Some extensions of a claim of Aumann in an axiomatic model of knowledge

The paper begins by presenting an axiomatic model of simple and iterated knowledge. A formal definition of the intuitive notion of common knowledge is given and shown equivalent to previous characterizations. It is shown that agents have information partitions. The second part generalizes Aumann's (Ann. Statist.4 (1976), 1236–1239) well-known propositions about common knowledge between two rational agents of each other's probability assignments. It is shown that: common knowledge of decisions—if these are rational—implies a common decision for like-minded agents; and that a “dialogue” in decisions leads to a common decision. A “no-trade” theorem is given which includes trade under complete uncertainty.     

Competitive signalling

With imperfect information about product quality there are incentives for buyers to make use of proxy variables as “signals”, and hence for sellers to invest in the activity of signalling. Received theory suggests that there are plausible circumstances under which there exist a whole family of potential “signalling equilibria” each of which successfully distinguish quality differences.In this paper it is shown that from the family of “equilibria” only one, the Pareto-dominant member, survives plausible experimentation by buyers. With moderately more sophisticated experimentation it is further shown that there is no competitive equilibrium.     

The college admissions problem is not equivalent to the marriage problem

Two-sided matching markets of the kind known as the “college admissions problem” have been widely thought to be virtually equivalent to the simpler “marriage problem” for which some striking results concerning agents' preferences and incentives have been recently obtained. It is shown here that some of these results do not generalize to the college admissions problem, contrary to a number of assertions in the recent literature. No stable matching procedure exists that makes it a dominant strategy for colleges to reveal their true preferences, and some outcomes may be preferred by all colleges to the college-optimal stable outcome.     

A bias in growth-rate comparisons of capitalist and socialist economies

An economy is described by an n-sector linear production matrix and a fixed vector of consumption needs. There are many ways in which goods may be priced and many ways in which “surplus labor” may be allocated among sectors. Depending on which vector of prices and which distribution of surplus labor prevails, the average growth rate of the economy will differ. It is shown that the surplus-labor-price constellation likely to prevail in oligopolistic, free-enterprise economies overestimates the “true” growth rate, and in a centrally planned socialist economy underestimates it. This raises the question whether actual growth rates are systematically biased in the directions indicated. J. Comp. Econ.,     

Money,national debt,and economic growth

This paper develops a dynamic model which allows for government spending, taxation, and the endogeneity of the money supply. As an example of an application of our framework, we consider the well known stability problem of the two asset (money and physical assets) neoclassical “money-and-growth” literature. We conclude, among other things, that the usual saddle-point instability result under myopic perfect foresight with proportional savings behavior can be reversed by introducing a third asset (securities). It is further argued that this result is “robust” as it holds under various policy rules (including the traditional case of national debt growing at a constant rate).     

Robert Brenner on political accumulation and the transition to capitalism

This paper is an immanent critique of Robert Brenner’s writings on the transition from feudalism to capitalism. The concept “immanent” is defined as a logic of implication, according to which a text or theory is evaluated within the terms that it sets for itself, to determine whether its objectives and assumptions are true in the way they are said to be true. Using this method of critique, the paper shows how Brenner’s concept of “political accumulation” undermines his own initial claim that the balance of class forces between lords and peasants determined the long-term trends of preindustrial Europe, in that this concept points toward intralord struggles dominated by military interests. The paper also discusses why Brenner’s account of France’s tax/office state seriously weakens his postulate that “surplus extracting relations” were the “fundamental” relation of fuedalism, on the grounds that office-holding reflected an unequal distribution of property based upon status. Finally, the paper draws out the theoretical implications of these contradictory instances, to delineate ways in which Brenner’s basic theory may be sublated within a more comprehensive account.     

Misrepresentation and stability in the marriage problem

It has been shown previously that, for two-sided discrete markets of the kind exemplified by the “marriage problem,” no strategy-proof procedure for aggregating preferences into stable outcomes exists. Here it is shown that (Nash) equilibrium misrepresentation of preferences nevertheless results in a stable outcome in terms of the true preferences when the aggregation procedure yields the optimal stable outcome in terms of the stated preferences for one side of the market.     

Path-dependent economic progress and regress: The negative role of subsidies in economic growth

This paper develops a two-stage economic growth model with real options and examines the effects of various subsidy policies. The economic stages are the deterministic and stochastic AK stages, and the economy may shift between the two, depending upon state variables and technological shocks. This model allows for path-dependent economic growth that accounts for both club convergence and divergence across countries. Moreover, it is shown that under certain conditions, a decrease in the subsidy rate facilitates the shift from the deterministic to stochastic AK stages, which is defined as “economic progress”, even in the face of an economic crisis, while more subsidies delay economic progress and promote the shift from the stochastic to deterministic AK stages, which is defined as “economic regress”.     

