Constitutional tariffs, incidental protection, and the Laffer relationship in the early United States

This article explores an early attempt to establish a constitutional constraint on tariffs utilizing the Laffer Curve relationship. In 1842 John Calhoun suggested that the curve’s revenue maximization apex could be used to differentiate between “Revenue” and “Protective” tariffs independently from the non-judiciable question of legislative motive. When admitted that a tax must actually be collected to remain constitutionally valid, the apex functions as a de facto upper tariff rate constraint. Despite subsequently falling in disfavor, Calhoun’s argument illustrates the importance of political economy on the constitutional level by recognizing conditions that induce policymakers to rationally raise tax rates at the expense.

On the integration of growth and business cycles

This paper discusses several approaches to generating the observed persistence in macro models and presents evidence in favor of models where endogenous technology adoption propagates transitory shocks into the medium term. Prepared for the Conference on “The Interrelation of Cycles and Growth” in honor of Gunther Tichy.

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Corporate social responsibility and the ‘game of catallaxy’: the perspective of constitutional economics

The paper examines the issue of corporate social responsibility (CSR) from the perspective of constitutional economics, focusing on the distinction between a political community’s constitutional choice of the rules of the “market game,” and the market players’ sub-constitutional choice of strategies within these rules. Three versions of CSR-demands are identified and discussed, a “soft,” a “hard”, and a “radical” version. The soft version is concerned with the issue of how “socially responsible” corporations ought to play the market game within existing rules. The hard version is about how the rules of the market ought to be changed in order to induce “socially responsible” corporate behavior. And the radical version questions the compatibility of CSR and the logic of the market game, calling in effect for adopting some alternative economic regime.

Efficiency of the Warsaw Stock Exchange: Analysis of Selected Properties

The Warsaw Stock Exchange (WSE) has been operating in present form for 15 years. WSE is regarded as an “emerging market”. We can observe that it is still developing (in order to become “developed market”). The level of development is often analyzed with reference to the efficiency of the market. We can say that the capital market is efficient if the prices at the market fully reflect all available information. The aim of the presented research is to analyze the current situation at the Warsaw Stock Exchange. Particularly we investigate the weak form of efficiency using selected statistical tests. The research is based on actual data concerning daily observations of shares at the Warsaw Stock Exchange transformed to the logarithmic rates of return, considering the period 2000–2006 and subperiods: the bear market, stagnation and the bull market.

How useful is generalized Darwinism as a framework to study competition and industrial evolution?

The role of Darwinist concepts in evolutionary economics has long been a contentious issue. The controversy has recently been rekindled by the proposal of a “Universal” or “generalized” Darwinism, which holds that the ontology of all evolutionary systems accords to the Darwinist scheme of variation, selection and inheritance. This paper focuses on the application of the generalized Darwinist framework to the analysis of markets and industries. It argues that selection and inheritance concepts narrowly construed after the biological example are of limited usefulness. As an alternative to the ‘top–down’ approach of Universal Darwinism, the development of ‘bottom–up’ theories is advocated.

Are residual economic relationships normally distributed? Testing an assumption of neoclassical economics

In both theoretical and applied contexts, neoclassical economics typically assumes that residual economic relationships are mean-zero, finite-variance, normally distributed random variables. However, many have challenged this view, from various perspectives. The Austrian economists, specifically in the tradition of Mises and Rothbard, reject outright the effort to mathematically model human choices. This Austrian view is often derided as unscientific. However, some of the most mathematically sophisticated work in financial economics also rejects the orthodox bell curve. In this paper, we test Benoit Mandelbrot’s “stable Paretian” hypothesis on ten major macroeconomic data sets and reject the normal distribution in nine of them. We further argue that the stable Paretian hypothesis (and, more generally, the field of “chaos theory”) is far more compatible with the Austrian position than one might initially suspect.

Thought experiments, counterfactuals and comparative analysis

This article discusses the problem of “thought experiments” in Austrian economics and takes as a starting point Lawrence Moss’ argument on the divide between the older Austrian economists—for whom thought experiments were crucial—and the new generation that, in Moss’ view, has “abandoned” such methods. The article is an attempt not only to bridge this alleged divide but also to contribute to the development of the Austrian methodology. It is argued that what may be perceived as “abandonment” bolsters rather than precludes the role of thought experiments in the Austrian paradigm. The article identifies an entire family of comparative and counterfactual analysis research strategies available to the Austrians, all enjoying a solid epistemological and methodological grounding. The “comparative-counterfactual analytics” pattern threads together the conjectural histories, spontaneous orders and empirical case studies of the contemporary Austrians, with the classic tradition of older works. Consequently, the recent evolution of Austrian scholarship should not be seen as an aberration or abandonment but as a deliberate, natural and commendable development.

