Minimum investment requirement,financial market imperfection and self-fulfilling belief

We develop a model in which a strategic complementarity in saving decisions arises due to a minimum investment requirement and financial market imperfection. We explore the role of self-fulling beliefs in determining the long run dynamics. The model exhibits a wide range of dynamic phenomena such as a poverty trap, a big push and a sunspot equilibrium, depending on the level of financial market imperfection. They account for excessive volatility and a sudden change in the saving rate and its macroeconomic consequences without any shocks to fundamentals.     

Testing evolutionary theory of household consumption behavior in the case of novelty - a product characteristics approach

This article tests and extends the evolutionary theory of household consumption behavior, which is an alternative to neoclassical theory. Evolutionary economists offer novel approaches to the analysis of consumption behavior that emphasize the major role of learning in the evolution of consumer preferences and wants. As a possible inspiration for further progress in evolutionary thought, this paper examines the idea of consumer learning by studying the nature of what consumers should learn in the context of ‘novelty’. Our empirical results regarding novelty during the learning process show that consumers learn the ‘new characteristics’ of consumer goods, contrary to the Lancasterian approach, which suggests that the characteristics space of goods is fixed. We show that during the process of consumption, ‘consumer learning’ extends the characteristics space of consumer goods; this phenomenon is far from negligible and differs across product types. Moreover, our results show that the emergence of new characteristics cannot be modeled as a Poisson process because these new characteristics exhibit clear interdependence over time.     

Learning by replicator and best-response: the importance of being indifferent

This paper compares two learning processes, namely those generated by replicator and best-response dynamics, from the point of view of the asymptotics of play. We base our study on the intersection of the basins of attraction of locally stable pure Nash equilibria for replicator and best-response dynamics. Local stability implies that the basin of attraction has positive measure but there are examples where the intersection of the basin of attraction for replicator and best-response dynamics is arbitrarily small. We provide conditions, involving the existence of an unstable interior Nash equilibrium, for the basins of attraction of any locally stable pure Nash equilibrium under replicator and best-response dynamics to intersect in a set of positive measure. Hence, for any choice of initial conditions in sets of positive measure, if a pure Nash equilibrium is locally stable, the outcome of learning under either procedure coincides. We provide examples illustrating the above, including some for which the basins of attraction exactly coincide for both learning dynamics. We explore the role that indifference sets play in the coincidence of the basins of attraction of the stable Nash equilibria.     

Going up and down: rethinking the empirics of growth in the developing and newly industrialized world

Growth dynamics are remarkably heterogeneous, in particular when one focuses on developing countries. Economic miracles and failures are embedded within extended phases of either growth or decline. In this paper, we analyze the growth patterns of developing and newly industrialized countries on the basis of structural breaks and growth regimes experienced. Emphasizing the presence of broken trends, we focus on the difference between expansionary and recessionary regimes of medium length, and we show that models of takeoffs and exponential growth are inadequate to characterize the majority of observed growth dynamics. Then, we move to a systematic classification of different patterns and we isolate an additional stylized fact characterizing the process of growth and development. In particular, our results show that expansionary regimes are associated with convergence and positive correlation between growth and (short run) volatility. By contrast, in recessionary regimes, poorer countries face deeper failures and a negative correlation between growth and volatility is found, indicating that output fluctuates less around the trend during strong rather than mild recessions. Catching-up phenomena are infrequent but more likely to occur across categories of growth patterns rather than within. Finally, we discover that regimes of growth and recession show similar average length (about 16 years). Although recessions are, on average, remarkably pronounced (14% loss of GDP per capita), the magnitude of growth is much larger during expansions. In sum, our results underline that stable positive growth is hardly achieved in developing countries, which rather alternate long phases of expansions with equally long phases of recession. Moreover, cross-sectional empirical regularities are found to differ between regimes of positive and negative growth.     

