Establishing preference functions for macroeconomic decision models: Some observations on Ragnar Frisch's contributions

The article reviews Ragnar Frisch's contributions to solving the problem of establishing preference functions for macroeconomic decision models, and compares Frisch's approach with other possible approaches to the problem. The article mainly considers linear and quadratic preference functions. In discussing the methodology attention is drawn to the analogy with problems in the analysis of consumer demand.     

Ragnar Frisch's role in econometrics: A sketch

The foremost place of R. Frisch in the modern development of economics and especially econometrics is assessed. Some of his achievements are briefly described: on land rent theory, marginal utility of income, bunch map ‘technique’ model building, planning, programming and Pareto optima. Some remarkable facts of Frisch's life are also reported, e.g. his short stay in a concentration camp during the war and his crusade against Norway joining the E.E.C. on the ground that the country had better remain an outside exampie of democracy and social justice.     

Reputation and imperfect information

A common observation in the informal literature of economics (and elsewhere) is that is multistage “games,” players may seek early in the game to acquire a reputation for being “tough” or “benevolent” or something else. But this phenomenon is not observed in some formal game-theoretic analyses of finite games, such as Selten's finitely repeated chain-store game or in the finitely repeated prisoners' dilemma. We reexamine Selten's model, adding to it a “small” amount of imperfect (or incomplete) information about players' payoffs, and we find that this addition is sufficient to give rise to the “reputation effect” that one intuitively expects.     

Money,net wealth,and the real-balance effect

This paper deals with two important questions in monetary economics: Is competely produced resource-using bank money part of society's net wealth? Is such money part of the base relevant for the operation of the real-balance effect? We argue that the answer to the first question depends critically on the nature of the asset and not on the market structure of the industry. In particular, we argue that perfect competition in the banking industry is a necessary but not sufficient condition for excluding bank money from society's net wealth. Furthermore, we argue that resource-using bank money is part of the base relevant for the operation of the real-balance effect, regardless of whether or not it is part of society's net wealth.     

The impossibility of IQ

Arrow's Impossibility Theorem is applied to the problem of measuring IQ. It is necessary to combine specific ability orderings into a general intelligence ranking, but this is impossible without infringing one desirable condition. IQ scores have no place in economics.     

Remarks on the first welfare theorem with nonordered preferences

A strong convexity assumption is used to establish the first fundamental theorem of welfare economics using the strong definition of Pareto optimality without assuming that the weak preference relations are complete or transitive. An example demonstrates that Debreu's (Proc. Nat. Acad. Sci., 40 (1954), 588–592) nonsatiation and convexity assumptions are insufficient to establish the result in the absence of transitivity.     

N.H. Stern on substance and method in development economics

Stern's observations on some major topics in development economics are examined, notably his interpretation of the hypothesis of the vicious circle of poverty, as well as his observations on the extent, movement and measurement of international income differences, the implications of central planning, and the effects of development aid. Issues of both substance and method are examined. The inadequacies of some leading ideas of development economics, defended by Stern, are considered. Significant instances of inappropriate aggregation and quantification are noted, as well as some results of the treatment as parameters of factors which are regarded appropriately as variables. Problems of assessing evidence, including assessment of the effects of policies, are also discussed.     

Welfare effects of tax and price changes

This paper studies a model of equilibrium in an economy without distributional problems but with distortions. The case where the distortions are due to specific taxes is examined in particular detail. A formula is derived to compare the utility levels in neighbouring equilibria corresponding to slightly different distortion levels. Several well known results in welfare economics and public finance are derived as corollaries, and other applications are suggested. An interpretation using consumers' and producers' surplus is given.     

Dissertation Abstract: “Rationality, Minds, and Machines in the Laboratory: A Thematic History of Vernon Smith’s Experimental Economics”

This dissertation aims at elucidating the history of Vernon Smith’s experimental economics by focusing its attention upon the three themes of rationality, minds and machines that assumed significance at different (albeit overlapping) stages of the development of Smith’s experimental economics with the help of his published and unpublished papers.Chapter 1 is devoted to the scrutiny of the form of rationality incorporated into the portions of Smith’s laboratory experiments whose results have usually been taken as corroborations of his “Hayek Hypothesis.” By bringing into the foreground Smith’s definite position on demand theory and its concrete instantiations on many different occasions, we make the case that Smith has consistently imposed by means of the induced value theory certain narrowly defined preference structures that have definite implications for the form of rationality instantiated in the laboratory.     

