Alan G. Isaac: Working Papers and Abstracts

Last modified: 2006 Apr 08
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• “Varieties of Fiscal Stimulus: A Conflicting Claims Analysis,”
  This paper explores the e®ects of fiscal policy in a conflicting claims economy where monetary policy follows a Taylor rule. Fiscal stimulus is decomposed into distinct varieties, depending on whether the initial effect is primarily on consumption or investment. Policy type proves important for the understanding of growth, unemployment, and the distribution of income.
  Download the paper in PDF format.
  This is the working paper version of the paper published as “Varieties of Fiscal Stimulus,” in Per Berglund and Matias Vernengo (eds) The Means to Prosperity: Fiscal Policy Reconsidered (Routledge: November 2005) ISBN: 0415701562. Please cite the published paper.
• “PostScript Drawing: An Economist's Guide”
  Economists like to support their arguments with drawings. When these drawings are intended to illustrate very precise geometrical relationships, the PostScript page description language is an appropriate tool. It is easy to learn enough PostScript to gain a powerful, flexible tool for drawing. A few quick lines of PostScript can often replace frustrating and tedious experimentation in a ``point and click'' environment. This paper is an economist's introduction to PostScript drawing.
  Download the paper in PDF format. (This is a longer version of: “PostScript Drawing: An Economist's Guide”, Social Science Computer Review 22(4), Winter 2004, pp.512-30.)
• “On Intellectual Property Rights: Patents vs. Free and Open Development” with Walter G. Park.
  We explore one alternative to the reliance on patents: 'free and open' development. We refer to a system that relies on free and open development as an 'open innovation' system. Open innovation systems side-step the patent thicket problem by not asserting patent rights to inventions. Open innovation systems rely on the free sharing and dissemination of knowledge. The idea that an open innovation system could successfully foster innovation may seem outlandish: where are the necessary incentives for innovation? We therefore offer a tentative discussion of how open innovation systems can work (i.e., of the incentives and governance structures). We also discuss some of the advantages and disadvantages of each system in stimulating inventive activity. As a concrete illustration of the issues, we consider the software industry.
  JEL: O34,K11,L21,L41,K21
  Download the paper in PDF format. (Very similar to the version forthcoming in the Elgar Companion to Property Rights Economics, pp. 693--747, but please cite the published version.)
• “Review: Selected Essays by Frank H. Knight: Volumes 1 and 2,”. This is the working paper version of the review published in Review of Political Economy 14(2), April 2002, pp.269–275. Please cite the published review.
  View the review.
• "The Behavioral Life-Cycle Theory of Consumer Behavior: Survey Evidence"
  with Fred Graham
  We find that survey evidence on faculty pay-cycle choice strongly contradicts the neoclassical theory of consumer behavior. It is more favorable to the behavioral life-cycle theory of Shefrin and Thaler (1988).
  JEL: D12
  Download the paper in PDF format.
  (Very similar to the version published in Journal of Economic Behavior and Organization 48(4), August 2002, pp.391–401.)
• ``The Real Interest Differential Model after Twenty Years''
  with Suresh de Mel
  It has been twenty years since Frankel (1979) offered the classic empirical support for the Dornbusch (1976) overshooting model against the simple monetary approach model, and almost that long since Driskill and Sheffrin (1981) uncovered some important inconsistencies between Frankel’s theoretical framework and his empirical implementation. Frankel’s RID model nevertheless spawned a huge lit-erature in international monetary economics. In this paper, we replicate and update the Frankel (1979) and Driskill and Sheffrin (1981) results, in order to offer a retrospective and a reëvaluation of this lit-erature. We also explain why the model estimated by Driskill and Sheffrin (1981) cannot underpin a critique of Frankel (1979), a point which is not generally recognized. While specialists in international finance generally recognize that the initial promise of Frankel’s research has not been kept, we believe that many will be surprised nevertheless by our stark findings.
  JEL: F31, F40, C13
  Download the paper in PDF format.
  
• ``The Structure of Neoclassical Consumer Theory''
  This paper offers an accessible introductory survey of the application of abstract choice theory to consumer theory. In the process, the paper identifies---somewhat more carefully than is usual in the literature---the relatively small role of the rationality postulates and the relatively large role of the ad hoc assumptions that are required to produce the minimal structure of neoclassical consumer theory. (This structure is that Marshallian demand obeys the weak axiom of revealed preference in budget data). Finally, this paper serves as a reminder that economists should abandon the behaviorist aspirations and claims that they have repeatedly, but incorrectly, associated with abstract choice theory.
  Download the paper in PDF format.
• "The Real Effects of Monetary Policy"
  The neoclassical tradition undermines the relevance of monetary policy, especially with respect to long-run economic outcomes. In contrast, some research outside the neoclassical tradition indicates that monetary policy may be a crucial determinant of economic performance, even in the long run. This paper explores the short-run and long-run importance of monetary policy in conflicting-claims economies. With an exogenous real wage or an efficiency wage, monetary policy affects the unemployment rate. This unemployment effect recedes when wage growth responds to unemployment, but monetary policy affects the distribution of income even in the long run.
  (JEL E12, E32, E42)
• "Risk Premia and Overshooting"
  Exchange rate volatility exceeds the volatility of identified fundamentals. Dornbusch (1976) offers the classic explanation: exchange rate volatility is due to policy variability but exceeds it due to overshooting. Since fiscal policy does not cause overshooting in the Dornbusch model, monetary policy is the culprit. The present paper asks whether risk premia may be an additional source overshooting.
  Keywords: exchange rates, overshooting, risk premium
  JEL classification: F3
• "Monotonic Saddle-Path Dynamics"
  This note provides necessary and sufficient conditions for the existence of a monotonic saddle path in second-order difference equations. The conditions are illustrated with three popular exchange-rate models.
  Keywords: saddle path, difference equations
  JEL classification: C0, E0, F3
  Download PDF.
  You can also download this paper as a .dvi (TeX) file.
  
