Market failure vs. system failure as a rationale for economic policy? A critique from an evolutionary perspective

This paper reconsiders the explanation of economic policy from an evolutionary economics perspective. It contrasts the neoclassical equilibrium notions of market and government failure with the dominant evolutionary neo-Schumpeterian and Austrian-Hayekian perceptions. Based on this comparison, the paper criticizes the fact that neoclassical reasoning still prevails in non-equilibrium evolutionary economics when economic policy issues are examined. This is more than surprising, since proponents of evolutionary economics usually view their approach as incompatible with its neoclassical counterpart. In addition, it is shown that this “fallacy of failure thinking” even finds its continuation in the alternative concept of “system failure” with which some evolutionary economists try to explain and legitimate policy interventions in local, regional or national innovation systems. The paper argues that in order to prevent the otherwise fruitful and more realistic evolutionary approach from undermining its own criticism of neoclassical economics and to create a consistent as well as objective evolutionary policy framework, it is necessary to eliminate the equilibrium spirit. Finally, the paper delivers an alternative evolutionary explanation of economic policy which is able to overcome the theory-immanent contradiction of the hitherto evolutionary view on this subject.     

Environmental Policy Theory Given Bounded Rationality and Other-regarding Preferences

Established environmental policy theory is based on the assumption of homo economicus. This means that people are seen as fully rational and acting in a self-regarding manner. In line with this, economics emphasizes efficient policy solutions and the associated advantages of price incentives. Behavioral economics offers alternative, more realistic views on individual behavior. In this paper we investigate opportunities to integrate bounded rationality and other-regarding preferences into environmental policy theory to arrive at recommendations for more effective policies. For this purpose, we will address decisions made under risk and uncertainty, intertemporal choice, decision heuristics, other-regarding preferences, heterogeneity, evolutionary selection of behaviors, and the role of happiness. Three aspects of environmental policy are considered in detail, namely sustainable consumption, environmental valuation and policy design. We pay special attention to the role of non-pecuniary, informative instruments and illustrate the implications for climate policy.     

On the Natural and Economic Difficulties to Fulfilling the Human Right to Water Within a Neoclassical Economics Framework

We present a neoclassical economic model of the human right to water using a nonrenewable resource model inclusive of a backstop technology. The right is interpreted as a minimum consumption requirement the government is obligated to fulfill in the event that any one household cannot do so independently. Differing by income levels, households maximize utility by purchasing a composite consumption good and water from two distinct, government-owned sources. Facing physical and financial constraints, the government uses fiscal policy to address potential human rights violations. Reducing the analysis to two periods, we develop a novel approach to compare total welfare levels from a joint human rights and neoclassical economics perspective. We define a human rights welfare standard and discuss cases in which traditional social welfare measures would exceed, violate, or meet this standard. We thus offer a unique way to merge economic analysis with human rights research.     

The new institutional economics and its relevance to social economics

There has been a quiet revolution in economic theory, led by the New Institutionalists. Pioneered by Douglass C. North, this group argues that institutions are the main determinants of economic performance, yet neoclassical economics has no role for institutions. Contrary to many misconceptions, this theory of institutions can be integrated with neoclassical economics, leaving mainstream economic theory in tact, but broader and more relevant. The purpose of this article is twofold. First, the main arguments of the New Institutionalists are summarized. Second, the bridge between institutions and social economics is explored. The article concludes by arguing that the New Institutional approach is fruitful, and that the theory will gradually be integrated with neoclassical economics, until the two merge into a single body of theory.     

The Simple Analytics of Illicit Drug Policy

The impact of alternative drug policy objectives, specifically harm reduction/harm minimisation or prohibition, is unclear. The literature is confusing. This article conceptualises the causal connection between drug consumption and health harm (or reduced health status) then clarifies the implication of ‘drug related harm’. By applying some geometrical tools from economics, the choice of policy objective is analysed. The preferences of policy advocates are then incorporated. Policy advocates are conceived as arguing that decision‐makers and consumers should adopt their preferences between drugs and health harm. With this approach, the difference between alternative drug policies, in particular prohibition and harm minimisation/reduction, is demonstrated.     

The behavioral foundations of Austrian economics

Behavioral and experimental economics present challenges to the neoclassical theory of individual behavior, which is based on individuals making choices within the framework of utility functions that are assumed to have certain well-defined characteristics. Results in behavioral and experimental economics have shown that it is common for individual behavior to systematically deviate from the neoclassical axioms of utility maximization. Austrian economics is also based on axiomatic theories of utility maximization, but the assumptions underlying utility-maximizing behavior are much weaker in the Austrian approach. As a result, they have more solid behavioral foundations and are less subject to challenge by the empirical findings of behavioral and experimental economics. Neoclassical policy conclusions are often overly strong because of its behavioral foundations which are challenged by behavioral and experimental economics and are often misleading because of the comparative static nature of neoclassical welfare economics. For purposes of policy analysis, the Austrian approach provides better insights because of its more realistic behavioral foundations.     

