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.     

Regulatory ‘Balancing’ and the Efficiency of Green R&D

We identify and analyse several dynamic implications of setting environmental standards such as to balance marginal costs and benefits. The adoption of such a regulatory approach is shown to effect (i) the speed of improvement of abatement technologies; (ii) the direction (in a sense to be defined) of that improvement; (iii) its source and the distribution of the rents from it; and (iv) the rate of development of defensive (averting) technologies. Existing views are thoroughly synthesised in the context of a simple diagrammatic model, several new results are derived and at least one conventional wisdom questioned. The message of the analysis for legislators and regulators is that cost–benefit balancing should be done with care.     

Ein Entscheidungsmodell für Konsumieren und Sparen

Summary The present study analyses the simultaneous problem of consumption and saving by means of a consistent demand system; for this purpose the linear—expenditure—system (LES), developed by R. Stone, has been modified and used as a methodological base. Saving takes, for the sake of operationality, the character of a consumer—good and becomes an argument of the utility function. The usual neoclassical assumption of utility maximization allows the derivation of a linear expenditure system of consumption and saving (LESSC) when prices and income are given. The simultaneous LESSC-model has remarkable weaknesses, however: the assumption of certainty, the static character of the model, the disregard for major savings—motives and private expenditure on homebuiding led to bad elasticity—estimates. The assumpion of directly—additive utility functions causes furthermore collinearity between income—and price—elasticities such that the meaning of the derived elasticities is greatly reduced.The income—elasticities derived from the LESSC are positive throughout but show a remarkable variance. The calculation of the Friedman—bias demonstrates a rather strong bias due to the assumption of certainty. A modification resulted in income—elasticities of private consumption and savings of around 0,93 (unmodified: 0,88) and 1,41 (unmodified: 1,76). The demand for consumption goods of great necessity was income—inelastic whereas the demand for goods of less importance to survival was income—elastic. An analysis of income—elasticities of the disaggregated system and the relation between transitory components of consumption and income existing in Austria gave the impression that unexpected changes in income are not only reflected in saving but also in changes of the consumption—structure.The respective price—elasticites are all negative and smaller than 1. For less important consumption—goods lower price—elasticities have been measured and for easily substitutable goods higher ones. Marked crossprice—elasticities could only by discovered with clothing and food products. Generally it can be said that an increase in prices of goods of the daily needs hits both the expenditure on easily substitutable consumption goods and causes dissaving.A comparison with the elasticities calculated through OLS shows a greater reliance of LESSC—elasticities as far as data of differing aggregation levels are concerned.

---

---

Mécanique Sociale may one day take her place along with Mécanique Celeste throned each upon the double—sided height of one maximum principle, the supreme pinnacle of moral as of physical science.     

The measurement of entry rates: Recondiseration and resolution

This paper extends the recent analysis of Audretsch and Fritsch on entry rates, and suggests a resolution to the possible policy confusion which they discuss. British data also show very different results for the determinants of entry depending on whether the ecological or labour market entry rate is used. It is shown that, in addition to the static, size-distribution effect discussed by Audretsch and Fritsch, there are dynamic factors at work which may lead to this result. However, there need be no conflict in policy signals arising from this, because the labour market approach can be shown to be a superior measure of entry rates where spatial analysis is undertaken.     

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.     

The joint exploitation of a productive asset: a game-theoretic approach

Summary In the present paper we explore the set of equilibria in a game-theoretic model in which players can jointly exploit a productive asset. As in repeated games, we find that under certain circumstances there may be efficient as well as inefficient equilibria. In the model we study, efficient trigger-strategy equilibria may exist from some starting states (stocks of assets) but not others. More precisely, there is a stock level, sayy, such that an efficient trigger-strategy equilibrium exists from starting stocks greater than or equal toy, but not from those strictly less thany. (This statement is meant to include the cases in whichy is zero or infinite.) Under some circumstances, there may exist a new kind of equilibrium, which we call aswitching equilibrium. We show that, in our model, whenever y is positive (and finite), there is an open intervalI with upper endpoint y such that, from any starting stock inI there is an equilibrium of the dynamic game with the following structure: the players follow an inefficient but growing path until the stock reaches the levely, and then follow an (efficient) trigger strategy after that. The use of a continuous-time model enables us to conveniently decouple the delay of information from the time interval between decisions.We thank the C. V. Starr Center at New York University for research support. The views expressed here are those of the authors, and not necessarily those of AT&T Bell Laboratories.     

