Ethics, Rationality, and conomic Behaviour

Samuelson's statement about Marx being a minor post-Ricardian from the viewpoint of pure economic theory leaves one perplexed. Is theoretical welfare economics a part of pure economic theory? This paper shows that theoretical welfare economics is the foundation of the theory of economic policy and intervention. Marx also sets forth a theory of intervention based on economic arguments. Therefore, Marx should be studied within the broader scope of theoretical welfare economics. Moreover, Marx's system contains not only analytical devices but also important value judgments and the theory of welfare economics aims to study the interrelations between value judgments and economic interventions. Methodological contradictions are shown in, and removed from, the theory of welfare economics in order to show the framework of Marx's entire system. The system as a whole is far beyond the realm of Ricardian economics, for it can be consistent and scientific although it contains value judgments. Samuelson's narrow approach and fuzziness in the methodological foundations of welfare economics hindered an appreciation of the full value of Marx's approach.

Fundamental Equation of Economics

This paper analyses the basic assumptions regarding the nature of man underlying economic theory and welfare economics, and examines the philosophical underpinnings of economic theory as well as its value judgements. It goes on to show that the basic problems faced by industrial society - namely, maldistribution of income, pollution and alienation - cannot be overcome unless the notion of man underlying speculations about economic problems and economic welfare is modified. It reviews recent contributions to a re-visioning of man in his relationship to economic activity with a view to piecing together different elements which may be useful in providing a framework for a new integrated approach to man's economic problems.

Neoclassical welfare economics takes an outcome-oriented approach that uses Pareto optimality as its benchmark for welfare maximization. When one looks at the remarkable improvements in economic welfare that have characterized market economies, most of those improvements in welfare have been due to economic progress that has introduced new and improved goods and services into the economy, and innovations in production methods that have brought costs down, leading to higher real incomes. Pareto optimality is only peripherally related to actual economic welfare, and no economist would argue that people are materially better off today than a century ago because the economy is closer to Pareto optimality. After analyzing the actual factors that lead to improvements in welfare, this paper suggests a reformulation of the foundations of welfare economics to replace the almost irrelevant outcome-oriented concept of Pareto optimality as the benchmark for evaluating welfare with a process-oriented benchmark based on factors that generate economic progress. The paper then explores some implications of this reformulation.

We propose a broad generalization of standard choice-theoretic welfare economics that encompasses a wide variety of non-standard behavioral models. Our approach exploits the coherent aspects of choice which those positive models typically attempt to capture. It replaces the standard revealed preference relation with an unambiguous choice relation: roughly, x is (strictly) unambiguously chosen over y (written xP*y) if y is never chosen when x is available. Under weak assumptions, P* is acyclic and therefore suitable for welfare analysis; it is also the most discerning welfare criterion that never overrules choice. The resulting framework generates natural counterparts for the standard tools of applied welfare economics, and is easily applied in the context of specific behavioral theories, with novel implications. Though not universally discerning, it lends itself to principled refinements.

In the first three decades of the twentieth century, a group of British economists, described by Walton Hamilton as the “English welfare school,” sought to bring religious convictions into economics through providing the ethical judgments underlying welfare economics. This article focuses on three members of this group—J. A. Hobson, R. H. Tawney, and Henry Clay. Although they differed in their political and religious views, they were all responding to the challenges faced by the Victorian church. Society was believed to rest on a morality, and when a foundation could no longer be found in traditional Christian beliefs, it had to be sought either through reinterpreting these beliefs or looking elsewhere. Tawney turned to Christian socialism, remaining within the Church of England, and Hobson turned to the Ethical Movement, but both were seeking ethical judgments that could serve as a foundation for welfare economics.

In recent years, the economic foundation of antitrust law is increasingly being called into question. The hypothesis that antitrust law seeks to promote consumer welfare has historically been extremely popular but in recent years has come under attack. In part, this is due to the fact that neither the law, nor the decisions of competition law enforcers, can be fully explained as consistent with a strict consumer welfare standard. Neither do competition laws promote a textbook concept of total economic welfare, neither in their wording, nor in the way they are enforced. Some commentators argue that competition law should protect the competitive process, but this approach lacks a foundation in welfare economics and therefore lacks the ability to make basic trade-offs between desirable goals. This article puts forward an alternative hypothesis, which focuses on the sunk, relationship-specific investments made by market participants. We propose that an important, and overlooked, role of competition law is to protect trading partners from the threat of hold-up, where it is unreasonable for the parties to use conventional mechanisms to protect those sunk investments themselves. This approach can help to explain features of competition law and law enforcement that cannot be explained by the traditional consumer welfare or total welfare frameworks. We suggest that this approach offers promise as providing a consistent, comprehensive, economic foundation for competition law.

This is the second in a series of occasional notes on economics Before an economic evaluation begins, the perspective of the study should be determined, as it may have implications...

This chapter examines what is to be valued in economic evaluation of health care interventions. It starts by reviewing economic theory on resource allocation through the market mechanism and applying this to the health care sector. It then presents the alternative of resource allocation by government intervention and the implications this has for the use of economic evaluation and the measure of benefit. This is followed by a consideration of the welfarist foundation for a measure of health such as the QALY, and finally some non-welfarist arguments for this. The aim of this chapter is to examine what is important for the purpose of economic evaluation and, specifically, the place of the QALY measure.

