former Evolutionary Economics Group

To assess whether and when the equation "economic growth = better life" holds, it is necessary to understand what human motivations drive the economic growth process. The preference subjectivism of canonical welfare economics is of little help here as it treats the motivations underlying individual behavior as an unexplained "black box". The present paper therefore reviews several motivational hypotheses suggested by biology, behavioral science, and cognitive psychology. They point to a strong influence of cognitive and noncognitive learning processes on the underlying motivations or, in economic terminology, the emergence and change of individual preferences. As a consequence, subjective welfare assessments tend to follow a drift process once a certain level of prosperity has been accomplished by economic growth. The normative relevance of the resulting preference relativism is argued to be particularly momentous, if the value basis of normative judgments is extended beyond the welfare criterion to justice and fairness considerations. (PDF)

The question whether alcohol in general, and different types of alcoholic beverages in particular (e.g., beer) are normal or inferior goods is a heavily disputed issue within economics and health research. Based on recently developed theories of preference adjustment this paper argues that the answer to this question may not be independent of the level of income itself. It therefore applies a gradual switching regression approach to aggregate beer consumption data in Germany from 1957 to 2007. This method allows elasticities to change over time, without prior specifications of the time and speed of adjustments. Results suggest that an important behavioral change is present in the data, as elasticities of beer demand shifted considerably between 1965 and 2004. In particular, they demonstrate that over this period beer shifted from being a normal to being an inferior good. (PDF)

We empirically evaluate two competing explanations about how the dispersion of income within social groups affects household spending on visible goods. Using South African household expenditure data, we find evidence that precisely the reverse of the effect predicted by Charles et al. (2009) takes place in that rich households tend to reduce, rather than increase, spending on visible goods as the dispersion of social group income increases. Our results instead support rank-based models of status competition since the number of within-group peers who possess a similar income level is found to be positively correlated with household spending on visible goods. Moreover, we find that the effect of this 'local' density tends to be stronger in the tail regions of the distribution and performs better than other proxies for the overall income distribution used in recent studies. How the range of visible goods used to signal wealth expands as household income grows is also explored. (PDF)

An evolutionary tool kit is applied in this paper to explain how innate social behavior traits evolved in early human groups. These traits were adapted to the particular production requirements of the group in human phylogeny. They shaped the group members' attitudes towards contributing to the group's goals and towards other group members. We argue that these attitudes are still present in modern humans and leave their "phylogenetic footprints" also in present-day organizational life. We discuss the implications of this hypothesis for problems arising in firm organizations in relation to the coordination and motivation of organization members. (PDF)

This paper presents a formal model in which differential satiation dynamics of various consumer needs translate into long-run changes of consumer behavior when income rises. In the model individuals allocate their income to the consumption categories proportional to need deprivation states corresponding to the consumption categories, a decision making process called matching. The paper compares the Engel curves obtained from matching with the Engel curves obtained from traditional constrained maximization. The latter allocation is used as a normative benchmark of the behavior that leads to the highest utility. While superficially both ways to allocate income generate similar results, matching allows to explain some empirical regularities that maximization cannot account for. For example, only by using matching one can reconstruct that income elasticities for food tend to decrease with rising income. Moreover, the comparison of both ways to allocate income shows that the deviations from rational behavior are greater for relatively poor individuals than for richer individuals so that the inequality in terms of welfare can be stronger than the inequality in terms of income. Innovations influencing the satiation patterns can strengthen this effect.

published as: Explaining shapes of Engel curves: the impact of differential satiation dynamics on consumer behavior" in: Journal of Evolutionary Economics, 2013, doi:10.1007/s00191-013-0324-6

"In the distant future I see open fields for far more important researches. . . . Light will be thrown on the origin of man and his history." This statement, which appears in the concluding chapter to the Origin of Species, was Darwin's only mention of human evolution in the entire book. Aware of the difficulties his biological propositions would encounter, Darwin thought it wise to leave the delicate question of human evolution aside for the time being. He was nonetheless fully conscious that his theory would revolutionize the way we think about ourselves and our cultures. Enter social Darwinism. The term has been used mainly to decry doctrines that justify some form of individual, social, or racial superiority through evolutionary principles. Yet many of the positions typically attached to social Darwinism do not correspond to this stereotypical description. Even among the main proponents of evolutionary theory in the nineteenth century - Darwin, Wallace, Huxley, and Spencer - there were important disagreements concerning the process of evolution in humans and its results. This article offers an examination of their claims, as well as some related and antagonistic viewpoints, in two main areas: on the one hand, the debate over wealth distribution and landownership, and on the other, the question of the relationship between evolution and ethics. (PDF)

