An Economic Theory of Greed, Love, Groups, and Networks

Cover......Page 1
An Economic Theory of Greed, Love, Groups, and Networks......Page 3
Title......Page 5
Copyright......Page 6
Contents......Page 7
List of figures......Page 11
Preface......Page 13
Acknowledgments......Page 17
Introduction and preview......Page 21
Part I Greed and love......Page 59
1.1 Homo Economicus: Humans as individual rationalwealth maximizers......Page 61
1.1.1 Homo Economicus in historical perspective......Page 65
1.1.2 Generalizations of Homo Economicus......Page 68
1.1.3 Limitations of existing generalizations ofHomo Economicus......Page 69
1.2.1 Competition and organizations......Page 71
1.2.2 Institutions......Page 74
1.3 Love: The first addition to the mainstream view......Page 77
1.4 Power......Page 80
1.4.1 The individualistic approach to power......Page 83
1.4.2 Group power......Page 85
1.4.3 Groups and power: The second addition to the mainstream view......Page 86
1.5 Networks and market frictions: The third additionto the mainstream view......Page 88
1.6 Conclusions......Page 91
2 Love: The missing building block......Page 94
2.1 The plan of the chapter......Page 96
2.2.1 The loyal soldier: Break \'em down and build \'em up......Page 97
2.2.2 The loving child......Page 98
2.2.3 The love for our children......Page 99
2.2.4 The love of a fan......Page 101
2.2.5 The faith of a hermit......Page 103
2.2.6 The love for our partners......Page 105
2.3 Analysis: Love and the Love Principle......Page 106
2.4 The basic science of love: Introduction and preview......Page 109
2.5 The human brain......Page 111
2.5.1 The conscious and unconscious mind......Page 113
2.5.2 The neural ``love program\'\'......Page 115
2.6.1 Emotional development......Page 118
2.6.2 Emotional regulation......Page 120
2.6.3 Is attachment in children related to power and desire?......Page 121
2.7.1 Categorization......Page 122
2.7.2 The role of emotional activation and regulation in love......Page 126
2.7.3 Summing up the basic science of love......Page 128
2.8.1 Introduction to desire as experienced by the individual......Page 133
2.8.2 Social desirability......Page 134
2.8.3 Spiritual desirability......Page 136
2.8.4 Introduction to power as experienced by the individual......Page 139
2.8.5 Physical power......Page 140
2.8.6 Mental power......Page 141
2.8.7 Group power......Page 142
2.8.8 Out-of-sample predictions regarding love,desire, and power......Page 146
2.9 Comparing love with greed......Page 149
2.10 Why does love exist? An evolutionary perspective......Page 152
2.10.1 Dominance and submission in humans......Page 154
2.10.2 Evolutionary benefits of the love program......Page 155
2.10.3 Unique aspects of love in humans......Page 158
2.11 Conclusions......Page 161
Part II Groups, power, and the  development of institutions......Page 163
3.1 A note on methodology and organization......Page 165
3.1.1 A pragmatic approach......Page 166
3.1.2 Preview of the chapter......Page 168
3.1.3 Reciprocity and punishment......Page 170
3.2.1 Small hierarchies......Page 171
3.2.2 Small circles of reciprocity......Page 172
3.2.3 Large hierarchies......Page 173
3.2.4 Large circles of reciprocity......Page 174
3.2.5 Networks......Page 177
3.2.6 Common elements of reciprocal andhierarchical groups......Page 178
3.3.1 Modern organizations as melting pots of thesefive types: Large-group examples......Page 180
3.3.2 Small-group examples......Page 183
3.3.3 The emergence of the nation state from theinteraction of social groups......Page 186
3.3.4 Multiple group identities......Page 189
3.3.5 The genesis of groups......Page 190
3.3.6 External validation I: The presumption of reciprocity......Page 191
3.3.7 External validation II: Individual versus groupdecision making......Page 193
3.4 Examples of the rise and application of group power......Page 194
3.4.1 Instruments of power: Violence......Page 195
3.4.2 Instruments of power: Material rewards......Page 199
3.4.3 Instruments of power: Group membership......Page 204
3.4.4 Instruments of power: Institutions......Page 207
3.4.5 Instruments of power: Stories......Page 212
