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University of Massachusetts Amherst

Economics Department Working Paper Series

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Full-Text Articles in Social and Behavioral Sciences

Axiomatic Marxian Exploitation Theory: A Survey Of The Recent Literature, Rylan Chinnock, Roberto Veneziani, Naoki Yoshihara Jan 2024

Axiomatic Marxian Exploitation Theory: A Survey Of The Recent Literature, Rylan Chinnock, Roberto Veneziani, Naoki Yoshihara

Economics Department Working Paper Series

In this paper we review recent developments in axiomatic studies of Marxian exploitation theory. First, given the acute controversy over the formal definition of exploitation during the 1970-1990s, we review the study of the axiomatic frame- work, which identifies some fundamental properties – technically, domain conditions – that any definition of exploitation should satisfy. Moreover, we provide a survey on the axiomatic studies about the proper measures of exploitation which coherently preserve the basic Marxian perceptions represented by two axioms, Profit- Exploitation Correspondence Principle and Class-Exploitation Correspondence Principle. Finally, we examine the relevance of the labour theory of value in …

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How Likely Is It That Omitted Variable Bias Will Overturn Your Results?, Deepankar Basu Jan 2024

How Likely Is It That Omitted Variable Bias Will Overturn Your Results?, Deepankar Basu

Economics Department Working Paper Series

Building on a recently developed methodology for sensitivity analysis that parametrizes omitted variable bias in terms of partial R-Squared measures, I propose a simple statistic to capture the severity of omitted variable bias in any observational study: the probability of omitted variable bias overturning the reported result. The central element of my proposal is formal covariate benchmarking, whereby researchers choose an observed regressor (or a group of observed regressors) to benchmark the relative strength of association of the omitted regressor with the outcome variable and with the treatment variable. These relative strengths of association function as the two sensitivity parameters …

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Intersectoral Conáict And Delays In Macroeconomic Stabilization, Arslan Razmi Jan 2024

Intersectoral Conáict And Delays In Macroeconomic Stabilization, Arslan Razmi

Economics Department Working Paper Series

An important body of literature explores the political economy reasons
underlying delays in macroeconomic stabilization. This paper develops
a framework to analyze conflict between two groups of economic actors,
one that has an endowment of internationally tradable goods and another
that is endowed with non-tradable goods. The focus is on the exchange
rate policy in a developing country set-up where the government employs
seigniorage revenue to finance spending pre-stabilization, and faces fiscal
and balance of payments problems that necessitate stabilization with a step
devaluation. The presence of exchange rate and endowment uncertainty,
the role of forward-looking expectations, and the possibility …

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Can Price Controls Be Optimal? The Economics Of The Energy Shock In Germany, Tom Krebs, Isabella M. Weber Jan 2024

Can Price Controls Be Optimal? The Economics Of The Energy Shock In Germany, Tom Krebs, Isabella M. Weber

Economics Department Working Paper Series

In the wake of the global energy crisis, many European countries used energy price controls to fight inflation and to stabilize the economy. Despite its wide adoption, many economists remained skepti- cal. In this paper, we argue that price controls should be part of the policy toolbox to respond to shocks to systemically important sectors because not using them can have large economic and polit- ical costs. We put forward our arguments in two steps. In a first step, we analyze the impact on the German economy and society of the global energy crisis that followed Russia’s attack on Ukraine …

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Unequal Gradients: Sex, Skin Tone, And Intergenerational Economic Mobility, Luis Monroy-Gómez-Franco, Roberto Vélez-Grajales, Gastón Yalonetzky Jan 2023

Unequal Gradients: Sex, Skin Tone, And Intergenerational Economic Mobility, Luis Monroy-Gómez-Franco, Roberto Vélez-Grajales, Gastón Yalonetzky

Economics Department Working Paper Series

We study how the intersection between skin tone and sex shapes intergenerational mobility of economic resources in Mexico. Using two recent social mobility surveys, we estimate the rank persistence and transition matrices by sex combined with skin tone groups. First, we find no differences in intergenerational mobility patterns between light-skin men and women. Second, the colorist mobility pattern observed in previous literature affects men and women differently. Namely, while women of intermediate and dark-skin tonalities have a lower expected rank than their light-skin peers, only men of the darkest tonalities suffer from the same penalization. Thirdly, women of intermediate and …