There is a growing consensus in Ecological Economics that consumer preferences are neither fixed nor given, but rather endogenously determined by socio-economic and institutional factors. Hence, policy may promote "green" preferences directly. Yet any intervention in processes of preference formation seems to conflict with widely held liberal intuitions, imperfectly represented by the principle of Consumer Sovereignty (CS). We argue that a suitably refined, dynamic version of CS may not stand in the way of certain preference-shaping policies. By exploring different modes of consumer learning that imply varying degrees of behavioral lock-in, we show that there is a scope for policies that influence preference formation without violating CS. This extends the range of normatively acceptable sustainability policies. (PDF)

The centennial of the publication of Schumpeter's Theory of Economic Development is an occasion to look back in appraisal and an opportunity to look forward in anticipation to consider anew the challenges that remain unfulfilled for Schumpeterians. Along with Marx and Marshall, Schumpeter's great achievement was to formulate an evolutionary, open system perspective on modern capitalism, to explain why it could never be at rest and to link its emergent properties to the capacity to change from within. In terms of appraisal, I shall focus on three aspects of Schumpeter's scheme: the link between knowledge, enterprise and the meaning to be attributed to a knowledge economy, the nature of the competitive process in the presence of innovation, and the transient, out of equilibrium nature of all economic arrangements. In looking forward, I shall consider what is missing from evolutionary economic dynamics, pointing to the role of factor markets in the competitive process, the significance of differences in firm's investment strategies and the fine grained nature of competition in markets where differences in the qualities of goods and services matter, and, lastly, on the evolutionary dimensions of international competition. Two lessons are particularly pertinent to advancing the Schumpeterian enterprise. First, that the familiar one-dimensional models of economic evolution are useful but incomplete. Secondly, that, while much evolutionary thinking has naturally focused on the connection between the micro and the meso, we need also to consider the connection between the meso and the macro and in so doing connect to rich literatures in the field of economic growth and development. (PDF)

The intellectual histories of economics and evolutionary biology are closely intertwined because both subjects deal with living, complex, evolving systems. Because the subject matter is similar, contemporary evolutionary thought has much to offer to economics. In recent decades theoretical biology has progressed faster than economics in understanding phenomena like hierarchical processes, cooperative behavior, and selection processes in evolutionary change. This paper discusses three very old "cosmologies" in Western thought, how these play out in economic theory, and how evolutionary biology can help evaluate their validity and policy relevance. These cosmologies, as manifested in economic theory are, (1) rational economic man, (2) the invisible hand of the market, and (3) the existence of a general competitive equilibrium. It is argued below that current breakthroughs in evolutionary biology and neuroscience can help economics go beyond these simple cosmologies. (PDF)

Drawing on the Kaya identity, we assess the role of the main driver of the decline in carbon intensity, namely the (economic) energy intensity. Using meta-signi?ficance testing for a sample of 44 studies, dealing with the causality between energy and GDP, we ?find that both variables are strongly coupled. Hence, after having exhausted energy savings from nonrecurring structural changes, the economic energy intensity may soon converge than being arbitrarily reducible. We suggest, therefore, not to rely on further reductions of economic energy intensity but rather to invest in the reduction of the carbon intensity of energy to mitigate climate change. (PDF)

Despite increasing knowledge on its adverse consequences, obesity prevalence across the U.S. has been rising markedly over the past three decades. The private and economic costs of this development are substantial, and it has been estimated that its direct and indirect costs now sum to over 1% of annual GDP. While much progress has been achieved in recent years in understanding the economic changes that contribute to this development, a little researched factor that has also been argued to exacerbate the prevalence of obesity is the distribution of income. Augmenting data from 12 consecutive waves of the Behavioral Risk Factor Surveillance System (BRFSS), with a recently published data set on state-level income inequality based on tax payments, the present paper analyzes whether changes in income inequality can be considered a determinant of variations in body mass and obesity across the U.S. It finds that they have a significant positive effect on BMI and obesity. While the effect is small, it is in the range of other state-level determinants, suggesting that some form of redistributive policy may help containing the spread of unfavorable weight outcomes. (PDF)

