Agent-based modelling of novelty creating behavior and sectoral growth effects—Linking the creative and the destructive side of innovation

For grasping the relationship between novelty creating activities of agents and growth of economic aggregates, a multi-level approach is suggested. The first level specifies the triggering conditions for novelty creating activities for the agents, i.e. firms. Here the behavioral elements and the modes of actions for the firms are portrayed using an agent-based approach (Section?2). On the second level, the consequences of successful innovations and imitations in a given sector of economic activities are dealt with (Section?3). This depends on the frequency of successful novelties and on the way they diffuse in that sector. We use an agent-related functional approach, applying difference equations for depicting the stylized facts of the diffusion dynamics. Only if these different levels of economic dynamics are distinguished as well as related to each other, is it possible to derive aggregate effects of novelties for the whole economy. This will be done by way of computer simulations (Section?4). Conclusions are drawn in Section?5.     

The rule approach in evolutionary economics: A methodological template for empirical research

Dopfer and Potts (2008) have proposed a new analytic foundation to evolutionary economics based on the unified rule approach. While they contend that their approach is ontologically and analytically coherent and useful, scholars sympathetic with it, e.g., Ostrom and Basurto (2011), have called for further methodological and empirical specification. In the same vein, this paper seeks to develop the Dopfer-Potts framework by proposing an analytic methodology to translate their rule-based approach into an operational method for identifying and testing hypotheses that relate to rules. It does so by defining a methodology connecting explanandum (response rule) and explanantia (factor rules) at the same level of rules. The concept of a ‘savings rule’ serves as a roving example that later is extended into a case study. The paper offers a methodological template for applied evolutionary analysis in economics.     

Marginal WTP and Distance Decay: The Role of ‘Protest’ and ‘True Zero’ Responses in the Economic Valuation of Recreational Water Quality

We evaluate the sensitivity of distance decay in individuals’ stated willingness to pay (WTP) for water quality improvements in eutrophied lakes. We extend the standard model of contingent valuation (CV) by allowing individuals to adopt a sequential evaluation process consisting of two decision stages. In the first stage respondents decide whether they are ‘protesters’, have a WTP   \(=\)   ‘true zero’ or a \(\hbox {WTP}>0\) . Conditioned on a strictly positive WTP, we use Lee’s selectivity-corrected model to determine the magnitude of their WTP in the second stage. Using CV survey data from Norway we find significant distance decay in the first stage classification of respondents as ‘protesters’, ‘true zero’ WTP, or positive WTP. In the second stage model for positive WTP responses, we find little or no significant relationships when correcting for selection. Results suggest that previous findings of significant distance decay in contingent valuation of lake and river water in Europe may be driven by the definition of ‘protest’ and ‘true zero’ respondents. We find that WTP for water quality may be more useful as a qualitative indicator of political support for user financed water quality measures, than as a cardinal measure of marginal utility of water quality improvements.     

Consistent strategy-proof assignment by hierarchical exchange

We characterize the family of efficient, consistent, and strategy-proof rules in house allocation problems. These rules follow an endowment inheritance and trade procedure as in Pápai’s hierarchical exchange rules (Pápai in Econometrica 68, 1403–1433, 2000) and closely resemble Ergin’s priority rules (Ergin in Econometrica 70, 2489–2497, 2002). We prove that if there are at least four objects, these are the only rules that are efficient in two-agent problems, $2$ -consistent, and strategy-proof. A corollary is that these three basic properties together imply the full requirements of efficiency, consistency, group strategy-proofness, and reallocation-proofness.     

Keynes vs. the Post Keynesians on the Principle of Effective Demand *

Abstract

The American Post Keynesians – those who attach importance to the capital ‘P’ and the absence of a hyphen between ‘post’ and ‘Keynesian’– claim to be Keynes' most literal interpreters or the ‘truest’ Keynesians (Holt et al. 1998 Holt, R. P.F., Rosser, J. B. Jr. and Wray, L. R. 1998. Paul Davidson's Economics Jerome Levy Economics Institute Working Paper no. 251. Blithewood, NY (www.levy.org) [Google Scholar]: 17). This paper compares the Post Keynesian interpretation of the Principle of Effective Demand, i.e. the D/Z-model, with Keynes' own presentation in chapter 3 of the General Theory– and finds substantial differences. A re-interpretation of the D/Z-model is offered that would bring it into line with chapter 3.     

Survival of the hippest: life at the top of the hot 100

We analyse the survival characteristics of recordings that reached the number one spot on the US popular music charts over the period 1955 to 2003. Our results show that there has been a statistically significant change in the time spent at number one since ‘album cuts’ were included in the compilation of Billboard?'s Hot 100. Survival time is significantly improved if the recording is by a female solo artist, or if it is an instrumental tune. We also find a significant ‘Elvis effect’.

