform.
   Keywords:	New framework of concepts; Structure-centric; Axiom set; Common formal core; Abandonment of the axiom of reals; Consistent integration of sub-fields
   JEL:	E25

8. At a time of persistent unemployment, Nobel Laureate Chris Pissarides’s search theory offers significant lessons for policy makers.
   

   Date:	2011-03-25
   By:	Petrongolo, Barbara
   URL:	http://d.repec.org/n?u=RePEc:ner:lselon:http://eprints.lse.ac.uk/35425/&r=hpe
   The 2010 Nobel Prize in Economics was awarded to Chris Pissarides of the LSE Centre for Economic Performance, jointly with Peter Diamond and Dale Mortensen, ‘for their analysis of markets with search frictions’. As Barbara Petrongolo explains, their research has deeply enhanced our understanding of how labour markets work and how policy-makers should respond.

9. Social Exchange and Risk and Ambiguity Preferences
   

   Date:	2011-05-01
   By:	John Engle Jim Engle-Warnick Sonia Laszlo
   URL:	http://d.repec.org/n?u=RePEc:cir:cirwor:2011s-46&r=hpe
   We present an experiment in which we test for the effect of participating in a social exchange exercise on revealed risk and ambiguity preferences. In our experiments, subjects make choices over lotteries that reveal their risk and ambiguity preferences. They then participate with a small group in an unstructured on-line chat. After the chat, they reconsider their choices in the risk and ambiguity instruments. In a control session, different subjects view, but do not participate in, past chats. Through a content analysis we investigate the role of chat content and chat participation on changes in revealed preferences. We compare our results to the “Discovered Preferences Hypothesis” (Plott, 1996) and “Fact-Free Learning” (Aragones, Gilboa, Postlewaite, and Schmeidler, 2005). <P>Nous présentons une expérience en laboratoire dans laquelle nous testons l’effet de participer à un exercice d’échange social sur l’aversion au risque et à l’ambiguïté. Dans notre expérience, les participants jouent à une loterie où ils révèlent leurs préférences face au risque et à l’ambiguïté. Ils participent ensuite à une discussion de groupe déstructurée dans une salle de causette. Après la discussion, les participants peuvent reconsidérer leurs choix dans les instruments de risque et d’ambiguïté. Cependant, dans une session contrôle, d’autres participants observent, sans y participer, une discussion d’une session antérieure. Une analyse de contenu nous informe sur le rôle du contenu de la discussion et de la participation elle-même sur le changement des préférences révélées. Nous comparons nos résultats aux hypothèses de « Discovered Preferences » (Plott, 1996) et de « Fact-Free Learning » (Aragones, Gilboa, Postlewaite, and Schmeidler, 2005).
   Keywords:	Risk and ambiguity preference measurement instruments, experimental economics, development economics, participatory development; social learning., Instruments de mesure de la préférence vis-à-vis le risque et l’ambiguïté, économie expérimentale, développement économique, développement participatif, apprentissage social

10. Game Theoretic Analysis of Negotiations under Bankruptcy
    

    Date:	2011
    By:	Amira Annabi Michèle Breton Pascal François
    URL:	http://d.repec.org/n?u=RePEc:lvl:lacicr:1113&r=hpe
    We extend the contingent claims framework for the levered firm in explicitly modeling the resolution of financial distress under formal bankruptcy as a non-cooperative game between claimants under the supervision of the bankruptcy judge. The identity of the class of claimants proposing the first reorganization plan is found to be a key determinant of the likelihood of liquidation and of the renegotiated value of claims. Our quantitative results confirm the economic intuition that a bankruptcy design must trade-off the initial priority of claims with the viability of reorganized firms.
    Keywords:	Bankruptcy procedure, game theory, dynamic programming
    JEL:	C61

11. On uniqueness and stability of symmetric equilibria in differentiable symmetric games
    

    Date:	2011-05
    By:	Andreas Hefti
    URL:	http://d.repec.org/n?u=RePEc:zur:econwp:018&r=hpe
    Higher-dimensional symmetric games become of more and more importance for applied micro- and macroeconomic research. Standard approaches to uniqueness of equilibria have the drawback that they are restrictive or not easy to evaluate analytically. In this paper I provide some general but comparably simple tools to verify whether a symmetric game has a unique symmetric equilibrium or not. I distinguish between the possibility of multiple symmetric equilibria and asymmetric equilibria which may be economically interesting and is useful to gain further insights into the causes of asymmetric equilibria in symmetric games with higher-dimensional strategy spaces. Moreover, symmetric games may be used to derive some properties of the equilibrium set of certain asymmetric versions of the symmetric game. I further use my approach to discuss the relationship between stability and (in)existence of multiple symmetric equilibria. While there is an equivalence between stability, inexistence of multiple symmetric equilibria and the unimportance of strategic effects for the comparative statics, this relationship breaks down in higher dimensions. Stability under symmetric adjustments is a minimum requirement of a symmetric equilibrium for reasonable comparative statics of symmetric changes. Finally, I present an alternative condition for a symmetric equilibrium to be a local contraction which is more general than the conventional approach of diagonal dominance and yet simpler to evaluate than the eigenvalue condition of continuous adjustment processes.
    Keywords:	Symmetric games, Nash equilibrium, uniqueness, stability
    JEL:	C72

12. Leadership games with convex strategy sets.
    

    Date:	2010-07
    By:	von Stengel, Bernhard Zamir, Shmuel
    URL:	http://d.repec.org/n?u=RePEc:ner:lselon:http://eprints.lse.ac.uk/27653/&r=hpe
    A basic model of commitment is to convert a two-player game in strategic form to a “leadership game” with the same payoffs, where one player, the leader, commits to a strategy, to which the second player always chooses a best reply. This paper studies such leadership games for games with convex strategy sets. We apply them to mixed extensions of finite games, which we analyze completely, including nongeneric games. The main result is that leadership is advantageous in the sense that, as a set, the leader’s payoffs in equilibrium are at least as high as his Nash and correlated equilibrium payoffs in the simultaneous game. We also consider leadership games with three or more players, where most conclusions no longer hold.

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