# Research¶

My initial motivation to study economics was to understand the economic development of societies and the corresponding inequality in our globalized world. During my studies and in particular my PhD I recognized that such ‘big questions’ can better be answered stepwise. I therefore started to study institutions, and then later the role of technological change. This way I got interested in the concept of economic complexity, which since then I use frequently in my applied and empirical work.

In all, my research can be divided into three main areas:

First, I am interested in international economics, most notable the effect of trade, trade openess, the determinants of competitiveness and reasons for unequal development. While this is a classical macroeconomic field, I think it is important to relate the questions on trade and economic development to micro and meso evidence on the evolution of technological capabilities. Most of the work I am doing here is empirical and applied.

Second, I am concerned about the role of institutions. Institutions, broadly understood as “codifiable systems of social artifacts (in particular norms and rules) that lead to inclinations to act in specific ways” are of particular interest for social scientists since they are often said to be of decisive importance when it comes to economic development and the distribution of wealth and power in modern societies. Here I use game theory, agent-based modeling and evolutionary theory to better understand what institutions are, how they both affect and depend on individuals and how institutional change takes place.

Finally, I am interested in economic methodology and the question of how we can actually learn something about reality through the use of economic models. Since I use methods from complexity science, in particular network theory, agent-based models, and game theory, I am particularly interested in the epistemological foundation of these methods. I am also interested in more general questions of the philosophy of economics, in particular the pros and cons of pluralism in economics.

Below you find a more detailed description of my work in these three areas. Of course, I will be happy to answer your questions and all comments and critiques are highly appreciated. You can contact me any time via email.

## Research area 1 (Institutional Economics): Theory of Institutions and Institutional Change¶

### Recent publications¶

To trust or to control: Informal value transfer systems and computational analysis in institutional economics

Forthcoming in: Journal of Economic Issues

This is joint work with Wolfram Elsner and Alexander Lascaux. We illustrate the usefulness of computational methods for the investigation of institutions. As an example, we use a computational agent-based model to study the role of general trust and social control in informal value transfer systems (ITVS). We find that, how and in which timeline general trust and social control interact in order to make ITVS work, become stable and highly effective. The case shows how computational models may help (1) to operationalize institutional theory and to clarify the functioning of institutions, (2) to test the logical consistency of alternative hypotheses about institutions, and (3) to relate institutionalist theory with other paradigms and to practice an interested pluralism.

Working paper version

Agent-Based Computational Models - A Formal Heuristic for Institutionalist Pattern Modelling?

Published in: Journal of Institutional Economics (2016, Vol. 12(1), p. 241-261)

This article discusses the adequateness of agent-based modeling for theorizing in the tradition of the original institutional economics. In particular I ask whether ABM can provide a holistic, systemic and evolutionary perspective on the economy and how agency can be conceptualized within ABMs. Building on these questions, I discuss potentials and challenges of the application of ABM in institutionalist research. I also identify complementarities with modern evolutionary, or Neo-Schumpeterian economics.

Abstract and full published article

Accepted Manuscript (free download)

Policy Implications of Recent Advances in Evolutionary and Institutional Economics

I edited this volume together with Torsten Heinrich and Henning Schwardt. It contains a number of important contributions of leading reseacher in their respective fields, including institutionalist, evolutionary, and complexity economics. The contributions explore the policy implications of recent theoretical and empirical findings in the fields just mentioned.

The official book page

The book on Amazon

Formal Approaches to Socio-economic Analysis - Past and Perspectives

Published in: Forum for Social Economics, special issue on formal modelling, forthcoming.

In this article I review the most promising formal approaches in social economics, the social fabric matrix, evolutionary and classical Game Theory, system dynamics, the institutional analysis and development framework, and agent based models. The article provides a good overview of the strengths and weaknesses, and discusses the implicit assumptions inherent to the different approaches.

Accepted Manuscript (free download)

New Perspectives on Institutionalist Pattern Modeling: Systemism, Complexity, and Agent-Based Modeling

Published in: Journal of Economic Issues (2015, Vol. 49(2), p. 433-440)

This is joint work with Jakob Kapeller. We provide a preliminary outline of the concept of systemism for the analysis of institutions. Relations to the concept of computational methods and reasoning about economic complexity are discussed.

