Neoclassical Economic Approach Research Articles

Rational Inattention: A Review

We review the recent literature on rational inattention, identify the main theoretical mechanisms, and explain how it helps us understand a variety of phenomena across fields of economics. The theory of rational inattention assumes that agents cannot process all available information, but they can choose which exact pieces of information to attend to. Several important results in economics have been built around imperfect information. Nowadays, many more forms of information than ever before are available due to new technologies, and yet we are able to digest little of it. Which form of imperfect information we possess and act upon is thus largely determined by which information we choose to pay attention to. These choices are driven by current economic conditions and imply behavior that features numerous empirically supported departures from standard models. Combining these insights about human limitations with the optimizing approach of neoclassical economics yields a new, generally applicable model. (JEL D83, D91, E71)

What does value pluralism mean in practice? An empirical demonstration from a deliberative valuation

Abstract The intensified call for value pluralism within research on valuation in environmental decision‐making responds to the recognition that neoclassical economic approaches to environmental valuation do not sufficiently account for important aspects of human–nature relations. However, few studies have explored how value plurality actually plays out in social deliberative reasoning and decision‐making in practice, and these studies have mostly been deductive and quantitative. In his essay ‘Are choices trade‐offs?’ Alan Holland (2002) goes to the heart of differences in conceptions of value and rationality between neoclassical and ecological economics. These conceptions differ in terms of whether values are seen as commensurable or incommensurable, whether people's choices amount to willing exchanges of gains and losses between different values and whether unwillingness to trade values off for net gain is irrational. Addressing Holland's question, we present a quasi‐experimental study on deliberative valuation of marine issues on the Swedish west coast, where we considered how local citizens and politicians approached values in their reasoning and choice‐making. Mixing quantitative and qualitative empirical material, we used an abductive analytical approach, iterating between data and theory to link our observations and interpretations to prevalent understandings of value, valuation and deliberation in the literature. The results demonstrate the relevance of value pluralism for environmental policy by showing the prevalence of preference uncertainty and intrapersonal value conflicts in participants' reasoning and interaction. Value conflicts played out as the inability to achieve multiple transcendental values that participants aspired to, including conflicts between social and environmental goals. Rather than attempting to commensurate different value dimensions, participants sought to avoid moral conflicts, showed emotional anguish when value conflicts came to the fore and tried to bridge conflicting aspirations and experiences through inclusive reason‐giving and compromise. Thus, choices were not resolved through rational trade‐offs, supporting Holland's claim and challenging the neoclassical trade‐off model of choice. Incommensurability appeared as deliberate positions grounded in participants' experiences rather than as irrationality. Legitimately resolving value conflicts thus demands reason‐sensitive means for deciding upon the sacrifices to be made and supporting public participation in environmental decision‐making in ways that reveal peoples' actual moral considerations. Read the free Plain Language Summary for this article on the Journal blog.

Altruısm and Ratıonalıty Wıthın the Framework of Behavıoral Economıcs1

In this study, behavioral economics and as one of the research topics of this new field, what altruism is, its types, psychological or environmental reasons, the contradictions of rational human and altruism, one of the basic assumptions of economics, were examined. A survey form was created to obtain data during the research process. While the distribution and variability criteria were used in the interpretation of the findings obtained from the research, Microsoft Excel and SPSS programs were used in the analysis and arrangement of the data. When the data is evaluated, individuals move away from rational behaviors due to the element of altruism, and limited rationality emerges. While the individual tries to be rational in many aspects; Due to empathy, happiness, ethical norms, and religious values, they may move away from rationality depending on the development of altruism. Therefore, based on this study, we can assume that individuals exhibit limited rational behaviors. Transferring the science of economics with the theoretical background from a mathematical point of view makes it difficult to be applicable, observable, and interpretable in real life. It will not be sufficient and correct to evaluate economics, which is not a new science, with rational choices and models only within the framework of the neoclassical economics approach. For economics, both mathematical methods and psychology should be means, not aim. Behavioral economics, which has become very popular in recent years, examines the common denominator of human economic preferences, decision-making processes, and the basic assumption of neoclassical economics, how rational people can be in real life, with the combination of economics and psychology.

