Although rational choice theory has enjoyed only modest predictive success, it provides a powerful explanatory mechanism for social processes involving strategic interaction among individuals and it stimulates interesting empirical inquiries. Rather than present competing theories to compare against rational choice, Don Green and Ian Shapiro have merely alluded to alternative explanatory variables such as culture, institutions, and social norms, without showing either how these factors can be incorporated into a more powerful theory, or how they are inconsistent with rational choice (...) theory. It is likely that any eventual theory of the origin and maintenance of social institutions, norms, and values will have to reserve a central place for rational action. (shrink)
THE ECONOMICS OF TIME AND IGNORANCE by Gerald P. O'Driscoll, Jr. and Mario J. Rizzo New York: Basil Blackwell, 1985. 261pp., $34.95 O'Driscoll and Rizzo, two leading exponents of the Austrian subjectivist school of economics, claim to provide an original and powerful challenge to mainstream neoclassical economics. They also argue that there is much common ground between the Austrian approach and the recent development of Post Keynesian analysis. In this essay, the validity of such claims is analyzed, and the shortcomings (...) of the Austrian school's approach vis?à?vis Post Keynesian and neoclassical analysis is developed. (shrink)
This paper explores the main motivations behind new Keynesian macroeconomics in the last 15 years. It focuses on the two central issues of nominal rigidity and involuntary unemployment. It argues that the Walrasian paradigm is inherently incapable of making sense of these issues except in an ad hoc manner. Both of these issues require the adoption of a framework with price and wage making agents to be properly modelled. Even if the Walrasian approach might fit the facts in a superficial (...) way, it will be badly wrong about welfare effects of output fluctuations. The importance of imperfect competition from a methodological perspective is that it enables us to solve several anomalies simultaneously. (shrink)
The debate over Green and Shapiro's Pathologies of Rational Choice Theory sustains their contention that rational choice theory has not produced novel, empirically sustainable findings about politics?if one accepts their definition of empirically sustainable findings. Green and Shapiro show that rational choice research often resembles the empirically vacuous practices in which economists engage under the aegis of instrumentalism. Yet Green and Shapiro's insistence that theoretical constructs should produce accurate predictions may inadvertently lead to instrumentalism. Some of Green and Shapiro's critics (...) hint at a better approach, which would eschew predictive testing in favor of testing the applicability of the theory to particular cases. (shrink)
Behavioral economics has rejuvenated economic theory and deepened the bonds between economic theory and the other social sciences. Neoclassical economics does not depend on individual preferences being self-regarding. Moreover, in market contexts, laboratory experiments indicate that traditional theory works well. Behavioral economic findings thus enrich and expand neoclassical economics rather than undermining it. In particular, social norms are an emergent property of human sociality, and exist as macrosocial structures that are not reducible to the preferences of individuals. Behavioral economists are (...) not theorists, but rather experimentalists. With few exceptions, they do not provide, nor aim to provide, cogent models for the phenomena they discover. Far from downplaying “inconvenient facts,” as is the practice of traditional economic theory, behavioral economists relish finding novel forms of individual decision-making and strategic behavior. (shrink)
The paper aims at reconstructing the sequence of works through which the fixed-point technique entered the tool-box of modern economics and at establishing a link between this sequence and the neoclassical approach to economic modeling. The focus is on the change in the demonstration techniques caused by the spread of the so-called formalist approach to mathematical economics; this change was embodied by the fixed-point technique. The main conclusions of the paper are that the formalist revolution marked a dramatic discontinuity in (...) the history of economic theory and that early game theory - despite having been the gateway through which the fixed-point entered economics - was only partly responsible for such a discontinuity. (shrink)
Economics and culture are in a complex, developing relation to each other. Yet, to introduce ?culture? into economic theory requires, first of all, an appropriate understanding of culture itself. The crucial point of this paper is that culture in its development and structure is only understandable if one considers it in connection with the autonomous structural development of the forms with which the subjects experience and construct their world. In recognition of the socio?cultural organization of human society, there is no (...) absolute autonomy of individuals in comparison to society and economics, while together with this interdependency the development of rationality exceeds mere instrumentality. Through ontogenesis, every individual is located ?within the boundaries of society?. What are consequences for economic theory? First of all: Economics is a cultural science in a double sense. Its object is the changing world of economic phenomena that are bound in a very specific cultural context. However, culture is not only relevant for the phenomena of socio?economic life, but also for the phenomena of economic science, i.e. for the development of economic thought. (shrink)
Preferences are the central notion in mainstream economic theory, yet economists say little about what preferences are. This article argues that preferences in mainstream positive economics are comparative evaluations with respect to everything relevant to value or choice, and it argues against three mistaken views of preferences: (1) that they are matters of taste, concerning which rational assessment is inappropriate, (2) that preferences coincide with judgments of expected self-interested benefit, and (3) that preferences can be defined in terms of choices.