Accepted Manuscript (free download)

### Work in progress (selection)¶

Definitions of institutions - A review and a new proposition

Joint work with Amineh Ghorbani

Institutions are considered crucials determinants for growth, distribution and wellbeing. But what is actually the ontological status of an institution? And how does it affect individuals? How does it depend on support by individuals? After reviewing common conceptualizations and definitions of institutions we provide a general synthesis of existing definitions.

Trust and Social Control. Sources of cooperation, performance, and stability in informal value transfer systems [Working paper]

Joint work with Wolfram Elsner and Alexander Lascaux

The Hawala system is an informal money transfer system that is particularly popular in the muslim world. Using it as an example we study the functioning of informal value transfer systems (IVTS) more general. More precisely, we use computational experiments to study the roles of generalized trust and social control for the stability and efficiency of IVTS. This allows us to answer questions that were not answered by the previous literature, such as: (i) how trust and control should be operationalized formally, (ii) which, if any of the two, carries a larger relevance for the functioning of IVTS, (iii) whether (and when) they relate to each other as substitutes or complements, and (iv) how they interact with a number of other environmental conditions. Using our computational mode we submit answers to all these questions. We show that both trust and control are necessary, but not sufficient to guarantee the functioning of Hawala, and that other relevant conditions, such as population size, interaction density, and forgiveness of the agents, provide important contexts. Aside from clarifying these questions, we provide a theoretically grounded operationalization of generalized trust and social control that is applicable to informal exchange systems in general.

Structuration processes in complex dynamic systems [Working paper]

Joint work with Torsten Heinrich and Muhamed Kudic

Networks are an obvious element in any economic system. The formal apparatus of graph theory allows to quantify our knowledge on economic networks and consider them directly in our models. This has been one of the most innovative and productive areas of economic research in the past decades. In this article, I and my co-authors summarize the recent developments and show how network theory can be an essential part of modern social economics. We also find that the applications of network theory still lack a theoretical underpinning. In particular, concrete social mechanisms underlying network formation and the precise mechanisms through which networks affect economic outcomes are not yet well understood. This is a lively area of further (interdisciplinary) research and aligns well with the systemic approach to economics that I have advanced elsewhere.

## Research area 2 (International Economics): Trade, Technological Change and Development¶

### Recent publications¶

Comment: Errata in “The Political Economy of the Kuznets Curve”

Published in: Review of Development Economics (2016, Vol. 20(4), p. 817-819)

We prove some conjectures not adequately adressed by Acemoglu and Robinson in their original article on inequality dynamics.

Accepted Manuscript (free download)

### Work in progress (selection)¶

Structural change in times of increasing openness: assessing path dependency in European economic integration [Working paper]

Joint work with Philipp Heimberger, Jakob Kapeller and Bernhard Schütz

We investigate how an increase in economic and financial openess in Europa impacts upon the dynamics of structural polarization and macroeconomic convergence vs. divergence. In the process of estimating the dynamic effects of openness shocks on 26 EU countries, we develop a taxonomy of European economies that consists of core, periphery, financialized and Eastern European catch-up economies. As these four country groups have responded in a distinct way to the openness shocks imposed by European integration, we argue that the latter should be seen as an evolutionary process that has given rise to different path-dependent developmental trajectories. These trajectories relate to the sectoral development of European economies and the evolution of their technological capabilities.

For a German blog post focused on the policy implications of our study see here.

Is Europe disintegrating? Macroeconomic divergence, structural polarization, trade and fragility [Working paper]

Joint work with Philipp Heimberger, Jakob Kapeller and Bernhard Schütz

Here we study macroeconomic developments in the Eurozone since its inception in 1999. In doing so, we document a process of divergence and polarization among those countries that joined the Eurozone during its first two years, which fits a typical ‘core - periphery’ pattern. Empirically, we demonstrate how this divergence is tied to a ‘structural polarization’ in terms of the sectoral composition of Eurozone countries: the emergence of export-driven growth in core countries and debt-driven growth in the European periphery can be traced back to differences in technological capabilities and firm performance. Pushing for convergence within Europe requires the implementation of several intertwined policy programs that we discuss further in this paper.