Dynamic effects of externalities,optimal saving and economic growth

Conclusion Recognizing the fact that provision of mixed public goods can result in both consumption externalities of the Samuelsonian variety as well as production externalities we set out to extend the earlier results of Rao and Kalpagam (1977) on the effect of public goods on economic growth. In so doing, we considered three standard specifications of production externalities and enlarged the concept of consumption displacement. Our basic conclusion is that the results of our earlier paper remain valid under the more general conditions set out in this paper.     

Risk Aversion, Intergenerational Equity and Climate Change

The paper investigates a climate-economy model with an iso-elastic welfare function in which one parameter measures relative risk-aversion and a distinct parameter measures resistance to intertemporal substitution.We show both theoretically and numerically that climate policy responds differently to variations in the two parameters. In particular, we show that higher but lower leads to increase emissions control. We also argue that climate-economy models based on intertemporal expected utility maximization, i.e. models where = , may misinterpret the sensitivity of the climate policy to risk-aversion.     

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.     

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.     

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.     

Information Cascades in the Labor Market

A model of herding behavior in the labor market is presented where employers receive signals with limited precision about the workers types, and can observe previous employers decisions. Both the employer and the worker can influence the signal probabilities. In particular, the employer tries to increase the precision of the signal about the workers type whereas the worker wants to get a good signal, independent of her type. In a two-period model, we derive conditions for an equilibrium in which only down-cascades occur, i.e., the second employer does not hire a worker with a bad history even if he receives a favorable private signal about the workers type, but he follows his own signal if the workers history is good.     

Existence of an equilibrium in first price auctions

Summary We study the first price auction game with an arbitrary number of bidders when the bidders' valuations are independent from each other. In technical words, we work within the independent private value model. We show that if the supports of the valuation probability distributions have the same minimum and if this minimum is not a mass point of any of these distributions, then a Nash equilibrium of the first price auction exists. We then modify the first price auction game by adding a closed interval of messages. Every bidder has to send a message with the bid he submits. These messages are used in the resolution of the ties. The winner of the auction is chosen randomly among the highest bidders with the highest value of the message among the highest bidders. In the general case, we prove the existence of a Nash equilibrium for this augmented first price auction.I wish to thank Mamoru Kaneko and a referee for their comments on an earlier draft.     

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.     

Corporate Lobbying, Regulatory Conduct and the Porter Hypothesis

Michael Porter, the influential Harvard management guru, has promoted the idea that compliance with stricter environmental regulations can afford secondary benefits to firms through improved product design, innovation, corporate morale and in other ways. Once these secondary benefits are factored, the net cost of compliance is argued to be lower than conventionally thought and may even be negative. Whilst environmental economists have rejected the Porter Hypothesis as being based on excessively optimistic expectations of the likely size of such secondary benefits the underlying ideas do enjoy significant credence in the business community. In the context of a lobbying model of regulatory policy-making we argue that the EPA should change the way it conducts regulatory policy to take account of Porter's views – even if it knows those views to be misguided. The model serves to illustrate the more general point that fashions in management thinking can be expected to impact the optimal conduct of regulatory policy.     

