On the role of intentionality in evolutionary economic change

One important challenge to evolutionary economics consists of tackling the paradoxical relationship between purposeful human action and the ‘blindness’ of evolutionary processes. We argue that the theoretical treatment of intended action is a prerequisite for venturing beyond the phenomenological explanation of evolutionary processes. If so, evolutionary processes are not (at least completely) ‘blind’. Of course, not every change in a society is a consequence of purposeful action. However, even if not every action were intended and not every novelty were the consequence of pursuing particular goals, the evolution of individual intentions and pursued goals (micro-level) is a key process in explaining economic change. In this context, an evolutionary efficiency criterion is proposed.     

Monopolistic competition and non-neighboring-goods

Summary This paper studies price games played by a continuum of differentiated producers who face demands generated by additively separable preferences exhibiting a non-neighboring goods property. The examples of exact equilibria show that an asymmetric Chamberlian outcome is compatible with nonzero profits for nonmarginal firms and also with constant average costs, contrary to long sustained views. The paper tries also to short out the structure behind this class of examples and identify as general features the presence of nonperfectly elastic demands facing individual firms and the existence of an approximate Chamberlinian equilibrium.I am indebted to J. Ostroy for very helpful comments and to L. Jones, P. Romer and W. Zame for several conversations.     

An axiomatic theory of political representation

We discuss the theory of gerrymandering-proof voting rules. Our approach is axiomatic. We show that, for votes over a binary set of alternatives, any rule that is unanimous, anonymous, and gerrymandering-proof must decide a social outcome as a function of the proportions of agents voting for each alternative, and must either be independent of this proportion, or be in one-to-one correspondence with the proportions. In an extended model in which the outcome of a vote at the district level can be a composition of a governing body (with two possible parties), we discuss the quasi-proportional rules (characterized by unanimity, anonymity, gerrymandering-proofness, strict monotonicity, and continuity). We show that we can always (pointwise) approximate a single-member district quota rule with a quasi-proportional rule. We also discuss a more general environment, where there may be more than two parties.     

Institutional competition among jurisdictions: An evolutionary approach

The purpose of this paper is to outline an evolutionary approach to the process of competition among institutions. We shall focus, in particular, on two issues: first, the role of the competitive process as a knowledge-creating process; and, second, the issue of what inferences, if any, can be drawn from the nature of this process regarding the desirability of its outcomes. In discussing both issues we will draw a parallel between ordinary market competition and competition in the realm of institutions. Some clarifying comments in order to narrow down what we mean by “evolutionary approach” and “institutional competition” precede the analysis. The authors wish to thank Richard Wagner for helpful criticism.     

Economic policy making in evolutionary perspective

Economic policy making is discussed from three different angles: the political economy of actual policy making (“what policy does do”), the analysis of policy instruments for given ends (“what policy could do”), and the debate on policy goals and their legitimization (“what policy ought to do”). Center stage in the evolutionary perspective is new, positive and normative knowledge which is unfolding during the policy making process and in its aftermath. It is argued that this implies regularities and constraints which extend and modify the comparative-static interpretations of public choice theory, economic policy making theory, and social philosophy. RID="*" ID="*" The author should like to thank three anonymous referees of this journal and the editor for helpful comments on an earlier version of the paper.     

Irrationality and monopolistic competition: An evolutionary approach

This paper shows that a monopolistically competitive equilibrium can evolve without purposive profit maximization. Specifically, this paper formulates a precise evolutionary dynamic model of an industry where there is continuous entry of firms that randomly select their output levels on entry and fix their output levels thereafter. Firms exit the industry if they fail to pass the survival test of making nonnegative wealth. This paper shows that the industry converges in probability to the monopolistically competitive equilibrium as the size of each firm becomes infinitesimally small relative to the market, as the entry cost becomes sufficiently small, and as time gets sufficiently large. Consequently, in the limit, the only surviving firms are those producing at the tangency of the demand curve to the average cost curve and no potential entrant can make a positive profit by entry.     

Third-party punishment and counter-punishment in one-shot interactions

This paper presents experimental evidence from a simple three-person game showing that many individuals are willing to avenge third-party punishment in one-shot interactions. The threat of counter-punishment has a large negative effect on the willingness of third parties to punish selfish behavior. In spite of this, the extent of selfish behavior is identical to that in a treatment without counter-punishment opportunities. We discuss explanations for this puzzling finding.     

Perfect competition in asymmetric information economies: compatibility of efficiency and incentives

The idea of perfect competition for an economy with asymmetric information is formalized via an idiosyncratic signal process in which the private signals of almost every individual agent can influence only a negligible group of agents, and the individual agents’ relevant signals are essentially pairwise independent conditioned on the true states of nature. Thus, there is no incentive for an individual agent to manipulate her private information. The existence of incentive compatible, ex post Walrasian allocations is shown for such a perfectly competitive asymmetric information economy with or without “common values”. Consequently, the conflict between incentive compatibility and Pareto efficiency is resolved exactly, and its asymptotic version is derived for a sequence of large, but finite private information economies.     