In two closely related studies I investigate the structure of the World and European trade network using graph theoretic concepts and algorithms. I characterize the evolution of the structure of these networks and ask whether the location of countries therein is not only a consequence, but also a determinant for their development trajectories. I pay particular attention to the technological capabilities of the countries and the complexity of the products they are able to export. I find that poorer countries import the majority of complex products from richer countries, and export in exchange simple products to the more advanced economies. This seems to be an important explanation for the lacking convergence among many countries in terms of prosperity and technological sophistication.

The Kaldor paradox revisited: new evidence in times of increasing openness

Joint work with Philipp Heimberger and Jakob Kapeller

We provide new econometric evidence on the long-debated issue of the determinants of export performance in times of increasing economic openness. We ask how price competitiveness and non-price competitiveness indicators are related to the evolution of export market shares. We also study the question of whether the determinants for export performance differ for more and less complex products. Finally, we employ a quantile regression approach to identify differences between more and less developed countries in terms of the determinants for their export success.

Economic complexity and income inequality

Joint work with Svenja Flechtner

The Economic Complexity Index has been found a good predictor for economic growth. Yet the link between Economic Complexity and income inequality is less well understood. We first review a number of potential mechanisms that could potentially link complexity and inequality. Then we use a dynamic panel approach to identify causal linkages between the two, which seem to be much more intricate than considered so far.

Measuring Economic Openness

Joint work with Philipp Heimberger, Jakob Kapeller and Florian Springholz

The impact of economic and financial openess has been of major interest in economics for quite a while. Yet how openess should be measures is still an open issue. Here we surve existing measures for openess and study them using various statiscial measures. Thereby we identify various groups of openess measures that are similar to each other, but differ remarably to other types of openess measures. This has important implications for the study of economic openess. We illustrate the practical importance of our findings by showing the fragility of several central results with respect to the choice of different openess measures.

Inequality and Social Mobility in Political Change: Exploring the dynamics of the Kuznets Curve [Working paper]

According to the Kuznets hypothesis, inequality dynamics within countries follow a U-shaped trajectory: inequality increases in stages of early development and starts decreasing after a certain level has been reached. Acemoglu and Robinson (2002) offer an analytical infinit-horizon non-overlapping generations model to study the pattern from a political economic perspective. We transform the analytical model into an agent-based version to provide a dynamic account of the Kuznets hypotheses and to study the importance of institutions governing social mobility for the shape and timing of the Kuznets curve.

Aspirations and social protest

Joint work with Svenja Flechtner

Together with Svenja Flechtner I build an ABM that models the decision of agents to participate in social protest or not. We question the alleged link between social activism and social inequality. Instead we build on Bandura’s social cognitive theory and Hirschmanns Tunnel Parabola to explain why recent social movements emerged in countries where inequality was decreasing.

## Research area 3 (Philosophy of Economics): Economic Methodology and Pluralism in Economics¶

### Recent publications¶

The Complexity of Economies and Pluralism in Economics [Working paper]

Forthcoming in: Journal of Contextual Economics (Schmollers Jahrbuch)

Recently, the debate about pluralism in economics has been revived. Yet, what is actually meant by pluralism? And why should we endorse it? In this paper I concern myself with pluralism as a normative view that the plurality of research programs in the Lakatosian sense is to be endorsed by anyone who values the expansion of knowledge about actual economies. The reason is mainly related to the inherent complexity of economic systems. Thereby, I provide epistemological and ontological reasons for pluralism in economics.

Getting the Best of Both Worlds? Developing Complementary Equation-Based and Agent-Based Models

Published in: Computational Economics (2017, online first)

The paper deals with the distinction between equation-based and agent-based models, and ways to fruitfully combine them. We apply to our ideas to a model by Acemoglu and Robinson on the Kuznets Curve.

