This dissertation has two purposes. First, it demonstrates that Friedrich A. Hayek's subjectivism opens doors to a postmodern economics. The second chapter examines the implications of Hayek's emphasis on the unattainability of objective knowledge and the limits of reason. As a result of this subjectivist stance, Hayek stance out a position against the dominant rational-choice model in economics, a position which borders on an antiessentialist or postmodern theory of human action. In addition, the third chapter argues that Hayek's subjectivism is the cornerstone of his theory of the market as a "discovery" process, a theory at odds with the neoclassical conception of the market. The chapter examines the non-reductionist and non-teleological aspects of Hayek's theory of the market, and it illustrates how Oscar Lange and Fred Taylor's well-known proposal for market socialism ignores the subjectivist elements of Hayek's thought. The second purpose of the dissertation is to show that at critical junctures in his political economy, Hayek abandons his subjectivism. The dissertation demonstrates that fundamental contradictions lie at the heart of Hayek's defense of economic freedom. The fourth chapter uses the subjectivist insights of John Maynard Keynes and Post Keynesian macroeconomic theory, particularly the emphasis on uncertainty and subjective expectations, to demonstrate that Hayek attenuates his subjectivism in his monetary and capital theories in order to maintain his defense of the market as a self-regulating, spontaneous order. The fifth chapter continues the critique of Hayek's political economy by posing the subjectivist legal theory of the legal realists against Hayek's jurisprudance to challenge his support of the rule of law as a neutral guide to economic policy. The final chapter develops a radical subjectivist, or postmodernist, defense of activist public policy against both Hayek's criticisms and the charge of nihilism. It presents a subjectivist theory of pattern prediction to defend macropolicy, the attempt to achieve social justice, and the implementation of democratic firms.

The dissertation develops and demonstrates a new Marxist approach to the epistemological problem of cognitive modernism, the problem of knowing the true laws of economic reality. This new approach is an antiessentialist and postmodernist critique of versions of Deweyan pragmatism. In American economics, versions of Deweyan pragmatism provide epistemological justification for the verity and primacy of two different economic theories of the world: the American Institutionalism of Thorstein Veblen and the Chicago School of Milton Friedman. Each school uses Deweyan pragmatism to ground its claim to be a science, and each uses Deweyan pragmatism to prove its contention that it offers the correct scientific analysis and view of the fundamental laws of operation of the economy. The dissertation demonstrates that Deweyan pragmatism cannot provide such justification. The primary reason is that Deweyan pragmatism, like all other philosophies of science, is subject to the epistemological problem of cognitive modernism. It is thus unable to provide objective, transdiscursive, and essential knowledge of economic reality. Chapter 1 is an introduction to modernist methodology in economics. It situates Deweyan pragmatism within the tradition of economic modernism. Chapter 2 examines the Deweyan pragmatism of Veblen's American Institutionalism. Chapter 3 examines the Deweyan pragmatism of Friedman's Chicago School. Both schools offer Deweyan pragmatisms as theories of knowledge which prove the truth of each's theory of society. Chapter 4 offers a postmodern critique of both modernist versions of Deweyan pragmatism. The analysis suggests several conclusions. First, for such different and directly opposed theories to claim a common affiliation to Deweyan pragmatism must mean that they understand that affiliation in fundamentally different ways. Second, by presenting different versions of pragmatism it becomes clear that it is not possible to discover the real Dewey, nor is it possible to evade the partiality of all readings of Dewey's philosophy. Third, by contesting pragmatism itself, I demonstrate that the cognitive modernist quest for certain foundations is a failed one, and that all knowledge products in economics are bound by the cultural conditions and discursive fields in which they are produced.