‘I’ll never be a saint, it's true. I’m too busy surviving!’ (Madonna, 1994 Madonna. 1994. “Survival”. In Bedtime Stories Album, Hollywood, CA: Warner Brothers Records.  [Google Scholar])     

Egalitarian division under Leontief Preferences

We consider the problem of fairly dividing $l$ divisible goods among $n$ agents with the generalized Leontief preferences. We propose and characterize the class of generalized egalitarian rules which satisfy efficiency, group strategy-proofness, anonymity, resource monotonicity, population monotonicity, envy-freeness and consistency. On the Leontief domain, our rules generalize the egalitarian-equivalent rules with reference bundles. We also extend our rules to agent-specific and endowment-specific egalitarian rules. The former is a larger class of rules satisfying all the previous properties except anonymity and envy-freeness. The latter is a class of efficient, group strategy-proof, anonymous and individually rational rules when the resources are assumed to be privately owned.     

The Welfare Impact of Self-supplied Water Pricing in Canada: A Computable General Equilibrium Assessment

This paper uses a computable general equilibrium model to assess the welfare cost of changing the method of water allocation in Canada towards one that uses prices to ration demand. We model the introduction of a price on both water that is abstracted as well as water that is consumed (that is abstracted, and not returned to the source). We estimate that reducing water consumption by 25 % would require imposition of a price on water consumption of around $$\$0.21/\text{ m }^{3}$$ . Similarly, introduction of a water abstraction charge of about $$\$0.013/\text{ m }^{3}$$ would be sufficient to reduce water abstraction by 25 %. We find that if revenues from water pricing are returned in lump sum to households, the introduction of water pricing would result in a modest welfare loss. When revenues from water pricing are used to offset existing taxes, we find a gain in welfare corresponding to a ‘strong double dividend.’     

Estimating Tropical Cyclone Damages Under Climate Change in the Southern Hemisphere Using Reported Damages

This paper estimates the damages from tropical cyclones (TCs) in the Southern Hemisphere under future climate change scenarios based on the historical TC records in Australia. From the best-track TC data, we examine the changes in frequency, intensity, and economic damage of the TCs that made landfall since 1970. From the detailed individual TC reports, damage estimates are constructed based on reported damages. We find that the TC frequency has significantly declined over time. The intensity, however, does not show a significant trend. Average damage per TC has declined significantly from 43 million AUD in the 1970s to 11 million in the 1990s. This paper finds that 1 % decrease in minimum central pressure leads to 32.7 % increase in economic damage, which is more than three times larger than that found in the US hurricane study with regards to maximum wind speeds. For future damage projections, characteristics of the 14,000 TCs generated under seven different AOGCM climate models are applied. All seven climate models predict a decrease in TC frequency in the Southern Hemisphere but intensity predictions vary. By the end of the twenty second century, changes in climate are expected to increase the TC damage under the MRI ( \(+\) 94 %), the MIROC ( \(+\) 73 %), and the CSIRO ( \(+\) 66 %) model due to increased intensity. However, TC damage is expected to fall under the GFDL ( \(-\) 92 %) and the CNRM ( \(-\) 85 %) model due to decreased intensity and frequency. Adaptation will be a key determinant of the future vulnerability to TCs in the Southern Hemisphere.     

Liquidity and the marginal value of information

We revisit Kyle’s (Econometrica 53:1315–1335, 1985) model of price formation in the presence of private information. We begin by using Back’s (Rev Financ Stud 5(3):387–409, 1992) approach, demonstrating that if standard assumptions are imposed, the model has a unique equilibrium solution and that the insider’s trading strategy has a martingale property. That in turn implies that the insider’s strategies are linear in total order flow. We also show that for arbitrary prior distributions, the insider’s trading strategy is uniquely determined by a Doob $h$ -transform that expresses the insider’s informational advantage. This allows us to reformulate the model so that Kyle’s liquidity parameter $\lambda $ is characterized by a Lagrange multiplier that is the marginal value or shadow price of information. Based on these findings, we can then interpret liquidity as the marginal value of information.     

A full characterization of nash implementation with strategy space reduction

The paper fully characterizes the class of Nash implementable social choice correspondences (SCCs) by mechanisms endowed with Saijo’s message space specification— $s$ -mechanisms. This class of SCCs is equivalent to the class of Nash implementable SCCs, though any game form involving ‘one less’ preference announcements breaks this equivalence relationship down.     