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Formal Covariate Benchmarking To Bound Omitted Variable Bias, Deepankar Basu Jan 2023

Formal Covariate Benchmarking To Bound Omitted Variable Bias, Deepankar Basu

Economics Department Working Paper Series

Covariate benchmarking is an important part of sensitivity analysis about omitted variable bias and can be used to bound the strength of the unobserved confounder using information and judgments about observed covariates. It is common to carry out formal covariate benchmarking after residualizing the unobserved confounder on the set of observed covariates. In this paper, I explain the rationale and details of this procedure. I clarify some important details of the process of formal covariate benchmarking and highlight some of the difficulties of interpretation that researchers face in reasoning about the residualized part of unobserved confounders. I explain all the …

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Sellers’ Inflation, Profits And Conflict: Why Can Large Firms Hike Prices In An Emergency?, Isabella M. Weber, Evan Wasner Jan 2023

Sellers’ Inflation, Profits And Conflict: Why Can Large Firms Hike Prices In An Emergency?, Isabella M. Weber, Evan Wasner

Economics Department Working Paper Series

The dominant view of inflation holds that it is macroeconomic in origin and must always be tackled with macroeconomic tightening. In contrast, we argue that the US COVID-19 inflation is predominantly a sellers’ inflation that derives from microeconomic origins, namely the ability of firms with market power to hike prices. Such firms are price makers, but they only engage in price hikes if they expect their competitors to do the same. This requires an implicit agreement which can be coordinated by sector-wide cost shocks and supply bottlenecks. We review the long-standing literature on price-setting in concentrated markets and survey earnings …

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The Yule-Frisch-Waugh-Lovell Theorem For Linear Instrumental Variables Estimation, Deepankar Basu Jan 2023

The Yule-Frisch-Waugh-Lovell Theorem For Linear Instrumental Variables Estimation, Deepankar Basu

Economics Department Working Paper Series

In this paper, I discuss three aspects of the Frisch-Waugh-Lovell theorem. First, I show that the theorem holds for linear instrumental variables estimation of a multiple regression model that is either exactly or overidentified. I show that with linear instrumental variables estimation: (a) coefficients on endogenous variables are identical in full and partial (or residualized) regressions; (b) residual vectors are identical for full and partial regressions; and (c) estimated covariance matrices of the coefficient vectors from full and partial regressions are equal (up to a degree of freedom correction) if the estimator of the error vector is a function only …

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Skill Differences And Wage-Effort Relationship: Who Are More Exploited, High-Skilled Or Low-Skilled Workers?, Hyun Woong Park, Dong–Min Rieu Jan 2023

Skill Differences And Wage-Effort Relationship: Who Are More Exploited, High-Skilled Or Low-Skilled Workers?, Hyun Woong Park, Dong–Min Rieu

Economics Department Working Paper Series

Who are more exploited, high-skilled or low-skilled workers? We address this question using the efficiency wage model with skill differentials incorporated. We perform simulations to find the Nash equilibrium numerically, and our central results are the following. First, higher-skilled workers are offered higher wages but exert less effort, and in particular the skill-wage relationship matches the observed data on wage inequality of the U.S. Second, we employ two measures of the degree of exploitation. On the one hand, the ratio between effort and wage the higher-skilled workers experience is lower than that of lower-skilled workers. This is due to their …

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Alternative Approaches To Labor Values And Prices Of Production: Theory And Evidence, Deepankar Basu, Athanasios Moraitis Jan 2023

Alternative Approaches To Labor Values And Prices Of Production: Theory And Evidence, Deepankar Basu, Athanasios Moraitis