This is a comprehensive anthology of works concerning the nature of economics as a science, including classic texts and essays exploring specific branches and schools of economics. Apart from the classics, most of the selections in the third edition are new, as are the introduction and bibliography. No other anthology spans the whole field and offers a comprehensive introduction to questions about economic methodology.
Abstract In The Joyless Economy, Tibor Scitovsky proposes a model of human behavior that differs substantially from that of standard economic theory. Scitovsky begins with a basic distinction between ?comfort? and ?stimulation.? While stimulation is ultimately more satisfying and creative, we frequently fall for the bewitching attractions of comfort, which leads to impoverished lives. Scitovsky's analysis has far?reaching implications not only for the idea of rationality, but for the concept of utility (by making it plural in nature) and, perhaps most (...) importantly, for the importance of freedom (including the freedom to change our preferences). (shrink)
The Scylla and Charybdis of institutions of cooperative enterprises are the potential for free riders, on the one hand, and the fact that some people may not value certain public goods. If we go to the one side, we encourage people who do value the public goods but whom cannot be excluded from enjoying them, to refuse to pay their share of the costs of providing them; if we go to the other side and force everyone to pay for them, (...) we make people who do not value the public goods subsidize those who do and who perhaps have gained special control over the agenda of selecting which public goods are to be required. (shrink)
Following Amartya Sen’s insistence to expand the framework of rational choice theory by taking into account ‘non-utility information,’ economists, political scientists and philosophers have recently concentrated their efforts in analysing the issues related to rights, freedom, diversity intentions and equality. Thomas Boylan and Ruvin Gekker have gathered essays that reflect this trend. The particular themes addressed in this volume include: the measurement of diversity and freedom, formal analysis of individual rights and intentions, judgment aggregation under constraints and strategic manipulation in (...) fuzzy environments. Some papers in the volume also deal with philosophical aspects of normative social choice. (shrink)
The notion of a spontaneous social order, an order in human affairs which operates without the intervention of any directly ordering mind, has a natural fascination for social and political theorists. This paper provides a taxonomy under which there are two broadly contrasting sorts of spontaneous social order. One is the familiar invisible hand; the other is an arrangement that we describe as the intangible hand. The paper is designed to serve two main purposes. First, to provide a pure account (...) of the invisible hand, with some indication of the varieties of invisible hand (and, indeed, backhand) available. Second, to develop and motivate the unfamiliar conception of the intangible backhand. We believe that a recognition of the availability of this latter sort of spontaneous organising mechanism — and the mechanism is implicitly recognised in many traditions — is of great importance in political theory; it is of particular importance nowadays when the usual focus is entirely on the invisible hand. (shrink)
This paper concerns voting with logical consequences, which means that anybody voting for an alternative x should vote for the logical consequences of x as well. Similarly, the social choice set is also supposed to be closed under logical consequences. The central result of the paper is that, given a set of fairly natural conditions, the only social choice functions that satisfy social logical closure are oligarchic (where a subset of the voters are decisive for the social choice). The set (...) of conditions needed for the proof include a version of Independence of Irrelevant Alternatives that also plays a central role in Arrow's impossibility theorem. (Published Online July 11 2006) Footnotes1 Much of this article was written while the author was a fellow at the Swedish Collegium for Advanced Study in the Social Sciences (SCASSS) in Uppsala. I want to thank the Collegium for providing me with excellent working conditions. Wlodek Rabinowicz and other fellows gave me valuable comments at a seminar at SCASSS when an early version of the paper was presented. I also want to thank Luc Bovens, Franz Dietrich, Christian List and an anonymous referee for their excellent comments on a later version. The final version was prepared during a stay at Oxford University for which I am grateful to the British Academy. (shrink)