• "Morality, Maximization, and Economic Behavior"
  Download the working paper version of ``Morality, Maximization, and Economic Behavior'', published in the Southern Economic Journal 63(3), January 1997. Please cite the published paper.
  Morality influences economic behavior. It has been invoked to explain worker solidarity, statesmanship, voting patterns, cooperative behavior, bargaining outcomes, the production of public goods and externalities, worker performance, and the degree of competition in labor markets. So economists ought to consider the economic consequences of prevailing moral norms. In some areas such considerations will be distinctly secondary (e.g., the study of arbitrage pricing relationships). But in many areas that economists traditionally consider to be in their purview---including the study of labor markets, organizational design, income distribution, long run growth, and the provision of public goods---economic models can be improved by the accommodation of moral behavior.
  However, the ability of the neoclassical paradigm of rational economic behavior to accommodate moral behavior remains controversial. Prima facie, moral motivations can generate behavior that is not profit maximizing or utility maximizing. A primary goal of this paper is to clarify the relationship between moral motivations and the neoclassical paradigm. I trace some of the controversy in this arena to incorrect or misleading formulations of key issues, as in the debates over the necessity of multiple utility representations. Nevertheless, the neoclassical paradigm encounters two major challenges in accommodating moral behavior: actual inconsistencies in behavior due to a lack of coherence in the goals or the rules that govern behavior, and apparent inconsistencies due to the interpretational inadequacies of the neoclassical paradigm. A second goal of this paper is therefore to explore the nature of these challenges and describe some responses to them.
• "Hysteresis"
  This is the working paper version of "Hysteresis," in Philip Arestis and Malcolm Sawyer (eds.), The Elgar Companion to Radical Political Economy (London: Edward Elgar, 1994). Please cite the published version.
  Download PDF.
• "Neoclassical Economics And The Structure Of Morality"
  The possibility that we might derive the relationship between morality and the neoclassical paradigm from fundamental structural considerations is exciting, but two prominent contributors to the literature on economics and morality pursue this possibility to opposite conclusions. This paper therefore re-examines their arguments in the hope of uncovering the bases of their claims. In the end, I conclude against these arguments that the formal structure of ethical reasoning (as in the teleological/deontological distinction) has no bearing on the ability of the neoclassical paradigm to accommodate moral motivations.
• "Monetary Shocks And Real Farm Prices: A Re-examination" with David E. Rapach
  February 1995 (this draft: 2-24-95)
  The effect of monetary policy on the farm sector remains controversial. Studies attempting to quantify the effects of monetary disturbances on real farm prices report conflicting results: some find that positive monetary shocks increase real farm prices in the short run, while others detect no such effect. We offer a resolution of these conflicting findings by re-estimating existing models on a common data set. When sample periods corresponding to the original studies are used, the conflicting results are confirmed. In contrast, when samples are updated through 1993, all models supply essentially the same result: monetary shocks do not affect real farm price.
  View Paper
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• "Fiscal Policy and the Natural Rate" (7-24-92)
  Download the working paper version of ``Fiscal Policy and the Natural Rate'', in A. Dutt (ed.), New Directions in Analytical Political Economy (London: Edward Elgar, 1994), pp. 33-48. Please cite the published paper.
  Unemployment trends may depend both on the policy stance of the fiscal authority and on the current state of the economy. Key to this ``unnatural rate'' hypothesis is the observation that the bargaining strength of labor is affected by the economy's unemployment history as well as the current unemployment rate. Following a suggestion of Hargreaves-Heap (1980), Cottrell (1984-85), and Coe (1988), we formalize this dependence in a dynamic Post Keynesian macromodel. Historical conditions and fiscal policy prove to be fundamental determinants of unemployment trends, and a case for fiscal activism emerges.
• "Economic Stabilization and Money Supply Endogeneity in a Conflicting Claims Environment"
  (This working paper is similar to the version published in the JPKE in 1991, but please cite the published paper.)
  This paper illustrates some effects of monetarist policy in a non-monetarist economy. Although it is widely considered that a Friedman (1968) style "k-percent" rule has (weak) optimality properties in a variety of neoclassical settings, theoretical analyses of alternative monetary policies in Post Keynesian macromodels are scarce. I argue that, in a conflicting claims economy, monetary policy rules are a crucial determinant of macroeconomic performance. In particular, we demonstrate that accommodative policies are stabilizing, that monetarist policies are destabilizing, and that stable macrodynamic behavior requires the implementation of activist macropolicy.
  Download working paper in PDF format.
• "Reversing the Phillips Curve: A Microfoundation"
  (This working paper is similar to the version published in the Journal of Macroeconomics in 1986, but please cite the published paper.)
  Cross-country comparisons have indicated that high inflation may be correlated with reduced levels of output and employment. This paper offers a microfoundation for this phenomenon in a rational expectations framework. A further result of the approach chosen is that anticipated money supply changes have real effects while unanticipated changes have none. Both of these results conflict with popular macroeconomic preconceptions and thus sound a cautionary note in the construction of macroeconomic models.
  Download working paper in PDF format.