Inputs and institutions as conservative elements

Ludwig von Mises argued that capital goods were “conservative elements” that constrain future production decisions. Similarly, social capital and institutions also constrain future production decisions. These insights are applied to the institutional transformation of the post-Reconstruction American South. It is argued that the structure of social capital that developed in the South was inappropriate to the formal institutions that emerged as a result of the Civil War and Reconstruction. The tensions between institutions and social capital are examined in the context of racist lynching.

Transaction tax and stock market behavior: evidence from an emerging market

This study examines the impact of a stamp tax rate increase on market behavior, using data from two stock exchanges in China. We find that when the tax rate increases from 0.3 to 0.5% (which implies that the transaction cost increases by about 1/3) trading volume decreases by 1/3. This implies an elasticity of turnover with respect to a stamp tax of −50% and an elasticity of turnover with respect to transaction cost of −100%. The markets’ volatility significantly increases after the increase in the tax rate. Furthermore, the change in the volatility structure indicates that the markets become less efficient in the sense that shocks are less quickly assimilated in the markets.

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Political pressures and the credibility of regulation: can profit sharing mitigate regulatory risk?

When price-cap rules determine the structure of prices for a long period, they suffer a credibility problem and introduce an element of risk especially if a firm’s profits are “too large”. Profit sharing may be seen as a device to pre-determine price adjustments and thus to decrease regulatory risk. We analyse the effects of profit sharing on the incentives to invest, using a real option approach. Absent credibility issues, a well designed profit sharing system may be neutral relative to a pure price cap. With regulatory risk, profit sharing is preferable to a pure price-cap one, if it intervenes for high enough profit levels.

Why Meso? On “Aggregation” and “Emergence”, and Why and How the Meso Level is Essential in Social Economics

Simplistic aggregation in idealized “markets” versus structural emergence in complex and path-dependent processes have always marked a “continental divide” between neoclassical mainstream economics and all kinds of evolutionary and institutional social economics. This paper deals with institutional, or structural, emergence and argues that the meso level (to be specific) is the proper aggregate level for social economic analyses of complex systems and processes. Also, neo-Schumpeterian economists have stressed recently the issue of an “institutional trajectory” taking place on the meso economic level. This paper argues that the creative ideas of a Schumpeterian entrepreneur are not a sufficient explanation in this case. Using an evolutionary interpretation of a simple game-theoretic formalism (the Folk Theorem), the paper strives to demonstrate that the meso level, as the proper level of institutional emergence, must and can be endogenously explained from a process of interactive problem-solving of interdependent agents, in their struggle for coordination under strong uncertainty. It will be illustrated that a meso-sized socio-economic group co-evolves, and is constituted, together with the institution that in turn serves as the solution to the coordination problem. The practical and policy implications of the argument are discussed.

What is specific about evolutionary economics?

Ever since an “evolutionary” perspective on the economy has been suggested, there have been differing, and partly incommensurable, views on what specifically this means. By working out where the differences lie and what motivates them, this paper identifies four major approaches to evolutionary economics. The differences between them can be traced back to opposite positions regarding the basic assumptions about reality and the proper conceptualization of evolution. The same differences can also be found in evolutionary game theory. Achievements of the major approaches to evolutionary economics and their prospects for future research are assessed by means of a peer survey.

Intra-industry differences in vertical integration, heterogeneous costs and pricing: the case of web hosting

In many differentiated product industries, both traditional and “new economy” activities, vertically integrated firms also supply inputs to apparent rivals in the downstream business. This generates heterogeneity between low- and high-sunk cost suppliers with implications for entry and competitive conduct. The web hosting market is typical with primary suppliers operating alongside resellers who rent server space from them. We explore the impact of competition in US hosting using a unique dataset covering 15,000 packages offered by 3,500 firms. The results suggest price is sensitive to competitor clustering in quality space; an outcome consistent with easy entry for resellers with ultra-low fixed costs.