Behavioral Finance: A Brief Review of the Context

The financial decision making of individuals is subject to the functioning of the brain system and its performance, which depend on patterns that are currently recognized as biases of human behavior. This article aims to review in context the new trends emerging from traditional economic, psychological and financial analysis to form the concept of behavioral finance and how these trends affect the individual and environment. The search parameters were based on the traditional economic paradigm and its evolution towards behavioral economics, including sociological, behavioral finance analysis and the biases involved in these. In this way, the literature is reviewed, the various contributions that have been made since the 1990s to the research in question and the empirical measurement and behavioral biases of the financial decision-making process. The first results conclude that the neoclassical economics approach has undergone an evident transformation that includes market agents evaluated rationally and the behaviors acquired in financial decisions due to the intervention of biases associated with people's behaviors.

Red Rag Magazine, Feminist Economics and the Domestic Labour Pains of Liberation

This article examines the domestic labour debate of the 1970s as it was mediated in the Marxist feminist magazine, Red Rag (1972–80). Red Rag’s visual representations of housework wittily demystified the bonds of ‘love’ that bound women to the everyday routines of domestic labour while its theoretical discussions offered alternative feminist perspectives to the New Home Economics, a neo-classical economic approach to the household as well as to Marxist economics that occluded women’s labour in its emphasis on production. Within the pages of the magazine, an emerging feminist economics developed that challenged the gendered production boundaries reinforcing the division of labour, graphically depicted intra-household conflict and exposed the ideological assumptions that rendered caring labour invisible. It was not only in terms of theory, however, that Red Rag contributed to these debates but also in terms of its collective practice. The process of making the magazine became the subject of editorials reflecting on how feminists worked together. Red Rag’s analysis of its own production processes illuminated the internal tensions within the collective but also pointed to some of the ‘contradictions’ within the WLM, contradictions that were bound up with the cultural capital attached to economic theory and the authority this conferred on the Red Rag collective.

On the Promise and Limits of Prosocial Neoclassical Economic Approaches to Shareholder Primacy

Oliver Hart and Luigi Zingales (Hart 2020; Hart and Zingales 2017a,b,c; Zingales 2017, 2018a,b, 2019a,b, 2020) have proposed to amend the influential view about the nature and function of the firm typically associated with Milton Friedman (1962, 1970). The core of their proposal is that ethical and social values should be given a more central role in an account of the objective function of the firm. The caliber of the authors and the growing concern with the ethical flaws in the traditional model of shareholder primacy, helps to explain why their recent contributions have received much attention. The paper utilizes Hart and Zingales’ account to examine whether neo-classical economics can offer an account of the objective function of the firm that is ethically sound. To assess this, we formulate two set of principles. The first highlights that the investigation into the objective function of the firm is normative. It requires thinking in normative terms of both managers and shareholders. Moral norms filter the desires that managers should promote on shareholders’ behalf. The second set of principles highlights the conceptual diversity of our normative language; any appropriate account of the objective function of the firm needs to have a rich normative conceptual vocabulary to reflect such diversity. The paper shows that while neoclassical economics may often meet the first set of principles, it lacks the resources to meet the second. It also shows that any account of the nature firm that is descriptively and prescriptively adequate needs economics to work hand in hand with legal scholarship and moral philosophy.

Theory in closer contact with industrial life: American institutional economists on competition theory and policy

AbstractThis paper investigates the views on competition theory and policy of the American institutional economists during the first half of the 20th century. These perspectives contrasted with those of contemporary neoclassical and later mainstream economic approaches. We identify three distinct dimensions to an institutionalist perspective on competition. First, institutionalist approaches focused on describing industry details, so as to bring theory into closer contact with reality. Second, institutionalists emphasized that while competition was sometimes beneficial, it could also be disruptive. Third, institutionalists had a broad view of the objectives of competition policy that extended beyond effects on consumer welfare. Consequently, institutionalists advocated for a wide range of policies to enhance competition, including industrial self-regulation, broad stakeholder representation within corporations, and direct governmental regulations. Their experimental attitude implied that policy would always be evolving, and antitrust enforcement might be only one stage in the development toward a regime of industrial regulation.