'This book reflects the new level of maturity of evolutionary and institutional economics. The field of evolutionary economics has moved beyond merely describing the economy as an evolving complex system and is now developing empirically testable models of economic evolution. This book is a major contribution to the revolution now taking place in economic theory as traditional welfare economics is being replaced by more realistic models of human behavior and economic organisation.'- John Gowdy, Rensselaer Polytechnic Institute, US 'Statistical analogies and hypotheses testing now attract increasing attention in the evolutionary approach to economics. As much as evolutionary theorizing calls for new concepts to be able to go beyond static equilibrium analysis, as much does empirical work in evolutionary economics require an extension of the tool box of linear time series analysis and statistics. Foster and Holzl have brought together an excellent collection of papers highlighting both the broad range of problems facing such an extension and the possible solutions. The methodological studies and the practical applications in this volume represent a guide post for future empirical work in evolutionary economics.'- Ulrich Witt, Max Planck Institute, Jena, Germany This book takes up the challenge of developing an empirically based foundation for evolutionary economics built upon complex system theory.

Regulators routinely and systematically depart from policy prescriptions that are soundly based in conventional economic theory.In doing so, they often appeal to notions of fairness, justice, or reasonableness.Economists have historically struggled with these notions, which seem to be separate from, or in conflict with, conventional economic efficiency.This paper identifies five stylised facts about public attitudes to fairness in utility pricing, and argues that these stylised facts can be explained as an implicit attempt to protect the sunk investments of consumers in a natural monopoly's services.Thus the paper suggests that the notion of fairness is not in conflict with the conventional notion of economic efficiency, but can be seen as consistent with the desire to promote sunk investment by the monopolist and its customers.2 See, for example,

Utilitarianism largely underpins the public policy process for both classical and social liberalisms. Its major contribution is that it has provided public policy professionals with an incredibly useful framework to think about societal problems and how they might be solved. In addition, the concept of maximising utility has become embedded in economic theory, which has reinforced a utilitarian policy approach through the provision of quantitative tools to help drive policy decisions. Some economists have noted that grounding public policy in welfare economics is flawed given that decisions are ultimately ethical in nature, which welfare economics does not directly address. Furthermore, utilitarianism has been criticised by numerous economists and philosophers due to its indifference to distributional considerations. Amartya Sen has also argued that it is an illiberal philosophy, and that an alternative approach ought to focus on capabilities. Following Sen, public policy professionals have started to measure different aspects of social and economic activity, however, these approaches have not yet developed a method of resolving conflicting claims to resource allocation.

Normative welfare economics commonly assumes that individuals’ preferences can be reliably inferred from their choices and relies on preference satisfaction as the normative standard for welfare. In recent years, several authors have criticized welfare economists’ reliance on preference satisfaction as the normative standard for welfare and have advocated grounding normative welfare economics on opportunities rather than preferences. In this paper, I argue that although preference-based approaches to normative welfare economics face significant conceptual and practical challenges, opportunity-based approaches fail to provide a more reliable and informative foundation for normative welfare economics than preference-based approaches. I then identify and rebut various influential calls to ground normative welfare economics on opportunities rather than preferences to support my qualified defence of preference-based approaches.

The emerging discipline of behavioural economics has established that humans do not follow the canonical rules of rational utility maximization that were the foundation of neoclassical economics. If people were rational economic agents, their behaviour would be highly predictable. No unifying predictive framework for actual economic behaviour has emerged to replace the canonical assumption of utility maximization. I suggest here that evolutionary biology can play a role in forging a new theoretical framework for behavioural economics. I argue that some apparently irrational economic behaviours can be understood as products of the hunter–gatherer ecology in which humans evolved. I discuss three examples of anomalous behaviour: hyperbolic time discounting, context‐dependent preferences and contribution to public goods. In each case, ‘irrational’ decisions are less surprizing when we recognize the evolutionary roots of the behaviour. Cultural effects remain relevant in an evolutionary account of economic behaviour. Indeed, an evolutionary perspective may help us anticipate economic behaviour and create sustainable societies in the novel, globalized economy that we have created. Copyright © 2010 John Wiley & Sons, Ltd.

following study proposes to generalize the classical theory of economic equilibrium and of welfare economics to the case of risk. Besides our own work, the only similar attempt which has been made in this field is, to the best of our knowledge, Mr. Arrow's paper, The Role of Securities in the Optimal Allocation of Risk-Bearing, presented at the international colloquium on risk which was held in Paris, May, 1952. It is quite astonishing that such an important chapter of economics, both from theoretical and practical points of view, has up to now never been the object of systematic study. reason for this is certainly its great difficulty. As the method of attacking this problem is doubtless the basic difficulty, we have, in order to make the exposition easier, confined ourselves to a simplified model. This has the double advantage of making perfectly evident the main considerations which, in our opinion, must enter into the analysis and of providing a simple and explicit framework for discussion. This model, furthermore, lends itself to easy generalization. Generally it can be said that the essential results of the theories of economic equilibrium and welfare economics are still valid in the case of risk.