Neoclassical Economic Framework Research Articles

Plant water use theory should incorporate hypotheses about extreme environments, population ecology, and community ecology.

Plant water use theory has largely been developed within a plant-performance paradigm that conceptualizes water use in terms of value for carbon gain and that sits within a neoclassical economic framework. This theory works very well in many contexts but does not consider other values of water to plants that could impact their fitness. Here, we survey a range of alternative hypotheses for drivers of water use and stomatal regulation. These hypotheses are organized around relevance to extreme environments, population ecology, and community ecology. Most of these hypotheses are not yet empirically tested and some are controversial (e.g. requiring more agency and behavior than is commonly believed possible for plants). Some hypotheses, especially those focused around using water to avoid thermal stress, using water to promote reproduction instead of growth, and usingwatertohoardit, may be useful to incorporate into theory or to implement in Earth System Models.

Mission Economy: A Moonshot Guide to Changing Capitalism

Cometh the hour, cometh … Mariana Mazzucato. Although she could not have anticipated the COVID-19 global pandemic, even less so the associated abandonment by governments of previously revered debt and deficit shibboleths, Professor Mazzucato’s new book on transformative mission-led research and innovation Mission Economy: A Moonshot Guide to Changing Capitalism is a contribution for its time. For decades, those advocating interventionist approaches to innovation and industry policy have felt obliged to do so within the restrictive doctrinal framework of neoclassical economics, whose static equilibrium model confines the role of government to addressing ‘market failure’, or in other words removing impediments to the operation of the market conceived in this abstract model. As Mazzucato recognizes, the model is static because it excludes the role of technological change and innovation, and characterized by equilibrium because it assumes all resources of labour and capital are fully employed, or would be in a world...

DEGROWTH, STEADY STATE AND CIRCULAR ECONOMIES: ALTERNATIVE DISCOURSES TO ECONOMIC GROWTH

Criticisms of the neoclassical economic framework and perpetual growth in GDP terms are not a new phenomenon, although recent years have seen increasing interest in alternative and ecological discourses including degrowth, steady-state and circular economics. Although these may initially appear as distinctly different discourses, they are highly compatible and comparable, sharing similar, often nearly identical principles and policy proposals. A more collaborative, joined-up approach aimed at integrating alternative discourses is required in order to build a coherent, credible, well-supported alternative, as there is more uniting than dividing these critical voices, particularly in the face of mainstream political and economic debates that are shaped by neoclassical economics.

Monetary policy and financial economic growth

In this paper, we investigate the effectiveness of monetary policy in a modified neoclassical economic growth framework. We extend a two-asset model to a three-asset one by adding the bond market under the variation of parameters and show that the impact of monetary expansion on inflation is complete in the two-asset model but is not complete in the three-asset model. Moreover, we find that in both of these models, the impact of monetary policy (or equivalently inflation) on the economic growth is ambiguous due to the fiscal policy intervention, and public expectations play crucial roles for the effectiveness and transmission of monetary policy in economic growth models. Finally, we show that our models are stable.

A Unified Framework for Mortality Immunization and Insurance Demand

In this paper, we propose a unified framework to simultaneously examine an insurer’s mortality immunization strategy and individuals’ insurance demand. On the supply side, an insurer chooses an optimal product mix of whole life insurance and deferred annuity by minimising the Conditional Value-at-Risk (CVaR) of its portfolio loss. On the demand side, the insured decide an optimal insurance choice by maximising his or her expected lifetime utility. Using the tâtonnement approach, we match the demand and supply of these insurance products and thus determine the optimal prices to clear the market. Our model in a neoclassical economic framework helps explain a few stylized facts or puzzles in life insurance markets, e.g., simultaneous holding of life insurance and annuity, low annuitisation, and insufficient purchase of life insurance in the working age population. Our results show that market equilibria occur when life insurance loading is relatively high and annuity loading is relatively low. This calls for attentions from insurance regulators and insurance companies to re-examine insurance/annuity underwriting and pricing.