Persistently rising energy prices have revived interest in the economic impact of changing energy costs. We explore the effects of these costs on sectoral change, particularly in relation to the rise and future prospects of the "service economy". Following Baumol?s cost disease hypothesis, (unexplained) productivity differentials between the industrial and service sectors are often utilized to explain the recent dominance of the service sector. We hypothesize that the productivity differential results from the respective technological opportunities for substituting energy for labor in each of the sectors. To test our hypothesis, we analyze the U.S. economy for the period from 1970 to 2005. By means of the Autoregressive Distributed Lags (ARDL) bounds test, we examine whether a cointegrating relationship exists, in a given sector, between labor productivity and variables from our model representing the technological substitution conditions. Our findings support this hypothesis. Therefore, we can conclude that productivity differentials between the sectors may vanish if, as a result of rising energy costs, the substitution incentives are likely to fade out. Such a development might put the future of the service economy at risk. (PDF)

Robert Sugden has recently elaborated upon the case for a normative standard of freedom as "opportunity" that is supposed to cope with the problem of how to realign normative economics - with its traditional rational choice orientation - with behavioral economics. His standard, though, presupposes that people respond to uncertainty about their own future preferences by dismissing any kind of self-commitment. We argue that the approach lacks psychological substance: Sugden's normative benchmark - the "responsible person" - is a purely artificial construct that can hardly serve as a convincing role model in a contractarian setting. An alternative concept is introduced, and some policy implications are briefly discussed. (PDF)

Is the activity of volunteering something that benefits the volunteer as well as the recipient of the volunteer’s activities? We analyze this relationship and apply matching estimators to the large-scale British Household Panel Survey (BHPS) data set to estimate the causal impact of volunteering on happiness. We take into account personality traits that could jointly determine volunteering behaviour and happiness. We find that the causal impact of volunteering on happiness is positive and increasing over time if volunteering is sustained. In a quantile analysis, we find that this effect seems to be driven by reducing the unhappiness of the less happy quantiles of the well-being distribution. We test the robustness of our findings and discuss their relevance for public policy.

published in: Journal of Economic Psychology 34(1), 2013, 97-119, doi: 10.1016/j.joep.2012.11.008

We propose an agent-based computational model defining the following dimensions of structural change – organisation of production, technology of production, and product on the supply side, and income distribution and consumption patterns on the demand side – at the microeconomic level. We define ten different parameters to account for these five dimensions of structural change. Building on existing results we use a full factorial experimental design (DOE) to analyse the size and significance of the effect these parameters on output growth. We identify the aspects of structural change that have the strongest impact. We study the direct and indirect effects of the factors of structural change, and focus on the role of the interactions among the different factors and different aspects of structural change. We find that some aspects of structural change – income distribution, changes to production technology and the emergence of new sectors, – play a major role on output growth, while others –consumption shares, preferences, and the quality of goods, – play a rather minor role. Second, these major factors can radically modify the growth of an economy even when all other aspects experience no structural change. Third, different aspects of structural change strongly interact: the effect of a factor that influences a particular aspect of structural change varies radically for different degrees of structural change in other aspects. These results on the different aspects of structural change provide a number of insights on why regions starting from a similar level of output and with initial small differences grow so differently through time. (PDF)

The present paper analyzes intergenerational correlations in leisure time use between parents and their adult children in order to gain an understanding of the importance of genetics and early childhood learning mechanisms in preference formation. Data from the British Household Panel Survey (BHPS) is used to regress time use choices of children on the behavior of their parents after the former have left to form their own household.
A principal component analysis on eight time use items reveals two identifiable components, associated with personal leisure time use outside the home, and voluntary work. Estimations find substantial and significant correlations for both components, but suggest that the variance in filial behavior explained by the variance in parental behavior is limited, ranging from 17% to 32% for personal leisure time use, and from 2% to 7% for voluntary work. Moreover we provide evidence that direct transmission of parental preferences to their children accounts for roughly 20% of the observable similarity between the two generations. These results are robust to a wide array of robustness checks, including changes in estimation technique, model specification, and data restrictions, and suggest that these correlations can be ascribed to preference transmission from parental to filial generation rather than to coordination between generations. Aside from adding to the growing economic literature on preference transmission models, it also provides empirical support for the strong impact of non-parental sources of preferences formation, voiced particularly in models of dual inheritance. (PDF)