Sector-specific capital, “Bang-bang” investment,and the Filippov solution

Bang-bang investment in a two-sector growth model with immobile capital is rational and leads to a unique and globally stable long-run equilibrium along a sliding trajectory. This steady state coincides with the stationary equilibrium in the traditional model with non-sector-specific capital.This article was written while the authors were visiting scholars at Cornell University. We gratefully acknowledge financial assistance from the Erasmus University Trust Fund and the Netherlands Scientific Organization. We would like to thank, without implicating, two anonymous referees, Martijn Herrmann, Jean-Marie Viaene, Claus Weddepohl, and the participants of seminars at the University of Maryland, the University of Montreal, and Erasmus University Rotterdam for perceptive remarks and useful comments. Jeroen Hinloopen and Rien Wagenvoort provided able graphical assistance. The views expressed in this article are those of the authors and not necessarily those of the World Bank.     

Makroökonomische Modelle für die österreichische Wirtschaft

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

Information processing for a finite resource allocation mechanism

Summary deal with an organization havingm individual agents (the agents) and one central agent or agency (the coordinator), and the problem of allocating a fixed supply ofn commodities among the agents. The coordinator wishes to distribute the commodities in such a way as to maximize an objective function whose arguments are functions known (implicitly) to the individual agents, but not to the coordinator. The more information the coordinator obtains about the individual agents' functions, the better the allocation decision he or she can make; however, gaining such information is costly, so that the coordinator must balance the potential gain against the cost of acquiring additional information. We find a satisficing solution to this problem which is computable and which terminates in a finite number of steps.We would like to thank Leo Hurwicz, Ken Matheny, Shailendra Mehta, Bill Novshek, Roy Radner, Stan Reiter, Vernon Smith, Mark Walker, and, especially, John Ledyard and Tom Marschak, for helpful comments and suggestions. We must, of course, however reluctantly, accept responsibility for any remaining defects.     

A New Variant of the Winner's Curse in a Coasian Contracting Game

We examine behavior in a Coasian contracting game with incomplete information. Experimental subjects propose contracts, while automaton property right holders or robot players with uncertain preferences respond to those proposals. The most common pattern of proposals observed in these games results in too many agreements and, in some games, payoffs that are stochastically dominated by those resulting from rational proposals (which imply fewer agreements). In this sense, we observe a winner's curse similar to that observed in bidding games under incomplete information, such as the common value auction (Kagel, J.H. and Levin, D. (1986) American Economic Review. 76, 894–920) and the takeover game (Samuelson, W. and Bazerman, M.H. (1985) In Research in Experimental Economics, Vol. 3. JAI Press, Greenwich, pp. 105–137; Ball, S.B., Bazerman, M.H., and Carroll, J.S. (1990) Organizational Behavior and Human Decision Processes. 48, 1–22; Holt, C. and Sherman, R. (1994) American Economic Review. 84, 642–652). While the naïve model of behavior nicely predicts the winner's curse in those previous bidding games, it does not do so here. Instead, an alternative model we call the guarantor model explains the anomalous behavior best. Hence, we suggest this is a new variant of the winner's curse.     

Public-Choice Analysis of a New International Organization: The International Sea-Bed Authority

The usefulness of the public-choice approach for a better understanding of international organizations can be demonstrated by applying it to the analysis of the structure and functions of a new international organization, the International Sea-Bed Authority, established in 1994, after two decades of negotiations under the auspices of the United Nations, with the aim to control the oceans' mineral resources beyond the limits of national jurisdictions (which have been proclaimed by the U.N. Assembly common heritage of mankind). First, the reasons for establishing this organization, whose basis is the common heritage of mankind nature of ocean resources, are examined under two aspects: 1) definition and protection of property rights; 2) environmental control of sea-bed mining activities. Secondly, the organization's decisionmaking system is presented, including such features as the assembly, council with chamber voting, finance committee with decision by consensus, features that balance the voting power of members and protect those countries that bear the financial responsibility for the budget. Finally, some comments are offered about more general aspects of the theory of international organizations: the bureaucracy (and diplomacy) of these organizations as well as the interdependence among international organizations, which opens the way to forms of international logrolling and makes it advisable for countries not to exit from these organizations, even when they have no primary interest in them.