This paper is an extensive comment on John Davis’ paper “Economics, Neuroeconomics, and the Problem of Identity“ published in this very journal (Vol. 136, No. 1). So far, the methodological assessments of neuroeconomics by economists vacillate between the Scylla of neuro-reductionism and the Charybdis of Friedman’s instrumentalism. Following Davis’ approach to identity economics, I argue that there is a third way shown by methodological approaches to the neurosciences which are non-reductionist and highlight complex multi-level explanations, including external interactions, such as in distributed cognition theories. I suggest that newly emerging areas of study – such as social neuroscience – can be traced back to G.H Mead’s theory of the individual, with important implications for economics. JEL Codes: B41, D87
This essay explores the views of three British economics -Arthur Pigou, Edwin Cannan, and J. A. Hobsonin relation to the ethical appropriateness of different aspects of policies and actions in Britain during the First World War.The focus of the piece is on three themes: (1) the importance of tackling distributive injustices associated with Britain's war finance policies, (2) working-class perceptions of injustice as a social-psychological force capable of generating industrial discontent, and (3) political injustices associated with the war-time suppression of legal rights and individual liberties.
This paper offers an alternative to essentialist theories that conceptualize goods as bundles of objective characteristics. Extending the idea that economic competition is a discovery process beyond the discovery of costs and prices to the discovery of qualities, we argue that relevant qualities of goods emerge along with costs and prices from the process of economic competition. Such a discovery process revolves around exemplary goods—a novel theoretical concept we develop. Exemplary goods, as we argue, have a coordinative role within markets that is complementary to the coordinative role of prices. We illustrate our theory with a reinterpretation of a case study on the entry of Starbucks and conclude by challenging some of the normative implications derived from theories of salience. JEL Codes: D4, L15, Z1
This paper reviews the debate in economics over neuroeconomics' contribution to economics. It distinguishes majority and minority views, argues that this debate has been framed by mainstream economics' conception of itself as an isolated science, and argues that this framing has put off the agenda in economics issues such as individual identity that are increasingly important in connection with the social and historical context of economic explanations in a changing complex world. The paper first discusses how the debate over neuroeconomics has been limited to the question of what information from other sciences might be employed in economics. It then goes on to the individual identity issue, and discusses how economics' top-down, closed character generates a circular individual identity conception, while bottom-up, open character of psychology and neuroscience, and their continual concern with the changing relation between theory and evidence, has produced four competing individual identity conceptions in neuroeconomic research. JEL Codes: A12, B41, D03, D87
This paper introduces a value-based approach to economics. It begins with the proposal to change the definition of economics. Whereas the standard approach focuses on the problem of scarcity the value-based approach studies the realization of values. Its subject is the right thing to do in all kinds of situations, like the realization of a good home, good work, and the right goods. In this way economics once again becomes the moral science that classical economists pursued. Important innovations are the notions of “shared goods” and “the willingness to contribute.” The value-based approach stimulates a reading of the story of Robinson Crusoe that is quite different from the standard reading of the story. JEL Codes: Z130
The debate on Keynes glossed over his intention to replace classical economic theory by an approach considering the fact of uncertainty in the sense of “there is no scientific basis on which to form any calculable probability whatever. We simply do not know” (Keynes 1937, p. 214). Keynes takes this into account by replacing the (neo-)classical assumption of perfect rational optimizing behavior by psychologically justified behavioral assumptions. As for the rest, he hangs on to the neoclassical model in a “macroeconomic” sense. Later developments based on the micro foundations of macroeconomics disregard the Keynesian uncertainty problem entirely. Given that uncertainty, Keynesians have not much choice but to accept the older social control style of David Hume, also applied by German Ordnungstheorie (system theory) - and there are no reasons for Keynesians to turn their backs on German Ordnungstheorie.
