Essays On New Institutional Economics

Rudolf Richter Essays on New Institutional Economics Essays on New Institutional Economics ThiS is a FM Blank Page Rudolf Richter Essays on New Institutional Economics Rudolf Richter Department of Economics Saarland University Saarbru¨cken, Germany ISBN 978-3-319-14153-4 ISBN 978-3-319-14154-1 DOI 10.1007/978-3-319-14154-1 (eBook) Library of Congress Control Number: 2015938914 Springer Cham Heidelberg New York Dordrecht London © Springer International Publishing Switzerland 2015 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. Printed on acid-free paper Springer International Publishing AG Switzerland is part of Springer Science+Business Media (www.springer.com) Preface The international financial crisis of 2008 painted the work of economists once more in a rather poor light. In the present case, prominent investors and academic economists—backed by Nobel Prize winners—joined forces and demanded a fundamental reorientation of economics. To underline their demand, they raised considerable amounts of money and established the Institute for New Economic Thinking.1 George Soros, co-founder of the Institute, pointed at the heart of the matter: The neglect of (Knightian) uncertainty in economic models because economists with their . . . quantitative methods cannot take into account any uncertainty that cannot be quantified. Colaterized Debt Obligations and Credit Default Swaps and risk management models produced by these quantitative methods played a nefarious role in the crash of 2008.2 In effect, Soros emphasised the same fundamental problem of economics, as did before him John Maynard Keynes after the Great Depression. Keynes accused, what he called, “classical theory” to be “. . . one of these pretty, polite techniques, which tries to deal with the present by abstracting from the fact that we know very little about the future.”3 He helped himself by replacing the (neo-) classical assumption of optimising behaviour of individuals by simple, psychologically justified behavioural assumptions about consumer spending, investment expenditures and cash management. These assumptions, together with aggregating individual decision makers into sectors of consumers, firms and state, allowed Keynes and his immediate followers to describe compl