Testing evolutionary theory of household consumption behavior in the case of novelty - a product characteristics approach

This article tests and extends the evolutionary theory of household consumption behavior, which is an alternative to neoclassical theory. Evolutionary economists offer novel approaches to the analysis of consumption behavior that emphasize the major role of learning in the evolution of consumer preferences and wants. As a possible inspiration for further progress in evolutionary thought, this paper examines the idea of consumer learning by studying the nature of what consumers should learn in the context of ‘novelty’. Our empirical results regarding novelty during the learning process show that consumers learn the ‘new characteristics’ of consumer goods, contrary to the Lancasterian approach, which suggests that the characteristics space of goods is fixed. We show that during the process of consumption, ‘consumer learning’ extends the characteristics space of consumer goods; this phenomenon is far from negligible and differs across product types. Moreover, our results show that the emergence of new characteristics cannot be modeled as a Poisson process because these new characteristics exhibit clear interdependence over time.     

An evolutionary theory of household consumption behavior

Evolutionary economics badly needs a behavioral theory of household consumption behavior, but to date only limited progress has been made on that front. Partly because Schumpeter’s own writings were focused there, and partly because this has been the focus of most of the more recent empirical work on technological change, modern evolutionary economists have focused on the “supply side”. However, because a significant portion of the innovation going on in capitalist countries has been in the form of new consumer goods and services, it should be obvious that dealing coherently with the Schumpeterian agenda requires a theory which treats in a realistic way how consumers respond to new goods and services. The purpose of this essay is to map out a broad alternative to the neoclassical theory of consumer behavior.     

On the existence of a market for second hand physical capital: An empirical test of the Keynesian and neoclassical assumptions

In this paper we test Keynesian and neoclassical assumptions concerning the existence of second-hand markets for physical capital. These alternative views of the dynamic profit maximizing firm lead to distinct equilibrium price equations. We use a sample of 4-digit SIC consumer goods and capital goods industries over 1967–1975 to test the relative goodness of fit of the competing price equations. We find consumer goods industries conform better to the Keynesian assumptions and capital goods industries more nearly approximate the neoclassical view of the world. We investigate the policy implications of our finding of sector heterogeneity by constructing a three-sector macro model with a Keynesian consumption goods sector, a neoclassical capital-for-consumption-goods-production sector, and a neoclassical capital-for-capital-goods-production sector. Comparative static analysis reveals that both monetary and fiscal policy variables have ambiguous short run effects on real variables in this heterogeneous three-sector model, which may be the minimum level of detail consistent with the observed behavior of US manufacturing industries.     

Brand capital and firm value

We study the role of brand capital – a primary form of intangible capital – for firm valuation and risk in the cross section of publicly traded firms. Using an empirical measure of brand capital stock constructed from advertising expenditures accounting data, we show that: (i) firms with low brand capital investment rates have higher average stock returns than firms with high brand capital investment rates, a difference of 5.2% per annum; (ii) more brand capital intensive firms have higher average stock returns than less brand capital intensive firms, a difference of 5.1% per annum; and (iii) investment in both brand capital and physical capital is volatile and procyclical. A neoclassical investment-based model in which brand capital is a factor of production subject to adjustment costs matches the data well. The model also provides a novel explanation for the empirical links between advertising expenditures and stock returns around seasoned equity offerings (SEO) documented in previous studies.     

The uncertain moral context of price changes

The purpose of this paper is to motivate a microeconomic model of consumption in which there is uncertainty that is not resolved ex post regarding the moral context of price changes. We show that neoclassical microeconomic theory can yield a result in which expected utility falls when a consumer who is sufficiently concerned for the uncertain moral context of production is faced with a falling price.     