This paper introduces variable quality into the general treatment of neoclassical economics. It also introduces subbudget decision making at all levels. The consequences of these introductions are enormous for traditional theory. Most importantly, is the realization that within the market model there exists the prospect that constraints in capitalism are not hard, nor exclusively determined by market prices. In addition to the above, this paper argues for expansion of demand theory, and for expansion of the theory of general equilibrium.
 The paper argues against the existence of a hard budget constraint, both for households and for firms; in fact, it argues that the constraint is influenced by subbudget decision making and by the selection of levels of quality, and as such, the constraint may become stochastic, not deterministic. It introduces the proposition that Marginal Rates of Substitution are not equal across consumers; that Marginal Rates of Transformation are not equal across firms; that the condition MRS=MRT is not attainable; that the condition, is not the long-run equilibrium for firms; and it presents arguments against lump-sum taxation, specifically, that the theoretical results of a lump-sum tax are unattainable. The paper introduces additional conditions for attainment of Pareto optimality in welfare economics.
 Ultimately, the paper argues that market forces are not impartial. This behavior surfaces in consumption space and in input space. This phenomenon arises from human decision making regarding the size of subbudgets and levels of quality, and the model explains how these issues influence the position and slope of constraints in consumption space and in input space.
 The avenue to attainment of these results lies within what has always been the Achilles tendon of neoclassical economics: the homogeneity assumption, or in this case, the assumption of constant quality and the absence of subbudgets in economic decision making. Insertion of these two elements into neoclassical economics demonstrates that the theoretical foundation of neoclassical capitalism (i.e., the Anglo-Saxon version of capitalism) is itself a special case. These results evolve slowly. Initially, the changes are subtle, but build and emerge forcefully as the paper unfolds. Toward the end of the paper the implication of these findings, in terms of evolution and the human condition, are discussed. (PDF)

The paper deals with impulsive consumption and highlights the roles that cognitive and motivational aspects of reflexive thought (namely self-control and self-image motives, respectively) play in intertemporal decisions. While self-control inhibits individuals from consuming impulsively, self-image motives can induce impulsive consumption. Based on recent neuroscientific findings about 'wanting'–'liking' dissociations, the paper presents a potential motivational mechanism underlying such impulsive consumption decisions. Utilizing the knowledge of this mechanism and acknowledging both cognitive and motivational aspects of reflexive thought, the paper expands on three libertarian paternalistic means to foster an ethical way of impulsive consumption: strengthening willpower, reducing impulsive desires to consume, and guiding impulsive behavior in ethical directions by making salient certain self-images that favor ethical consumption.

published in: Journal of Economic Psychology, 2013, doi:10.1016/j.joep.2013.01.003

This paper examines the normative principles that should guide policies aimed at promoting happiness or, more broadly, well-being. After arguing that well-being policy is both legitimate and necessary, we lay out a case for "pragmatic subjectivism": given widely accepted principles of respect for persons, well-being policy may not assume any view of well-being, subjectivist or objectivist. Rather it should promote what its intended beneficiaries see as good for them: pleasure for hedonists, excellence for Aristotelians, etc. Specifically, well-being policy should promote citizens’ "personal welfare values": those values—and not mere preferences—that individuals' see as bearing on their well-being. We suggest a variety of means for determining what people value, but conclude that there is no canonical means of doing this: there will often be some indeterminacy about what people value. Finally, we consider how pragmatic subjectivism works in practice, arguing that headline measures of well-being should include subjective well-being—given that it is so widely and deeply valued—and perhaps other values as well. (PDF)

While research on subjective well-being abounds, comparatively little thought has been given to its practical policy implications. Two approaches to derive policy advice have emerged in the literature: One is organized in terms of the idea to maximize a hedonic social welfare function, the other focuses on the design of constitutional rules to facilitate the individuals' self-determined 'pursuit' of happiness. We suggest to substantiate what it means to 'pursue' happiness, in particular by drawing upon a psychologically informed account of preference learning. If extended in this direction, a notion of the pursuit of happiness has interesting practical policy implications.

published in: Kyklos 65 (2), 245-261