Increasingly in the modern world, incentives are becoming the tool we reach for when we wish to bring about change. In government, in education, in health care, between and within institutions of all sorts, incentives are offered to steer people's choices in certain directions. But despite the increasing interest in ethics and economics, the ethics of the use of incentives has raised very little concern. From a certain point of view, this is not surprising. When incentives are viewed from the (...) perspective of market economics, they appear to be entirely unproblematic. An incentive is an offer of something of value, sometimes with a cash equivalent and sometimes not, meant to influence the payoff structure of a utility calculation so as to alter a person's course of action. In other words, the person offering the incentive means to make one choice more attractive to the person responding to the incentive than any other alternative. Both parties stand to gain from the resulting choice. In effect, it is a form of trade, and as such, it meets certain ethical requirements by definition. A trade involves voluntary action by all parties concerned to bring about a result that is beneficial to all parties concerned. If these conditions were not met, the trade would simply not occur. And as inducements in a voluntary transaction, incentives certainly have the moral high ground over coercion as an alternative. (shrink)
The term neoclassical economics delineates a distinct and relatively homogenous school of thought in economic theory that became prominent in the late nineteenth century and that now dominates mainstream economics. The term was originally introduced by Thorstein Veblen to describe developments in the discipline (of which Veblen did not entirely approve) associated with the work of such figures as William Jevons, Carl Menger, and Leon Walras. The ambition of these figures, the first neoclassicists, was to formalize and mathematize the subject (...) in the aftermath of the so-called marginalist revolution. Economics is, according to one definition, the science that studies human behavior as a relationship between ends and scarce means that have alternative uses. Neoclassical economics pursues this study by means of supply and demand models that determine prices based on the subjective preferences of producers and consumers. Neoclassical economics relies on subjective preferences for determining prices in order to escape from the so-called objective value theory of classical economics, according to which the value of goods could be established by reference to some basic commodity (usually corn) or the labor input required to produce a good. Neoclassicists hoped that by jettisoning objective value, economics could be placed on a more scientific basis as an essentially descriptive and predictive theory of human behavior. Political theory, by contrast, involves both positive and normative elements. It is a positive science to the extent to which it aims to describe and predict political behavior. It is a normative science to the extent to which it prescribes how agents should behave in the political arena and what the best political institutions are. Neoclassical economics is relevant to both of these elements. (shrink)
There are at least two elements of theory completion necessary for measurement: (1) a measurement formula and (2) standardization of that representation. Standardization is based on the search for stability. The more stable the correlation which the measurement formula represents is, the less influence other circumstances have. Then, the interconnection between testing, mathematical representation and standardization is of a hierarchical order. By testing a model one tries to find out to what extent the model covers the data of the phenomenon, (...) while to be a candidate for a measurement formula the model must represent the whole data range. And among the possible representations the standard model represents the most stable correlation under different circumstances. Lucas? model of the Phillips curve has been used to investigate this interconnection between testing, representation and stability. (shrink)
In this paper I ponder upon the meaning of the perfect information assumption, and argue that a distinction should be drawn between the Walrasian and Marshallian conceptions of perfect information. I show that the Marshallian conception is more demanding than the Walrasian, due to the absence of the auctioneer figure. Next, I examine a few modern imperfect information models (Friedman's expectations?augmented Phillips Curve model, Lucas' neutrality of money model, Shapiro and Stiglitz' efficiency wage model) in order to assess whether the (...) perfect information conception they depart from is the Walrasian or the Marshallian. The finding is that the first and the third are Marshallian while the second is Walrasian. Finally, I reflect on how models of general equilibrium with imperfect competition fare with respect to the Marshall?Walras divide. (shrink)
