Neoclassical Economic Perspective Research Articles

Are Fishermen Rational? A Fishing Expedition

Uncertainty is a defining characteristic of fisheries. Fishermen make decisions affecting their livelihood daily and even hourly, often with scant information on which to evaluate alternatives. Cognitive psychologists and behavioral economists have shown that decisions involving uncertainty often diverge substantially from what would be predicted by expected utility theory. I review relevant findings from the literature on decision making under uncertainty and previous empirical modeling of fishing decisions, and explore the implications of a number of different behavioral theories on fishing decisions of various types. Excerpts from ethnographic interviews of groundfish fishermen in New England are used to illustrate how these fishermen deal with uncertainty in decisions they make about when, where, how, and how long to fish. The interviews provide anecdotal evidence in support of prospect theory and other behavioral hypotheses that appear to contrast with what would be considered rational behavior from a neoclassical economics perspective.

The BRICs Countries (Brazil, Russia, India, and China) as Analytical Category: Mirage or Insight?

American hegemony has passed its peak. The twentyfirst century will see a more multipolar international system. Yet Western European countries may not be the United States’ main foils in upcoming decades. Four new poles of the international system are now known in the business and financial press as the “BRICs economies” (Brazil, Russia, India, and China). Does the concept of “the BRICs” also have meaning within a rigorous political science framework? From the perspective of neoclassical economics, the category’s justification is surprising ly weak. In contrast, a political or economic realist’s framing instructs the United States to focus on states that are increasing their relative material capabilities, as each of the four is. Finally, within a liberal institutionalist’s model, the BRICs are a compelling set, yet one with a deep cleavage between two subgroups: large emerging powers likely to remain authoritarian or revert to that state, and states that are securely democratic.

The moral foundations of health insurance

The US and numerous developing countries do not provide universal health insurance coverage to their populations. Academic approaches to health insurance1 have typically adopted a neo-classical economic perspective, assuming that individuals make rational decisions to maximize their preferred outcomes, and businesses (including insurance companies) make rational decisions to maximize profits. In this approach, individuals who are risk-averse will purchase health insurance to reduce variation in the costs of health care between healthy and sick periods.2 In empirical studies, however, individuals do not always make rational choices. They also find it difficult to assess their health risks and to know how much insurance they need.3 By contrast, medical ethics has focused on the issue of equal access to health care, but provided little in the way of philosophical justification for risk management through health insurance per se. Nor has it shown how the practice whereby many at-risk individuals pay premiums to cover one individual’s expensive health outcome (‘risk-pooling’), is ethically desirable, except insofar as it ensures equal access to health care and equal income to purchase it for all contributors. This article offers an alternative moral framework for analysing health insurance: that universal health insurance is essential for human flourishing. The central ethical aims of universal health insurance coverage are to keep people healthy, and to enhance their security by protecting them from both ill health and its economic consequences, issues not adequately considered to date. Universal health insurance coverage requires redistribution through taxation, and so individuals in societies providing this entitlement must voluntarily embrace sharing these costs. This redistribution is another ethical aim of universal health insurance unaddressed by other frameworks. This article is part of an alternative approach to health and social justice,4 offered here and elsewhere,5,6 that builds on and integrates Aristotle’s political theory and Amartya Sen’s capability approach.

Making green discourses matter in policy-making: Learning from discursive power struggles within the policy area of car taxation