Economics Department Working Paper Series

In this paper, we discuss three approaches to estimating classical prices of production(long run equilibrium prices) in both a circulating capital model and a model that includes capital stock: the Standard Interpretation of Marx’s value theory, the New Interpretation of Marx’s value theory, and the Sraffian approach to prices of production. We add two refinements to both models: (a) allowing for differential wages rates across industries; and(b) taking account of unproductive industries in labor value calculations. We implement(a) the circulating capital models using harmonized input-output data from the World Input Output Database for 37 countries for the period 2000–2014, and …

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Conflict Fuels Inflation But The Tinder Lies Elsewhere: Eclectic Structuralist Thoughts In A Developing Economy Context, Arslan Razmi Jan 2023

Conflict Fuels Inflation But The Tinder Lies Elsewhere: Eclectic Structuralist Thoughts In A Developing Economy Context, Arslan Razmi

Economics Department Working Paper Series

Developing country inflation is in the headlines again. Mainstream macroeconomics typically ignores the role of conflict while non-mainstream work tends to ignore macroeconomic constraints. This paper revisits the issue employing a dependent economy framework with eclectic characteristics. Specifically, I explore the mechanisms that propagate both real and monetary sources of inflation in the presence of real wage resistance and distributional conflict. The analysis shows that the inability to pay for subsidies with taxes or bond issuance in a stylized developing economy could create a situation where a relatively small shock leads to sustained and accelerating inflation and a wage-price spiral, …

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Endogenous Business Cycles And Economic Policy, Peter Skott Jan 2023

Endogenous Business Cycles And Economic Policy, Peter Skott

Economics Department Working Paper Series

This paper examines the dynamics of Keynesian models that incorporate feedback effects from the labor market to income distribution, in- vestment, aggregate demand and output. A baseline version of the model can generate endogenous growth cycles, but cumulative divergence and economic collapse also become possible for plausible parameter values. Extensions of the model that include monetary and Öscal policy show greater robustness: the local instability of the stationary point leads to limit cycles (rather than complete collapse), even when large, destabilizing changes are made to parameters describing the private sector. The robustness of the general approach is reinforced by the …

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Covariate Benchmarking For Sensitivity Analysis When The Confounder Is Correlated With Observed Covariates, Deepankar Basu Jan 2023

Covariate Benchmarking For Sensitivity Analysis When The Confounder Is Correlated With Observed Covariates, Deepankar Basu

Economics Department Working Paper Series

Covariate benchmarking is an important part of sensitivity analysis about omitted variable bias and can be used to bound the strength of the unobserved confounder using information and judgments about observed covariates. It is common to carry out formal covariate benchmarking under the assumption that the unobserved confounder is orthogonal to the observed covariates. This assumption is restrictive and will be difficult to defended in most empirical analyses. In this paper I show that relaxing the orthogo- nality assumption leads to a breakdown of a recently proposed innovative formal covariate benchmarking methodology.

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Economic Growth In Dual And Mature Economies: Revisiting The Pasinetti And Neo-Pasinetti Theorems, Peter Skott Jan 2022

Economic Growth In Dual And Mature Economies: Revisiting The Pasinetti And Neo-Pasinetti Theorems, Peter Skott

Economics Department Working Paper Series

This paper (i) examines the role of income distribution in the determination of the average saving rate and the growth process in dual and mature economies, and (ii) revisits the Pasinetti and neo-Pasinetti theo- rems. The profit share may influence saving because of differences in the saving rates across households (the Pasinetti theorem) or because firms retain part of their earnings (the neo-Pasinetti theorem). The two mechanisms are not mutually exclusive, and the alignment between warranted and natural growth rates in mature economies can happen through feed- back e¤ects from employment to the distribution of income.

