Albert Jolink

Leon Walras's Mathematical Economics and the Mechanical Analogies

In April 1909 LA©on Walras (1834–1910) presented his last lecture before the SociA©tA© Vaudoise des Sciences Naturelles at Lausanne. The subject dealt with in this lecture was the analogy between the mathematics used in economics and that employed in mechanics; it is reformulated in what turned out to be one of Walrass last publications, entitled ‘Economique et MA©canique.’

‘Anecdotal myths’: Tinbergen's influence on Harrod's growth theory

Abstract In the history of economic theory, Harrods transition from the explanation of business cycles in An Essay on the Trade Cycle (1936) to his well‐known growth theory in ‘An essay in dynamic theory’ (1939) has always been surrounded by some degree of speculation. One of the topics in that area of speculation concerns the (degree of) influence exerted by Tinbergen on the development of Harrods growth theory during the 1936–9 period. This paper argues that Tinbergens influence on Harrods work mainly took place on formal, mathematical, grounds, leaving methodological matters untouched. This matter is of some importance in understanding the success of what was initially considered by others as a ‘dynamic’ extension of the Keynesian research programme and later evolved, through the work of Tinbergen and Solow, into a neoclassical growth theory.

Governance transformations through regulations in the electricity sector: the Dutch case

The liberalization and re‐regulation of the European electricity industries have been driven by the European Commission’s attempt to create one internal competitive electricity market. The European electricity directives require the vertical separation of the European electricity firms to enable the introduction of market forms of governance. Transaction cost economics argues for the efficiency of vertical integration in this industry on the basis of the attributes of the transactions that are characterized by a great degree of asset‐specificity and uncertainty. This paper poses the questions whether regulation has led to the prospected outcome of governance transformations to the market and whether and how the attributes of transactions adapt to the altered forms of governance. We answer these questions by analyzing the empirics of the Dutch electricity industry. We found that the market forms of governance did not emerge, the attributes of the transactions are relatively inert and that regulation at most has led to second‐best governance solutions.

The urge to merge and the american cotton oil company

Abstract In this article, I review some explanations for the Great Merger Movement (1895–1904) in the United States and confront these using the particularities of one of the prominent companies figuring in this movement: the American Cotton Oil Company. Subsequently, I argue that the literature on the Great Merger Movement by the commentators of the last 50 years may be complemented with an explanation that includes the dynamics of vertical integration, stressing patents and trademarks as protective measures in the transition of the company. As the American Cotton Oil Company case illustrates, the merger process can be explained, at least partially, as a defensive strategy through the centralization of management and the possibility of introducing cost-effective measures.This article emphasizes that accounting practices of the day and the valuation of goodwill, in particular, largely explain the success of the merger.

In search of Verae Causae: The Keynes-Tinbergen debate revisited

A popular subject in discussion on Keynes and statistical inference is the Keynes-Tinbergen debate, which appeared in The Economic Journal in the late 1930s and early 1940s. The subject re-emerged in the literature in the second half of the 1970s and continued into the 1990s. The Keynes-Tinbergen debate is considered to be the starting point of a discussion on a host of technical econometric pitfalls and methodological difficulties attached to the statistical testing of economic theory. Although the discussion has focussed on the question to which degree the debate has had bearings on the further development of econometrics and applied economics, this paper highlights the issue of causal explanation in business cycle theory. The implications of the Keynes-Tinbergen debate may be extended to a discussion on the theoretical claims of originality.

Perturbation, networks and business cycles: Bernard Chait's pioneering work in econometrics∗

Abstract The little-known Belgian engineer Bernard Chait contributed to business cycle theory by means of a mathematical model, of which the ‘law of divergence’ was an important building block. The law of divergence has been interpreted as a generalization of the acceleration principle. This paper draws upon published and archival sources to examine the sources of Chaits thinking, explain the basics of his model and assess the impact of his work. His relations with François Divisia and Jan Tinbergen are explored and his claim that Leontiefs dynamic input – model was an unacknowledged reformulation of his own work is analysed.

