The ‘science-as-market’ analogy: a constitutional economics perspective

The ‘science-as-market’ analogy has been used in support of the notion that in science just as in markets competition works as an effective instrument for reconciling the self-interested ambitions of individual agents with the social function that science and markets are supposed to serve. This paper examines the analogy from a constitutional economics perspective, drawing attention to the role that the rules of the constitution of the ‘game of science’ as well as the ‘market game’ play in conditioning the ways in which competition works in the two realms.     

You are not in my boat: common fate and discrimination against outgroup members

Sharing a common fate with some people but not others may affect how economic agents behave in economic transactions, quite independently of strategic incentives. We present an experimental test of the effect of perceptions of common fate on the inducement of economic discrimination in bilateral settings. In settings where the bargaining power was all with one subject (the dictator game and a ‘unilateral power game’), about half of the subjects engaged in negative discrimination: insiders were not treated better relative to control sessions, but outsiders were treated worse. Discrimination may be induced by a more conflictual perception of the decision problem.     

The process and a simple logic of ‘meso’. Emergence and the co-evolution of institutions and group size

‘Summing-up’ aggregation of micro decisions contrasts with structural emergence in complex systems and evolutionary processes. This paper deals with institutional emergence in the ‘evolution of cooperation’ framework and focuses on its size dimension. It is argued that some ‘meso’ (rather than ‘macro’) level is the proper level of cultural emergence and reproduction. Also Schumpeterian economists have discussed institutions as ‘meso’ phenomena recently, and Schelling, Axelrod, Arthur, Lindgren, and others have dealt with ‘critical masses’ of coordinated agents and emergent segregations. However, emergent group size has rarely been explicitly explored so far. In an evolutionary and game-theoretic frame, ‘meso’ is explained in terms of a sustainably cooperating group smaller than the whole population. Mechanisms such as some monitoring, memory, reputation, and active partner selection loosen the total connectivity of the static and deterministic ‘single-shot’ logic and thus allow for emergent ‘meso’ platforms, while expectations ‘to meet again’ remain sufficiently high. Applications of ‘meso-nomia’ include the deep structure of ‘general trust’ and macro-performance in ‘smaller’ and ‘well networked’ countries which helps to explain persistent ‘varieties of capitalism’.     

‘Give me a chance!’ An experiment in social decision under risk

This paper reports the results of a ‘probabilistic dictator game’ experiment in which subjects were given an option to share chances to win a prize with a dummy player. Using a within-subject design we manipulated two aspects of the decision, the relative cost of sharing and the nature of the lottery: the draws were either independent for the two players (‘noncompetitive’ condition) or one’s success meant other’s failure (‘competitive’ condition). We also asked for decisions in a standard, non-probabilistic, setting. The main results can be summarized as follows: first, a substantial fraction of subjects do share chances to win, also in the competitive treatments, thus showing concern for the other player that cannot be explained by outcome-based models. Second, subjects share less in the competitive treatment than in other treatments, indicating that procedural fairness alone cannot explain the data. Overall, these results suggest that models aiming at generalizing social concerns to risky environments will have to rely on a mix of distributive and procedural fairness.     

Routines, genes and program-based behavior

It is argued that the ‘routines as genes’ and the ‘routines as skills’ analogies are misleading in several respects. Neither genes, nor skills, nor routines program behavior, if this is taken to involve, first, that they do so in a way that excludes conscious, deliberate choice and, second, that they determine behavior. On a proper understanding of ‘gene’, ‘skill’ and ‘routine’, conscious, deliberate choice is not ruled out when genes, skills or routines are operating. Once we shift from analogy to ontology, genes and skills appear as basic constituents of routines. Routines cannot exist unless specific genes and skills are in place in the individuals involved in the operation of the routines. Both genes and skills can be said to act unconsciously as ‘If ..., then ...’ programs. Even complete knowledge of genes and skills of the individuals involved would fall far short of predicting individual and firm behavior, however. What would still be missing, it is argued, is knowledge about organization, the specific ways in which genes, skills and individuals are connected with one another, and knowledge of context-dependence, what environmental stimuli activate specific chains of genes, skills and individuals.

