Mutually Destructive Bidding: The FCC Auction Design Problem

In general, synergies across license valuations complicate the auction design process. Theory suggests that a simple (i.e., non-combinatorial) auction will have difficulty in assigning licenses efficiently in such an environment. This difficulty increases with increases in fitting complexity. In some environments, bidding may become mutually destructive. Experiments indicate that a properly designed combinatorial auction is superior to a simple auction in terms of economic efficiency and revenue generation in bidding environments with a low amount of fitting complexity. Concerns that a combinatorial auction will cause a threshold problem are not borne out when bidders for small packages can communicate.     

Knowledge Questions: Hayek,Keynes and Beyond

This paper discusses the knowledge problem in terms of both the use and generation of knowledge. This is analyzed in the context of Hayek's failure to respond to the Keynes Challenge—the claim that markets fail to produce relevant knowledge—by suggesting that in the aftermath of The General Theory he was not well-positioned to address that problem. Ironically, his post-World War II work in cognitive psychology, The Sensory Order, offers a theory of the generation of knowledge which can provide a useful analogy for understanding the generation of market-level knowledge.     

Biological Adaptation in Human Societies: a ‘Basic Needs’ Approach

The groundzero premise (so to speak) of the biological sciences is that survival and reproduction is the basic, continuing, inescapable problem for all living organisms; life is at bottom a survival enterprise. It follows that survival is the paradigmatic problem for human societies as well; it is a prerequisite for any other, more exalted objectives. Although the term adaptation is also familiar to social scientists, until recently it has been used only selectively, and often very imprecisely. Here a more rigorous and systematic approach to the concept of adaptation is proposed in terms of basic needs. The concept of basic human needs has a venerable history – tracing back at least to Plato and Aristotle. Yet the development of a formal theory of basic needs has lagged far behind. The reason is that the concept of objective, measurable needs is inconsistent with the theoretical assumptions that have dominated economic and social theory for most of this century, namely, valuerelativism and cultural determinism. Nevertheless, there have been a number of efforts over the past 30 years to develop more universalistic criteria for basic needs, both for use in monitoring social wellbeing (social indicators) and for public policy formulation. Here I will advance a strictly biological approach to perationalizing the concept of basic needs. It is argued that much of our economic and social life (and the motivations behind our revealed preferences and subjective utility assessments), not to mention the actions of modern governments, are either directly or indirectly related to the meeting of our basic survival needs. Furthermore, these needs can be specified to a first approximation and supported empirically to varying degrees, with the obvious caveat that there are major individual and contextual variations in their application. Equally important, complex human societies generate an array of instrumental needs which, as the term implies, serve as intermediaries between our primary needs and the specific economic, cultural and political contexts within which these needs must be satisfied. An explicit framework of Survival Indicators, including a profile of Personal Fitness and an aggregate index of Population Fitness, is briefly elucidated. Finally, it is suggested that a basic needs paradigm could provide an analytical tool (a biologic) for examining more closely the relationship between our social, economic and political behaviors and institutions and their survival consequences, as well as providing a predictive tool of some value.     

Learning for Innovation and the Skill Premium

The computer revolution took very long to pay off in productivity growth in the computer-using sectors. The relative wage of skilled workers, however, has risen sharply from the early days of the computer revolution onward. As skilled workers wages reflect their productivity, the two observations together pose a puzzle.This paper provides a micro-based explanation for the long diffusion period of the computer revolution. The general equilibrium model of growth zooms in on the research process and provides an explanation for sluggish growth with booming relative wages of the skilled. Technological progress in firms is driven by research aimed at improving the production technology (innovation) and by assimilation of ideas or principles present outside the firm (learning). A new General Purpose Technology (GPT) like the computer revolution generates an initial slowdown in economic growth and an increase in the skill premium.Acknowledgement I am indebted to Theo van de Klundert for suggestions and encouragement. Suggestions by Jan Boone, Bas Jacobs, Patrick Francois, Henri de Groot, Lex Meijdam, Niek Nahuis Sjak Smulders, Harald Uhlig and anonymous referees have contributed to the paper.     

