Neoclassical Model Research Articles

From Classroom to Portfolio: Examining the Link Between Financial Education, Financial Literacy, and Risk-taking

This paper examines a panel dataset spanning the years 2010 to 2020 across ten countries, investigating the intricate relationship between financial assets and financial literacy. Two prominent trends surface:First, an intriguing inverse association is observed between higher rates of tertiary education attainment within a nation's population and individual financial assets. Second, an upsurge in the employment rate among individuals aged 25-64 corresponds with a decline in individual financial assets. These findings defy conventional research and call for comprehensive exploration within the framework of economic principles and broader economic awareness. As educational attainment and employment rates rise, heightened labor market competition, especially among individuals holding undergraduate or advanced degrees, leads to relatively reduced wages for those with similar qualifications, impacting their financial assets. Furthermore, this study corroborates that while increased income aligns with greater risk aversion, risk preferences display dynamic fluctuations over time and in response to personal experiences, contradicting neoclassical economic theory's concept of perfect stability. These findings underscore the necessity for a nuanced understanding of financial behavior. In summary, this research challenges established assumptions concerning the determinants of individual financial assets, highlighting the significance of multifaceted socio-economic variables and evolving risk perceptions in comprehending contemporary financial behaviors.

Posner Meets Hayek: The Elements of an Austrian Law & Economics Research Program

Abstract To date, Friedrich Hayek is the only winner of the Nobel Prize in Economics who also holds a law degree. The role of law is central to Hayek’s work and prominent in the research program of the Austrian School of Economics generally. Although Hayek’s contributions to jurisprudence are manifest, as are the influence of his economics ideas, his influence on the field of law and economics has remained modest. This lecture, delivered as the Keynote Lecture at the 2023 Asian Law & Economics Association Annual Meeting, provides an introduction to the fundamentals of an Austrian Law & Economics research program in contrast to the mainstream, Chicago-school research program that has dominated the field since its early history. Compared to the neoclassical approach, Austrian thinking provides a more insightful approach to many of the key concepts generally associated with the economic analysis of law: the nature and success of the common law as a system of law, the importance of stability and simple rules in the law, and the strong preference for private ordering via contract, personal autonomy, and voluntary exchange exhibited in the common law. I identify and briefly describe six key distinguishing characteristics of the Austrian school that distinguishes it from neoclassical law and economics: (1) Methodological individualism, (2) Utility and Costs are subjective, (3) the division of knowledge, (4) spontaneous order, (5) competition as a discovery procedure, and (6) the nature of economic equilibrium. I will also highlight some of the ways in which examining law and economics through an Austrian framework provides valuable insights about law and economics.

A neoclassical realist model of overconfidence and the Japan–Soviet Neutrality Pact in 1941

Why did Japan conclude the Japan–Soviet Neutrality Pact in 1941, even though it knew the German-Soviet relations were deteriorating and heading towards a disastrous war? Under the Tripartite Pact, it would be irrational for Japan to approach the USSR, which Germany had decided to invade. This article examines this long-standing puzzle in Japanese diplomatic history (also an anomaly of neorealism) by developing a new neoclassical realist model termed ‘neoclassical realist model of overconfidence’ based on self-deception in evolutionary psychology using scientific realism in the philosophy of science as a metatheoretical foundation. Drawing on neoclassical realism, I argue that Japan’s balancing strategy during 1940–41, which initially reflected the tripolar structure of the international system (independent variable), ultimately resulted in the suboptimal balancing of the Japan–Soviet Neutrality Pact (dependent variable) due to Yosuke Matsuoka’s (Japanese foreign minister) self-deception, including the positive illusion and cognitive dissonance effect (intervening variable).

Time and distance matter: Study on the public sentiment during the COVID-19 pandemic in a mega-city

This study examines public sentiment during the COVID-19 pandemic, considering time, space, and the severity of the event, and leverages the marginal rate of substitution (MRS). Based on the context of COVID-19 transmission in a mega-city, we set up a novel theoretical model of public sentiment, showing the time-space substitution effect. Then, using the daily panel data including all the prefecture-level cities in China, empirical results show that the level of public sentiment is positively related to the severity of the event, while it is negatively related to the distance and the length of the period. To make the level of public sentiment equal, 1 km farther from the center of the event will require 0.072 to 0.130 days closer to the starting time on average. We further investigate the relationship between the level of public sentiment and time, which can be better depicted as a reversed U-shape. The original contribution of the piece arises principally around the novel application of the concept of the marginal rate of substitution drawn from neoclassical economics, providing insightful policy implications for pandemic control.