The Bioeconomics of Cooperation

When transactions and information are costly and exchange is non-simultaneous, ‘institutions matter’. They matter because exchange under these circumstances subjects the participants to potentially harmful behaviors by other participants, among which are: opportunistic behavior, agency, the free-rider problem, cheating, moral hazard, and adverse selection. Institutions constrain these behaviors, allowing the participants to take advantage of the gains from trade and specialization, and thereby facilitating cooperation. Individuals adhere to institutional rules because they gain by doing so. Because the individual gains are inseparable from the structure of the institutions, the institutions themselves necessarily become the focus of the analysis—as we see in the new institutional economics (NIE). The new group selection position in biology involves a similar shift in focus from the level of the individual to the group when studying the evolution of altruism. But some of the proponents of group selection go further, arguing that altruism in biology evolves because it is in the interest of the group, but not the individual. In fact, group level analysis is necessary in biology, as in the NIE, because it allows for the discovery of ‘institutions’ that constrain cheating, opportunistic behavior, etc., thereby making participation in the group in the long-run self-interest of the individual. This revised version was published online in August 2006 with corrections to the Cover Date.     

The Study of Ethnicity and Nationalism Needs Better Categories: Clearing up the Confusions that Result from Blurring Analytic and Lay Concepts

Synopsis It has been difficult to make progress in the study of ethnicity and nationalism because of the multiple confusions of analytic and lay terms, and the sheer lack of terminological standardization (often even within the same article). This makes a conceptual cleaning-up unavoidable, and it is especially salutary to attempt it now that more economists are becoming interested in the effects of identity on behavior, so that they may begin with the best conceptual tools possible. My approach to these questions has been informed by anthropological and evolutionary-psychological questions. I will focus primarily on the terms ‘ethnic group’, ‘nation’, and ‘nationalism’, and I will make the following points: (1) so-called ‘ethnic groups’ are collections of people with a common cultural identity, plus an ideology of membership by descent and normative endogamy; (2) the ‘group’ in ‘ethnic group’ is a misleading misnomer—these are not ‘groups’ but categories, so I propose to call them ‘ethnies’; (3) ‘nationalism’ mostly refers to the recent ideology that ethnies—cultural communities with a self-conscious ideology of self-sufficient reproduction—be made politically sovereign; (4) it is very confusing to use ‘nationalism’ also to stand for ‘loyalty to a multi-ethnic state’ because this is the exact opposite; (5) a ‘nation’ truly exists only in a politician’s imagination, so analysts should not pretend that establishing whether something ‘really’ is or is not ‘a nation’ matters; (6) a big analytic cost is paid every time an ‘ethnie’ is called a ‘nation’ because this mobilizes the intuition that nationalism is indispensable to ethnic organization (not true), which thereby confuses the very historical process—namely, the recent historical emergence of nationalism—that must be explained; (7) another analytical cost is paid when scholars pretend that ethnicity is a form of kinship—it is not.     

The origins of meso economics

The paper starts from Schumpeter’s proposition that entrepreneurs carry out innovations (the micro level), that swarms of followers imitate them (meso) and that, as a consequence, ‘creative destruction’ leads to economic development ‘from within’ (macro). It is argued that Schumpeter’s approach can be developed into a new—more general—micro-meso-macro framework in economics. Center stage is meso. Its essential characteristic is bimodality, meaning that one idea (the generic rule) can be physically actualized by many agents (a population). Ideas can relate to others, and, in this way, meso constitutes a structure component of a ‘deep’ invisible macro structure. Equally, the rule actualization process unfolds over time—modelled in the paper as a meso trajectory with three phases of rule origination, selective adoption and retention—and here meso represents a process component of a visible ‘surface’ structure. The macro measure with a view to the appropriateness of meso components is generic correspondence. At the level of ideas, its measure is order; at that of actual relative adoption frequencies, it is generic equilibrium. Economic development occurs at the deep level as transition from one generic rule to another, inducing a change of order, and, at the surface level, as the new rule is adopted, destroying an old equilibrium and establishing a new one.     