This paper is about stability and change in the policy-making discourse of a traditional neoclassical policy area, the area of car taxation. Stability is here related to the unquestioned continuation of a traditional neoclassical economics perspective in policy-making, whereas change is related to the introduction and impact of environmental concerns. The aim of the paper is to investigate, what makes green discourses matter in traditional policy-making. It is based on an in-depth study of policy-making processes related to car taxation in two environmental front-runner countries, Sweden and Denmark. Making green discourses matter in policy-making is an important contemporary environmental challenge. Therefore, as Tian Shi argues, we need more research into the institutional setting of the policy-making process. Ecological economics as a policy science has to have a broad understanding of the political economic nature of the policy process. Taking this standpoint as the point of departure, the paper seeks to uncover questions such as, what is the policy-making reality in which Swedish and Danish green discourses have to make a difference? How do existing neoclassical regimes react, when green actors attempt to influence policy-making from an environmental point of view? And to what extent can green discourses actually have an impact on the policy world within the area of car taxation? The paper concludes that the traditional neoclassical economic discourse is particularly robust and resistant against alternative green discourses. Stability rather than change is the dominating picture. This does not imply that environmental concerns will not be taken into account in the future. Rather it implies that only the changes, which keep up the existing order, or enhance the narrow power-related interests of the dominating actors, will materialise more or less easily. The rest is a power struggle in which timing, coalition-building, persistence and thorough knowledge about the field in question is of importance. In this struggle change agents will also benefit from the ability to rethink dominating ways of thinking and doing in an environmentally benign way. A rethinking that is based on environmental values while at the same time holding positive visions that are ‘compatible’ with the existing dominating discourse.

Rationality, institutions and environmental policy

This paper is about how institutions determine choices and the importance of this for environmental policy. The model of individual rational choice from neoclassical economics is compared with the model of socially determined behavior. While in the first case, institutions are either exempted from or understood as mere economizing constraints on behavior, the latter perspective views institutions as basic structures necessary also to enable people to act. The paper develops a way to integrate the individualistic model into the wider perspective of social constructivism by viewing it as a special form of such construction. On the basis of this synthesis three issues with relevance for environmental economics are discussed. First, the role of institutional factors in the process of preference formation is emphasized. Next, the role of institutions for the choice of desired states of the environment is analyzed. Finally, the effect of various policy instruments to motivate people to produce these states is discussed. It is concluded that the core policy issue is to determine which institutional frameworks are most reasonable to apply to which kind of problem. Issues, which from the perspective of neoclassical economics are pure technical, become serious value questions if understood from an institutional perspective.

Sustainable sufficiency - an internally consistent version of sustainability

Sustainable development has achieved widespread acceptance throughout the world as an appropriate goal for humankind. Applying the concept at both government and corporate levels has proved difficult due in part to an inherent conflict between the ecological, social and economic dimensions contained within contemporary interpretations of sustainable development. This paper describes a version of sustainability that provides clear and unambiguous direction for decision makers. Replacing the typically Western neoclassical economic perspective contained within most interpretations of sustainable development with a Buddhist perspective of economics leads to an internally consistent version of sustainability referred to as sustainable sufficiency. A study of a decision process within an organization operating within a sustainable development framework is used to provide contrast with decision making within a sustainable sufficiency framework. A conclusion of this paper is that the sustainable sufficiency concept reinforces the view that neoclassical economic principles provide a barrier to achieving the social and ecological objectives contained within contemporary interpretations of sustainable development. Copyright © 2005 John Wiley & Sons, Ltd and ERP Environment.

Microcredit and the Third World

Poverty in third world (TW) countries is a serious problem, and microcredit has become the most popular approach to address this undesirable phenomenon. This model, perceived more than a quarter century ago in Bangladesh, is now being pursued around the globe. In spite of this enormous popularity, there is scepticism about the model's ability to make a “major dent in the TW poverty situation”. These criticisms, however, seem just as weak as the arguments supporting the model. One apparent reason is that both the claims and criticisms are founded on the same theoretical perspective of neoclassical economics. To inject some fresh ideas in the debate, this paper examined microcredit's poverty‐alleviating ability from the perspectives of moral and political philosophy and concludes that the theory has insurmountable limitations as a model of sustainable poverty alleviation in the TW.

Ecological Economics: Moving towards a Transdisciplinary Research on Sustainability

This paper attempts to articulate the rise of ecological economics as a transdisciplinary approach on the research of sustainability. Intensive debates on the relationships between socio-economic development and ecological-environmental conservation have arisen since the 1960s. An emerging field of ecological economics has shifted the focus of the debates from limits of growth to sustainable development. This alternative interpretation goes beyond the perspective of neoclassical economics to view economy and humans as subsystems of ecosystems. In theory, the major objectives of ecological economics are to fill the gap between ecology and economics and to advocate a common framework that encourages productive dialogue and synthesis across a broad range of disciplines and approaches. In practice, it calls for control mechanisms to keep economic systems in balance with ecosystems. Highlighted is the view that ecological economics promotes a transdisciplinary approach that goes beyond the narrow boundaries of conventional disciplines to develop an alternative perspective on human-natural interactions as basis for effective policies for sustainability.