The Complementary Relationship Between Institutional and Complexity Economics: The Example of Deep Mechanismic Explanations

Published in: Journal of Economic Issues (2017, Vol. 51(2), p. 392-400)

I discuss the usefulness of mechanism-based explanations when one is dealing with complex systems, and how this aligns well with the research practice of classical institutionalism.

One challenge with mechanism-based explanations is the need for a new criterion to choose among competing explanations. I argue in the article that Mario Bunge’s concept of deep explanations would be very useful in this respect, but that the more widely known concept of Occam’s razor is problematic.

Accepted Manuscript (free download)

The Micro-Macro Link in Heterodox Economics

Published in: Tae-Hee Jo, Lynne Chester and Carle D’lppoliti (Eds.): The Handbook of Heterodox Economics, London et al.: Taylor & Francis, 2017.

Relating differerent paradigms in economics is often difficult and required a meta-theoretical framework. Here we suggest that systemism can be such a framework. We discuss various schools of thought with respect to their take on the micro-macro link and illustrate the usefulness of a common philosophical framework through a number of examples.

Official book page at T&F

The book on Amazon

Dealing adequately with the political element in formal modelling

Published in: Hardy Hanappi, Savvas Katsikides and Manuel Scholz-Wackerle (Eds): Theory and Method of Evolutionary Political Economy, London et al.: Routledge, 2017

There are many reasons why a value-free way of doing (social) sciences is desirable. Max Weber stated this most impressively in his early work. However, Weber also acknowledged that such objectivity is (unfortunately) impossible and any investigation contains elements of the authors Weltanschauung. Many economists, however, argued that the mathematization of economics in the twentieth century have changed this and have turned economics, at least partly, to a positive and value-free science. In this chapter I show why this is impossible and explore the practical implications by looking at the current debate about the usefulness of the Transatlantic Trade and Investment Partnership.

The official book page

The book on Amazon

Accepted Manuscript (free download)

### Work in progress (selection)¶

How to relate models to reality? An epistemological framework for the validation and verification of computational models [Working paper]

I review key concepts developed by philosophers of science that can help applied modelers in communicating the epistemological assumptions and intentions of their models. This is necessary if models are to be related to each other in a contructive manner: not only do different researchers differ with respect to what they accept as an “explanation”, they also asess the validity of their models very differently. The epistemological framework suggested here helps to make these differences explicit and to be clear about what is meant by model ‘validation’ and ‘verification’.

Pluralism in economics: its critiques and their lessons

Joint work with Birte Strunk

We discuss five arguments against pluralism that are frequently put forward in the recent debate. These arguments are: 1) ‘Economics is already a pluralistic science’, 2) ‘If there were a need for pluralism, it would emerge on its own’, 3) ‘Pluralism means “Anything goes” and is unscientific’, 4) ‘We need a core paradigm in economics, because thats what determines a mature science’, and 5) ‘Pluralism is left-wing ideology’. We asess their validity from a philosophy of science viewpoint and find that while several of them are either unconvincing of have been answered satisfactory in the past, there are two major weaknesses of the pleas for pluralism, which are highlighted by these criticims. First, pluralists have not adequately answered the question how members of different research programs can communicate with each other. Second, pleas for pluralisms are insufficiently clear on how contributions from different research programs can be compared in terms of their quality, and how a pluralistic science of economics can ensure quality.

## Other topics¶

Beyond Equilibrium: Revisiting Two-Sided Markets from a computational perspective [Working paper]

Existing models of TSM are mostly equilibrium models. Assumptions are not always intuitive and usually neglect constitutive features such as incomplete information, non-identical transactions, independent adoption decisions, and strategic behavior on the part of the platform owner or vendor. We take the canonical model of Rochet & Tirole (2003, 2006) as a starting point for a more flexible agent-based simulation. Not only do we reveal several implicit assumptions and inconsistencies of the original model, our model also allows to study potential technological lock-ins and the resulting powerful strategic position of the platform vendor or owner and the associated risks.

The model also illustrates the usefulness of generative explanations in economics.

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