自生能力、经济转型与新古典经济学的反思

现有的新古典经济学理论体系把企业具有自生能力作为暗含的前提。但是 ,转型中国家和其他许多发展中国家的企业却因政府的赶超愿望 ,进入不具比较优势的产业而不具自生能力。当经济中大量企业缺乏自生能力时 ,实行根据新古典经济学所制定的改革或转型政策 ,往往达不到预期效果 ,而且 ,可能给社会带来巨大痛苦。本文主张 ,在分析社会主义经济、转型经济和发展经济问题时 ,放弃现有的新古典经济学体系中企业具有自生能力的暗含前提 ,把企业是否具有自生能力作为一个具体的考虑变量 ,这是新古典经济学理论的必要发展。     

Social Justice and Varieties of Capitalism: An Immanent Critique

This article emphasises how labour codes of conduct mediate a series of complex and evolving power relations that span the politics of consumption through to the politics of production. It argues that codes of conduct not only reflect an uneven division of labour – in which firms are stratified in size, productivity and labour conditions – but actively shape it. Using examples drawn from light-manufacturing industries in China, it illustrates how labour codes of conduct feed into these processes of uneven development. In their reaction to the implementation of codes of conduct across global supply chains, some Chinese suppliers at the higher tiers of industrial structure have sought to substitute capital for labour as a way to increase productivity beyond abusive labour conditions. Simultaneously, many smaller firms at lower tiers that are reliant on cut-throat forms of discounting have evolved elaborate schema of falsifying code of conduct processes and reports. Finally, mid-tier firms tend to display a strategically partial degree of compliance. Code provisions that empower workers to self-organise are commonly undermined because such trends threaten the very political basis upon which the restructuring the global division of labour over the past four decades has been predicated.     

Labour Demand and Wage-induced Innovations: Evidence from the OECD countries

This paper shows that increasing real wages steepens or reverses the slope of the labour demand schedule because increasing wages give firms incentives to innovate and to invest in newer and more efficient vintages of capital. Using macroeconomic data for the OECD countries it is shown that the efficiency inducement of higher real wages steepens the traditional neoclassical labour demand function substantially. Taking into account the adverse demand effects of wage reductions it is doubtful that real wage reductions are a cure for the unemployment problem in the OECD countries.     

A general theory of demand for information about product quality

The purpose of this paper is to construct a general theory—analogous to the neoclassical theory of consumer demand—of demand for information about product quality. The model proposed here introduces uncertain product quality by assuming that commodities possess attributes which consumers desire and that an uncertain commodity possesses are unknown quantity of some attribute. It is assumed that information about the quality of uncertain products is available. The consumer's utility function of information is derived and his information demand function is obtained.Partial analogues of the neoclassical theorems are proved for information demand. Roughly, we find that the Slutsky matrix is symmetric and that a submatrix is negative definite. The negative definite submatrix contains those terms which measure the effect of (income compensated) changes in information prices on information demand.The analysis employed to obtain these results parallels—with some important modifications—the neoclassical analysis of commodity demand. The method used to obtain expressions for the Slutsky substitution terms is an extension of the approach introduced by McKenzie [10] and later used by Hurwicz and Uzawa [6]. This approach uses an “income compensation” function to arrive at an “income compensated” demand function.     

Environmental Regulations and Managerial Myopia

It has recently been claimed that, contrary totraditional neoclassical theory, suitably chosenenvironmental regulation is often beneficial for theregulated firms because it induces cost-reducinginnovations. I analyze the extent to which thisposition is compatible with microeconomic analysis. Itturns out that even in a framework in whichorganizational inefficiencies might lead tounderinvestment, environmental policy can onlyincrease firm profits if several very specificconditions are met. These conditions concern the typeof policy, the extent of inefficiencies, the costs ofpotential innovation projects and their effect onproductivity and abatement costs.     