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The State-Constituted Market Economy: A Conceptual Framework For China’S State–Market Relations, Isabella Weber, Hao Qi Jan 2022

The State-Constituted Market Economy: A Conceptual Framework For China’S State–Market Relations, Isabella Weber, Hao Qi

Economics Department Working Paper Series

Scholars increasingly conclude that China has created a distinct economic system. Yet despite a growing literature with valuable contributions on the institutional arrangements under ‘capitalism with Chinese characteristics’, the economic mechanisms underpinning China’s state–market relations remain undertheorised. In this paper we develop a conceptual framework of what we call China’s state-constituted market economy. We argue that the Chinese state ‘constitutes’ the market economy by not only creating new markets through industrial and innovation policies, but by continuously participating and steering markets for essentials in order to stabilise and guide the economy as a whole. Essential is thereby defined as ‘systemically …

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Mmt And Policy Assignment In An Open Economy Context: Simplicity Is Useful, Oversimpliflication Not So Much, Arslan Razmi Jan 2022

Mmt And Policy Assignment In An Open Economy Context: Simplicity Is Useful, Oversimpliflication Not So Much, Arslan Razmi

Economics Department Working Paper Series

Modern Monetary Theory (MMT) has recently received significant attention in academic and policy circles. Critics question the sustainability of MMT-prescribed approaches to fiscal and monetary policy, especially over extended periods of time, in the presence of international financial markets, and for developing country governments that borrow in foreign currency. I formalize some of these arguments using a dynamic, open economy, Tobin-Markowitz portfolio balance environment that takes into account: (1) the role of expectations in the foreign exchange market and the feedback mechanisms between these and the exchange rate and inflation, and (2) interactions between the current account, debt accumulation, and …

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Complexity, Diversity And Integration: Evidence From Recent Us Immigration, Noé Wiener Jan 2022

Complexity, Diversity And Integration: Evidence From Recent Us Immigration, Noé Wiener

Economics Department Working Paper Series

This article proposes alternative measures of immigrant integration founded in information theory. By considering differences in the heterogeneity of outcomes between immigrants and natives, the proposed measures provide robust and non-parametric estimates of the extent to which cohorts remain defined by their national origin. Integration is furthermore premised on equality in the association between economic characteristics and incomes, so that other factors can begin to shape outcomes for im-migrants and natives alike. Results for successive immigrant cohorts in the post-war era are presented using Census income data for the United States. The speed by which the mark of migration on …

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A Critical Reinterpretation Of Shacklean Decision Theory, Se Ho Kwak Jan 2022

A Critical Reinterpretation Of Shacklean Decision Theory, Se Ho Kwak

Economics Department Working Paper Series

Shackle was one of the representative critics of probability calculus. His alternative decision theory was mathematically reformalized by Katzner till 1990s. Following the Katzner’s reformalized framework, this paper presents a new interpretation of Shacklean theory by focusing on the common stage structure of the decision-making. This paper shows that the characteristics of Shackle-Katzner framework can be explained as: (1) the non-distributive and non-additive ordinal measure of subjective uncertainty, (2) the incomplete list of imaginable future states, (3) the valuation of “importance” reflecting various types of loss- psychology, and (4) the final choice of the action is made on the set …

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A Functional Representation Of Potential Surprise Ordering, Se Ho Kwak Jan 2022

A Functional Representation Of Potential Surprise Ordering, Se Ho Kwak

Economics Department Working Paper Series

In the history of economic thought, Shackle was one of the representative critics about probability based economic theory. Specifically, he constructed his own concept of subjective uncertainty called potential surprise to replace probability. In 1980s, the potential surprise is axiomatized by Katzner as Kolmogorov-styled measure defined on the 𝜎-field over the set of possible states. In this paper, potential surprise function is reconstructed as the functional representation of potential surprise ordering on the space of hypotheses about future called monad.

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Inconsistent Definitions Of Gdp: Implications For Estimates Of Decoupling, Gregor Semieniuk Jan 2022

Inconsistent Definitions Of Gdp: Implications For Estimates Of Decoupling, Gregor Semieniuk

Economics Department Working Paper Series

Efforts to assess the possibilities for decoupling economic growth from negative environmental impacts have examined their historical relationship, with varying and inconclusive results. Part of the problem is ambiguity about definitions of environmental impacts, e.g. whether to use territorial or consumption-based measures of environmental impact. This paper shows that ambiguities arising from definitional changes to GDP are sufficiently large to affect the outcomes. I review the history of structural revisions to GDP using the example of the United States, and on international comparisons of purchasing power parity, compare decoupling results using various historical definitions of GDP on the same environmental …