Interorganizational cost management and relational context

Many firms today form alliances with their suppliers and customers that do not fit into the classical dichotomy of hierarchies and markets. The emergence of so-called hybrid relational forms makes the make-or-buy decision more complicated than the neo-classical economic perspective indicates. One outcome of these hybrid relational forms appears to be the development of cost management techniques that cross the organizational boundary between buyers and suppliers and whose objective is to reduce costs through collaborative efforts. This paper explores how firms enact interorganizational cost management during product design and the characteristics of the relational contexts associated with them. It also discusses the implications of such developments for the make-or-buy decision.

New Dimensions of Market Failure in Electricity and Natural Gas Supply

Has public utility deregulation been a success or a failure? The answer to this question depends on whether one approaches it from the perspective of mainstream neoclassical economics or from the perspective of institutional economics. The difference between these approaches relates not only to the identification of problems, such as the exercise of market power or the promotion of societal values, but also to the scope and nature of remedial public policies. Essentially, mainstream neoclassical economics argues that competitive markets will allocate resources efficiently and constrain market power in public utility industries after economic regulation is removed and open access by competitors is assured. Residual evidence of market failure will be minimized and can be readily corrected by the introduction of well-defined property rights and the free exchange of these rights. Market power is typically defined as the ability of the firm to withhold output and raise price above a competitive market price, but neoclassical economics holds that this potential abuse will be rapidly eroded-given the growing availability of information, new technology, and access to superior supply options. Institutional economics focuses on market failure and market power since they are cardinal factors defining a role for government intervention and regulation. Market power is defined as a dynamic process involving the ability to coerce through pricing, market structure, and political strategies. When skillfully applied, each of these strategies will utilize the unique structural characteristics of public utilities as network industries to establish positions of dominance. This deployment of power will affect the institutions of governance and impact the distribution of income.

Global corporate environmentalism: Theoretical expectations and empirical experience

AbstractSince the mid‐1980s the concept of corporate environmentalism has taken hold among global stakeholders, promising improved environmental health and safety (EH&S) performance at multinational (MNC) facilities in less developed countries. In this article we examine corporate environmentalism through two lenses: (1) our own empirical case studies of three Third World subsidiaries of USA‐based multinationals; (2) evolving theories on EH&S performance at MNC subsidiaries in less developed countries. We suggest that over the past decade there has been a convergence of three theoretical perspectives – neoclassical, radical and ecological – toward consistent predictions of improved EH&S performances and relations with host country governments. However, important differences among the three perspectives remain in how each interprets improved EH&S performance in the context of long‐term benefits to corporations, host countries, workers, local publics and the global community. While we find that the neoclassical economic perspective is most consistent with the empirical findings of our three case studies, we also note some debatable neoclassical assumptions concerning whether all stakeholders benefit mutually from superior EH&S performance. In order to gain wide acceptance beyond the corporate sector, the concept of corporate environmentalism must be expanded to include greater labor participation and accounting for ecological interests.

Lying as standard operating procedure: Deception in the weapons testing process

The Supreme Court, in Boyle vs. United Technology (1988), limited the ability of citizens to sue private defense contractors. The core reasoning assumed a high degree of honesty in the procurement process, and in particular in the weapons testing program. The extent to which we should expect such candor is examined, from the perspective of neoclassical economics and from the broader views derived from social-science and philosophical literature. The neoclassical view that honesty should be treated within the narrow context of profit-maximizing behavior seems most suited to an analysis of the joint contractor-DOD relationship. That such an approach is warranted is born out by the long history of distorted testing procedures and the repeated recognition of such dissembling. Data supporting this conclusion is analyzed.