This dissertation (consisting of two essays) analyzes the impact of policy measures used to control the risk-taking behavior of banks. Specifically, the first essay explores the impact of increasing the required minimum capital to asset ratios on the riskiness of banks' assets. The second essay deals with the development of a risk-based deposit insurance model in consonance with the bailout policy of Federal Deposit Insurance Corporation (FDIC). Increasing the prescribed minimum equity to assets ratio (capital requirement) has been proposed as an alternative for mitigating the problems created by the current fixed deposit insurance scheme. The impact of such a policy on the risk preferences of a banks' shareholders has been vigorously debated. Would the banks' shareholders respond to an increase in the capital requirement by allowing the riskiness of the banks' asset portfolios to decline or would they react by increasing the risk level of the composition in an attempt to maintain the same or similar level of expected rate of return? This study attempts to resolve this issue by empirically examining the impact of the Basle Accord (which proposes risk-based capital requirements). Empirical results indicate banks' preference for risk are likely to be increased. The second essay focuses on the reform of the current fixed deposit insurance scheme. A theoretical model for estimating the bank insuring agency's liability and hence the risk-adjusted deposit insurance premium of a bank is derived. The model utilized here is an application of the Flexible Writer Extendible Put Option. In contrast to previous studies, the model applied here explicitly incorporates the FDIC's bailout policy (characterized by the lack of inclination on the part of FDIC to close low or negative net worth depository institutions). This distinction is significant as regulatory forbearance was originally a significant contributor to deposit insurance fund losses.

Voluntary agreements are increasingly being considered as viable alternatives to more traditional forms of environmental management. Although the economic literature on voluntary approaches to environmental protection has progressed quite far in the last decade, no one has rigorously addressed the fact that compliance with voluntary agreements must be enforced. This body of work directly addresses this issue by examining the consequences of the need for member-financed enforcement of compliance on the performance of voluntary agreements for environmental protection. In the first chapter, I examine the impact of including costly monitoring of compliance within a theoretical model of a self-enforcing international environmental agreement (IEA). I find that although monitoring costs limit the circumstances under which international cooperation to protect the environment is worthwhile, when IEAs do form they will involve greater participation than IEAs that do not require costly monitoring. Consequently, costly monitoring of IEAs is associated with higher international environmental quality. The second chapter develops a theoretical model to compare the properties of a voluntary agreement made between a government and an industry with a traditional emissions tax, when compliance is costly to enforce. I find that a voluntary agreement can be a more efficient way to achieve an environmental quality objective over an emission tax, but only if (1) profitable agreements exist; (2) members bear the cost of enforcement, and (3) the enforcer of the agreement has a significant advantage in enforcement technologies compared to the government. In the final chapter, a set of provision point experiments are used to empirically test the major theoretical conclusions of the first chapter. I find that, contrary to what the theory predicts, member-financed enforcement of compliance actually reduces the overall provision of the public good. This result is entirely due to the fact that members of stable coalitions only profit if all members fully comply with their commitments, and therefore, cooperative coalitions to provide a public good completely collapse with any positive level of noncompliance. Finally, I show that requiring all members to participate within an agreement that is costly to enforce can significantly increase the overall provision of the public good.

The three essays in this dissertation address issues pertinent to hypothetical bias in the contingent valuation (CV) mechanism. Empirical evidence gathered through several experiments conducted at the University of Massachusetts, Amherst, is used to provide a better understanding of the cause and nature of hypothetical bias. The first essay is based upon the notion that uncertain responses in stated preference valuation are associated with hypothetical bias. While the relationship between respondent uncertainty and hypothetical bias is not well understood, calibration techniques such as the uncertainty adjustment have been developed to mitigate the bias. Hence this study seeks to fill this gap by uncovering the relationship between hypothetical bias and respondent uncertainty using induced value goods. According to the results there is no relationship between certainty of induced values and either respondent's stated level of certainty or hypothetical bias. The lack of hypothetical bias with induced value goods, but its continual existence in homegrown value goods lays ground for further investigation of the bias in the second essay. By employing both induced value and homegrown value goods, this study seeks to isolate the cause of hypothetical bias. Furthermore, a within-subject design is employed to prevent the infiltration of any individual specific biases. According to the results, hypothetical bias is non-existent with induced value goods but emerges once homegrown value goods are introduced. Hence the value formation process as hypothesized by Taylor, et al. (2001) is identified as a key contributor to hypothetical bias. The third essay explores a relatively new approach to non-market valuation that is based upon a prediction format. Unlike the traditional CV format that asks individuals to state personal values and opinions, this technique inquires about their predictions of other's behavior. Literature in psychology regards these estimates to be less strategic, which could potentially eliminate biases including hypothetical bias. In this study we obtain hypothetical bias in both the traditional CV and the prediction formats. Although prediction estimates were significantly lower, it was observed that individuals are able to correctly predict the magnitude of hypothetical bias in the traditional CV.