The biological hypothesis in cliometrics of growth: a methodological critique of Fogel (post 1982) and Ashraf & Galor (2013)

The resort to biological “analogies”, “metaphors” and “concepts” is an important aspect of the history of the relationships between economics and biology and has long been greatly controversial. This controversy continues today in the most recent work of three cliometricians, i.e. Fogel (post 1982) and Ashraf and Galor (2013). We focus on the theories of historical growth relying on biological explanations which have been formulated by these economists, from the specific angle of biological reductionism. We propose a methodological critique of their use of biological variables as determinants of the historical dynamics of economic growth. Based upon the transposition to the field of economics of Ernst Mayr’s distinction between functional and evolutionary biology and his definitions of reductionism, we argue that despite some similarities, the questions raised by Fogel’s and Ashraf & Galor’s theories are of distinct nature. Nonetheless, we stress the need for a careful examination of the biological mechanisms supporting these researches.     

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.     

The dynamics of regional learning paradigms and trajectories

While the literature is rich with studies on the identification of alternative types of learning processes that might exist in the real world, the identification of the determinants of the structural changes in regional learning processes is still an underexplored research field in regional innovation theories. This paper proposes the concept of regional learning paradigms and trajectories to study how alternative and more advanced learning processes arise in a region, and highlights the evolutionary path-creation strategies enabling a paradigmatic jump. By taking into consideration also learning modes typical of peripheral or declining industrial areas, generally left aside in previous theories, this new conceptual approach allows us to understand how more complex learning and innovation processes can emerge in all types of regions. From these reflections, spontaneous processes or policy recommendations to catch-up in the innovation ladder are highlighted for each type of region.     

General purpose technologies in theory,application and controversy: a review

Distinguishing characteristics of General Purpose Technologies (GPTs) are identified and definitions discussed. Our definition includes multipurpose and single-purpose technologies, defining them according to their micro-technological characteristics, not their macro-economic effects. Identifying technologies as GPTs requires recognizing their evolutionary nature, and accepting possible uncertainties concerning marginal cases. Many of the existing ‘tests’ of whether particular technologies are GPTs are based on misunderstandings either of what GPT theory predicts or what such tests can establish. The development of formal GPT theories is outlined, showing that only the early theories predicted the inevitability of GPT-induced showdown and surges. More recent GPT theories, designed to model the characteristics of GPTs, do not imply the necessity of specific macro effects. We show that GPTs can rejuvenate the growth process without causing slowdowns or surges. We conclude that existing criticisms of GPT theory can be resolved and that the concept remains useful for economic theory.     

The law and economics of sycophancy

Tullock (in: Rowley (ed) The selected works of Gordon Tullock, Liberty Fund, Indianapolis, pp 399–455, 2005) was skeptical of the presumed economic efficiency of the common law, as adversarialism, apparently inherent to common law procedures, allowed for and was prone to litigiousness. Common law litigations accord to patterns of rent-seeking, as litigants invest ever more resources to assure victory. This paper asks if viable institutional solutions can emerge to resolve the problem Tullock identified. I survey the historical development of the term sycophancy within ancient Greek law as a revealing case study. Though a relatively innocuous pejorative in contemporary parlance, the term’s etymological roots stem from a formative process of ancient legal and institutional change within Athenian Greece. In the wake of specific legal reforms that expanded the scope of governmental authority under Solon (born 638–558 BCE), citizens were given explicit financial incentive to report violators of newly implemented public laws. Thereafter, social stigma surrounding third party legal representation leveraged the term sycophancy in reference to prosecutors motivated by private interests over the public welfare. Forgone social status and eventually formal criminal sanction emerged as offsetting differentials against the incentives of sycophancy.     

Does a Clean Development Mechanism Facilitate International Environmental Agreements?

When politicians negotiate in international climate conventions they may suffer from incomplete information for each other’s preferences for reaching an agreement. As is known, this may cause failure to reach an efficient cooperative agreement. We study the role of cross border abatement provisions in the likelihood of such failure. For instance, the clean development mechanism was introduced in the context of the Kyoto Protocol to allow countries to make efficiency-enhancing use of cross-country low-cost mitigation opportunities. We use a simple bargaining framework to uncover why this mechanism may reduce the likelihood of reaching an efficient cooperative climate agreement.