Social Choice, Social Sustainability, and Why the Neoclassical Approach Fails to See the Difference

Objectives: The neoclassical economic framework is a dominant approach in both theoretical and applied fields, such as public policy design. Despite the substantial amount of criticism towards the neoclassical assumptions of rational choice and obstacles related to preference aggregation, there is a minor concern regarding the underlying philosophy of the mainstream public policy design, namely static social utility maximisation under exogenously given social preferences.This paper analyses the inherent biases of the public policy based on the neoclassical background, attempting to prove that although such an approach can theoretically lead to the socially optimal outcome, it is hardly in line with the long-run social survival and development objectives. Other than this, the paper attempts to explore how incorporating alternative approaches towards individual and collective rationality into the theory of social choice can allow for designing a more sustainable public policy. Research Design & Methods: The paper presents the review of the relevant literature alongside the theoretical inquiry into the underlying logic and philosophy of the neoclassical approach towards the public policy design as well as the most relevant non-mainstream theories. Findings: It is demonstrated that the assumptions behind the neoclassical framework are inconsistent with the notions of social evolution and social sustainability. Implications / Recommendation: The persistent idea that public policymakers should attempt to maximise social utility implies artificial limitations for public policy as well as ill-designed goals and objectives. There is a strong need to reconsider the appropriateness of using the neoclassical analytical framework in public policy design. Contribution / Value added: The framework discussed in this article serves as the ground for more sustainable public policy design principles.

PCP16 - The Optimal Willingness-To-Pay for Health Care Under Different Health Status, Socioeconomic Conditions, And Health Insurance Programs – Introducing a Conceptual Model in Neo-Classical Economics Framework

Access to health care is largely dependent on out-of-pocket spending affordable to health seekers, particularly in low- and middle-income countries (LMICs). As many LMICs are striving to achieve universal health insurance coverage, few conceptual models are available to assess optimal individuals or households willingness to pay (WTP) for health care given variable health status, socioeconomic conditions, and social benefits programs. OBJECTIVE This study introduces a modeling approach to assess optimal WTP from individuals perspective with implications on future research and policy designs for increasing access to care. A two-stage optimization and comparative static analysis are used to determine optimal WTP given variable health status, socioeconomic conditions, and health insurance coverage. Simulations and sensitivity analysis are performed to illustrate the applications of this economic model based on the optimal WTP calculated under various conditions. RESULT Result of this study shows the optimal WTP differs drastically across socioeconomic spectrum (SES) with only the highest-income group showing positive WTP in relation to annual income increase. Comparative static analysis further suggests individuals of different SES group respond differently to changes in their health status, health insurance benefits, and the expected outcomes of health care services. The economic model introduced in this study provides an analytical framework to assess optimal WTP from individual perspective in a multivariate setting. Applications of this model further implies a multi-tier approach to address affordability issue and increase access to care.

Competition for Defaults: The Fight for Virtual Shelf Space

In 2017, the European Commission fined Google $2.7 billion for privileging Google products in its own search results. The decision sent shockwaves throughout the US and is sure to spark renewed debate about the competitive effects of own-content search bias. To date, however, antitrust scholarship still analyzes this conduct largely within the traditional neoclassical economics framework it has always used, analogizing search bias to the placement of certain products on “prime shelf space” in brick-and-mortar stores, such as Target or Walmart. Although search rankings on a webpage do function similarly to shelving in a brick-and-mortar store, this Article argues that the analogy is incomplete. In reality, consumers are more sensitive to the placement of product options in a virtual setting, raising the stakes for “search bias” beyond what is contemplated by neoclassical economics. To explain consumers’ heightened sensitivity in the online setting, this Article employs key insights from behavioral economics — a discipline that has yet to meaningfully penetrate US antitrust analysis. Specifically, this Article is the first attempt to explain the competitive effects of search bias using the behavioral economics concept of defaults. It uses empirical evidence to argue that, when firms compete for prime virtual shelf space, they are really competing to become the “default option” for consumers. Empirical evidence increasingly shows that consumers do not behave with strict rationality when reviewing search results; instead, consumers gravitate to the highest ranked options despite potentially more relevant returns further down the page. In short, this Article suggests that default positions significantly nudge consumer decision making and reduce consumer choice in ways currently underappreciated by antitrust literature. When used by a firm with significant market power, these nudges may be powerful enough to foreclose rivals and lead to anticompetitive effects. Indeed, when nudges operate with enough force, firms may no longer be competing on the basis of their “superior skill, foresight and industry,” but instead using their market power to leverage consumer inertia and hold competition at bay.

On the Transformation of Economic Value: From Its Austrian Roots to Contemporary Economics

Carl Menger’s theory of subjective economic value is not only one of the greatest contributions of Austrian economics, subjective value is also the received view in mainstream economics today. However, modern-day economic theory does not explicitly address the theory advanced by Menger but merely assumes that value is subjective on the basis that the experience of valuing something is no more than an expression of preference. Accordingly, contemporary economists do not appear to recognize the distinction between this understanding of value and any other possible understanding of value, such as objective theories of moral value advanced in older strands of inquiry. Lacking the theoretical basis laid by Menger, subjectivity indeed appears deceptively simple: choices are made on the basis of preferences, and preferences are subjective. It would thus follow that further examination of the phenomenon of choice appears unnecessary. The aim of this paper is to present the Austrian philosophical foundations of the theory of subjective economic value and examine how this received theory has been quite significantly transformed in its transition to a neoclassical economics framework that has disposed of its theoretical basis.