Does economic liberalization foster corporate investment? Theory and evidence from US and Canadian firms

Prior studies have largely debated and demonstrated the positive effect of economic liberalization on economic growth, but they have not clarified how and to which extent economic liberalization affects corporate investment, the main driver of a country's economic growth. This paper investigates the relationship between economic liberalization and corporate investment by modelling the microeconomic channels through which economic liberalization affects corporate investment. Our theoretical framework extends the standard neoclassical model of firm value maximization to incorporate the effect of economic liberalization on corporate investment via several microeconomic channels. We test the theoretical predictions of our model by using a large and heterogeneous sample of non-financial US firms for the period 2000–2019. The empirical results support our hypotheses that economic liberalization positively affects corporate investment both directly and indirectly through different channels. These effects hold, although with different intensity, for all dimensions of economic liberalization.

The contagion mechanism and governance strategy of corporate social irresponsibility of Chinese food companies

From a global perspective, the incidents of food fraud are still increasing in recent years, which shows that the food safety issue has not been well addressed. As a major world food exporter and importer, egregious incidents of corporate social irresponsibility (CSI) for domestic food companies were discovered in China. Although the Chinese government has been strengthening the supervision on food companies, the governance effect is not obvious. This research focuses on the governance of the CSI behavior of food companies. As opposed to the existing literature based on Neoclassical economics, this article analyzes food companies' CSI by applying a behavioral economic framework. The system dynamics method is used to analyze the implementation effect of the corresponding governance strategy. Researchers discovered that the short-sighted cognitive bias of food companies is the primary reason for CSI, which results in the self-reinforcing effect and interactive contagion effect. Under the current imperfect institutional environment, these effects will be further amplified to present a crisis of collective irresponsibility. This study provides timely evidence and significant regulatory implications for the ongoing food safety crisis in China. In order to control the contagion of CSI in the food industry, the government should increase its sanctions on irresponsible food companies from the short-term perspective. The government should also establish a fair and standardized market competition order and improve the information disclosure mechanisms and third-party governance mechanisms in the long term. These actions will contribute to a more comprehensive research perspective on food safety governance and, additionally, and to develop more targeted strategic tools for the government to regulate the food market. Our insights can also provide a reference for other countries and industries facing similar challenges.

Austrian vs Post Keynesian explanations of the business cycle: an empirical examination

Neoclassical economists posted many mea culpas after they completely missed the Financial Crisis of 2008. Some heterodox schools of thought, however, claimed to have seen it coming. Among these were the Austrians and Post Keynesians. There was a surge in references to Austrian Business Cycle Theory in both the scholarly and popular press, while Post Keynesians like Steve Keen took to the blogosphere to warn people of the coming crash. One is led to wonder, however, if both can truly lay a legitimate claim to such accurate precognition when their theoretical underpinnings are so radically different? Can it be that deviations of the actual from the “natural” rate of interest were to blame at the same time that Keynes/Kalecki-style boom-bust cycles were emerging? To answer this question, an empirical test is run comparing the explanatory power of models based on each theory. Rather than limit this to just the period around the Financial Crisis, the test covers 1962 through 2020. The overall results are then compared, as well as the fit just leading up to and through the recession of 2008Q1 to 2009Q2. The results suggest that the Post Keynesians have a considerably stronger case than the Austrians.