3.4.6 Power as a product of groups......Page 215
3.5 The evolution of distinct group types to solve distinct economic problems......Page 217
3.5.1 Small circles of reciprocity......Page 218
3.5.2 Small hierarchies......Page 219
3.5.3 Large hierarchies......Page 221
3.5.4 Large circles of reciprocity......Page 222
3.6.1 Embedding individual habits of mind in supportof large groups......Page 224
3.7 Relation with existing theories of group formationand power......Page 226
3.7.1 Psychological theories of groups......Page 227
3.7.2 Sociological theories of groups and power......Page 229
3.7.3 Classic economic theories of groups and power......Page 235
3.8.1 The group archetypes......Page 243
3.8.2 A summary of power......Page 244
4 Networks and markets......Page 246
4.1 Power and market economics: The role of continuous contact makers......Page 247
4.1.1 Contact makers in action......Page 248
4.1.2 Contacts, networks, and specialization......Page 249
4.1.3 Examples and characteristics of contacts......Page 251
4.1.4 Measuring the size of the ``contact-making sector\'\'......Page 256
4.1.5 Networks and politics......Page 258
4.1.6 The role of formal and informal contacts......Page 267
4.2 Case study: The Eastern European economic transition......Page 269
4.2.1 Car manufacturing in Central Europe......Page 279
4.2.2 Political fallout from the transition......Page 280
4.2.3 Comparisons with China......Page 281
4.2.4 What should have been done?......Page 283
4.3 Implications for economic theories of long-term growth......Page 286
4.3.1 Sources of long-term growth......Page 288
4.4 Out-of-sample evidence......Page 299
4.4.1 Business links and the Great Depression......Page 300
4.4.2 Business links and the Indonesian downturn......Page 301
4.4.3 Business links and the global financial crisisof 2008--2011......Page 302
4.5.1 Temporary rulers......Page 303
4.5.2 Majority rulers......Page 304
4.5.3 Other observations on democracy......Page 305
4.5.4 The role of networks in democracy......Page 306
4.6.1 Search and matching......Page 309
4.6.2 Social network theory and development economics......Page 312
4.6.3 Social network analysis......Page 315
4.7 Conclusions......Page 316
Part III Implications and examples......Page 319
5.1.1 The symbiosis of the private sector, the public sector, and the nation state......Page 321
5.1.3 The private sector versus state ideals......Page 323
5.1.4 The private sector and political power......Page 324
5.1.5 The balance of power between personal greedand the nation state......Page 326
5.2 The main game: Love and greed......Page 327
5.2.1 Illustration in international trade......Page 329
5.2.2 Illustration in leadership......Page 330
5.2.3 Which is stronger, love or greed?......Page 331
5.3 A heuristic for reading dynamic social situations......Page 333
5.3.1 International trade......Page 335
5.3.2 Competition regulation......Page 338
5.3.3 Environmental regulation......Page 341
5.3.4 Voting behavior......Page 344
5.3.5 Tax-paying behavior......Page 345
5.3.6 Symbolic expenses......Page 348
5.3.7 The self-image of economists......Page 351
5.4 Further thoughts on economics......Page 352
5.4.1 Applicability to macroeconomic phenomena,and the production metaphor......Page 353
5.4.2 Academic debates and progress in economics......Page 355
5.5 Conclusions and discussion......Page 362
6.1 Model 1: Love and greed at the individual level......Page 369
6.1.1 Stylized extensions......Page 372
6.1.2 Conclusion and discussion......Page 376
6.2.1 The model......Page 377
6.2.2 Interim discussion......Page 381
6.2.3 Static solutions......Page 383
6.2.4 Dynamic solutions......Page 388
6.3 Model 3: The operation of central authorities......Page 392
6.3.1 The setting......Page 394
6.3.2 Communication, punishment, and externalities......Page 395
6.3.3 Introducing an authority......Page 400
6.3.4 Basic results......Page 403
6.3.5 Extensions: Asymmetric punishment and mutations......Page 406
6.3.6 Discussion......Page 408
6.4.1 The model......Page 409
6.4.2 Discussion......Page 413
6.4.3 Possible extensions......Page 415
References......Page 417
Index......Page 443