South Africa’s water regulatory and policy framework: a new institutional economic review

The institutional dynamics , policies, and legislation that were prevalent during the apartheid era have left imprints that are difficult to ignore as they still dictate the interaction between different elements in the water sector to date. The existence of riparian water rights made the legislation excluding and racist as far as water access was concerned because of the indisputable link between land ownership and access to water. Post-apartheid, the National Water Act (NWA) of 1998 has transformed the water regulatory landscape from the riparian system to a system aimed at achieving equitable water allocation for the benefit of all. It has done away with a private right system of water allocation by detaching water rights from land ownership. However, the water sector in South Africa is still facing a number challenges, leading to a delay in achieving some of the goals of the post-apartheid water law. This paper provides a review of relevant water policies and/or statutes from a new institutional economics (NIE) perspective to assess the success, or lack thereof, of post-apartheid water policy in South Africa. This paper found that South Africa’s water policy is premised largely on neoclassical economics framework. It concludes that the failure of the NWA and other institutions to incorporate social norms and customs is more likely to the persistence of skewed distribution of water resources.

Assessing the role of inward foreign direct investment in Chinese economic development, 1990–2007: Towards a synthesis of alternative views

In the context of globalization, China has been widely regarded as the most successful country in the world in utilizing inward foreign direct investment (FDI) for economic development. The mainstream of the literature has produced a wide range of studies that are largely within the theoretical framework of neoclassical economics, and they tend to conclude that FDI has contributed significantly to Chinese economic development—through capital formation, export expansion, technology transfer, and the transformation of the economic structures and institutions. The objective of this paper is to assess the role of FDI in Chinese economic development with reference to the broader theoretical literature on FDI and late development, which encompasses structuralism and radical political economy along with neoclassical economics. From the perspectives of the broader literature, the analyses of the paper find that FDI in China has indeed promoted economic development in one respect (improving allocative efficiency), but has also had unfavourable effect in another respect (worsening productive efficiency), resulting in an overall impact that tends to be on the negative side. The mainstream story of China is thus judged to be partial, and the lessons to be drawn from the experience are arguably far more complex than have been hitherto perceived.

MR. PIKETTY AND THE "NEOCLASSICS": A SUGGESTED INTERPRETATION

This essay is an attempt to build a bridge between Thomas Piketty's arguments in Capital in the Twenty-First Century and modern neoclassical economics. This is done by deconstructing the variables and mathematical expressions used by Piketty to define specific economic phenomenon, examining the historical periods that Piketty has focused on in Capital, and using the results from the previous analyses to critique Piketty's arguments in Capital in the Twenty-First Century within a modern neoclassical economics framework.

The Marginal Cost Controversy Revisited

It is the basic proposition of this paper that the problem with marginal cost theory (Coase, 1946) cannot be adequately addressed within the framework of neo-classical economics. The innumerable products and services, which are available on the market, are not provided because the cost of producing the penultimate product is less than that of the last. The contemporary market is saturated with product differentiation, which is the result of innumerable relational contracts. Some degree of “monopoly” profits are, therefore, always present, thus lifting prices above average cost, at least enough to justify the entrepreneurial effort. Unlike the efficient markets of neoclassical theory, relational contracting can produce a range of prices, depending on the relative advantage of a transaction to each of the parties. This paper examines these negotiated relationships to identify the origin of relative bargaining power, and to examine the final outcomes, comparing these to those resulting from the idealized efficient market.

FARMER BEHAVIOR AND AGRI-ENVIRONMENTAL POLICY

During the past two decades, policymakers have provided farmers with numerous economic incentives to promote environmentally-friendly agriculture and agricultural management practices. However, research has shown that economic incentives alone are not the factor influencing farmer behavior. This paper provides an overview of alternatives to the neoclassical economic framework which conceptualizes farmers as rational economic actors. These alternatives are based in a socio-psychological approach that includes internal and social drivers for behavior and behavior change. Reviewing key literature focusing on farmer behavior, we argue that internal and social drivers are important to consider when designing agri-environmental policies and programs.

Biomedical progress rates as new parameters for models of economic growth in developed countries.