我国城镇居民文化消费结构性问题研究述评

文化消费正成为推进消费升级的新增长点。当前，我国城镇居民文化消费在快速发展的同时也面临总体比重低、区域间不平衡、群体问差距大、内部结构失衡等结构性问题，这显然不利于文化消费的持续发展。这些结构性问题的出现，主要是由于消费者、市场化和消费环境等不相匹配、不相适应。现有研究的主要不足之处体现在：文化消费的指标体系不统一；缺少具有相同条件的群体和地区间的横向比较；忽视文化消费中文化所具有的社会和心理属性；文化消费的水平衡量及与经济增长的关系鲜有研究。     

A note on the Hotelling principle of minimum differentiation: Imitation and crowd

This paper investigates price competition in the Hotelling location model with linear transportation costs when consumer preferences are affected by the number of consumers shopping at the same store. A consumption externality permits us to consider the imitation and the congestion effects which are opposite forces at work. The coexistence of the two effects confers new validity to the principle of minimum differentiation as it was in the original Hotelling model. I show that firms do not need to set apart in order to earn higher profits. The results show firms endogenously choosing to locate in the center of the interval sharing the market with positive prices.     

Consumer preferences,the demand for Divisia money,and the welfare costs of inflation

This paper uses neoclassical demand theory to calculate the welfare costs of inflation. It considers the demand interactions between money, consumption goods, and leisure, relaxes the assumption of fixed consumer preferences, and addresses the inter-related problems of estimation of money demand functions, instability of money demand relations, and monetary aggregation. It makes full use of the relevant economic theory and econometrics and generates inference in terms of long-run welfare costs of inflation that is internally consistent with the data and models used.     

Masterful Meisters? Voluntary Certification and Quality in the German Crafts Sector

Voluntary certification systems potentially reduce search costs in markets with imperfect information. Service markets with many heterogeneous firms – such as the crafts market – are prone to information imperfections and can therefore potentially benefit from such informational mechanisms. We examine if the Meister qualification in the German crafts sector improves service quality as perceived by consumers. We find a significant and positive relationship between the Meister title and consumer ratings and conclude that the certificate is a credible sign of quality.     

Why we need a commitment approach to environmental policy

The principal reason why economists have advocated environmental policies based on incentives is that their conception of business behavior derives from the neoclassical model of the firm. Businesses certainly do respond to profit incentives, but firms' behavior is also greatly influenced by socio-political considerations and their organizational capabilities. In recent years, a significant group of businesses that are highly innovative, competitive and socially responsible has emerged. These are not the firms that policy makers envisioned when they formulated command and control and market incentive environmental policies, i.e., control-oriented policies. Because of this, there is a need for new types of environmental policies. Thus, the first purpose of this paper is to propose a new class of environmental policies. The second purpose is to explain why the neoclassical model is deficient as a basis for environmental policy and to explicate the nature of a more appropriate model.Control-oriented policies were designed for firms that behave like neoclassical firms. For high performance organizations (HPOs), what is needed is the opposite of control-oriented policy. What is needed is an environmental policy that takes advantage of HPOs commitment, responsibility, and trustworthiness. The appropriate policy should take into account that overall environmental performance is a product not just of firm behavior but of the whole environmental system of which firms are a part. What is needed is a commitment approach to environmental policy.A commitment approach (CA) to environmental policy is first of all not a control-oriented policy. A CA is a nonregulatory approach in which firms are self-regulated. The CA is only for firms that are able to 1) make a commitment to high environmental performance and 2) develop the capabilities to meet these commitments. The environmental protection (EP) agency that administers the CA would be charged with selecting the particular “high commitment” (HC) firms that would be subject to the policy. Low and intermediate commitment firms would presumably continue to be regulated under the usual control-oriented environmental policies. The selected HC firms would be eligible for government technical assistance and information. In addition, the EP agency could aid the functioning of the environmental systems (ES) in which HC firms are embedded by, for example, providing education and information to these businesses' stakeholders. Finally, it would be necessary for the EP agency to accomplish periodic assessments of how ESs performance departs from the ideal and how these systems' operations require rectification.     