Epistemology and the tasks of feminist economics

This paper examines the implications of current epistemological debates for the work of feminist economists. Feminist economists must acknowledge (in accordance with recent developments in the study of science) that (a) inquirers can never be certain whether claims about the world are true; (b) scientific inquiry is permeated with “internal” and “external” values; and (c) beliefs are affected by inquirers' social locations. But feminists should not, it argues, embrace the “relativist” stance of some postmodern thinkers, or reject the ideal of “truth,” or argue that beliefs are strictly determined by inquirers' identities and interests. It seeks to outline an epistemological “middle ground” for feminist economics, between the extremes of exaggerated claims of certainty and a disempowering relativism.     

DOES CONSUMPTION ENTAIL INCOME? IMPLICATIONS OF THE DUAL CLASSIFICATION OF CONSUMPTION EXPENDITURE FOR THE INCOME SIDE OF THE HOUSEHOLD SECTOR IN THE NATIONAL ACCOUNTS*

In the future revision of the SNA the dual classification of flows in the national accounts will gain some importance with respect to consumption expenditures. It is likely that outlays of different institutions for consumption are added to form a new aggregate “individual consumption.” The question is whether this development requires an adjustment on the income side of the household accounts. In order to find an answer it is first necessary to scrutinize the concept of disposable income in its standard form, and in its different variations. The result is a distinction between “disposable income in the strict sense” and “income after distribution,” where the standard definition actually realizes the latter concept. It is then shown that the dual structure of the accounts does not permit the adding of individual consumption to saving of households so that the concept of enlarged income defeats its purpose.     

“Love of wealth” and economic growth

In a Ramsey–Cass–Koopmans growth framework it is shown that for an optimum a benevolent social planner cannot have an excessive “love of wealth”. With a “right” “love of wealth” an optimum exists and implies higher long‐run per‐capita capital, income, and consumption relative to the standard model. This has important implications for comparative development trajectories. The optimum implies dynamic efficiency with the possibility of getting arbitrarily close to the golden rule where long‐run per‐capita consumption is maximal. It is shown that the optimal path attains its steady state more slowly. Thus, the beneficial effects of love of wealth materialize later than in the standard model. Furthermore, the economy can be decentralized as a competitive private ownership economy. One can then identify “love of wealth” with the “spirit of capitalism.” The paper thus implies that one needs a “right” level of the “spirit of capitalism” to realize any beneficial effects for the long run.     

Aggregate demand shocks and economic growth

The traditional view of growth and fluctuations implies that aggregate demand shocks result in only transitory departures from trend or “normal” output, which is determined exclusively by aggregate supply factors. Using a simple dynamic framework for a less-developed economy, a series of models is developed to show that aggregate demand can have a permanent effect on economic growth. It is shown that even if the economy converges to some “normal” path, this path itself may be altered by large demand shocks, due to increasing returns and hysteresis effects in labor markets and balance of payments constraints. It is also shown that the economy may not converge to its “normal” path, in which case fiscal and monetary policy will have long-term effects on output and growth.     

Duality,interest rates,and the theory of present value

This paper uses duality theory to simplify and extend previous work which characterized technologies which have present value decreasing in interest rates. For “unbounded” interest rate sets, value nonincreasing is equivalent to truncation never being desirable. For bounded interest rate sets, the result is true if truncation is replaced by limited truncation, appropriately defined. Similarly, for equal forward rates, undesirability of geometric truncation characterizes nonincreasing value. Another result shows that if truncation is undesirable at an internal rate of return, then the internal rate of return is well behaved, even if value is not decreasing everywhere.     

CREDIT CYCLES REDUX*

Theoretical studies have shown that under unorthodox assumptions on preferences and production technologies, collateral constraints can act as a powerful amplification and propagation mechanism of exogenous shocks. We investigate whether or not this result holds under more standard assumptions. We find that collateral constraints typically generate small output amplification. Large amplification is obtained as a “knife‐edge” type of result.     

The relationship between wealth or income and time preference is empirical, not apodictic: a critique of Rothbard and Hoppe

There is no doubt that when income or wealth increases, impatience for present goods declines. When time preference for the present falls, interest rates decline as well. But is this phenomenon a necessary condition of human action as Rothbard and Hoppe contend? This is widely thought to be true when a man is on the very verge of death. There is an aphorism according to which “a drowning man will grasp even at the blade of a sword.” In this view, someone who is starving will not postpone the consumption of food for tomorrow that is necessary to keep him alive today. But we disagree. And what is the situation under more ordinary circumstances far removed from starvation? We argue in this paper that, contrary to Rothbard and Hoppe, under these conditions it is a reliable but only a broad empirical generalization that time preferences and interest rates are inversely related to wealth or income, it is not a matter of praxeology.     