While the doubling of life expectancy in developed countries during the 20th century can be attributed mostly to decreases in child mortality, the trillions of dollars spent on biomedical research by governments, foundations and corporations over the past sixty years are also yielding longevity dividends in both working and retired population. Biomedical progress will likely increase the healthy productive lifespan and the number of years of government support in the old age. In this paper we introduce several new parameters that can be applied to established models of economic growth: the biomedical progress rate, the rate of clinical adoption and the rate of change in retirement age. The biomedical progress rate is comprised of the rejuvenation rate (extending the productive lifespan) and the non-rejuvenating rate (extending the lifespan beyond the age at which the net contribution to the economy becomes negative). While staying within the neoclassical economics framework and extending the overlapping generations (OLG) growth model and assumptions from the life cycle theory of saving behavior, we provide an example of the relations between these new parameters in the context of demographics, labor, households and the firm.

Ecological economics in relation to democracy, ideology and politics

Two recent studies and policy documents are discussed in the present article. One is a UN report prepared by experienced politicians as input into the 2012 Rio de Janeiro Conference, the other a study about the ecological economics of biodiversity.The UN report is of interest in informing about the thinking of politicians and their recommendations for action. It is however a consensus report where more fundamental changes in perspectives are not considered but rather avoided. A number of ecological economists participated in the second study on biodiversity. They demonstrated consciousness about many of the critical arguments about Cost–Benefit Analysis but finally argued in favor of relying on the conceptual framework of neoclassical economics with its CBA. The present author is criticizing this idea of “mainstreaming” the economics of biodiversity contending that radical change in perspectives is needed.

On the Natural and Economic Difficulties to Fulfilling the Human Right to Water Within a Neoclassical Economics Framework

We present a neoclassical economic model of the human right to water using a nonrenewable resource model inclusive of a backstop technology. The right is interpreted as a minimum consumption requirement the government is obligated to fulfill in the event that any one household cannot do so independently. Differing by income levels, households maximize utility by purchasing a composite consumption good and water from two distinct, government-owned sources. Facing physical and financial constraints, the government uses fiscal policy to address potential human rights violations. Reducing the analysis to two periods, we develop a novel approach to compare total welfare levels from a joint human rights and neoclassical economics perspective. We define a human rights welfare standard and discuss cases in which traditional social welfare measures would exceed, violate, or meet this standard. We thus offer a unique way to merge economic analysis with human rights research.

Construction of the migration flows forecasting into Russian regions

This paper presents a dynamic model that can predict the dynamics of migration flows between source countries and host regions, as well as the dynamics of wage levels there. The model is constructed within the framework of neoclassical economics and human capital theory in continuous time. Thanks to liberalization of migration policy in Russia in 2007, the model could be successfully employed to Russian regions and the Commonwealth of Independent States (CIS), which have visa-free entry regulations with the Russian Federation. Employing the model on statistical data, we forecast the number and origin composition of foreign labor force from the CIS into Russian regions for 2010-2016. The purpose of our further research is to classify migrants by skills.

Markets in the Light of Political-Economic Actors and Democracy Reconsidering Conceptual Framework for Sustainability Politics

The conceptual framework of neoclassical economics has been quite stable over the years while present challenges point in the direction of a need for new thinking and a new conceptual framework. Neoclassical economics is more or less blind to equality issues and not enough to deal constructively with present unsustainable trends. I will suggest important elements of such a new conceptual framework as part of a pluralistic understanding of economics. When compared with neoclassical economics, the political dimension is emphasized thus making democracy a fundamental principle for relationships in markets and in society at large. A political economics is suggested where individuals are understood as political economic persons and organizations as political economic organizations. This leads to a different understanding of markets from that of neoclassical supply and demand. The ethics and responsibilities of market actors in a democratic society is considered relevant and something to be investigated for purposes of sustainability politics. Approaches to decision-making are also discussed. Emphasis on democracy suggests a different approach from that of neoclassical Cost-Benefit analysis (CBA).

Rationales for Additional Climate Policy Instruments under a Carbon Price

AbstractThe plan to introduce a carbon pricing scheme in Australia has focused attention on the future relevance and necessity of using other policy instruments to reduce carbon emissions. Significant reports, including the Wilkins Review and reports by the Productivity Commission, have argued using the standard neoclassical economics framework that once a carbon price is established, it should be (almost) the only instrument needed to tackle climate change mitigation in Australia. With a small number of exceptions for complementary instruments to address some market failures, the use of other climate policy instruments, it is argued, will result only in unnecessary duplication and potential distortions. The aim of this article is to show that there are, in fact, a significant number of rationales for implementing several climate policy instruments in combination with a carbon price, and we should not be too quick to dismiss certain climate policy instrument combinations.