The firm-level employment effects of innovations in high-tech US manufacturing industries

We focus on four two-digit manufacturing industries that are known for their high patenting activity. We then use Principal Components Analysis to generate a firm- and year-specific ‘innovativeness’ index by extracting the common variance in a firm’s patenting and R&D expenditure histories. To begin with, we explore the heterogeneity of firms by using semi-parametric quantile regression. We then move on to parametric regressions that include a weighted least squares (WLS) analysis, which explicitly takes into account the different job-creating potential of firms of different sizes. As a result, we investigate the effect of innovation on total number of jobs, whereas previous studies have focused on the effect of innovation on firm behavior. Indeed, previous studies have typically taken the firm as the unit of analysis, implicitly weighting each firm equally according to the principle of ‘one firm equals one observation’. Our results suggest that firm-level innovative activity leads to employment creation that may have been underestimated in previous studies.     

A Critique of ‘Neoliberal Autonomy’: The Rhetoric of Ownership Society

The rhetoric of the Ownership Society defined by the Cato Institute has been integral to framing the motivation behind the Social Security reform introduced by George W. Bush. This motivational frame involves a fierce advocacy of what we will call ‘neoliberal autonomy’ in a Hayekian and Friedmanite sense. For Hayek and Friedman, the social adequacy component of Social Security is problematized in the name of self-reliance and individual choice, which rejects any authoritative standards as morally indefensible. Nevertheless, the rhetoric of the Ownership Society, though it glorifies the neoliberal notion of autonomy, does not explicitly question the moral basis of Social Security. Rather, by defining the terms of debate, it frames the meaning of Social Security along neoliberal lines in an attempt to make a supposedly detached economic case for private retirement accounts. In this ‘pro-privatization’ framework, the social adequacy component of the Social Security system fades away as individual equity, or actuarial fairness, comes to the fore as the chief theme. We suggest a ‘pro-social’ rhetoric that recognizes the pursuit of social standards as providing the element of autonomy.

Saving neighborhoods by saving farms: Metropolitan congregations united for St. Louis challenges urban sprawl

Critics usually decry urban sprawl's impact on the natural geograph— polluted air and water, vanishing farmlands, forests and open spaces. However, urban sprawl's effect onhuman geography has been even greater, as exemplified by metro St. Louis. With the region's urbanized land growing at seven times the rate of urbanized population, sprawl accelerated the decline of the central city and older, built-out suburbs (St. Louis lost over half its population since mid-century), increased economic segregation and stagnation (10 percent in 20 years by one measure) even as racial barriers were slowly lowered, and widened fiscal disparities among local governments (St. Louis City's property evaluation shrank by over 70 percent in 35 years). Inner-city and older-suburb coalitions, like Metropolitan Congregations United for St. Louis, are now joining environmental advocates to lobby for new state growth management laws. “We cannot win the ‘inside game’ without winning the ‘outside game,’” church leader explained. David Rusk is an urban policy consultant and author of Cities without Suburbs (1993),Baltimore Unbound (1995), andInside Game/Outside Game (1999). He is a former mayor of Albuquerque and New Mexico legislator.     

Wealth accumulation and economic progress

In an evolutionary dynamic economic theory the accumulation of durable goods (i.e., wealth) is a key feature. Here we show that the wealth of individual economic agents can be measured by the progress function (PF). PF is a function of goods and money under straightforward assumptions, notably the ‘no-loss’ rule for transactions. We derive explicit formulae for wealth from the PF. We also show how the compatibility of the PF and the neoclassical economics deriving the conventional utility functions from the PF.     