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Inflation In Times Of Overlapping Emergencies: Systemically Significant Prices From An Input-Output Perspective, Isabella M. Weber, Jesus Lara Jauregui, Lucas Teixeira, Luiza Nassif Pires Jan 2022

Inflation In Times Of Overlapping Emergencies: Systemically Significant Prices From An Input-Output Perspective, Isabella M. Weber, Jesus Lara Jauregui, Lucas Teixeira, Luiza Nassif Pires

Economics Department Working Paper Series

In the overlapping global emergencies of the pandemic, climate change and geopolitical confronta- tions, supply shocks have become frequent and inflation has returned. This raises the question how sector-specific shocks are related to overall price stability. This paper simulates price shocks in an input-output model to identify sectors which present systemic vulnerabilities for monetary stability in the US. We call these prices systemically significant. We find that in our simulations the pre-pandemic average price volatilities and the price shocks in the COVID-19 and Ukraine war inflation yield an almost identical set of systemically significant prices. The sectors with system- ically …

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Long-Run Effects Of Austerity, Guilherme Klein Martins Jan 2022

Long-Run Effects Of Austerity, Guilherme Klein Martins

Economics Department Working Paper Series

This paper provides evidence that austerity shocks have long-run negative effects on GDP. Besides addressing the important gap in the growing fiscal research regarding the short time horizon of the estimations, this paper analyzes two other important assumptions made in the literature regarding the (i) symmetry of episodes of fiscal expansion and con- traction and (ii) uniformity of fiscal multipliers for different sizes of shocks. We use narrative fiscal shocks and propensity score reweighting in a local projections setup to account for the potential endogeneity of austerity policies and the non-linearity of its effects over time. The estimation is also …

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Systemic Cycles Of Accumulation And Chaos In The World Capitalist System: A Missing Link, Giorgos Galanis, Christian Koutny, Isabella Weber Jan 2022

Systemic Cycles Of Accumulation And Chaos In The World Capitalist System: A Missing Link, Giorgos Galanis, Christian Koutny, Isabella Weber

Economics Department Working Paper Series

We re-examine the Systemic Cycles of Accumulation (SCA) of Arrighi (2010) and Arrighi and Silver (1999) which provide a framework for the analysis of the cyclical patterns of geographical expansion of trade and production and the related shifts of hegemonic power within the world capitalist system. Within the SCA framework, the last stage of a hegemonic cycle is characterized by what is called ‘systemic chaos’, however the drivers of these chaotic dynamics have not been explicitly analyzed. This article fills this gap by providing a link between the accumulation process, the spatio-temporal fix, and systemic chaos, in three steps. First, …

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To Reform And To Procure: An Analysis Of The Role Of The State And The Market In Indian Agriculture, Kartik Misra, Deepankar Basu Jan 2022

To Reform And To Procure: An Analysis Of The Role Of The State And The Market In Indian Agriculture, Kartik Misra, Deepankar Basu

Economics Department Working Paper Series

Since the early 2000s, many Indian states started reforming their agricultural marketing policies and allowed private traders to buy directly from farmers outside the state-regulated market system. The experience of these states during the period 2000 - 2012 can shed light on the impact of market-oriented reforms and the role of public procurement. Using individual-level National Sample Survey Data on agricultural wages and a new dataset on state-level average real farm income per cultivator for 18 major Indian states between 1987 – 2012, this paper shows, using both a difference-in-difference and a triple difference framework, that marketing reforms alone did …

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Dimensional Analysis And Logarithmic Transformations In Applied Econometrics, Deepankar Basu Jan 2022

Dimensional Analysis And Logarithmic Transformations In Applied Econometrics, Deepankar Basu

Economics Department Working Paper Series

In economics, it is common to use dimensioned variables, e.g. earn- ings (measured in dollars per year), as arguments in the logarithmic function. This is conceptually problematic because a logarithmic func- tion can only take dimensionless quantities as its argument. One way to avoid this conceptual error is to rewrite commonly used logarithmic regressions using an arbitrarily chosen reference unit so that ratios of dimensioned quantities are used in logarithmic functions. With the addition of a zero conditional mean assumption about the reference unit to the standard list of assumptions about asymptotic properties of ordinary least squares estimators, such a …