Monopolistic competition,aggregation of competitive information,and the amount of product differentiation

Consider an industry with a large number of homogeneous firms. Each firm's profits are a function of its own strategy and the strategies the other firms select. Suppose other firms' strategies enter into each firm's profit function only through one or more statistics. For example, average price in the market may parameterize every firm's profit function. We prove that, as a general rule, the industry's firms will in equilibrium follow at most M + 1 distinct strategies, where M is the number of statistics by which competitors' strategies affect each firm's profits.     

Pareto vs. Wicksell on adjustment costs in consumption: A reformulation

Pareto's adjustment cost model generating cyclical consumption patterns and Wicksell's observation that it contains mathematical errors are analyzed. An alternative model capturing the essence of Pareto's model and meeting Wicksell's criticisms is proposed where it is shown that consumption and leisure patterns may be cyclical over time.     

A comparison of purchasing power parity and consumption levels in Austria and Czechoslovakia

An attempt is made to estimate purchasing-power parity (Par) for a comparison of Czechoslovakia's consumption level with Austria's in 1980. The Par calculation is based on modified official consumer baskets of both countries and the author's own assessment of quality and structural differences. The main conclusion is that economic development in Czechoslovakia was significantly slower than in Austria. A comparison with results of a methodologically similar study of 1964 implies a significant worsening of Czechoslovakia's relative living conditions.     

Social choice and telling the truth

This paper presents a straightforward proof of Gibbard's theorem that any non-manipulable choice rule with at least three outcomes is dictatorial. The proof is similar to proofs of Arrow's impossibility theorem, but does not rely on that theorem. The last part of the paper discusses the relation between Gibbard's and Arrow's theorems. The paper contains no new result, and is intended to make this important area of social choice theory accessible to a wider audience.     

Mother's education and child development: Evidence from the compulsory school reform in China

This paper investigates the causal impact of mother's schooling on various outcomes of adolescent development by exploiting the temporal and geographical variations in the enforcement of compulsory schooling laws in China. Using data from China Family Panel Studies, we find that mother's education increases adolescents’ school enrollment, math test scores, college aspiration, and internal locus of control related to education. Mother's education also improves adolescent mental health status and reduces the incidence of underweight. We also find considerable gender heterogeneity in the effects of mother's education. The results further indicate that mother's education leads to an increase in family resources for children and an improvement in maternal mental health and parenting, which we interpret as potential mechanisms behind our findings.     

Sustainability economics: Where do we stand?

Environmental economics, which is a branch of resource economics – the environment as a scarce resource – is essentially about market failures, the costs of pollution and pollution abatement, and the economics of regulation. Sustainability economics includes the problem of maintaining economic growth, while reducing pollution and/or its impacts, with special attention to the linked problems of energy supply (not to mention the supply other exhaustible resources), climate change and – most urgently – fossil fuel consumption. There is a need for integration of resource and environmental economics under a new rubric, sustainability economics.     

On Hegel,imperialism, and structural stagnation

The essentials of the economic theory of imperialism à la Hobson-Luxemburg are anticipated in two paragraphs of Hegel's Philosophy of Right. Marx did not pay attention to this aspect of Hegel's thought, perhaps because it implied a longer survival probability for capitalism than Marx cared to acknowledge. The second part of the paper shows the formal similarity between the economic theory of imperialism and the theory of structural stagnation that was proposed in Latin America in the 1960s. The blindspots and early demise of that theory have the same psychological root as Marx's neglect of Hegel's insights.     

Consumer's surplus and income redistribution

In reformulating consumer's surplus analysis, Hicks focused on a single household. The present essay extends the analysis to many households in a manner that seems not yet to have been explored systematically: by integrating consumer's surplus with the social welfare function. This is done in a general, as distinct from the usual partial, equilibrium context. A resulting formula, relating the community's gain from a resource reallocation in a novel way to the associated changes in volume and distribution of income, inclusive of surpluses, may facilitate applications. The analysis may also clarify some recurring issues regarding consumer's surplus.     

Examining Trends of Criteria Air Pollutants: Are the Effects of Governmental Intervention Transitory?

Despite its growth in other areas of economics,time series econometric methods have not beenwidespread in the area of environmental andresource economics. We illustrate one use oftime series methods by examining the time pathof US nitrogen oxide (NO_x) emission dataover the period 1900–1994. The analysishighlights that proper time series methods canaid in optimal regulatory policy as well asdeveloping empirical verification of theoriesput forth to explain economic phenomena. Inaddition, several interesting results emerge. First, we find that the emissions seriescontains both a permanent and random component. Second, if one attributed all of the emissionsreductions to regulatory policy, interventionanalysis suggests that the 1970 Clean Air Act(CAA) did not merely have transitory effects,but permanently influenced the NO_xemission path. In terms of total regulatoryimpact, an upper bound on the emissions saveddue to the 1970 CAA is in the range of27%–48%.