Semantics for intuitionistic epistemic logics of shallow depths for game theory

Epistemic logic of shallow depths has been developed by Kaneko–Suzuki using classical logic. In this paper, we adopt intuitionistic logic as the base logic to limit each player’s reasoning to constructive one. The resulting logical system is denoted by IG $_{EF}$ , and we introduce epistemic possible world semantics for IG $_{EF}$ . We show the soundness and completeness of IG $_{EF}$ with respect to this semantics for it. We also show some applications to game theoretical decision making.     

Exchange Rate Regimes and Inflation: Evidence from India

Abstract

Exchange rate stability is crucial for inflation management as a stable rate is expected to reduce domestic inflation pressures through a ‘policy discipline effect’ – restricting money supply growth, and a ‘credibility effect’ – inducing higher money demand and reduced velocity of money. Alternatively, the ‘impossibility trillema’ of Mundell (1961a Mundell, R. A. (1961a). Capital mobility and stabilization policy under fixed and flexible exchange rates. Canadian Journal of Economics and Political Science, 29, 475–485. doi: 10.2307/139336[Crossref], [Web of Science ®] , [Google Scholar], 1961b Mundell, R. A. (1961b). Flexible exchange rates and employment policy. Canadian Journal of Economics and Political Science, 27, 509–517. doi: 10.2307/139437[Crossref], [Web of Science ®] , [Google Scholar]) predicts that in the presence of an open capital account, a stable exchange rate may lead to lack of control on monetary policy and, hence, higher inflation. Using a monetary model of Inflation, this paper investigates the impact of the ‘empirically-claimed’ de facto stable exchange rate regime on inflation in India during different sub-periods of exchange rate stability. The results show that the impact of exchange rate regime on inflation is not visible in the Indian case, which could be because of the offsetting sterilization policy undertaken by the Reserve Bank of India (RBI) during expansionary money supply growth resulting from its large-scale intervention to even out exchange rate volatility.     

Rationality, political economy, and fiscal responsibility: wrestling with tragedy on the fiscal commons

The continuing budget deficits and accumulating public debt that commonly plagues western democracies reflects a clash between two rationalities regarding human governance: one of private property and its conventions and one of common property and its procedural framework. Democratic budgeting creates a form of fiscal commons whose governance is subject to the tragic outcomes depicted by Garret Hardin (in Science 162:1243?C1248, 1968). To be sure, tragedy can be avoided as Elinor Ostrom (1990) explains, but only to the extent that the fiscal commons is governed in a manner consonant with Antonio De Viti de Marco??s (1936) model of the cooperative state. While the tragedy of the commons that results from this tectonic clash is an inherent feature of democratic political economy, that tragedy can nonetheless be limited through reasserting the conventions and institutions of a constitution of liberty.     

Outsourcing versus technology transfer: Hotelling meets Stackelberg

We consider a Hotelling duopoly with two firms $A$ and $B$ in the final good market. Both can produce the required intermediate good, firm $B$ having a lower cost due to a superior technology. We compare two contracts: outsourcing ( $A$ orders the intermediate good from $B$ ) and technology transfer ( $B$ transfers its technology to $A$ ). An outsourcing order is equivalent to building an endogenous capacity and it generates a Stackelberg leadership effect for firm $A,$ which is absent in technology transfer. We show that compared to the situation of no contracts there are always Pareto improving outsourcing contracts (making both firms better off and all consumers at least weakly better off), but no Pareto improving technology transfer contracts. It is also shown that if firm $B$ has a relatively large bargaining power in its negotiations with $A,$ then both firms prefer technology transfer while all consumers prefer outsourcing.     

Beveridge's analysis of unemployment in 1909: the reserve of labour

Abstract

The aim of this paper is to provide a rational reconstruction of Beveridge's theory of unemployment published in 1909. First and foremost, it shows that his theory of unemployment is coherent – what Beveridge refers to as ‘the reserve of labour’ represents ‘unemployment’ as a whole; unemployment is due to the imperfection of the labour market and associated friction and the organisation of the labour market is necessary. Second, it suggests that as early as 1909, a negative relationship already existed between unemployment and job vacancies and that the segmentation of the labour market and imperfect information are key factors of friction. The first part of the paper provides a reconstruction of Beveridge's theory of the reserve of labour (1909) including causes and factors of unemployment and unemployment policies. The second part shows that certain founding principles of the ‘Beveridge curve’ (Beveridge 1944 Beveridge, W. H. 1944 [1953]. Full Employment in a Free Society, London: George Allen and Unwin.  [Google Scholar] [1953]) were already to be found in his 1909 book and that links can be established between Beveridge (1909 Beveridge, W. H. 1909. Unemployment: A Problem of Industry, London: Longmans, Green and Co.  [Google Scholar]), Phelps (1970 Phelps, E. S. 1970. The new microeconomic in inflation and employment theory. The American Economic Review, 59(2): 147–60. [Web of Science ®] , [Google Scholar]) and Pissarides (2000 Pissarides, C. A. 2000. Equilibrium Unemployment Theory, Cambridge, MA: MIT Press.  [Google Scholar]).     