Towards Sustainability Economics: Principles and Values

Synopsis  Radical alternatives, in terms of our ideas about science in society, about economics, ideology and institutional arrangements, should be included among possibilities considered within the scope of a pluralistic philosophy. While all these aspects of our mental maps are interrelated and important, economics plays a key role in attempts to get closer to a sustainable society. Mainstream neoclassical economics is not enough. The tendency to exclusively rely on this particular theory is considered part of the problems faced. A ‘sustainability economics’ more in line with dominant ideas of democracy is proposed, emphasizing the ethical, ideological and political elements. Reference is made to institutional theory but the principles and concepts suggested are in many ways similar to other kinds of heterodox economics and developments in other social sciences. Neoclassical economics is used as a point of reference in pointing to alternative ideas about human beings, organizations, markets, decision- making, efficiency, rationality, progress in society and institutional change processes. Predilection for such an alternative conceptual framework (or for neoclassical economics) is not exclusively a scientific choice but as much a matter of political and ideological preferences. One paradigm may be dominant at a time, but because of the ideological specificity of each paradigm, competing theoretical perspectives should be accepted and even encouraged in a democratic society.      

新古典经济学在中国转型实验中的作用有限

“华盛顿共识”和“休克疗法”是新古典宏观经济学派反凯恩斯革命的新浪潮。他们否认大萧条的基本教训,无视历史的多样性和经济的复杂性。他们自上而下设计的自由化与私有化政策,导致苏东(前苏联和东欧)经济在过去十余年间的大幅下跌。中国和苏东转型实验的比较研究,促使我们重新检验经济学的基本问题,例如均衡学派与非均衡演化学派关于经济波动本质的争论。转型萧条的惨重代价,使我们加深理解新古典经济学的误区,例如价格的线性供求理论、预算软约束理论、宏观经济的微观基础理论,以及新制度经济学的趋同理论。中国基于学习、创新和分散试验的新经验,将使经济学超越均衡优化的古典规范,去探索非均衡演化的复杂经济学。     

IS THERE A ROLE FOR TRANSACTION COST ECONOMICS IF WE VIEW FIRMS AS COMPLEX ADAPTIVE SYSTEMS?

This article assesses the usefulness of transaction cost economics when we view economic organizations, such as firms, as complex adaptive systems. Modern complexity science is radically different in orientation to neoclassical economics, which deals with decision making in contexts that are presumed to be simple and, therefore, disconnected from complex reality. However, transaction cost economics can be related to aspects of modern complexity science: bounded rationality, opportunism, and asset specificity are all associated with behavioral complexity. Furthermore, the emphasis of transaction cost economics on hierarchy and organizational rather than technological considerations is also consistent with complexity science. Drawing on literature in psychological economics, this article synthesizes transaction cost economics with aspects of complexity science in a manner that offers a new research agenda, not only in the context of the organization of production but in economics generally. Such theoretical developments are vital if policy makers are to have at their disposal analytical perspectives that are coherent and applicable in complex historical settings.     

The economics of ageing and the political economy of old age

Economic discussion of ageing has been largely neoclassical in approach. Ageing has become a specialism within population economics, which is itself a specialism within the neoclassical mainstream. An alternative view has come from authors in sociology and social policy, who have produced their own ‘political economy of old age’. In contrast with neoclassical individualism, sociological depictions of ageing have stressed the social construction of old age and the structured dependency of the elderly. Non-neoclassical economists have had little to say about ageing, despite some relevant work in the early days of Keynesianism. This paper argues that a combination of structural ideas from sociology and disequilibrium ideas from Keynesian and non-neoclassical economics can provide a suitable framework for the economics of ageing.     

The Impossibility of Entrepreneurship Under the Neoclassical Framework: Open vs. Closed-Ended Processes

In spite of its use to explain market processes, neoclassical economics still has not integrated entrepreneurship into its analyses. This explanatory gap is the consequence of the analytical closed-endedness of the “market” processes described by the neoclassical framework, where social interactions do not result in new unpredictable information. However, entrepreneurship as profit-seeking under uncertainty is an open-ended process characterized by a creatively reflexive and emergent interactive behavior in society. This open-endedness involves the generation of novel, complex, and extensive future information that is not what anyone intended it to be. Neoclassical economics, with its predetermined assumptions on economic behavior, cannot really account for the fundamental uncertainty of open-ended processes because it cannot explain reflexivity or emergence. Therefore, it cannot explain entrepreneurship as either an innovatively cohesive or disruptive behavior that converges toward future market situations.     

Sustainable use of renewable resources: an identity approach

Despite the achievements obtained by environmental economics over recent decades, it shares the same failings as economic theory in general. In this sense, regarding preferences, very little attention has been paid to three elements; the long-term change in social preferences, the incorporation of non-economic factors in the structure of preferences, and the need to consider some kind of heterogeneity in social preferences. In this paper we deal with these three issues by developing a new framework which encloses non-economic factors as one of the driving forces to explain consumer behavior and which allows us to endogeneize preference and consider heterogeneity. After setting up our approach, we pose the question as to how far such a framework modifies the levels of use and consumption of a renewable resource. Our findings have enabled us to draw interesting conclusions regarding environmental policies in place since the 1970s.     

A Micro-Econometric Analysis of Determinants of Unsustainable Consumption in The Netherlands

Recently, much attention has been given to the notion of `sustainable consumption'. Whereas environmental economics traditionally has focused environmental policy analysis on producers, this new notion broadens the perspective to include environmental policies aimed at directly influencing consumer decisions regarding buying, using, and recycling products. This could suggest policies that link not only to price incentives, but also and especially to persuasive instruments, such as education and information provision. These policies might take into account certain characteristics of households, such as lifestyle and family size. This article presents a first econometric analysis of consumption in the context of environmental sustainability. Relationships between different types of household expenditures and a range of household characteristics are assessed, based on a large micro data set of households for the Netherlands. Use is made of various demand models and econometric techniques to adequately address theoretical and technical issues involved. The article ends with a discussion of the implications of the results for environmental policy directed at stimulating sustainable consumption.     

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。     

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.