This dissertation consists of three independent essays. The first essay, “Long Waves and Short Cycles in a Model of Endogenous Financial Fragility,” presents a stock flow consistent macroeconomic model in which financial fragility in firm and household sectors evolves endogenously through the interaction between real and financial sectors. Changes in firms’ and households’ financial practices produce long waves. The Hopf bifurcation theorem is applied to clarify the conditions for the existence of limit cycles, and simulations illustrate stable limit cycles. The long waves are characterized by periodic economic crises following long expansions. Short cycles, generated by the interaction between effective demand and labor market dynamics, fluctuate around the long waves. The second essay,“Macroeconomic Implications of Financialization,” examines macroeconomic effects of changes in firms’ financial behavior (retention policy, equity financing, debt financing), and household saving and portfolio decisions using models that pay explicit attention to financial stock-flow relations. Unlike the first essay, the second essay focuses on the effects of financial change on steady growth path. The results are insensitive to the precise specification of household saving behavior but depend critically on the labor market assumptions (labor-constrained vs dual) and the specification of the investment function (Harrodian vs stagnationist). The last essay, “Finance, Sectoral Structure and the Big Push,” studies the role of finance in the presence of investment complementarities using a big push model. Due to complementarities between different investment projects, simultaneous industrialization of many sectors (big push) may be needed for an underdeveloped economy to escape from an underdevelopment trap. Such simultaneous industrialization requires costly coordination by a third party, such as the government. Some recent papers show that private banks with significant market power may also solve the problem of coordination failure. We show that private coordination may not work since even large private banks may find it more profitable to finance firms in the traditional sector than in the modern sector.

Contingent valuation (CV) is a surveying technique used to estimate the willingness to pay (WTP) by individuals for non-market goods (goods for which no market of exchange exists). Many CV studies have shown the existence of hypothetical bias which occurs when individuals are asked a hypothetical WTP question followed by a request for actual donations, and the real payments are not the same as (and usually less than) the hypothetical WTP. This dissertation examined hypothetical bias using both theoretical and statistical analysis. The theoretical analysis consisted of a literature review and a microeconomic exploration of utility theory. The literature review identified past studies that expanded on Walrasian theory of consumer behavior including the ideas of option and existence value, fair share, and social approval. Other articles reviewed discussed uncertainty with respect to supply of a resource as well as the preferences and income of the consumer. The microeconomic theory section evaluated the concepts from previous literature within a utility framework that in turn was used to guide the statistical analysis. The statistical analysis examined two empirical case studies. Each study consisted of a set of three surveys administered to several college-level classes. The surveys collected information on the socioeconomic characteristics of respondents and asked for each respondent's WTP (in a donation mechanism) for a specific good. The commitment level was tightened and respondents were asked for an actual donation. In the first case study respondents were asked for their WTP for a scholarship fund and the second case study respondents were asked for a donation to a fund purchasing clean air permits. Results of the case studies found hypothetical bias of about 2650%. When the question wording changed to include more information and a higher level of commitment, the mean WTP was not statistically different at the 5% level. Only one respondent between either study actually donated money. The Mach IV test, when used as a personality proxy, may be an important factor in estimating WTP and hypothetical bias. The mean WTP between different levels of certainty was not statistically different at the 5% significance level. Finally, many students indicated that they might be making their decisions without considering economic trade offs and that respondents' MP may also be influenced by some aspects of personality, social approval and other characteristics not associated with the good being valued.

Altruistic cooperation, like a typical example of altruistic behavior, is frequently observed in human societies. Since altruistic cooperation; just as any other form of altruism is socially beneficial but individually costly, the evolution of cooperation has long been regarded as a challenging puzzle and one of the most intriguing issues in socio-biological debate. The following three essays analyze these problems. First, I examine the role of institutions in sustaining social norms and the evolution of these institutions. Second, I also analyze the effect of social interactions on the evolution of cooperative traits among individuals where kin selection and reciprocal altruism do not apply. The first essay examines the problems of an n person public goods game structure. In this essay. I show that retaliation based on the repetition of game is not enough to sustain cooperation. By suggesting the difficulties involved in multi-agent interaction and the inapplicability of the repeated game approach to n person public goods situation, the essay reconfirms the importance of institutions that provide favorable conditions for the evolution of cooperation. The second essay analyzes the effect of different structures of social interaction on the evolution of cooperation in an n-person public goods game situation. I set up an agent-based model in which agents interact with others under different social structures, to see which social environment provides favorable conditions for cooperative behavior. In the third essay, I present a model to show how institutions govern relationships and interactions among individuals, and how these institutions evolve. To answer the first question, specifically, I discuss the evolution of equal-sharing norms which had been sustained for most of human history before private property rights were established.