Policy complementarity and the paradox of carbon pricing

AbstractWe present an economics framework appropriate to the exceptionally broad scope of the climate change problem. This considers that economic and social processes, particularly those involved in purposive transitions of energy technologies and systems, involve the interplay between three distinct domains of decision-making and associated actors. The first concerns small-scale and often short-term decision-making, much of which reflects extensive ‘satisficing’ and habituation as identified in behavioural economics. Calculated economic optimization decisions, especially of companies in the energy and energy-intensive industries, then best reflect the core assumptions of neoclassical and welfare economics, including discrete market failures. Third, at the largest scale are strategic judgements made by big actors (e.g. governments, large multinational companies) relevant to transformation of complex systems over long periods—particularly concerning innovation and structural changes, for which lessons from theories of evolutionary and institutional economics are most relevant.Economically, these can be logically mapped in relation to the technology (or more accurately, ‘best practice’) frontier. Each has corresponding policy implications: most directly, respectively in terms of (i) standards and engagement to establish norms; (ii) competitive markets with the critical role of prices; and (iii) strategic investment in innovation and infrastructure. Each faces challenges of implementation and government failure, as observed, for example, with wholly inadequate carbon pricing to date, naïve and ineffective approaches to enhancing energy efficiency, or misdirected support to R&D. Based on the domain distinctions, we argue that the corresponding pillars of policy are naturally complementary, and can be mutually supportive: strong standards and norms on energy efficiency, for example, would enhance the political space for carbon pricing by reducing its direct consumer impacts, while carbon pricing has multiple positive two-way interactions with enhanced low-carbon innovation.From this we also posit a ‘carbon pricing paradox’: that adequate carbon prices, the central recommendation of most economists, are in most jurisdictions only feasible (or even optimal) if equal analytic and policy attention is devoted to the other pillars, and the wider context of macroeconomic and fiscal policies. Only these other aspects can reduce the absolute cost impact of carbon pricing (potentially turning into a gain) and offer consumers and businesses better lower-carbon alternatives, which are critical to establishing climate-compatible pricing structures across our economies.

Indicators of financial fraud in the Ghanaian mobile payment industry in the pre-pandemic period

This study seeks to investigate recent rampant financial frauds and their impact on the financial performance of the four mobile payment companies in Ghana. The study used secondary data obtained from the consolidated financial statements for the past ten years (2010-2019) of the mobile payment companies' operations around the world. The sample consists of the subsidiaries of the four companies whose consolidated financial information is available for public use. Methodologically, factor analysis, pair sample t-test, and principal component analysis were exploited in the analyses to estimate and predict the relationship between fraud and its impact on financial performance indicators. The combined results offer theoretical contributions in the area of the adoption of multiple fraud theories within the framework of the neoclassical growth model. The application of the outcome to practice is the use of the result for predictability and financial sustainability of the mobile companies over future periods.

Does the source of a cash flow affect spending versus saving?

This study examines whether people use different mental accounts for different types of hypothetical revenue windfalls rather than viewing them as fungible in their use consistent with neoclassical economics. This study finds that the income source sometimes influenced the amount spent/saved and a respondent’s general default as a spender or saver was highly significant in all regressions. This article adds to the literature by responding to Epley and Gneezy’s (2007) call for “a broader sample of participants, varying amounts of payment, and alternative frames” to identify moderators of windfall framing effects with implications for behavioral economic theory and financial planning.

Research on Theory and Methods of Corporate Valuation

Corporate evaluation has been a long-history research field, mostly in finance. There are traditional methods such as DCF, CAPM and APT, which were the most popular valuation method being used in 20th century. Nevertheless, more neoclassical theories have been brought up recently, from the perspectives of investment, pricing or other qualitative areas. Besides, the specific times in post-pandemic environment provide valuable research samples of how company keep survived during the period of declination in economic. Based on the previous traditional research as well as neoclassical and recent studies on business new valuation model, this article gives a more comprehensive overview and appraisal about corporate valuation theories, ranging from absolute to relative valuation models, and finally to recent neoclassical models such as EVA valuation, along with other elements that need to concern when processing corporate valuation, which might contribute to the practical use of corporation acquisition and other investors decisions in both capital and money market.

Economic education: A qualitative renewal is necessary and possible

The purpose of the article is to substantiate the need and characterize the main directions of a deep reform of economic education in Russia. The existing model of economic education, based on the absolute dominance of neoclassical economic theory, even taking into account the recent partial renovation of the latter, is unable to provide the formation of knowledge and competence, allowing not only to solve standard tasks of rational choice of optimal investment and consumption trajectories, but also to independently analyze and act in a qualitatively changing economy, focusing not only on selfish private interest, but also on solving the problems of national and global development. In a dialogue with the publication of A. Auzan, A. Maltsev and A. Kurdin (Voprosy Ekonomiki, 2023, No. 10), the authors show that the changes proposed are necessary, but not sufficient, only in some part they take into account the results of past discussions and publications. The answer to the challenges facingeducation in the context of qualitative changes in the economy and society necessitates the inclusion in the circle of compulsory disciplines (1) of heterodox economic theory, which reveals the content of existing economic systems, the contradictions and patterns of their transformation, the technological, social, political and cultural context of economic processes; (2) the course “Russian economy”; (3) the history of economy and economic thought with (4) a significant reduction and updating of the content of courses in micro- and macroeconomics, strengthening their social, environmental, and humanistic orientation

Modeling the thermo-responsive behaviors of polydomain and monodomain nematic liquid crystal elastomers