A simple note on herd behaviour

In his ‘Simple model of herd behaviour’, (Banerjee A (1992) A simple model of herd behaviour. Q J Econ CVII:797–817) shows that—in a sequential game—if the first two players have chosen the same action, player 3 and all subsequent players will ignore his/her own information and start a herd, an irreversible one. In this paper, we analyse the role played by the tie-breaking assumptions in reaching the equilibrium. We show that: players’ strategies are parameter dependent—an incorrect herd may be reversed; a correct herd is irreversible.

Out of a slave contract: the analysis of pre-Hobbesian anarchists in the Old Testament

Buchanan’s constitutional economics takes social conflict (the ‘Hobbesian jungle’, ‘Hobbesian anarchy’) as the starting point for the analysis of social contract. Buchanan argues that in the presence of social conflict either some social contract (e.g. some system of formal laws) or some generally shared moral precepts are needed to resolve the predicament that social conflict presents. The present paper argues that a social conflict model also served the Old Testament as an analytical starting point. However, contrary to both standard theological interpretation and Buchanan’s explicit claims, I argue that the Old Testament had already made an attempt to model ‘Hobbesian anarchy’ in order to approach social conflict in an essentially modern, non-metaphysical manner. I argue that figures like Adam and Eve or Jacob, in the tradition of Hobbesian anarchists, questioned godly authority and the associated imposed, authoritarian, metaphysical social contract. In this way, one can detect a modern, contractarian constitutional economics in pre-Enlightenment literature (and in Genesis, specifically) in direct contrast to Buchanan’s claims.     

Altruism and Spite in a Selfish Gene Model of Endogenous Preferences

Economists and biologists have long grappled with the apparent contradiction of altruism in a naturally-selected world. Standard economic models are built upon an assumption of material self-interest where agents maximize individual outcomes without regard for the effects on others. This paper begins with a brief discussion of the evidence that human behavior deviates from the economic assumption. With the goal of more accurately describing human nature, the interpersonal components of preferences are derived in a genetic model. This model predicts a variety of behaviors that are considered paradoxical within the standard economic framework. The optimal attitude towards others is parameterized by the genetic relationship between individuals and by the population size. For interactions between ‘average’ individuals, the standard economic assumption is the limiting case of the genetic model as the population becomes arbitrarily large. This revised version was published online in August 2006 with corrections to the Cover Date.     

Is Rationing an Option for Approaching Healthcare Services Provision? The Case of the Greek Cardiac Patients

This paper attempts to address some of the issues surrounding rationing of healthcare services, with application to Greece’s delivery of cardiac services. To this end, first, we provide highlights of the current debate concerning rationing worldwide and critically discuss them. Following that, an empirical analysis of the way ‘key’ stakeholders perceive rationing issues in Greece, is performed. Findings indicate that rationing is a highly disputed approach, subject to individualistic interpretations and moral issues. At policy level, it becomes evident that rationing is a mixture rather than a single policy concern, depending on a complicated range of locally-based reconciliation made at various levels of interested parties. Hence, no universal formula exists to fit all countries’ healthcare systems and further case-by-case research, is required.     

Bad Eggs,Learning-by-doing,and the Choice of Technology

We model long-run economic development through technology adoption under scientific uncertainty about environmental effects. There are four possible long-run equilibria in a socially planned economy: ‘High-growth’, adopt rapidly, but abandon damaging technologies once revealed (DDT, CFCs); ‘Cautious’, brake the introduction of new technologies to avoid mistakes (genetically modified organisms); ‘No-growth’, halt technological progress to preserve secondary knowledge; and ‘Collapse’, adopt rapidly without ever abandoning damaging technologies. In the base parameterization a short-sighted social planner chooses the cautious strategy. A far-sighted planner chooses the high-growth strategy, unless damages are irreversible in which case the cautious strategy again dominates. Regulatory options in the market economy are investigated. Pollution taxes do not affect the firm’s level of precaution if they can only be applied after the adopting firm has reaped the benefits; however, they do encourage the abandonment of damaging technologies. Liability rules do affect precaution, but may lead to excessive caution, or even a no-growth trap.     