Роль поведінкової економіки в забезпеченні сталого попиту на екологічно безпечну продукцію

Behavioral economics theory, generated by a change in the established stereotypes of thinking of classical economists, examines processes and phenomena, taking into account psychological factors related to the processes of making irrational decisions by individuals. The purpose of the article is to determine the place and role of the behavioral economics theory in the formation of demand for eco-friendly food products, taking into account physiological primary and environmental needs and other cognitive factors that directly impact consumer behavior in a competitive market. The high degree of influence of irrational factors that are not under the control of the individual on the efficiency of the functioning of a business entity in the markets was revealed. The neoclassical economic and behavioral approaches were compared, and the shortcomings of the neoclassical economic theory and the problems that cannot be solved in practice by the neoclassical approach were identified. But these problems can be solved by using the behavioral approach. It was determined that one of the main economic components in environmentally oriented agriculture is the pricing process, or rather the impossibility of determining a reasonable price for food products. This aspect requires an assessment of rational economic indicators and consumers' level of readiness and ability to respond to changes in market conditions. Motivation significantly influences the choice of consumers in the markets. So, this study reveals the issues of the general motivational theory as part of the behavioral economics theory. Based on the assessment of the motivational aspect, the structural-logical motivational model of behavioral economics in ecologically oriented agriculture was formed; it includes cultural, economic, socio-informational factors.

Rational Inattention: A Review

We review the recent literature on rational inattention, identify the main theoretical mechanisms, and explain how it helps us understand a variety of phenomena across fields of economics. The theory of rational inattention assumes that agents cannot process all available information, but they can choose which exact pieces of information to attend to. Several important results in economics have been built around imperfect information. Nowadays, many more forms of information than ever before are available due to new technologies, and yet we are able to digest little of it. Which form of imperfect information we possess and act upon is thus largely determined by which information we choose to pay attention to. These choices are driven by current economic conditions and imply behavior that features numerous empirically supported departures from standard models. Combining these insights about human limitations with the optimizing approach of neoclassical economics yields a new, generally applicable model.

German energy transition (Energiewende) and what politicians can learn for environmental and climate policy

The German Energiewende (energy transition) started with price guarantees for avoidance activities and later turned to premiums and tenders. Dynamic efficiency was a core concept of this environmental policy. Out of multiple technologies wind and solar power—which were considered too expensive at the time—turned out to be cheaper than the use of oil, coal, gas or nuclear energy for power generation, even without considering externalities. The German minimum price policy opened doors in a competitive way, creating millions of new generators and increasing the number of market participants in the power sector. The fact that these new generators are distributed, non-synchronous and weather-dependent has caused contentious discussions and specific challenges. This paper discusses these aspects in detail and outlines its impacts. It also describes Swiss regulations that successfully launched avoidance technologies or services and asks why exactly Pigou's neoclassical economic approach to the internalization of damage costs (externalities) has rarely worked in policy reality, while sector-specific innovations based on small surcharges have been more successful. Based on the model of feed-in tariffs, a concept for the introduction of low-carbon air traffic is briefly outlined.Graphic

Experimental Trends in Corruption and Tax Evasion

Nowadays, among the main social concerns of the Spanish society we find corruption and fraud, which occupy the second place in terms of relevance according to recent data. The traditional neoclassical economic approaches concentrate on the construction of economic models that aim to explain the causes of both social phenomena. However, in the last decade several studies have emerged focusing on a behavioral approach to improve the explanatory capacity of such models. In this sense, economic experiments have been implemented to examine, from a different perspective, the determinants of corruption, on the one hand, and fiscal fraud, on the other. Few empirical studies relate both social problems, especially when we refer to the tax evasion of individual economic agents. Therefore, this paper aims to review and deepen the understanding of the factors that determine and relate tax evasion and corruption, from an experimental approach.

Perspectives on Antitrust of the American Institutionalist Economists

This paper investigates the views on competition theory and policy of the American institutional economists during the first half of the 20th century. These perspectives contrasted with those of contemporary neoclassical and later mainstream economic approaches. We identify three distinct dimensions to an institutionalist perspective on competition. First, institutionalist approaches focused on describing industry details, so as to bring theory into closer contact with reality. Second, institutionalists emphasized that while competition was sometimes beneficial, it could also be disruptive. Third, institutionalists had a broad view of the objectives of competition policy that extended beyond effects on consumer welfare. Consequently, institutionalists advocated for a wide range of policies to enhance competition, including industrial self-regulation, broad stakeholder representation within corporations, and direct governmental regulations. Their experimental attitude implied that policy would always be evolving, and antitrust enforcement might be only one stage in the development toward a regime of industrial regulation.