A sectoral taxonomy of educational intensity

This paper classifies 49 manufacturing and service industries according to their educational workforce composition. Statistical cluster techniques are applied to data for the USA, Germany, France, the UK and Austria. Industries are first classified separately for each country, providing an appropriate tool for the analysis of national micro-data. Later, the paper proposes a common consensus classification, enabling comparative international studies. Validation of the cluster solution reveals considerable robustness to variations over time and between countries. Finally, regression analyses and ANOVA decompositions on various measures of sector performance confirm a significant tendency towards “education-biased structural change” between industries.

A Knowledge-Based Economy: New Directions of Macromodelling

Development of “new economies” leading to economies mostly based on knowledge implies the construction of new long-term macroeconometric models. They should incorporate the impacts of new technologies being endogenized, as well as human capital. The paper discusses several issues related to the extension of the notion of production function. They cover first of all the measurement and explanation of total factor productivity (TFP), the role of domestic and foreign R&D expenditures, as well as educational expenditures. The discussion is extended to include proposals to construct new submodels explaining the sections of research and education and also the ICT industries.

The disadvantage of entrants: did transition eliminate it? The case of the Russian footwear industry (1992–2000)

Several studies have analyzed entry in developed capitalist economies coming to the conclusion that entrants are usually smaller, less productive and at higher hazard than incumbents. This study considers if this was the case also in the rather peculiar situation of those firms which entered during the period of transition from planned to market economy, in one of the ex-soviet countries. Additionally this work considers whether or not the uncertain environment generated by transition did activate a process of entry, as situations of uncertainty are generally supposed to do. The main result of this paper is that despite the fact that incumbents were firms created and organized to meet the objectives of the soviet regime, they were not outperformed by subsequently-created firms which were formed to match the needs of a transitional/quasi market economy. These results do not support “vintage” and “liability of obsolescence” models which suggest that new comers are better fitted to match new conditions.

The role of controls in the international financial crisis

The impact of the great financial crisis that started in the United States with the implosion of “subprime” loans has drawn the public’s attention on one of the most innovative branches of financial market, the famous derivatives. The financial crisis and the involvement of major banking institutions thus call for some thinking about the concept of control in Italy and in a globalized world. In Italy, even though the scale of the risks connected with transactions in derivatives is limited, some banks may have damaged their reputations by pushing complex derivative products onto unwitting clients. Apart from reassurance and all kinds of justifications, and without arguing whether this was deliberate or not, the monetary authorities, Consob, and ABI have clearly reported the risk of a world financial crisis too late.

Economics of externalities and public policy

In this paper we study a particular case of “multiple” externalities associated to the production of a good/activity, whose external effects can change from positive to negative depending on the level of output (intersecting externalities). To analyze their impact on the public policy we propose a very simple two-agent partial equilibrium model in the technological context of externalities. In a static framework, the centralized solution always implies an optimal policy, which may consist of taxation or subsidization depending on the individual optimum and on the technology parameters. In a dynamic model with local knowledge of the efficiency function and instantaneous output adjustments, such an optimal policy can be structurally stable or unstable. In the latter case, under small changes of the parameters the policy may switch from low taxation/subsidization to high taxation/subsidization or vice versa, or even jump discontinuously from taxation to subsidization or vice versa. Furthermore, the decentralized solution based upon “tradable rights” can be economically equivalent to the centralized solution in the form of taxation policy but the two solutions may be not politically equivalent.

Mises’ democracy–dictatorship equivalence theorem: A critique

Ludwig von Mises argues that public opinion, not the form of government, is the ultimate determinant of policy. The implication is that, holding public opinion constant, democracies and dictatorships will have the same policies—a result I call Mises’ Democracy–Dictatorship Equivalence Theorem. According to Mises, dictators have to comply with public opinion or else they will be overthrown. I argue that he seriously overestimates the power of revolution to discipline dictators. Mises was perceptive to note that, in practice, “dictatorially imposed” policies are often democratically sustainable, but he neglected several mechanisms—all more plausible than the threat of revolution—capable of explaining this fact.

The New Keynesian business cycle achievements and challenges

The New-Keynesian (NK) business cycle model has presented itself as a potential “workhorse” model for business cycle analysis. This paper seeks to assess afresh the performance of the baseline NK model and its various extensions. The main theme of the paper is that although the dynamic NK literature has secured a robust defence to criticism arising, inter alia, on account of lack of microfoundations, it still has a long way to go in terms of providing a fully satisfactory model of the business cycle. In this regard, it is conjectured that explicitly accounting for the role of heterogeneity in business-cycle dynamics could lead towards a viable solution.