On the generic nonconvergence of Bayesian actions and beliefs

Summary SupposeY _n is a sequence of i.i.d. random variables taking values in Y, a complete, separable, non-finite metric space. The probability law indexed by, is unknown to a Bayesian statistician with prior, observing this process. Generalizing Freedman [8], we show that generically (i.e., for a residual family of (,) pairs) the posterior beliefs do not weakly converge to a point-mass at the true. Furthermore, for every open setG , generically, the Bayesian will attach probability arbitrarily close to one toG infinitely often. The above result is applied to a two-armed bandit problem with geometric discounting where armk yields an outcome in a complete, separable metric spaceY _k. If the infimum of the possible rewards from playing armk is less than the infimum from playing armk', then armk is (generically) chosen only finitely often. If the infimum of the rewards are equal, then both arms are played infinitely often.     

Power,luck and the right index

Summary We have pointed out the theoretical drawbacks of the traditional indices for measuring a priori voting power inasmuch as they are implied in considering the coalition value a private good. This criticism caused us to view the coalition outcome as a public good. From this aspect and additional considerations with respect to power, luck, and decisiveness, we obtained a story describing the characteristics of an adequate measure of a priori voting power. These characteristics were found to be fulfilled by an index presented by Holler (1978). Through the above analysis this index has received its theoretical justification. An independent view of this index was then provided by means of an axiomatic characterization. This characterization makes possible abstract comparison of the index with previously established private good indices.While we have restricted our attention to simple games, the index presented can be generalized to provide a value on games in characteristic function form. We leave this topic for future conideration.     

Framing Effects in Public Goods Experiments

Three effects of apparently superficial changes in presentation (framing effects in a broad sense), were replicated together in the same repeated linear public goods experiment with real financial incentives. First, 32 repetitions were presented as four phases of 8 repetitions with a break and results summary in between. Contribution levels decayed during each phase but then persistently returned to about 50% after each re-start. Second, subjects contributed more when the payoff function was decomposed in terms of a gift which is multiplied and distributed to the other players, rather than the equivalent public good from which everyone benefits. Third, subjects contributed more following a comprehension task which asks them to calculate the benefits to the group of various actions (the We frame), rather than the benefits to themselves (the I frame). These results suggest that aspects of presentation may have strong and replicable effects on experimental findings, even when care is taken to make the language and presentation of instructions as neutral as possible. Experimental economists should therefore give careful consideration to potential framing effects—or, better still, explicitly test for them—before making claims about the external validity of results.     

Chasing Phantoms in a Hollow Defense of Coase

Patrick Gunning refuses to acknowledge the most salient arguments against the Chicago law and economics case for negligence made by Austrian economists. Because of this, he makes the same errors in his defense of Coase that permeate the Chicago paradigm. In particular, his defense of Coasean type analysis completely ignores Austrian cost theory, i.e., that all economically relevant costs are strictly subjective and therefore conceptually impossible to measure. He also fails to grasp the implications of disequilibrium market process theory for the use of any kind of least-cost-avoider rule in the economic analysis of the law. As a result, Gunning's defense of Coase suffers from the same pretense of knowledge as the analysis that he is defending.     

Economics as mechanism: The mind as machine in Hayek's sensory order

InThe Sensory Order, Friedrich A. Hayek describes the human mind as an apparatus of classification that evolves through experience and that reaches decisions by modeling the alternative courses of action that are available to it. Hayek's mechanistic conception of mind argues aginst the possibility of central planning and against the cogency of any rule that denigrates subjective decision making by employers or other economic agents. As implied by Gödel's proof, no brain, human or mechanical, can ever be sufficiently complex to explain itself. There will therefore always be certain knowledge and rules that cannot be articulated to the satisfaction of a central planner or tribunal.     

From “tax state” to “debt state”

The paper is motivated by Joseph A. Schumpeter's The Crisis of the Tax State. It inquires whether the buildup of government debt in peacetimeprosperity is a threat to the stability, existence or creation of viable tax states. The paper begins by setting out Schumpeter's conception of the tax state and the nature of recent political-economic events which have reinvigorated the concept. Next the paper sets out some simple debt dynamics and sketches a debt-induced business cycle arising from heavy reliance on debt finance in peacetimeprosperity. Finally, the paper assesses threats to the tax state in light of recent work on path dependence and positive feedback. An attempt is made to throw some light on whether the plethora of new, and often small, states spawned by the demise of communism can be viable tax states.Essay on Government, the Tax State and Economic Dynamics submitted to the Third Schumpeter Prize Competition.     