The Comparative Institutions Approach to Wildlife Governance

This Article develops a comparative institutions approach to wildlife governance by examining the property rights to the habitat and the stocks of wild populations. The approach is based on the transaction cost and property rights approach and lies primarily in the traditions of Coase, Barzel, Ostrom, and Williamson. The approach recognizes the often-extreme costs of delineation and enforcement of property rights to wild populations and their habitats; thus, all systems are notably imperfect compared to the typical neoclassical economics approach. These costs arise because wildlife habitat and wildlife populations are part of the land which has many attributes and uses—most notably, residential and agricultural uses. In turn, the optimal ownership sizes (and shapes) vary across land uses (e.g., farming, urban, ranching, wildlife, parks). The organizations that govern wildlife tend to be ridden with transaction costs and imperfect property rights, and the most efficient system is one that maximizes the total value of the package less the enforcement and administrative costs. This Article develops a framework for considering different governance regimes for both the wild stocks and the habitats they require. A series of cases—focused especially on bison and caribou—show the range of governance regimes that have been used and how those governance regimes depend on history and on law.

New Structural Economics: How It Comes into Being and Recent Progress — Celebrating the 30th Teaching Anniversary of Professor Justin Yifu Lin

In the past 40 years of reform and opening up, the Chinese economy has achieved miraculous economic development with an annual GDP growth rate close to 10% on average. This remarkable achievement is unprecedented in the entire human history. At a meeting with leading Chinese experts in the fields of Philosophy and Social Sciences on May 17, 2016, General Party Secretary Xi Jinping pointed out that an era of tremendous social changes must be also an era of great development in Philosophy and Social Sciences. He expressed the hope that Philosophy and Social Sciences in China could flourish with important innovations in theory. The New Structural Economics（NSE hereafter）is such an attempt to develop an innovative and independent theory. Based on development experiences and lessons from China and other developing countries, NSE, guided by Marx’s historical materialism, adopts the modern research approach of Neoclassical Economics and highlights the crucial importance of economic structures”. NSE has gradually become the third wave of international trends in development economics. This paper aims to systematically review the history how NSE, as advocated by Justin Yifu Lin and his collaborators, has come into being, and also to provide an overview of the recent progress of NSE in both theory and practice. This paper is divided into six parts. The first part is the introduction. The second part is to divide the development of NSE into five stages: early germination, preliminary formation, systematic interpretation, deepening and expansion, and real-life application and implementation. The progress in each stage is carefully reviewed and assessed. In the third part, we discuss how NSE emerges as the third wave of development economics, how it differs from the previous two waves, and several academic debates on NSE. In the fourth part, we illustrate by specific examples how NSE provides different theoretical perspectives and analytical angles from the currently dominant theories. In the fifth part, we explain the core philosophy of NSE— Knowing and Achieving Be One, Achieving Verifies Knowing”, and show how this philosophy is hardwired in the new framework and new ideas in policy practice of NSE. The sixth part is a summary. Researchers of NSE should cherish a CHANGWU” mentality, adhering to the principle of openness and the concept of Knowing and Achieving Be One”. Researchers of NSE should never stop exploring new economic phenomena, new situations, and new problems and should keep improving, deepening and enriching both theory and practice of NSE.

Incorporating research findings in the economics syllabus: evidence on genuine sociality from Italy and the UK

Economics education is proving slow in incorporating into the syllabus the genuine advances made in economics research in the last few decades. As economics education relies primarily on the single approach of neoclassical economics, whilst recent advances in research have been marked by a wide variety of approaches, many of which are interdisciplinary, the methodological divide between education and research is growing wider. We attempt to measure how keen students are to incorporate research findings in the syllabus by developing a questionnaire which introduces undergraduate students in Italy and the U.K. to key findings in the research literature on genuine sociality, an area in which the methodological divide is very noticeable. Students display moderate support for being taught the material on genuine sociality. Students who wish to incorporate genuine sociality in the syllabus tend to be older, value virtue and have a religion.