Liquid crystal elastomers (LCEs) are polymeric materials that combine liquid crystal orientation and rubber elasticity. The mechanical responses of LCEs strongly depend on the nematic order and temperature. Developing a thermo-order-mechanical coupling model is important for the engineering applications of LCEs. In this work, we first synthesize both polydomain and monodomain LCEs. The shape change with temperature under a certain stress level is further characterized. In the theoretical part, the Landau–de Gennes model and neo-classical model are combined to construct the free energy density of LCEs. A linear term accounting for the effect of interior stress on nematic–isotropic transition is incorporated into the Landau–de Gennes free energy density, while a macro-order parameter is defined to describe the polydomain–monodomain transition for polydomain LCEs induced by the external force. Comparison between the model predictions and experimental results shows acceptably consistency for both polydomain and monodomain LCEs. Therefore, this work provides an efficient approach to predict the shape change of LCEs in various scenarios.

Is the discovery of oil a blessing or curse in the era of climate change?

The decades-old question of whether oil is a blessing or a curse to countries that discover it has received much attention in the literature on energy and resource economics and policy. Despite the contributions of the resource curse literature and its critique, the global consensus to address climate change by reducing emissions from fossil fuels poses a new challenge to the extractives-led growth strategies. This research analyzes the ways oil discoveries influence carbon emissions differently in countries with contrasting institutional quality. Our results show that the significant and intensifying treatment effects of finding oil over time lead to an increase in carbon emissions in low institutional quality countries, while such effect is not significant in high institutional quality countries. The carbon curse triggered by detrimental effects of low institutional quality encourages improving a government’s ability to provide sound policies and regulations to promote private sector development. Such ability is the focal point between neoclassical economics and developing societies that served to reveal the institutional underpinnings of market economies for high-quality growth. Beside high-quality growth, our finding reveals supplementary motivation for the quality of government, which helps mitigate the carbon curse triggered by finding oil.

A mathematical contribution to the economic growth theory. Evidence on the relationship between wages and output from the Italian region

In this manuscript, the authors empirically assess the impact of an increase in the wage per worker on the GDP per capita of the Italian regions. To achieve this research aim, the authors carry out a panel data regression analysis, relying on an identification strategy based on the standard Neoclassical model of economic growth. The authors’ results suggest that, on average, the output effect of an increase in the wage per worker is positive, with a substantial difference between the Northern and Center-Southern regions. The authors’ policy implication is that wage moderation does not represent a remedy to the economic stagnation that the Italian regions have been experiencing since the second half of the 1990s.

The Role of Competition Law in Encouraging Innovation and Competitiveness of Companies in West Java

This study explores the complex relationships that exist between innovation, competitiveness, and competition legislation in West Java, Indonesian businesses. West Java's varied industrial landscape makes it a perfect place to study how competition legislation influences creativity and competitiveness. Using a mixed-method approach, the study combines survey data that is quantitatively collected with qualitative information obtained through interviews. The results show that a sizable majority of West Javan businesses have a favorable opinion of competition legislation and see it as a tool for ensuring openness and fair competition. Notably, a significant fraction of these businesses also devote a notable amount of their resources to research and development (R&D) and actively participate in innovation activities. According to the survey's findings, firms may be encouraged to invest in innovation by competition laws that are properly implemented, which is consistent with neoclassical economic theory. In spite of the favorable attitudes and investments in innovation, there are differences amongst West Javan enterprises in competitiveness metrics like market share and profitability. This highlights the intricate connection—which varies depending on the sector and industry—between company competitiveness and competition legislation. Qualitative insights gleaned from interviews shed light on the dynamics and obstacles unique to the industry, highlighting the necessity of customized strategies for competition law enforcement. The paper also outlines obstacles, including a lack of knowledge about competition law among enterprises, resource limitations that regulatory bodies must deal with, and worries about intellectual property protection in very competitive markets. These results highlight the need of raising awareness and developing capacity among regulatory agencies as well as businesses. The research has consequences for policymaking as well, pointing to the need for programs to raise business understanding, provide funding to regulatory bodies, and create safeguards for intellectual property rights. The study adds to our knowledge of how competition legislation affects corporate behavior and offers insightful information that can guide regulatory strategies in developing nations like West Java.