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World Profit Rates, 1960-2019, Deepankar Basu, Julio Huato, Jesus Lara Jauregui, Evan Wasner Jan 2022

World Profit Rates, 1960-2019, Deepankar Basu, Julio Huato, Jesus Lara Jauregui, Evan Wasner

Economics Department Working Paper Series

In this paper we present estimates of the world profit rate using country-level data from the Extended Penn World Table 7.0 and industry-level data from the World Input Output Database. The country-aggregated world profit rate series spans the period from 1960 to 2019, and the industry-aggregated world profit rate series runs from 2000 to 2014. The country-aggregated world profit rate series displays a strong negative linear trend for the period 1960-1980 and a weaker negative linear trend from 1980 to 2019. A medium run decomposition analysis reveals that the decline in the world profit rate is driven by a decline …

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An Empirical Investigation Of Real Farm Incomes Across Indian States Between 1987-88 And 2011-12, Deepankar Basu, Kartik Misra Jan 2022

An Empirical Investigation Of Real Farm Incomes Across Indian States Between 1987-88 And 2011-12, Deepankar Basu, Kartik Misra

Economics Department Working Paper Series

Using unit-level data from various rounds of the Employment and Unemployment Survey of the National Sample Survey Organisation, we present the first consistent time series of average real farm income per cultivator for 18 major Indian states for 1987-88, 1993-94, 1999-00, 2004-05, 2007-08, 2009-10, and 2011-12. Using this data, we study two sets of issues. First, how did real farm income evolve across these 18 Indian states? Which states have high levels and growth rates of real farm incomes? Is there any evidence for convergence of real farm incomes across Indian states? We find evidence for unconditional convergence, which suggests …

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Growth Cycles In Mature And Dual Economies, Peter Skott Jan 2022

Growth Cycles In Mature And Dual Economies, Peter Skott

Economics Department Working Paper Series

Mature economies may experience fluctuations, but the average medium and long run growth rate matches the natural rate. Like Kaldor's neo- Keynesian models, the Marx-Goodwin tradition explains this outcome by endogenizing the distribution of income and assuming that the accumulation of capital is increasing as a function of the profit share. The application of Goodwin cycles to developing economies may be hard to justify, however. The modified Goodwin models in this paper include relative-wage norms as a central element of wage formation. Norms change endogenously, leading to path dependence (hysteresis) in the stationary solution for the employment share of the …

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Portfolio Adjustment And Panic Behavior Under True Uncertainty, Se Ho Kwak Jan 2022

Portfolio Adjustment And Panic Behavior Under True Uncertainty, Se Ho Kwak

Economics Department Working Paper Series

G.L.S. Shackle was one of the representative critics against probability- based economic theory, and influenced some Post-Keynesians and Austri- ans. During the 1980s and 1990s, his alternative framework was math- ematically reconstructed by Katzner. In this paper, we will reformalize the Shackle-Katzner framework to explain the financial decision-making of the individual. For this, the portfolio diversification between two non- monetary assets will be explained by the reformalized model introduced here, and then moved to the analysis about a case of money and a non- monetary asset. Based on these findings, a few possible scenarios of panic behavior in the portfolio …

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Capital Nationality And Economic Development, Guilherme Klein Martins Jan 2022

Capital Nationality And Economic Development, Guilherme Klein Martins

Economics Department Working Paper Series

This paper reviews different literature strands and performs an empirical test to evaluate how capital ownership, particularly its nationality, might affect long-run economic develop- ment. Our results indicate that low and middle-income countries with larger foreign capital stock in 1980 had lower economic growth over the next 39 years. The estimations also indi- cate that these economies developed a less specialized export basket, which became relatively more concentrated in low-tech goods. The results are inverted to high-income economies, for which the effects are positive on GDP growth and export specialization and complexi- fication. The results are in line with the …

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