Sen’s criticism of revealed preference theory and its ‘neo-samuelsonian critique’: a methodological and theoretical assessment

This paper evaluates how Amartya Sen’s critique of revealed preference theory (RPT) stands against the latter’s contemporary, ‘neo-Samuelsonian’ version. Neo- Samuelsonians have argued that Sen’s arguments against RPT are innocuous, in particular once it is acknowledged that RPT does not assume away the existence of motivations or other latent psychological or cognitive processes. Sen’s claims that preferences and choices need to be distinguished and that external factors need to be taken into account to analyze the act of choice then appear to be irrelevant. However, while it is true that contemporary revealed preference theory (CRPT) partially evades Sen’s critique, I show that the latter is still relevant outside the restricted areas of consumer choice and market dynamics. In particular, Sen’s views regarding the importance of incomplete preferences and the multiplicity of levels of agency can hardly be integrated into the framework of CRPT. This is a significant limit, given the imperialistic claims of some of the proponents of the latter.     

Recent Developments at DG Competition: 2016/2017

The Directorate General for Competition at the European Commission enforces competition law in the areas of antitrust, merger control, and state aids. This year’s article provides first a general presentation of the role of the Chief Competition Economist’s team and surveys the main achievements of the Directorate General for Competition over 2016/2017. The article then reviews the economic work undertaken in one merger case between Dow/DuPont, which raised specific issues related to innovation, as well as in an antitrust case on parity clauses related to Amazon e-books.     

Guess what: It’s the settlements! Vertical integration as a barrier to efficient exchange consolidation

Exchanges and other trading platforms are often vertically integrated to carry out trading and settlement as one operation. We show that these vertical silos can prevent the full realization of efficiency gains from horizontal consolidation of trading and settlement platforms. When costs of settlement are private information, a merger of vertical silos cannot be designed to always ensure efficient trading and settlement after the merger. We also show, however, that efficiency can be guaranteed either by merging the trading platforms and delegating the operation of settlement platforms to independent agents or by forcing competition across vertical silos through cross-listings.     

Normative economics and paternalism: the problem with the preference-satisfaction account of welfare

The normative turn of behavioral economics has led to a reconsideration of paternalism in normative economics. This article argues however that the preference-satisfaction account of welfare that still dominates welfare economics makes impossible to account for all the dimensions of the debate over paternalism. The laundered preferences approach and the alternative selves approach are two available frameworks to reconcile the consumer sovereignty principle that underlies the preference-satisfaction account with the fact that preferences are endogenous and context-dependent. I show however that neither of them is able to account for autonomy-related issues which are central in current debates over “soft” or “libertarian” paternalism. I suggest that a justification of paternalism compatible with liberal principles depends on the ability for reasonable persons to voluntarily consent to a collective choice rule with paternalistic tendencies. This argument relies on a distinction between preferences (which can be attached to other entities than persons) and values which is unknown to welfare economics.     

Incorporating disounted cash flow contours onto a bcg portfolio matrix using limit pricing

Little or no attempt has been made to integrate the tools of financial investment appraisal with that of corporate strategy, despite the centrality of both of these disciplines in corporate resource allocation. This paper offers one approach which sets out, through a computer model, to explore the location of DCF values on a strategic portfolio matrix. The modelling took the BCG matrix as the basis of its text together with BCG's own assumption. It was found that the resulting DCF contours suggests a different emphasis compared with BCG's investment advice based on the matrix. The authors do not pretend, however, that the model provided is an immediate, more rigorous, solution to practical strategic analysis. Nor do they argue that the BCG advice may not be appropriate under a wider set of assumptions. The model is offered as suggesting one direction in which work might be conducted in order to link financial investment appraisal with strategic analysis portfolios in order gradually to convert the very general advice usually offered by the use of such matrices to a more precise form.     

Optimal contracts in a dynamic costly state verification model

Summary. This paper describes optimal contracts in a dynamic costly state verification model with stochastic monitoring. An agent operates a risky project on behalf of a principal who can observe the projects revenues at a cost. We show that an optimal contract exists such that, at any history, either the principal claims the projects entire revenues or promises to claim nothing in the future. In particular, the agents expected income rises with time. Moreover, except in at most one period, the principal claims all revenues when audit occurs. We provide conditions under which all optimal contracts satisfy these properties.Received: 4 February 2004, Revised: 4 June 2004, JEL Classification Numbers: D8, C7. Correspondence to: Cyril MonnetWe wish to thank Patrick Bolton, Vitor Gaspar, Mark Guzman, Martin Hellwig, Narayana Kocherlakota, Thorsten Koeppl, Albert Marcet, Benny Moldovanu, Ernst-Ludwig von Thadden and seminar participants at the University of Mannheim, the University of Minnesota, the Society for Economics Dynamics Meetings in New York and the Society for the Advancement in Economic Theory in Rhodos for helpful comments and discussions. The views expressed herein are those of the authors and may not reflect the views of the European Central Bank, the Eurosystem, the Federal Reserve Bank of Dallas or the Federal Reserve System.