The power of price subsidies in Morocco

The Moroccan system of ‘compensation’ subsidises products that are deemed to be important for household purchasing power: butane gas, flour, bread, sugar, and fuel (until 2015). This article offers a historical sociology of this system, which was inaugurated during the colonial period in 1941 and which survived criticism from neoclassical economists working in international financial institutions. It demonstrates that the system’s resilience and the transformations it underwent can be analysed by treating it as a means of exercising power. Subsidies make it possible to involve private actors in governing social issues. It also helps to regulate economic and political rivalries and alliances through market interactions and competitive relationships, including around the King’s Palace. The administrative mechanisms used to calculate the subsidies and the retail prices also shape the relationships between operators in the various sectors, while allowing opaque and rentier management. In addition, despite being the subject of social demand, the compensation system has been criticised by technocrats and protest movements, particularly after the ‘Arab Spring’ revolutions in 2011. The article is based on an analysis of the practical procedures of compensation in the contemporary period, in particular concerning flour and bread, and to a lesser extent butane, as well as on an analysis of the debates and struggles that subsidies has given rise to within Moroccan society, its State administration, and its political parties.

Effectiveness of the economic growth factors: productivity and innovation

The article reveals the modern problem of the rates of economic growth of the Ukrainian economy, as well as other countries, associated with their significant decrease. It is shown that its problem occurrence can also be explained by the lack of attention to the activation of innovative processes in the country during the formation of real economic policy. The assumption is substantiated that this happened due to insufficient prioritization of the separate production factor – innovation, in neoclassical methods of macroeconomic analysis. Therefore, they did not provide the right guidelines for governments in the formation of economic strategies and programs. Such countries demonstrate a stable value of the “GDP gap” against successful countries. Ukraine has been in this trend for many years, not only in relation to the countries – economic leaders, but also to its closest neighbors.A macroeconomic analysis is presented that demonstrates the presence of a “productivity paradox” in many European countries after the 2008 crisis: GDP, measured in current US dollars, exists with minor fluctuations rather than a steady upward trend. It was confirmed that the “GDP gap” did not fundamentally change between groups of countries with different types of economies. It is shown that the emergence of the “productivity paradox” phenomenon is because, against the background of the large-scale development of modern innovation processes, the main indicators of measuring the productivity of labor and other resources have significantly decreased compared to the previous times. Performance statistics of economic growth factors, built on the dominant neoclassical models, show less and less explanatory power for revealing the role of labor productivity in economic growth. This was confirmed by the regression analysis carried out, which proved insufficient attention of Ukrainian economic policy to endogenous factors of innovative development.The analysis of endogenous models of economic growth and Schumpeterian conceptual approaches showed that the key factor of economic growth in modern conditions should be the factor of scientific and technological innovations, because the existing globalization processes and the formation of the Industry 4.0 industries are contributed not only to integration of national economies and the global technological changes, but also condition by the strengthening of the divergence between developed and developing countries. It is shown that these processes occur due to the lack of sufficient own innovation potential of developing countries.
 JEL classіfіcatіon: O11, O20, O32, O38, O40

Mining in space could spur sustainable growth

Growth models with resources and environmental externalities typically assume that planet Earth is a closed economy. However, private firms like Blue Origin and SpaceX have reduced the cost of rocket launches by a factor of 20 over the last decade. What if these costs continue to decline, making mining from asteroids or the moon feasible? What would be the implications for economic growth and the environment? This paper provides stylized facts about cost trends, geology, and the environmental impact of mining on Earth and potentially in Space. We extend a neoclassical growth model to investigate the transition from mining on Earth to Space. We find that such a transition could potentially allow for continued growth of metal use, while limiting environmental and social costs on Earth. Acknowledging the high uncertainty around the topic, our paper provides a starting point for research on how Space mining could contribute to sustainable growth on Earth.

Economic Imaginings of Consumption in Book Retail

Abstract Far from being a conventional trade in consumer goods, with price value estimated from a relationship between demand and scarcity, book retail is saturated in the politics of class, gender, and race. To thrive, it must be alive to the promises and pitfalls of those dimensions, especially as they are imagined through reading. Therefore, to understand book retail only through institutionalized models of neoclassical economics would be a mistake. A mistake not only because book retail trades in symbolic goods, which are goods of an inherently interpretive, political, all-too-human kind, but also because symbolic goods defy foundational categories such as ‘consumption’. From a historic case study, that of book retail in Southampton around 1900, it can be shown which forces have actively sustained the book business. Revealed, too, is how economics is merely the material mathematized wing of a particular cultural-political way of thinking, one that can be broken free from without losing either business or responsibilities to race, gender, and class.