We examine the historical background of the translation and subsequent publication of Gustav Schmoller’s “The Idea of Justice in Political Economy” in the Annals of the American Academy of Political and Social Science. The first of Schmoller’s writings which was translated into English, we use archival correspondence – predominantly between one of the translators, Ernst von Halle, and Schmoller – to reconstruct the proceedings leading to its appearance in February 1894. In a further step, we highlight the role that the British economic historian William J. Ashley played in contributing to additional translations of Schmoller’s work. Finally, we engage in the debate as to why comparatively little of Schmoller’s work has been translated into English and suggest that in addition to historical dynamics related to World War I leading to the breakdown of ties between Germany and America, there were also very personal reasons – especially for both von Halle and Ashley – not to work together with the American Academy of Political and Social Science. JEL Codes: B15, B31
According to Schmoller, the key question about economic justice is: "How does it happen that economic transactions and social phenomena so often bring forth a favorable or adverse criticism which asserts that this is just, that unjust?"Schmoller's question is answered in a way which makes sense of justice as an ingredient of modern institutional development.The argument is based on a framework of four conditions, allowing for the comparison of theories of social justice including Rawls and Schmoller with (1) Hayekian arguments sharply critical of social justice and (2) models conceptualizing the economic sphere as free from contoversial distributive claims.
Louis Brandeis was the greatest opponent of industrial “bigness,” but not the first. After a brief introduction to his life and intellectual commitment to small scale and decentralization of authority in both production and government, this essay considers Brandeis's ideas about policy toward large firms in the context of the controversy in the United States Supreme Court over the interpretation of the Sherman Antitrust Act between 1890 and 1911. Opponents of bigness (“autonomists”) on the Court believed that allowing the market to determine the size of firms made firms too large and supported direct controls on growth, and opposed the common law rule of reason as an obstacle to limiting the size of firms. In 1911, the Court definitively rejected both these propositions in favor of a policy of efficiency in production and indifference to large scale, interpreting the Sherman Antitrust Act to include the rule of reason and leaving the question of firm size to fair competition alone. Brandeis, surp...
We use boosted regression trees to study the interplay between match quality and Internet use of volunteers. Match quality reflects the congruence of volunteers’ motives for doing volunteer work and their utility experiences. Using data from an online survey questionnaire of volunteers working for the German Red Cross, we find a positive correlation between match quality and social media use and, to a lesser extent, the intensity of volunteering-related Internet use. We study the relative importance of Internet use and other control variables for match quality, the partial dependence of match quality on Internet use and the control variables, and the interaction of Internet use with the control variables. JEL Codes: H41, J22, L31
We conduct incentive-compatible economic experiments to measure norms regarding social appropriateness of bribes in India. We adopt a stylized real world situation (obtaining a driver’s license) in which the possibility to engage in unethical behavior is common. Using coordination game technique to elicit social norms, we measure social appropriateness of engaging in this type of unethical behavior. We find that the social appropriateness ratings of bribing vary with the bribe amount. For smaller bribes, there is a lack of coordination on the modal social appropriateness rating, whereas larger bribes are considered inappropriate by the majority of participants. We also vary the information regarding common behaviors at the driver’s license testing facility by letting participants know in some treatments that bribe-taking by public officials is prevalent. When bribe-giving and bribe-taking are framed as widespread behaviors, participants perceive bribes to be less socially inappropriate. JEL Codes: C91, D80, J10
Most taxonomies of economic systems are dualistic, such as distinguishing between ‘plan’ and ‘market’. Following A. Sen, I argue that these approaches fall into the trap of ‘transcendental institutionalism’. As an alternative, the paper develops principles of evolutionary taxonomy that closely mirror the standards applied in biological taxonomy. Taxonomical types are approached as trajectories of change demarcated in space and time, and which are ordered in terms of historical sequences and origins. In human institutions, a special phenomenon is the interaction between ideas and institutions, which implies that interpretive activities have to be considered as important forces of evolution. Based on these considerations, I develop a conception of ‘institutional trait’ as basic unit of taxonomic analysis. I illustrate these principles by means of a short case study on China, taking the example of land property rights in South China as an institutional trait.