Language orders

This essay examines the alternatives of spontaneous order and central planning in the context of human language to cast new light both on the issues raised in the Socialist Calculation debate of the 1930s and 40s and on the nature of language itself. The evolution of the complex systems of rules that comprise natural languages is discussed, and the process of language acquisition in children is used to illustrate the problems involved in characterizing any spontaneous order as a social contract or convention. Natural language orders are distinguished from explicit contracts through the concept of a language trap, in which an individual who voluntarily begins to participate in the order is gradually transformed by this participation and eventually becomes unable to leave it. A concluding section considers the implications of this trap and the pursuit of self-interest through language for attempts to construct and win adherents to artificial languages, and suggests the nature of the obstacles that confront any attempt to overcome or redirect the deeply rooted behaviors associated with spontaneous orders through the imposition of a central plan.     

How to win a decision in a confederation

This paper deals with collective decision making within a group of independent states. The right to choose the public policy is delegated from the central authority to one of the states through a bidding procedure among the group state members. We identify the following tradeoff: competition among states yields higher transfers to the central authority, but the outcome tends to be less efficient than what it is when states negotiate prior to the decision making process. We extend and illustrate the model by means of a public good game involving several heterogeneous states.     

Asymmetric Information,Auditing Commitment,and Economic Growth

We analyze in this paper the growth and welfare consequences stemming from the lack of auditing commitment in a credit market with costly state verification. By studying two endogenous growth models, one of which allows lenders to commit to costly auditing strategies, whereas the other does not, we show that the inability to commit serves as a source of informational friction that results in more stringent contractual terms, which, in turn, result in lower capital accumulation, growth, and welfare. From the policy perspective, our analysis suggests a new micro‐economic channel through which institutional failings hinder economic growth and social welfare.     

Priorities in the location of multiple public facilities

A collective decision problem is described by a set of agents, a profile of single-peaked preferences over the real line and a number of public facilities to be located. We consider public facilities that do not suffer from congestion and are non-excludable. We characterize the class of rules satisfying Pareto-efficiency, object-population monotonicity and sovereignty. Each rule in the class is a priority rule that selects locations according to a predetermined priority ordering among “interest groups”. We characterize the subclasses of priority rules that respectively satisfy anonymity, avoid the no-show paradox, strategy-proofness and population-monotonicity. In particular, we prove that a priority rule is strategy-proof if and only if it partitions the set of agents into a fixed hierarchy. Any such rule can also be viewed as a collection of generalized peak-selection median rules, that are linked across populations, in a way that we describe.     

Are most people consequentialists?

Welfare economics relies on consequentialism even though many philosophers have questioned this assumption. Survey evidence, based on a representative sample in Sweden, is presented here suggesting that most people’s ethical perceptions are consistent with consequentialism.     

Tax competition in federations revisited

We extend Keen and Kotsogiannis (2002, 2004) by considering all-purpose public goods that are beneficial to both producers and consumers. Horizontal externality (resp. vertical externality) exerted by tax competition will not necessarily lead to inefficient outcomes.     

Endogenous political competition and political accountability

We contribute to the debate over the effectiveness of elections in motivating incumbents to perform well. We show that with endogenous political competition the effectiveness of democracy in disciplining officials can be largely diminished.     

Match choice and Ghettoization in evolutionary games

I study how having a choice about who to play affects the conventions that arise in a population playing a 2×2 common interest game. Match choice allows agents playing “fragile but efficient” strategies to isolate themselves, raising their returns but making it harder for outsiders to duplicate their success. When agents are myopic, the second effect dominates: long run play can shift toward either the risk-dominant equilibrium (with common interests in matching) or toward the inefficient equilibrium (with opposing interests in matching). In contrast, when agents are patient, supra-Nash payoffs can be sustained.     

Equilibrium portfolios in the neoclassical growth model

This paper studies equilibrium portfolios in the standard neoclassical growth model under uncertainty with heterogeneous agents and dynamically complete markets. Preferences are purposely restricted to be quasi-homothetic. The main source of heterogeneity across agents is due to different endowments of shares of the representative firm at date 0. Fixing portfolios is the optimal equilibrium strategy in stationary endowment economies with dynamically complete markets. However, when the environment displays changing degrees of heterogeneity across agents, the trading strategy of fixed portfolios cannot be optimal in equilibrium. Very importantly, our framework can generate changing heterogeneity if and only if either minimum consumption requirements are not zero or labor income is not zero and the value of human and non-human wealth are linearly independent.