This paper analyzes the methodological perspectives of two great theorists, John Rawls and Amartya Sen, on the issue of justice. Rawls's justice as fairness and Sen's capability approach have an important place in contemporary moral and political theory. A fruitful methodological dialogue has developed between them over time in the context of justice. In this paper, we examine relevant arguments of this dialogue on their methodologies in dealing with the issue of justice. By doing this we draw attention to the emphasis of methodological issues in theorizing about justice because the methodological departing points of both Rawls and Sen are extremely critical on the formation of the substance of their distributive justice theories.
Multi party negotiations within a complicated pattern of coalitions are typical for bargaining societies like the Nordic countries. Inefficiency in some bargaining constellations enhances the benefits from overall cooperation and therefore for the chances that the grand coalition forms. To substantiate and defend this claim I discuss four assertions. i) Encompassing organizations can lead to efficacy: threats and counter threats in central negotiations can induce a binding agreement that resembles the competitive market equilibrium. ii) To fulfill all demands in central negotiations can be impossible: when all possible coalitions can threaten to break out and start negotiations over the terms to return, cooperation easily fails. iii) Cooperation should have a non-cooperative foundation: when only intermediate coalitions that remain stable in the non-cooperative equilibrium can pose a threat, endogenous overall cooperation is more easily sustained. iv) Negotiations based on distorted information lead to inefficiency: intermediate bargaining may have an inherent tendency to eliminate the potential gain that is the object of the bargaining - but thus raise the gains from cooperation.
The relative success of the Icelandic road to recovery in the wake of the 2008 Financial Crisis has been a source of some myth-making. This paper discusses to which extent Iceland refused to bail out bankers and sheltered the sovereign from financial losses. I also argue that Iceland responded to the crisis by Keynesian expansionary policy rather than austerity. Furthermore, I argue that the debt-relief program that the government initiated also was a key factor in cushioning the effect of the collapse of the Icelandic financial system.
The experiment presented here provides evidence that, in the presence of first possession and inequality, the degree to which a third-party re-distributor honors preexisting entitlements is bounded. Using a third-party redistributive task, the design examines how impartial decision makers redistribute the income of an advantaged stakeholder to a disadvantaged stakeholder. The results show that redistribution significantly decreases when entitlements to income are legitimized either by having an endowed stakeholder earn the right to his advantageous position or by having him earn his income. When both rights and income are earned, however, redistribution does not decrease further.
This paper studies the effects on tax revenues and welfare expenditures in Denmark caused by changes in age and household structures over the years 1982-2007. During that period, there has been a minor fall in the old-age dependency ratio, and a major increase in the number of people living alone, lone parents and cohabiting couples. Focusing on components of welfare services with noticeable differences in unit costs across age and household status, we find that changes in age structures have improved public finances by 1.6% of GDP whereas changing household structures have worsened public finances by almost 1% of GDP on the yearly budget. While the net fiscal effect of changing household structures is minor, the gross effects are substantial. In a future characterized by population ageing, public finances may be adversely affected by changes in both age and household structures, thus intensifying calls for welfare reforms.
We study the interaction between social and economic incentives in determining the level of corruption. Using social rewards as incentives for civil servants may help to reduce corruption. A decrease in corruption produces an externality that makes wage schemes which avert corruption (efficiency wages) cheaper. We show that the existence of this externality reduces the "optimal" level of corruption in a society, the greater the power of social status, the lower the level of corruption
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To explain why some countries are rich and others poor, I provide a brief overview of A Study in the Theory of Economic Evolution that Trygve Haavelmo published in 1954, before I elaborate on some features inspired by it. I incorporate grabbing activities into a dynamic development model, emphasizing how small differences in initial resources and institutions may create dissimilarities and big gaps between potentially similar countries, how poverty can arise in the midst of potential affluence, how abundance (of natural resources) and scarcity (of entrepreneurial talents) can be wasteful and harmful to economic growth—in particular when institutions are bad.
Haavelmo's visit to Aarhus in 1938-39 did not have any influence on his famous econometric contributions. But if one considers Haavelmo's post-1945 research in the balanced budget multiplier and the investment theory, there seem to be indications of much more inspiration from the discussion that went on at Aarhus University. At least, this is the simplest explanation of a couple of 'independent' publications of closely parallel results.
Although environmental issues were not the main theme of most of Haavelmo's writings, issues related to the environment are discussed in many publications with a broader focus. Haavelmo was also concerned about continued rapid population growth, and argued at several occasions that continued rapid population growth would have a detrimental effect on the development of environmental quality. We show that this concern was well founded; the future population development is extremely important for how the future climate will develop.
Haavelmo’s “A study in the theory of investment” from 1960 is a tour de force in macroeconomic theorising. His later offerings in this area are less known outside Norway. In this paper, we present his models of business cycles (crises) and inflation dynamics. The business cycle model generates cycles as an endogenous outcome of the mismatch between the return to capital and investors’ required rate. Haavelmo approached inflation dynamics from two different perspectives: First, in the spirit of Knut Wicksell, he included a “cumulative process” into his business cycle model. His second formulation is related to conflict theories of inflation.
The recent great financial crisis and the ensuing deep recessions have placed in sharp relief the fundamental issue of how financial factors, including financial instability, interact with the real economy. In order to understand the nature of these interactions and formulate policies that would help contain adverse outcomes it is essential to have an adequate conceptual framework. Unfortunately, the standard DSGE approach is deficient in this regard. This paper contends that Haavelmo’s macroeconomic theorizing provides a better starting point for forging the required integration between the financial and real sectors. The paper extends the basic Haavelmo model to the contemporary scene and uses it to shed light on policy solutions to the current predicament.