We propose that certain classes of economic models best be understood as ‘fictions,’ in the sense promoted by Roman Frigg and others. The structure of the argument parallels that made by Arnon Levy for information in biology. The lesson is that economists are not really all that concerned over the sorts of things, such as the nature of knowledge, that philosophers deem central to epistemology. JEL Codes: B21, B41, D80
One of the most important debates in the history of economics is known as the ‘socialist calculation debate.’ It was initiated in 1920 by the Austrian school economist Ludwig von Mises and continued by Friedrich Hayek, who forcibly criticised the schemes for socialist planning developed by Oskar Lange, Henry Dickenson and others. But the earlier critique of socialism by the German historical school economist Albert Schäffle has been largely overlooked. Furthermore, the rightful emphasis on the role of information and knowledge in the Austrian case ironically suggests some limits on property and markets, as well as endorsing their continuing importance. This essay points to the neglect of the detailed character of institutions on both sides of the debate. Not only were adequate notions of property and exchange absent from the general equilibrium theory used by the socialists in their attempted justifications of planning, but they were also threadbare on the Austrian side. Hence, ironically, the Austrian defence of capitalism was inadequate. JEL Codes: B52, B53, P20
In The Darwin Economy a distinguished behavioral economist, Robert Frank, promises to put Adam Smith’s “invisible hand narrative” into “context”. Neglecting history, empirical evidence, original sources, and a voluminous secondary literature, he fails to deliver. Frank predicts that one hundred years from now professional economists will name not Adam Smith but Charles Darwin as the intellectual founder of their discipline. The reason he gives is “Darwin’s wedge” — a term he coins to emphasize a divergence between individual and group interests which in turn causes wasteful competition and collective loss. He credits Darwin for the insight. We find the very same “wedge” and insight in a book wholly neglected by Frank and most economists after Stigler, namely, Smith’s The Theory of Moral Sentiments. Working with original sources we show that Frank’s view of the invisible hand—and thus of modern economics — is not sustainable. Contextual economics after Schmoller is of course voluminous but it is hardly known by Frank, who is wedded to the axiomatic approach and “no cash on the table” conjecture favored by most neoclassicals. We highlight the problem with evidence on the economics of labor-managed firms and with a revival of a once-famous study by Carleton Parker on large scale farming, unregulated migrant labor, and the Wheatland Hop Field riot of 1913.
Since the 2007-08 crisis, banks in many countries have been facing what seems to be a serious “trust crisis”. This sharp decline in trust in banks and banking, the likely outcome of the near-collapse of banking systems during the crisis, is partly captured by a growing empirical literature. However, this literature presents serious shortcomings, which reflect a more general lack of theorization of trust in banks. This lack of theorization certainly has much to do with the distance between the economic literature on banks and banking and the sociological and economic literature on trust. This paper aims at bridging this gap by proposing a new conceptual framework. In particular, the paper identifies three related dimensions of trust that seem to have relevance for the banking industry: “relational”, “systemic” and “vertical” trust. While mainstream financial intermediation theory and agency theory provide a good understanding of relational trust, they are less well equipped to deal with the other dimensions of trust. The paper, therefore, builds on heterodox theories of money and debt to build a more comprehensive understanding of trust in banks. This tentative conceptual framework, in turn, has implications for current theories of banking and of trust.
This paper provides one of the first empirical applications of directed acyclic graphs (DAGs) on a research question typical for the social sciences: wage discrimination. Besides a substantial interest in the weight wage penalty we ask whether DAGs help to improve the widely applied residual approach to discrimination. Using the German Socio-economic Panel (GSOEP) we find that body composition is associated with wages and that the effects of fat mass and fat free mass are markedly stronger for females than for males. Further we show that DAGs help to identify covariates which should and should not be adjusted for and to reduce the statistical model without losing information with regard to the estimation of the effect of interest. However, DAGs do not necessarily ensure that the central assumption of the residual approach, selection on observables, holds.
This paper pursues the argument that there is an incentive for employees to signal productivity in order to get further training in a firm. While usually both sides can benefit from this, firms are harmed if employees invest too much effort in potentially inefficient effort signals. Using representative survey data the paper empirically analyses whether different productivity signals increase the chances of further training for German employees. On the one hand, the results show that individuals who come to work when they are ill and who put up overtime hours can have higher chances to receive further training. On the other hand, it is found that individuals who report in sick are also more likely to receive further training. The observed relation suggests that only a moderate use of these effort signals is exerted. Therefore, negative consequences for firms due to effort spent in potentially inefficient effort signals might be modest.