The Arrow-Debreu model: How math can hide a fatal conceptual error

I argue that math, like love, can cover a multitude of sins, and I use the neoclassical object of adoration, the Arrow-Debreu model, as the case in point. It is commonplace that the Arrow-Debreu (AD) model of general equilibrium does not describe the real world, but it is equally commonplace to accept it as representing the pure logic of the competitive capitalist economy in an idealized world free of transactions costs. I show that the AD model fails even as an idealized model; it actually mistakes the logic of pure capitalism. Unlike McKenzie’s model of idealized general equilibrium under constant returns to scale, Arrow and Debreu claim to have shown the existence of competitive equilibrium under decreasing returns to scale and positive pure profits. The AD model (again unlike the McKinzie model) needs to assign the profits to individuals and this is done using the notion of “ownership of the production set.” But this notion suffers from a fatal ambiguity. If Arrow and Debreu interpret it to mean “ownership of a corporation” then a simple argument in the form “labor can hire capital or capital can hire labor” defeats the alleged necessity of assigning residual claimancy to the corporation. A given corporation may or may not end up exploiting a set of production opportunities (represented by a production set) depending on whether it hires in labor and undertakes production or hires out its capital to others (all by assumption at the parametrically given prices). In the latter case, residual claimancy is elsewhere. There is no such property right as “ownership of a production set” in a private property market economy. The legal party which purchases or already owns all the inputs used up in production has the defensible legal claim on the outputs: there is no need to also “purchase the production set.” At any set of prices that allow positive pure profits, anyone in the idealized AD model could bid up the price of the inputs and thus try to reap a smaller but still positive profit. Therefore,pace Arrow and Debreu, there could be no equilibrium with positive pure profits. In the Appendix, the property rights fallacy that afflicts the AD model is shown to also afflict orthodox capital theory and corporate finance theory.     

Pleasure and belief in Hume's Decision Process

Abstract

The purpose of this paper is to introduce explicitly pleasure and belief in what aims at being a Humean theory of decision, like the one developed in Diaye and Lapidus (2005a). Although we support the idea that Hume was in some way a hedonist – evidently different from Bentham's or Jevons' way – we lay emphasis less on continuity than on the specific kind of hedonism encountered in Hume's writings (chiefly the Treatise, the second Enquiry, the Dissertation, or some of his Essays). Such hedonism clearly contrasts to its standard modern inheritance, expressed by the relation between preferences and utility.

The reason for such a difference with the usual approach lies in the mental process that Hume puts to the fore in order to explain the way pleasure determines desires and volition. Whereas pleasure is primarily, in Hume's words, an impression of sensation, it takes place in the birth of passions as reflecting an idea of pleasure, whose “force and vivacity” is precisely a “belief”, transferred to the direct passions of desire or volition that come immediately before action. As a result, from a Humean point of view, “belief” deals with decision under risk or uncertainty, as well as with intertemporal decision and indiscrimination problems.

The latter are explored within a formal framework, and it is shown that the relation of pleasure is transformed by belief into a non-empty class of relations of desire, among which at least one is a preorder.     

Did the cost of living in Canada increase faster for the rich during the period 1950–1980?

The paper computes the approximate true cost of living indexes from the time series data on price and quantity of nine broadly defined goods and services to show that the cost of living increased faster for the rich in Canada during the three decades. This is due mainly to an increase in the prices of “luxury” goods and services relative to “necessity” goods and services. These conclusions are almost identical to those of several other studies which utilize a different framework and a different time period for analysis.     

“80年代”是怎样被“重构”的？—若干相关论作简评

作为一段被符号化了的特殊时期，“80年代”正在陷入一场多方合谋的书写竞赛，事关“80年代”本来面目的许多重要问题正在被肆意改写和重构，其肇因皆在于对这一思想史上特殊时段的思想主线有意无意的背离。“80年代”的中心问题是“如何避免‘文革’的重演？”而中心论题则是“反封建”。整个“80年代”文化思潮的演变环节依次是“反‘文革’”，“反封建”，“反传统”，再往后才是所谓“文化热”，而贯穿各个环节的中心线索是对“文革”的反思。“启蒙”是整个“80年代”的基本属性，从“反‘文革’”到“反封建”到“反传统”，全都是在“启蒙”：因此，整个“80年代”都属于“新启蒙”时代。     

Credible communication in dynastic government

This paper studies information disclosure in a model of dynastic government. When information about past policy choices comes exclusively from the reports of previous administrations, each administration has an incentive to choose its (suboptimal) one-shot expenditure policy, and then misrepresent its choice to its successor. Consequently, it has been suggested that “horizontal accountability,” i.e., a system of governance where auditing functions lie outside the executive branch, can ensure credible disclosure of a government's activities. This paper suggests a cautious approach to that view.The baseline model examines the reporting incentives of an external auditor who can independently verify the information each period. Even with auditing, credible disclosure is shown to be problematic. Various extensions to this baseline model are examined. In one extension, “liberal” (i.e., those prefering larger government expenditures) and “conservative” (those prefering smaller expenditures) regimes and auditors evolve over time. It is shown that “conservative” (“liberal”) auditors are not credible when the current regime is also “conservative” (“liberal”). Moreover, because information transmission stops when the auditor's and the regime's biases coincide, effective deterrents even in the “good” periods (when the auditor's and the administration's biases differ) are difficult to construct. In all periods the equilibrium requirement of auditor neutrality constrains the dynamic incentives for efficient policy choices. These constraints are shown to bind away from optimal policies in standard constructions of equilibrium. Various ways in which auditing protocols can overcome these problems are discussed.