On the location of public bads: strategy-proofness under two-dimensional single-dipped preferences

In a model with finitely many agents who have single-dipped Euclidean preferences on a polytope in the Euclidean plane, a rule assigns to each profile of reported dips a point of the polytope. A point $x$ of the polytope is called single-best if there is a point $y$ of the polytope such that $x$ is the unique point of the polytope at maximal distance from $y$ . It is proved that if the polytope does not have either exactly two single-best points or exactly four single-best points which form the vertices of a rectangle, then any Pareto optimal and strategy-proof rule is dictatorial. If the polytope has exactly two single-best points, then there are non-dictatorial strategy-proof and Pareto optimal rules, which can be described by committee voting (simple games) between the two single-best points. This also holds if there are exactly four single-best points which form the vertices of a rectangle, but in that case, we limit ourselves to describing an example of such a rule. The framework under consideration models situations where public bads such as garbage dumping grounds or nuclear plants have to be located within a confined region.     

Pluralism(s) in economics: lessons from complexity and innovation. A review paper

My analysis focuses on two main observations. First, many competing schools of thoughts are currently present in economics with no predominant paradigm. We are experiencing an era of pluralism (Davis J Econ Methodol 14(3):275–290, 2007, Camb J Econ 32:249–366, 2008; Colander 2000; Colander et al. J Polit Econ 16(4):485–499, 2004). The term ‘pluralism’ is extremely interesting since, as I will show, it has different dimensions to it. These offer insights into interpreting the tangled universe of the economics. Second, there is a progressive intertwining of innovation economics with complexity economics, which I argue provides an instance of the above-described shift toward pluralism.     

Adolphe Quetelet,the average man and the development of economic methodology *

Abstract

Quetelet's contribution to statistics has received adequate attention in Stigler (1986 Stigler, S. M. 1986. The History of Statistics. The Measurement of Uncertainty before 1900, Cambridge & London, MA: Belknap Press of Harvard University Press.  [Google Scholar], 1999 Stigler, S. M. 1999. Statistics on the Table. The History of Statistical Concepts and Methods, Cambridge & London, MA: Harvard University Press.  [Google Scholar]) and Porter's (1986) seminal works on the history of that scientific discipline. 24 24 See also Westergaard (1932 Westergaard, H. 1932. Contributions to the History of Statistics, London: King & Son.  [Google Scholar]: 167–70), Klein (1997 Klein, J. 1997. Statistical Visions in Time. A History of Time Series Analysis 1662–1938, Cambridge: Cambridge University Press.  [Google Scholar]: 122–31). Our contribution investigates Quetelet's influence on economic methodology. Other scholars have already investigated his influence on econometrics and empirical economics (Morgan 1990 Morgan, M. S. 1995. The History of Econometric Ideas, Cambridge: Cambridge University Press. [1990] [Google Scholar], Stigler 1999 Stigler, S. M. 1999. Statistics on the Table. The History of Statistical Concepts and Methods, Cambridge & London, MA: Harvard University Press.  [Google Scholar]), but we argue that his influence on theoretical economics should be considered significant as well. We devote attention to Quetelet's concept of the ‘average man’. For this purpose we briefly summarize Quetelet's methodology and examine the evolution of his ideas as expressed in his published works. We then investigate his influence on Jevons's ‘calculus of pleasures and pains’ and on the statistical investigations of the German historical school. We argue that the history of statistics, and especially Quetelet's contribution, should not be neglected by historians of economic thought as it provides important insights into the development of economic methodology.     

Geography, institutions, and the making of comparative development

While the direct impact of geographic endowments on prosperity is present in all countries, in former colonies, geography has also affected colonization policies and, therefore, institutional outcomes. Using non-colonized countries as a control group, I re-examine the theories put forward by La Porta et al. (J Law Econ Org 15(1):222–279, 1999 and Acemoglu et al. (Am Econ Rev 91(5), 1369–1401, 2001. I find strong support for both theories, but also evidence that the authors’ estimates of the impact of colonization on institutions and growth are biased, since they confound the effect of the historical determinants of institutions with the direct impact of geographic endowments on development. In a baseline estimation, I find that the approach of Acemoglu et al. (2001) overestimates the importance of institutions for economic growth by 28 %, as a country’s natural disease environment affected settler mortality during colonization and also has a direct impact on prosperity. The approach of La Porta et al. (1999) underestimates the importance of colonization-imposed legal origin for institutional development by 63 %, as Britain tended to colonize countries that are remote from Europe and thus suffer from low access to international markets.