The question as to whether religion can block economic development and institutional change assumes particular importance today because of the rise of Islamist movements and the disappointing economic performances in the lands of Islam. This paper starts from a critical examination of the thesis of Bernard Lewis according to which the lack of separation between religion and politics creates particular difficulties on the way to modern economic growth in these lands. It is argued that (1) Lewis’ thesis conceals the critical fact that, even when political and religious functions appear to be merged, religion is the handmaiden rather than the master of politics; (2) the influence of religion increases when the state falls into crisis, owing to its impotence or excessive absolutism; (3) because the Islamic frame of reference provides political rulers with a cheap default option when they are contested, they rarely undertake the much-needed reforms of the country’s institutions; (4) this way of escape is all the more attractive to contested rulers as Islamist movements, born of the internal situation as well as of the international environment, accuse them of un-Islamic behaviour. An obscurantist deadlock is thereby created, which is aggravated by the inability of major Western countries to take an enlightened route in dealing with major issues confronting Middle Eastern countries.
The notion of renegotiation-proof equilibrium has become a cornerstone in non-cooperative models of international environmental agreements. Applying this solution concept to the infinitely repeated N-person Prisoners' Dilemma generates predictions that contradict intuition as well as conventional wisdom about public goods provision. This paper reports the results of an experiment designed to test two such predictions. The first is that the higher the cost of making a contribution, the more cooperation will materialize. The second is that the number of cooperators is independent of group size. Although the experiment was designed to replicate the assumptions of the model closely, our results lend very little support to the two predictions.
There are mainly two conjectures on why economists may behave differently than others in distributive situations: the selection hypothesis and the learning hypothesis. In this paper the Are economists different? question is addressed. Potential differences in three dimensions are studied: the weight people attach to fairness considerations, the prevalence of fairness ideals, and how people react to communication about fairness. A dictatorship game experiment with a production phase and a communication phase is run with first-year economics and engineering students. This experimental design is particularly suited for examining differences in all three dimensions. To the best of the authors knowledge, no previous experimental study has been able to address this question as comprehensively as the current analysis.
Within few days in October 2008 some 85% of the Icelandic bank-sector collapsed, as did the Icelandic krona. Many non-financial firms declared bankruptcy or decimated their workforce. Inflation skyrocketed as did unemployment, the other ingredient in the misery index. This paper records how well-intended policies aimed at making life easier for house-owners, people living in de-populating areas, and taxpayers turned into misfortune. The mixture of lax fiscal policy, tight monetary policy, inflation targeting, and running the smallest floating currency in the world with inadequate foreign reserves proved to be dangerous.
This paper investigates sectoral patterns of innovation in Norway in a European perspective. It puts forward a theoretical framework based on a new sectoral taxonomy that combines manufacturing and services within the same framework. It then analyses innovative activities in Norway and compare them to other European countries by making use of data from the Fourth Community Innovation Survey (CIS4). Finally, it studies the recent evolution and current characteristics of the industrial structure in Norway and points out its peculiarities vis-a-vis other European economies. The results of this work point to a contrasting pattern. On the one hand, Norwegian sectoral systems appear to be very innovative, often above the European average and, for some of the CIS4 indicators and some of the sectoral groups, they indeed emerge as the most innovative in Europe. On the other hand, these high-tech sectoral groups are relatively small in Norway, accounting for a much lower share of production than their European counterparts. The comparative analysis enables a reassessment of the so-called Norwegian paradox. The problem is not with innovative activities, as frequently asserted, but it has rather to do with the sectoral composition of the economy.
Can economic history manage without economic theory? And can economic theory get along without economic history? These are the two questions that will be addressed here. If we look at what the situation is actually like in both the Norwegian and international research communities today, the basic outline of an answer becomes quite evident: Economic history is strongly and quite significantly influenced by economic theory, and there is little reason to believe that the discipline will be able to manage gracefully without economic theory in the future. But this dependence is not mutual. Economic theory has, at least over the last two research generations, received rather limited input from economic history. Most academic economists have little exposure to economic history, and I do not think this is seen as a pressing problem among practitioners of the economics profession. Nevertheless, I believe that many economists would benefit from studying more economic history. I will come back to this in my conclusion, after taking a closer look at the relationship between economic theory and economic history as it has developed over time.
In 1931 Ragnar Frisch became professor at the University of Oslo. By way of his research, a new study programme and new staff he created the ”Oslo School”, characterised by mathematical modelling, econometrics, economic planning and scepticism towards the market economy. Consequently, detailed state economic planning and governance dominated Norwegian economic policy for three decades after WWII. In the 1970s the School’s dominance came to an end when the belief in competitive markets gained a foothold and the economy had poor performance. As a result a decentralized market economy was reintroduced. However, mathematical modelling and econometrics remain in the core of most economic programmes.
, onwhich this paper is based, argues that greaterequity, intended as greater equality of oppor-tunities and the avoidance of extreme depri-vation, is a key ingredient of long-term pros-perity. The report describes how opportuni-ties vary widely within and across countrieson the basis of predetermined characteristics,rather than just preferences, talent, effort,luck. Itpresents two main reasons whyinequities, in addition to being unjust, aredetrimental to development: first, peoplewho do not face the same opportunities wastepart of their potential; second, when the dis-tribution of power and wealth is inequitable,powerful elites tend to put in place econom-ic institutions that benefit only themselv es, atsignificant cost to society as a whole. The WDR 2006 argues that developingcountry governments should act to level theplaying field in the crucial areas of humancapacities, justice and the rule of law, landand access to infrastructure, and in the broadfunctioning of markets and the macroecono-my. Where there are trade-offs between equi-