Decisions around innovation and the motivators that contribute to them: patents, copyright, trade marks and know-how

The focus of much of the analysis of the intellectual property (IP) system is on the role of IP rights as incentives. This neo-classical economics approach does not acknowledge the range of circumstances and decisions that constitute the IP system. If the work of behavioural economists is considered instead, then a more nuanced understanding is available. The research here adopts the concept of ‘motivators’ from the latter body of thought and applies it to decisions made around patents, copyright, trade marks and, in order to more fully explore the issues, know-how. Further, three sets of decisions will be considered – those before the innovation is created, those relating to the distribution of the creation and those relating to their unauthorized use. The analysis of the decisions will engage with the issues of risk, negotiation and the role of legal advice in some of the decisions; thereby rounding out the analysis of decisions in terms of the internal assessments of the parties themselves.

Incorporating permaculture and strategic management for sustainable ecological resource management

Utilization of natural assets to the best efficient level without changing natural balance has become a critical issue for researchers as awareness on climate change takes central position in global debate. Conventional sustainable resource management systems are based on neoclassical economic approach that ignores the nature's pattern and therefore are not actually capable of sustainable management of resources. Environmentalists are lately advocating incorporation of Permaculture as holistic approach based on ethics, equitable interaction with eco-systems to obtain sustainability. The paper integrates philosophy of permaculture with strategic management frameworks to develop a pragmatic tool for policy development. The policy design tool augments management tasks by integrating recording of natural assets, monitoring of key performance indicators and integration of sectorial policies in real time, bringing out policy as a truly live document. The tool enhances the edifice process, balancing short term viewpoints and long term development to secure renewability of natural resources.

Corporate Social Responsibility: An Instrument of Social Economic Development in Nigeria

Corporate Social Responsibility (CSR) is becoming a popular tool of the twenty first century in business circles while it effects on communities and the role it plays in social development can never be overemphasised. While it is now being deployed as an instrument of social development in most developed countries, it is still at an evolutionary stage in most developing economies. In the case of Nigeria where a neo-classical economic approach of the international finance institutions like World Bank and the IMF is practiced like other developing economies, CSR is seen as a re-engineering tool to reinventing her hailing economy. Thus, social development through CSR is seen as a way of reducing poverty and bridging the seemingly inequality gap in the country.“Social development” is conceived as the multidimensional process that leads to sustainable improvements in the well-being of Individuals, families, communities and society as a whole in a context of justice and equity. It is a path that includes economic growth, improved competitiveness in the globalised economy, environmental sustainability, sustainable improvements in living conditions, reduction of poverty and inequality, and the development of human and social capital. This study explores the potential that private corporations have in fostering social development. It investigates the impact and effects of the CSR approach on communities and the role that they should play at reducing poverty. It contributes to the growing literature on CSR, in a yet relatively under-explored area.

Bioeconomic sustainability and modelling energy systems

Modelling energy systems in the neoclassical economic approach has been done for many years; however, from the point of view of bioeconomic sustainability, this approach does not measure the true energy costs to society. Problems such as the global energy crisis, energy-efficiency-related issues, CO2 emissions and climate change require alternative approaches, more interdisciplinary. This paper briefly presents some examples of models used to examine energy systems. Jevons paradox and the rebound effect are discussed in the context of energy efficiency and bioeconomic sustainability. The multi-scale integrated analysis of societal and ecosystem metabolism (MuSIASEM) built on the conceptual base of Georgescu-Roegen's 'minimal' bioeconomic programme is introduced as an alternative approach.

National Innovation Systems: From Conception toward the Methodology of Analysis

The seminal contributions of the neoclassical economic theory, the evolutionary and neo-Schumpeterian approaches in establishing the concept of national innovation system (NIS) are considered. The study is aimed to identify the challenges that the new concept has met. The advantages and bottlenecks of the emerging theory and practice are taken into account. In the study, an attempt is made to offset the shortcomings of the NIS approach and reveal its weaknesses. As a result, an approach to developing research methodology of NIS is proposed. The system structure-object and functional approaches give a basis of this concept.