Incentive compatibility and the quantity-setting competitive firm under demand uncertainty

This paper examines the tie between the popular black box neoclassical quantity-setting firm under demand uncertainty and a firm with a rudimentary but explicit employee relation organizational structure in which workers are offered fixed wages for following management directives. Surprisingly, the quantity-setting firm unambiguously mimics optimal employment relation hiring and work rules when the contract is incentive-compatible ex post. The attitude toward risk is shown to be the key determinant of whether or not the quantity-setting firm replicates the optimal employment relation contract when ex post incentive-compatibility is relaxed.     

Negative externalities and welfare improving preference changes

When the over-consumption of open access resources and congestible public goods generate negative externalities and social welfare losses, many individuals and environmental advocacy organizations offer as an alternative nongovernmental solution the adoption of new ecology sustaining preferences. This paper shows that exogenously inducing a change in preferences and the adoption of new externality internalizing preferences, which increase an individual's marginal rate of substitution between a private good and a good whose consumption imposes external costs on others, not only reduces the aggregate output of the negative externality but also produces an economic state that is socially superior to the initial state. Because it is based on both the initial and new preferences, the social superiority welfare criterion makes possible meaningful welfare comparisons of economic states generated by preference changes. A computational general equilibrium model is then used to simulate preference changes and to calculate the resulting allocative and welfare effects. The computer simulations reveal that important factors in the attainment of a socially superior state include (i) the particular characteristics of an individual's negative externality reaction function, (ii) the magnitude of the preference change, and (iii) the number of individuals changing preferences.     

On Ackerman's Justification of Irregular Constitutional Change: Is Any Vice You Get Away With a Virtue?

In We the People: 2. Transformations, Bruce Ackerman makes a case for irregular change of the U.S. Constitution, as opposed to the amendment procedure stipulated in Article V. He argues that such irregular—even revolutionary—change has occurred in the past, most notably after the war of secession and during the New Deal era, and he proffers those episodes as suitable models for future constitutional change. In making his argument for moving beyond formalism, Ackerman misconstrues the meaning of ordinary electoral victories, employs misleading rhetorical flourishes, places unwarranted weight on the Supreme Court's validation of irregular constitutional change, and overlooks the capacity of electoral winners to rig subsequent elections.     

Zur Frage der Wirtschaftsmacht

Ohne ZusammenfassungNach einem in der Nationalökonomischen Gesellschaft in Wien am 27. April 1954 gehaltenen Vortrag.     

Convergence empirics across economies with (some) capital mobility

This paper uses a model of growth and imperfect capital mobility across multiple economies to characterize the dynamics of (cross-country) income distributions. This allows convenient study of the convergence hypothesis, and reveals, where appropriate, polarization and clumping within subgroups. The data show little cross-country convergence; instead, the important features are persistence, immobility, and polarization, exemplified by convergence club or twin peaks dynamics.     

Friedrich Hayek's Theory of Spontaneous Order: Two Problems

The paper finds Hayek's basic building block, the natural/artificialcontrast, to be illuminating. But the manner in which Hayek classifiesentities according to the contrast generates two major problemsin his socio-economic theory. First, Hayek's concept designconfuses the technical construction of, e.g., a chair with thedeliberate organization of division of labor within the firm.Second, Hayek's notion spontaneous order fails to note twokinds of natural order — firms and markets.     

Ergodic chaos in optimal growth models with low discount rates

Summary We show that for every discount factor(0,1) one can find infinitely many strictly concave discrete-time optimal growth models in reduced form which have optimal policy functions exhibiting ergodic chaos. These reduced form models are interpreted in a two-sector optimal growth setting with utility functions depending on consumption as well as on capital.We thank Luigi Montrucchio for pointing out an error in a previous version of the paper.     

