Economic Theory In Order Research Articles

Philip Kitcher's Advancement of science: a review article∗

Why should an economist have anything especially pertinent or interesting to say about Philip Kitcher's new book on the philosophy of scienceAdvancement of science(1993)? If you read it, the first question that will surely pop to mind is, why do eminent philosophers of science (who once could not spare the time of day for the social sciences) now feel impelled to aspire to the status of social theorist, and in this particular case, to explicitly appropriate neoclassical economic theory in order to buttress the case that science is ‘progressive’? While some reviewers have registered their bemusement at this curious turn of events (Hacking, 1994; Fuller, 1994), no one has yet adequately been able to diagnose this symptom of recent convulsions in science studies, I will argue, because of lack of recourse to the economics side of the story. Once all branches of the lineage trees of the disciplines of philosophy of science, social studies of scientific knowledge (SSK) and economics are sketched in, it then bec...

Economic Behavior and Institutions

An important research programme has developed in economics that extends neo-classical economic theory in order to examine the effects of institutions on economic behaviour. The body of work emerging from this line of inquiry includes contributions from various branches of economic theory, such as the economics of property rights, the theory of the firm, cliometrics and law and economics. This book is a comprehensive survey of this research programme which the author terms 'neoinstitutional economics'. The author proposes a unified approach to this research, integrating the work of various contributors and emphasising the common principles of inquiry that tie the work together. The theoretical discussion is accompanied by empirical studies dealing with a range of institutions and economic systems. This book will serve as the primary resource for economists and students who want to learn about this important branch of economic theory.

Economic Behavior and Institutions

An important research programme has developed in economics that extends neo-classical economic theory in order to examine the effects of institutions on economic behaviour. The body of work emerging from this line of inquiry includes contributions from various branches of economic theory, such as the economics of property rights, the theory of the firm, cliometrics and law and economics. This book is a comprehensive survey of this research programme which the author terms 'neoinstitutional economics'. The author proposes a unified approach to this research, integrating the work of various contributors and emphasising the common principles of inquiry that tie the work together. The theoretical discussion is accompanied by empirical studies dealing with a range of institutions and economic systems. This book will serve as the primary resource for economists and students who want to learn about this important branch of economic theory.

The nature of preferences: An exploration of the relationship between economics and psychology

Ordinal utility theory begins with the assumption of a consumer of given preferences, therefore, we must go beyond economic theory in order to investigate the nature of preferences without becoming circular. The approach here is to use interpersonal theories of personality development to investigate the formation of the preferences of the individual consumer. To establish a methodological relationship between economics and psychology, a common ground of analysis and an integrative framework must be provided to bring the contributions of psychology into economics into a systematic way. This is explored by using specific psychoanalytic theories of the internalization of interpersonal relations, and by relating this to a more general theory of personality development based on the significance of interpersonal relations. The objective of this study is a broader understanding of the behavioral foundations of the economic theory of the consumer, and a greater appreciation for preference structures which do not conform to the concept of the rational consumer of economic theory.

An integration of the Contribution-Inducement model and economic theory

According to the Contribution-Inducement model, the organization is viewed as a coalition between a number of participants. This model is made more precise with the aid of economic theory in order to enhance the degree to which it can be tested. With the help of C-I model, defined here, problems and actions within a market economy can be analysed in a more operational way than previously. The model can also provide a new insight into the power relations and conflicts between the various participants. According to this model the management, by virtue of its central, well-informed and professional standing, will be in a position to concentrate on increasing its own freedom of action at the expense of consumers in particular but also of labour. In that case, the owners of the organization will, with the aid of the management, obtain a strikingly large part of the surplus generated by the organization.

THE DEBT-EQUITY RATIO*

THIS IS A theoretical and empirical investigation of how firms establish their capital structures. Though in a few instances an attempt is made to explain the diversity of the bond market, why several liens of bonds with different legal provisions and terms to maturity are found in the capital structure of a single firm, most of the theory is concerned with how a firm sets the proportion between stocks and (one lien of) bonds in its capital structure as a whole. The nub of the problem is to study what adjustments can be made in traditional economic theory in order to explain a market in which stocks and bonds are purchased by people who not only hold dissimilar opinions about the prospects of the firm but are themselves in doubt about its value. The foundation is a precise definition of risk. Risk is treated like a normal commodity for which an investor is willing to pay a price depending on the intensity of his aversion. A firm is, therefore, a joint commodity composed of risk and capital. The commodity, risk, may be subdivided; the issuing of bonds automatically divides the associated with the firm as a whole (prior to the issuing of bonds) into stock and bond risk, each of which has a value depending on (a) the riskiness of the firm as a whole, (b) the debt-equity ratio, and (c) the degree of aversion of the investors who are buying the stocks and bonds. The of a firm as seen by an investor is a probability distribution of its possible future earnings. There need be no uniformity of opinion among investors about the mean, dispersion, or shape of the distribution of any one firm. Several models are developed on various simplifying assumptions about the stock and bond market. The main model postulates that (a) there is uniformity of opinion among all investors about the shape of the probability distribution of some given firm; (b) the market for stocks and bonds is divided into two groups of people, those with small aversion, who, so the theory implies, buy the stocks of the firm, and those with great aversion, who buy bonds; and (c) the object of a firm is to maximize its market value.