Growth,environment, and culture—encompassing competing ideologies in one ‘new growth’ model

The debate about growth and the environment is fragmented due to ideological differences. Mainstream neoclassical and environmental economists tend to ignore deeper worries about long-term growth and nature. I show how competing positions can be interpreted within a single unifying framework. The interpretative tool is cultural theory, whereas the framework is a Schumpeterian growth model including environmentally oriented research in addition to ‘ordinary’ research. The two diagonals of cultural theory belong to economists and skeptics, respectively. The differences along the diagonals are about facts; for instance, economists disagree about the extent to which environmentally oriented research can mitigate the effects of economic growth. These differences are reflected in choice of parameter values. The key difference between the diagonals is in the choice of objective function—should we be maximizing consumption or ‘nature’? The model will not resolve the debate, but it does add clarity, pinning down differences and indicating questions for research. A neoclassical model may encompass problems deeper than resource use and pollution, and values other than those of the consumer.     

Reconciling the Invisible Hand and innovation

It is generally agreed that Adam Smith invoked the Invisible Hand to send the message to posterity that a free-market economy is the best form of economic organization. Strictly speaking, the Invisible Hand of Adam Smith is a conjecture about the virtues of a free-market economy. There are three claims in this paper concerning the interpretation of the Invisible Hand conjecture. First, the neoclassical interpretation engenders a conceptual confusion – identified here as the ‘double paradox’ of the Invisible Hand. Second, the interpretation of Adam Smith's conjecture on the beneficial effects of the free-market economy cannot – and should not – be confined to the production and consumption of existing products. Failure to distinguish the Invisible Hand Theorem from the Invisible Hand Doctrine distorts thinking about Adam Smith's message, creating the misconception that the Invisible Hand passage excludes business innovation. Third, the central message conveyed by Invisible Hand is to be read in the context of modern evolutionary economics.     

Why equity cannot be separated from efficiency: the welfare economics of progressive social pricing

Applied neoclassical microeconomists maintain that when profits are constrained, and average costs are higher than marginal costs, Ramsey “inverse elasticity” pricing optimizes static consumer welfare. However, when weighted, instead of unweighted, consumer surplus aggregation is used, the Ramsey pricing rule becomes a “progressive social pricing rule,” which suggests that under plausible conditions “direct-elasticity” rather than “inverse-elasticity” pricing is consumer welfare optimal.     

Neoclassical vs evolutionary theories of financial constraints: Critique and prospectus

Empirical models based on neoclassical theory predict that if investment is sensitive to current financial performance, this is a sign that something is ‘wrong’ and is to be regarded as a problem worthy of a policy intervention. Evolutionary theory, however, refers to the principle of ‘growth of the fitter’ to interpret investment-cash flow sensitivities as the workings of a healthy economy. In particular, I attack the neoclassical assumption of rational profit-maximizing firms. Such an assumption is not a helpful starting point for empirical studies into firm growth. One caricature of neoclassical theory could be “Assume firms are perfectly efficient. Why aren’t they getting enough funding?”, whereas evolutionary theory considers that firms are heterogeneous and that not all firms should grow. This essay highlights how interpretations and policy interventions can be framed by the initial modelling assumptions, even though these latter are often chosen with analytical tractability in mind rather than realism.     

The Social Economics of Work Time: Introduction

How do social economists conceptualize and analyze time, particularly time spent in paid employment? In this symposium regarding this quite “timely”" issue, it is evident that social economics views work time as something more than its presentation in neoclassical economics. For neoclassical economists, time is a scarce resource that, when commodified as labor, serves as a factor of production and means to the end of consumption for optimizing firms, individuals, and families. It is also more than the radical political economics understanding of time as the yardstick measuring the value created by labor. Instead, time spent on the job is all at once a source of income, personal identity, and relative status within society, the workplace and household, and a constraint on individuals' ability to pursue self-directed activities and social reproduction. Work time is determined within a complex web of evolving culture and social relations, as well as traditionally conceived market, technological, and macroeconomic forces and institutions such as collective bargaining and government policy.