What Went Wrong with Walras? The Econometric Transformation Process of Walrasian Economics during the 1920s and 1930s

This paper will address the issue of the reception and transformation of Le on Walras’s work among some econometricians during the 1920s and 1930s. As set out in the paper, the reception of Walras’s work is related to the importance of the role of statistics, the dynamic representations of a changing reality and the consistency of simultaneous equations modelling.

Carl Shapiro and Hal R. Varian, Information Rules

Information Rules is “a strategic guide to the network economy.” In this book the authors claim that the hype in the ‘New Economy’ doesn’t require a new guide but that a few basic economic concepts can explain the present chaotic developments in the information economy: “Technology changes. Economic laws do not.” The books deals with the characteristics of the economics of information goods in ten chapters, moving from pricing information goods through information goods markets to government policy on information-related issues. The first chapters mainly deal with the ‘production’-side of the information economy: pricing, versioning and managing the rights of information. The main part of the book discusses the characteristics of the information goods markets: lock-in, positive feedback and network externalities. The final chapters discuss the role of the government and information policy. The topics are structured along a traditional microeconomics textbook design but in this case focussing on the intricacies of information goods. The chapters are pleasantly larded with examples that, added to the popular style, make Information Rules a very readable book. The ‘lessons’ at the end of each chapter are convenient (executive) summaries in a business strategy-fashion although at times they seem to overstate the case slightly (“if you are forced to compete in a commodity market, be aggressive but not greedy”). At the end of the day the authors have succeeded in communicating a very complex issue in a very digestible fashion. The advantage of the readable and digestible style is also the drawback of the book: the explanation of the information economy in the book hinges on key concepts such as ‘information,’ ‘fixed/sunk costs,’ ‘marginal costs’ or ‘network externalities’ which are dealt with in a rather intuitive style: ‘Information,’ for instance, is simply anything that can be digitized; fixed costs are conflated with ‘sunk’ costs; marginal costs are close to zero; ‘network externalities’ are exclusively represented by the value depending on the amount of users. The reader who is not immediately triggered by the arguments in the book will presumably probe exactly these concepts. In the case of ‘information,’ information is conflated with information goods, only to deal with the latter in the remainder of the book. As such, the information economy is the economy of information goods, such as books, databases, movies, music, etc. Despite the claim of the authors that they take the term information very broadly, they actually take the term information rather narrowly: information as a commodity. The book also draws heavily on the ‘old economic’ principles of marginal costs analysis. In the case of information goods it is even taken to its extreme. Marginal costs in the production of information goods are low or even negligible from the very start, in other words, the costs for the first copy may be very high but the second, third and following copies costs almost nothing extra. The authors are very quick in concluding that competitive market forces will tend to move the price toward marginal cost, as ‘old economics’ would predict, i.e., move prices close to zero. This leaves the reader behind with the impression that information goods are free goods and that fixed (e.g., R&D) costs are sunk costs, and hence ‘forever bygones.’ Although the assumptions involved here may be legitimized by the old economics principles, they do not always seem to be verified by practice in non-standardized information markets. A third example of the intuitive treatment of conceptual issues relates to ‘network externalities.’ The authors mainly view information technologies in terms of virtual networks, which in their examples boils down to mutually exclusive IT standards and high switching costs. In Information Rules network externalities are ‘normally’ positive but what is ‘normal’ is not defined. The authors consistently conflate network externalities with positive feedback, which would make network externalities, by definition, positive. The strategies for this network economy are consequently shaped along these positive feedbacks. However, there is much more to be said about networks and network externalities than the authors attempt to do. The literature on (the evolution of) institutions and network externalities is vast but may be less suitable for a strategic guide based on ‘economic laws.’ On the whole the books makes a serious attempt to understand the changing economic reality due to the information technology, as the old industrial economy makes way for the new network economy. Unfortunately, Information Rules remains at the stage of describing how the new economy works with ‘old’ economic laws. The network economy in the Shapiro/Varian-version remains a market economy with ‘lock-in’-bells and ‘increasing-returns-to-scale’whistles. The outcome is exactly what the title has promised: the rules of the information game; the question remains whether these rules explain the new and exciting developments in the information economy or merely impose the non-existing economic laws on an evolution that is still in process.