Makroökonomische Modelle für die österreichische Wirtschaft

Ohne ZusammenfassungVortrag, gehalten am 7. Juni 1957 in der Nationalökonomischen Gesellschaft in Wien.     

Die fluktuation der Arbeitskräfte

Zusammenfassung Es konnten vier Typen der Fluktuation isoliert werden, die neben persönlichen Komponenten für die Fluktuation der Arbeitskräfte maßgebend sind. Ein Teil der Fluktuation geht auf das Ausprobieren des Arbeitsplatzes — angesichts der Unvollkommenheit der Information — zurück (Probe-Fluktuation). Die Wechselneigung ist daher bei Personen mit kurzer Betriebszugehörigkeitsdauer sowie jüngeren Arbeitskräften (20 bis 30 Jahre) relativ hoch.Eine weitere Form der Fluktuation ist die Reaktion der Arbeinehmer auf Unterschiede in den Nettovorteilen verschiedener Arbeitsplätze (Lohn-Fluktuation). Die Arbeitskräfte wandern per Saldo aus Niedrig- in Hochlohnbetriebe, aus Klein- in Großbetriebe und aus schrumpfenden in expandierende.Das Bestehen eines dualen Arbeitsmarktes impliziert, daß benachteiligte Arbeitskräfte (Ungeschulte mit geringem betriebsspezifischem Training) häufig kündigen, während begünstigte Arbeitskräfte (Geschulte) relativ selten wechseln (Hilfskräfte-Fluktuation). Tatsächlich ist die Wechselneigung von Ungeschulten und Arbeitern (vor allem im industriell-gewerblichen Sektor) weit überdurch-schnittlich. Die Zahl der Wechselfälle wird neben der Wechselneigung durch die alternativen Beschäftigungsmöglichkeiten bestimmt (Konjunktur-Fluktuation). Die Fluktuation schwankt so deutlich mit der Anspannung auf dem Arbeitsmarkt, daß sie als Anspannungsindikator angesehen werden kann.die Branchenunterschiede in verschiedenen Maßzahlen der Fluktuation lassen sich im wesentlichen auf die dargestellten vier Fluktuationstypen zurückführen. (Zur Messung des Arbeitsplatzwechsels empfiehlt es sich, Verbleibenswahrscheinlichkeiten der betrieblichen Zugänge und dienstalterspezifische Fluktuationsraten zu errechnen.)

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Summary There are four main features of labour turnover. A substantial part of turnover is due to job shopping in view of imperfect information. Therefore, workers with short job tenure and younger employees (20–30 years) reveal a high propensity to quit. Another type of quit behaviour is the reaction of workers to differences in the net advantages of various jobs. The employed move from the low wage to the high wage sector, from small to largescale enterprises and from shrinking to expanding firms. The existence of a dual labour market implies that disprivileged workers (with low general and specific training) quit frequently and privileged workers rarely change the job. In fact, the turnover rate of white-collar workers and persons with higher formal education is far below average. The actual level of labour turnover does not only depend on the propensity to quit but also on the alternative job opportunities. Voluntary quits are so closely related to the tightness of the labour market that they can be regarded as a labour market indicator. Regression analysis shows that the differences in various measures of turnover are essentially due to these four features of turnover. (For measurement of labour turnover it is recomended to use the probabilities of a batch of entrants to survive certain points in time. as well as job tenure-specific turnover rates.)

     

Democracy and Opinion Falsification: Towards a New Austrian Political Economy

Hayek's view of democracy as a process of forming opinion is taken as a starting point for inquiring into issues largely neglected by Public Choice and Constitutional Economics. In an Austrian perspective, fallible individual knowledge, political entrepreneurs and dissenting minorities attain a distinctive role in the process of political competition. Based on the observation that political opinions consist of preferences and theories, the concept of opinion falsification is introduced. It is a spontaneous result of social interaction creating preference falsification - the disguise of true feelings, but also knowledge falsification – the discovery of false beliefs. Democratic constitutions can limit the scope of preference falsification and increase the potential for knowledge falsification, thus supporting Hayek's view that it is in its dynamic, rather than its static, aspects, that the value of democracy proves itself.