It is customarily assumed that welfare-state thinking can only appear as a product of the sharpening conflict between revolutionary socialists and the defenders of the status quo; the case of Tom Paine proves otherwise. Although he defended private enterprise (to the exclusion of large landed property), he developed a forgotten early version of a comprehensive system of public welfare in the second part of his The Rights of Man and in his Agrarian Justice, where he argued that the new revolutionary (...) democratic government based on representation and universal suffrage has the duty and the means not only of relieving poverty but of preventing it by a system of universal allowances for marriage, childbirth, the raising of children, basic education, old age pensions and temporary housing and employment for the unemployed of the metropolis. This, he said, should be financed by a progressive inheritance tax levied especially on landed estates. (shrink)
As it is known, there is no rule satisfying Additivity in the complete domain of bankruptcy problems. This paper proposes a notion of partial Additivity in this context, to be called µ-additivity. We find that µ-additivity, together with two quite compelling axioms, anonymity and continuity, identify the Minimal Overlap rule, introduced by Neill (1982).
It has long been an interest of researchers in economics, sociology, organization studies, and economic geography to understand how firms innovate. Most recently, this interest has begun to examine the micro-processes of work and organization that sustain social creativity, emphasizing the learning and knowing through action when social actors and technologies come together in 'communities of practice'; everyday interactions of common purpose and mutual obligation. These communities are said to spark both incremental and radical innovation. -/- In the book, leading (...) international scholars critically examine the concept of communities of practice and its applications in different spatial, organizational, and creative settings. Chapters examine the development of the concept, the link between situated practice and different types of creative outcome, the interface between spatial and relational proximity, and the organizational demands of learning and knowing through communities of practice. More widely, the chapters examine the compatibility between markets, knowledge capitalism, and community; seemingly in conflict with each other, but discursively not. -/- Exploring the frontiers of current understanding of situated knowing and learning, this book is for all those interested in the economic sociology of organizational creativity and knowledge capitalism in general. (shrink)
The concept of preference dominates economic theory today. It performs a triple duty for economists, grounding their theories of individual behavior, welfare, and rationality. Microeconomic theory assumes that individuals act so as to maximize their utility – that is, to maximize the degree to which their preferences are satisfied. Welfare economics defines individual welfare in terms of preference satisfaction or utility, and social welfare as a function of individual preferences. Finally, economists assume that the rational act is the act that (...) maximally satisfies an individual's preferences. The habit of framing problems in terms of the concept of preference is now so entrenched that economists rarely entertain alternatives. (shrink)
discounting the future' is one on which philosophers and economists have divergent professional views. There is a lot of talking at cross-purposes across the disciplinary divide here; but there is a fair bit of confusion (I think) within disciplines as well. My aim here is essentially clarificatory. I draw several distinctions that I see as significant: between inter-temporal and intergenerational questions between price (discount rate) and quantity (inter-temporal and intergenerational allocations) as the ethically relevant magnitude, and between (...) price change and preference change as the primary instrument of change. I show that discounting does not violate the principle of inter-temporal and intergenerational neutrality, but I also cast some doubt on whether making adequate allowance for future generations has really been the problem that economists and philosophers seem to have taken it to be. Key Words: discount rates intergenerational justice future generations `feasibility' analysis. (shrink)
Many economic problems are also ethical problems: should we value economic equality? how much should we care about preserving the environment? how should medical resources be divided between saving life and enhancing life? This book examines some of the practical issues that lie between economics and ethics, and shows how utility theory can contribute to ethics. John Broome's work has, unusually, combined sophisticated economic and philosophical expertise, and Ethics Out of Economics brings together some of his most important essays, augmented (...) with a new introduction. The first group of essays deals with the relation between preference and value, the second with various questions about the formal structure of good, and the concluding section with the value of life. This work is of interest and importance for both economists and philosophers, and shows powerfully how economic methods can contribute to moral philosophy. (shrink)