Keynes and Organicism

Roy Rotheim has recently argued in this journal (1988) that J. M. Keynes' concern with uncertainty in The General Theory stems from his abandonment of an atomist methodology for an organicist one, and that this fundamentally distinguishes his thinking from the atomist methodological perspective of neoclassical economics. While Rotheim's discussion demonstrates considerable insight into the philosophical aspects of Keynes' thinking, there is nonetheless some reason to doubt that Keynes did change his thinking about atomism and organicism. The discussion here questions whether this reversal occurred; first, a number of the texts in which Keynes concerns himself with atomism and organicism are reexamined, and second, the requirements of an organicist methodology are analyzed.

The Deficit Is Not a Well-Defined Measure of Fiscal Policy

Notwithstanding its widespread use, the government's deficit is not a well-defined measure of fiscal policy from the perspective of neoclassical economics; the equations of neoclassical models do not define the deficit. Rather than being a fundamental economic concept, the deficit is an arbitrary cash flow accounting construct with no necessary relation to the true stance of fiscal policy. Although the deficit is supposed to indicate how the burden of paying for the government's consumption is spread across different generations, actual changes in the measured deficit in the United States have had little if any relation to changes in the burden imposed by the government on different generations. The deficit's lack of definition is illustrated with a simple model, and the potential for misreading fiscal policy is discussed with U.S. fiscal policy in the 1980s as an example. In this article, creation of present value generational accounts are called for that would properly measure the intergenerational stance of fiscal policy.

Organizing Work in an Information Age

The 1970s and 1980s have not been the best of times for workers in the United States. Productivity has grown slowly and real wage rates have declined over much of the period. Moreover, slow growth of productivity and real wages has been particularly frustrating when it is considered that the 1970s and 1980s have witnessed rapid progress in microelectronics and other technologies that potentially could improve standards of living substantially. In this paper I will argue that the neoclassical economic perspective is inadequate for understanding and solving the problem of sluggish economic growth in the face of rapid technological progress. This is so both because the neoclassical perspective on the economy has long been unrealistic and, more importantly, because it ignores nonindividualistic work incentives which appear to be vital in examples of successful economic adaptation to new information age technology (e.g., in the case of Japanese manufacturing). If we in America are to develop an economic perspective more suited to the needs of the information age than the neoclassical perspective, moreover, I will argue that we will need economic beliefs that are more consistent with our

The Need for a Political Economy of Educational Finance: A Response to Thobani

As a vehicle that encourages our thinking about the issues of educational finance facing low income countries, Thobani's article is exceptionally interesting for a number of reasons: it is a well-done example of the application of the dominant economics paradigm reasoning to education in a real world context; it makes major educational policy recommendations for Malawi that, with the weight of the World Bank behind them, were to some extent actually implemented; and it tries to provide a plausible rationale for the startlingly counterintuitive argument that raising the tuition charges for schooling will advance the interests of the disadvantaged, poorer segments of the population. However, despite Thobani's coherent exposition, I wish to argue that the analysis is seriously flawed, even within the logic of the neoclassical economics paradigm that guides his argument. The essential problem I see with Thobani's article is reflected in the difference in titles we use: the language of charging user embodies Thobani's view that his recommendations result from dispassionate technical analysis, while my economy is meant to suggest my belief that, from either a neoclassical or radical economics perspective, such analysis cannot be technical but is necessarily of a political and social character. While I will focus on Thobani's article, my objections are directed more generally to the entire neoclassical approach to educational (and other public sector) policy evaluation, which cavalierly assumes a world far different from the one we all observe and which is even internally inconsistent, violating its own assumptions and tenets. Finally, I should say that I do not wish to debate Thobani's conclusions as to whether tuition fees should be raised; the issues raised here are about how one analyzes that question. To begin, I will summarize my view of the argument that Thobani carefully constructs. Overall, he wishes to demonstrate that increasing the school tuition charged by the government in Malawi is both an efficient and equitable way of expanding and improving the formal school system. He begins his argument by using a neoclassical economics partial equilibrium