This dissertation studies the influence of the level of the real exchange rate on economic development. It first provides an econometric evaluation of this relationship. The main finding is that competitive real exchange rates tend to be associated with higher economic growth. The association is especially strong and statistically significant for developing countries. It then develops a historical narrative and episode analyses of several Latin American countries since the post-Second World War, in which the relationship is further investigated. There are three main findings. First, Latin American countries have experienced external and financial crises with immediate and/or long-lasting negative effects on growth that resulted from persistent real exchange rate overvaluation. Second, the most successful episodes of growth acceleration in the region have occurred in periods during which the governments aimed at maintaining stable and competitive real exchange rates. Finally, the analysis shows that currency over and undervaluation emerged as a result of explicit economic policies. This finding suggests that governments can use economic policy to manage the level and volatility of the real exchange rate to promote economic development. How macroeconomic policy needs to be managed to that end is evaluated with a formal model. The model shows that exchange rate policy targeting a competitive currency would more likely accelerate growth if it is implemented in coordination with domestic demand management policies that prevent non-tradable price inflation and wage management policies that coordinate the pace of wage increases with tradable productivity growth. An empirical illustration of these results is carried out through a comparative study of Argentina during the 2000s and Chile between the mid 1980s and the mid 1990s.

In this dissertation, I develop theoretical models and an empirical study of the role of social interactions, the evolution of social norms, and their impact on individual behavior. Although my models are consistent with individual utility maximization, they generally emphasize social factors that channel individual decisions and/or shape individuals' preferences. I apply this approach to three different issues: labor supply, fertility decisions, and intergenerational transfers, generating predictions that are more consistent with observed empirical patterns of behavior than standard neoclassical approaches that assume independent preferences, perfect information, and efficient markets. In the first essay, I explain the long-run evolution of working hours during the 20th century in developed countries: the substantial decline for the first three quarters of the 20th century and the deceleration or even reversal of the fall in working hours in the last quarter. I develop a model of the determination of working hours and how this process is affected by both the conflict between employers and employees and the employees' desire to emulate the consumption standards of the rich reference group. The model also explores the effects of direct and indirect policies to limit hours advocated by political representations of workers such as trade unions or leftist parties. In the second essay, I study the coevolution of gender norms and fertility regimes. Since the 1990s, a new pattern of positive correlation between fertility rates and female labor force participation emerged in developed countries. This recent trend seems inconsistent with conventional economic approaches that explain fertility decline as a result of the increasing opportunity costs of childrearing, predicting a negative correlation between fertility and women's labor force participation. To address this puzzle, I develop a model of the evolution of gender norms and fertility in various economic environments influenced by the level of women's wages. Randomly matched spouses make choices related to fertility—labor supply and the division of household labor—based on their preferences shaped by gender norms. In the model, norm updating is influenced by both within-family payoffs and conformism payoffs from social interactions among the same sex. The model shows how changes in economic environments and the degree of conformism toward norms can alter fertility outcomes. The results suggest that the asymmetric evolution of gender norms between men and women could contribute to very low fertility, explaining the positive correlation between fertility and women's labor force participation. Finally, I estimate the effect of exogenously introduced public pensions for the elderly on the amount of private transfers they receive. There has been a long debate whether public transfers crowd out private transfers. Previous empirical studies on this issue suffer from the endogeneity of income that contaminates estimates. I use an exogenously introduced public transfer, the Basic Old Age Pension in Korea, to test the crowding out hypothesis. A considerable proportion of the elderly population, especially women living without a spouse, do not experience the crowding out effect and moreover, among those who do, the size of the effect is relatively small. The results support the redistribution effect of the Basic Old Age Pension targeting the poor elderly in Korea.