Ethical theories grounded in utilitarianism suggest that social welfare is improved when agents seek to maximize others' welfare in addition to their own (i.e., are altruistic). However, I use a simple game-theoretic model to demonstrate two shortcomings of this argument. First, altruistic preferences can generate coordination problems where none exist for selfish agents. Second, when agents care somewhat about others' utility but weight their own more highly, total social welfare may be lower than with selfish agents even in the absence (...) of coordination problems. (Published Online April 18 2006) Correspondence:c1 105 St. George St., Toronto, Ontario M5S 3E6; firstname.lastname@example.org. Footnotes1 I thank Adam Brandenburger and Mara Lederman for helpful comments. (shrink)
John Broome's ground-breaking Weighing Lives makes precise, and supplies arguments previously lacking for, several views which for centuries have been central to the utilitarian tradition. In gratitude for his enlightening arguments, I shall repay him in this paper by showing how he could make things easier for himself by denying neutrality and accepting hedonism.
Two essential intuitions about the concept of multidimensional inequality have been highlighted in the emerging body of literature on this subject: first, multidimensional inequality should be a function of the uniform inequality of a multivariate distribution of goods or attributes across people (Kolm, 1977); and, second, it should also be a function of the cross-correlation between distributions of goods or attributes in different dimensions (Atkinson and Bourguignon, 1982; Walzer, 1983). While the first intuition has played a major role in the (...) design of fully-fledged multidimensional inequality indices, the second one has only recently received attention (Tsui, 1999); and, so far, multidimensional generalized entropy measures are the only inequality measures known to respect both intuitions. The present paper proposes a general method of designing a wider range of multidimensional inequality indices that also respect both intuitions, and illustrates this method by defining two classes of such indices: a generalization of the Gini coefficient, and a generalization of Atkinson's onedimensional measure of inequality. (shrink)
Most accounts of welfare aggregation in the tradition of Arrow's (1951/1963) and Sen's (1970/1979) social-choice-theoretic frameworks represent the welfare of an individual in terms of a single welfare ordering or a single scalar-valued welfare function. I develop a multidimensional generalization of Arrow's and Sen's frameworks, representing individual welfare in terms of multiple personal welfare functions, corresponding to multiple 'dimensions' of welfare. I show that, as in the one-dimensional case, the existence of attractive aggregation procedures depends on certain informational assumptions, specifically (...) about the measurability of welfare and its comparability not only across individuals but also across dimensions. I state several impossibility and possibility results. Under Arrow-type conditions, insufficient comparability across individuals leads to dictatorship of a single individual, while insufficient comparability across dimensions leads to dominance of a single dimension. Given sufficient comparability both across individuals and across dimensions, a range of possibilities emerges. I discuss the substantive implications of the results. (shrink)
The Pareto principle states that if the members of society express the same preference judgment between two options, this judgment is compelling for society. A building block of normative economics and social choice theory, and often borrowed by contemporary political philosophy, the principle has rarely been subjected to philosophical criticism. The paper objects to it on the ground that it indifferently applies to those cases in which the individuals agree on both their expressed preferences and their reasons for entertaining them, (...) and those cases in which they agree on their expressed preferences, while differing on their reasons. The latter are cases of "spurious unanimity", and it is normatively inappropriate, or so the paper argues, to defend unanimity preservation at the social level for them, so the Pareto principle is formulated much too broadly. The objection seems especially powerful when the principle is applied in an ex ante context of uncertainty, in which individuals can disagree on both their probabilities and utilities, and nonetheless agree on their preferences over prospects. (shrink)