Incomplete risk sharing arrangements and the value of information

Summary. The paper constructs a theoretical framework in which the value of information in general equilibrium is determined by the interaction of two opposing mechanisms: first, more information about future random events leads to better individual decisions and, therefore, higher welfare. This is the ‘Blackwell effect’ where information has positive value. Second, more information in advance of trading limits the risk sharing opportunities in the economy and, therefore, reduces welfare. This is the ‘Hirshleifer effect’ where information has negative value. We demonstrate that in an economy with production information has positive value if the information refers to non-tradable risks; hence, such information does not destroy the Blackwell theorem. Information which refers to tradable risks may invalidate the Blackwell theorem if the consumers are highly risk averse. The critical level of relative risk aversion beyond which the value of information becomes negative is less than 0.5. Received: May 14, 2001; revised version: March 5, 2002     

Synergy Goes to War: A Bioeconomic Theory of Collective Violence

Synopsis Synergy – here defined as otherwise unattainable combined effects that are produced by two or more elements, parts or individuals – has played a key causal role in the evolution of complexity, from the very origins of life to the evolution of humankind and complex societies. This theory – known as the ‘Synergism Hypothesis’ – also applies to social behavior, including the use of collective violence for various purposes: predation, defense against predators, the acquisition of needed resources and the defense of these resources against other groups and species. Among other things, there have been (1) synergies of scale, (2) cost and risk sharing, (3) a division of labor (or, better said, a ‘combination of labor’), (4) functional complementarities, (5) information sharing and collective ‘intelligence’, and (6) tool and technology ‘symbioses’. Many examples can be seen in the natural world – from predatory bacteria like Myxococcus xanthus to social insects like the predatory army ants and the colonial raiders Messor pergandei, mobbing birds like the common raven, cooperative pack-hunting mammals like wolves, wild dogs, hyenas and lions, coalitions of mate-seeking and mate-guarding male dolphins, the well-armed troops of savanna baboons, and, closest to humans, the group-hunting, group-raiding and even ‘warring’ communities of chimpanzees. Equally significant, there is reason to believe that various forms of collective violence were of vital importance to our own ancestors’ transition, over several million years, from an arboreal, frugivorous, mostly quadrupedal ape to a world-traveling, omnivorous, large-brained, tool-dependent, loquacious biped. The thesis that warfare is not a recent ‘historical’ invention will be briefly reviewed in this paper. This does not mean that humans are, after all, ‘killer apes’ with a reflexive blood-lust or an aggressive ‘drive’. The biological, psychological and cultural underpinnings of collective violence are far more subtle and complex. Most important, the incidence of collective violence – in nature and human societies alike – is greatly influenced by synergies of various kinds, which shape the ‘bioeconomic’ benefits, costs and risks. Synergy is a necessary (but not sufficient) causal agency. Though there are notable exceptions (and some significant qualifiers), collective violence is, by and large, an evolved, synergy-driven instrumentality in humankind, not a mindless instinct or a reproductive strategy run amok.      

Schumpeter’s ‘conduct model of the dynamic entrepreneur’: scope and distinctiveness

Schumpeter formulated a ‘conduct model’ of entrepreneurial behaviour. Received wisdom has emphasised the economic functions of Schumpeter’s entrepreneur, neglecting behavioural aspects. Schumpeter’s model is examined; it posits a continuum of behaviours which are ‘entrepreneurial’, that rely on socially situated, tacit knowledge and are expressions of conscious, subjective rationality. Schumpeter’s model excluded unconscious optimisation and decision rules derived from bounded rationality. Comparisons are drawn with modern neoclassical, Austrian, and the older behavioural characterisations of entrepreneurial behaviour. The newer ‘effectuation’ model of entrepreneurial behaviour is also contrasted with Schumpeter’s approach. We find, among other things, that modern Schumpeterian economics associated with Nelson and Winter is not a natural continuation of Schumpeter’s model. However, some developments in neo-Schumpeterian economics, including the effectuation model deriving from the older behavioural tradition, are congruent with both the original ‘conduct model’ and Schumpeter’s directions for further research.