Mesoeconomics
Encyclopedia
Mesoeconomics is a neologism used to describe the study of economic
arrangements which are not based either on the microeconomics
of buying and selling and supply and demand, nor on the macroeconomic reasoning of aggregate totals of demand, but on the importance of under what structures these forces play out, and how to measure these effects. It dates from the 1980s as several economists began questioning whether there would ever be a bridge between the two main economic paradigms in mainstream economics, without wanting to discard both paradigms in favor of some other basic methodology and paradigm.
Mesoeconomics is not a generally recognized term, and it has only a small number of adherents, though many of them are quite vocal in arguing for the necessity of mesoeconomic reasoning, and it should be regarded as a term specific to the authors that use it at the present time.
The term comes from "meso-" (which means "middle") and "economics", and is constructed in analogy with micro and macro economics.
sectors relate to each other.
Mesoeconomic thinking argues that there are important structures which are not reflected in price signals and supply and demand
curves, nor in the large economic measures of inflation
, Gross Domestic Product
, the unemployment rate, and other measures of aggregate demand
and savings.
The argument is that the intermediate scale creates effects which need to be described using different measurements, mathematical formalisms and ideas.
s or the veil of money
and the expectations of actors with respect to the whole economic system.
. Many economists believe that game theory represents a branch of macroeconomic theory, and others that it is an extension of microeconomic behavior. In this context meso economics is said to be a bridge between micro and macro analysis and to provide an evolutionary or competitive/cooperative framework for economics.
began writing on the effects of institutional inertia and behavior on economics, drawing from work in management
and studies in business
. Recently it has been argued that such institutional effects cause economic actors to behave in ways differently from rational expectation maximalizing and profit maximalizing.
has been used to argue that the mechanics of information transmission lead to behaviors that are not easily explainable as micro or macro economic effects. These include the work of Joseph Stiglitz on unemployment, where information asymmetry
is used to profit, contrary to normal economic reasoning where actors profit by increasing the rate of dissemination of information.
and his model of stock market crashes.
and skedasticity of price and volume movement.
to achieve above market returns or below market risk, this area has had an effect on some investment strategists.
. (See also Infinite time horizon
, Ricardian equivalence
) hypothesis
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
arrangements which are not based either on the microeconomics
Microeconomics
Microeconomics is a branch of economics that studies the behavior of how the individual modern household and firms make decisions to allocate limited resources. Typically, it applies to markets where goods or services are being bought and sold...
of buying and selling and supply and demand, nor on the macroeconomic reasoning of aggregate totals of demand, but on the importance of under what structures these forces play out, and how to measure these effects. It dates from the 1980s as several economists began questioning whether there would ever be a bridge between the two main economic paradigms in mainstream economics, without wanting to discard both paradigms in favor of some other basic methodology and paradigm.
Mesoeconomics is not a generally recognized term, and it has only a small number of adherents, though many of them are quite vocal in arguing for the necessity of mesoeconomic reasoning, and it should be regarded as a term specific to the authors that use it at the present time.
The term comes from "meso-" (which means "middle") and "economics", and is constructed in analogy with micro and macro economics.
Mesoeconomic reasoning
Economics focuses on measurable ways of describing social behavior. In orthodox neoclassical synthesis economics, there are two main kinds of recognized economic thinking - micro-economics, which focuses on the action of individual buyers and sellers responding to signals sent by price to set production and distribution of effort, and macroeconomics, which focuses on how whole economies go through cycles of activity, and how different large aggregateAggregate data
In statistics, aggregate data describes data combined from several measurements.In economics, aggregate data or data aggregates describes high-level data that is composed of a multitude or combination of other more individual data....
sectors relate to each other.
Mesoeconomic thinking argues that there are important structures which are not reflected in price signals and supply and demand
Supply and demand
Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...
curves, nor in the large economic measures of inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
, Gross Domestic Product
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
, the unemployment rate, and other measures of aggregate demand
Aggregate demand
In macroeconomics, aggregate demand is the total demand for final goods and services in the economy at a given time and price level. It is the amount of goods and services in the economy that will be purchased at all possible price levels. This is the demand for the gross domestic product of a...
and savings.
The argument is that the intermediate scale creates effects which need to be described using different measurements, mathematical formalisms and ideas.
Political economy
Political economy is a broad term, but from the perspective of mesoeconomics, it is the study of government incentives, the basis for monetary systemMonetary system
A monetary system is anything that is accepted as a standard of value and measure of wealth in a particular region.However, the current trend is to use international trade and investment to alter the policy and legislation of individual governments. The best recent example of this policy is the...
s or the veil of money
Veil of money
Veil of money describes a problem in economics, which centers on the question of whether money is a commodity like other commodities, such as oil or gold or food - or whether it has special properties....
and the expectations of actors with respect to the whole economic system.
Game theory and strategy
One area which is claimed to be central to mesoeconomics as a separate field is the use of game theoryGame theory
Game theory is a mathematical method for analyzing calculated circumstances, such as in games, where a person’s success is based upon the choices of others...
. Many economists believe that game theory represents a branch of macroeconomic theory, and others that it is an extension of microeconomic behavior. In this context meso economics is said to be a bridge between micro and macro analysis and to provide an evolutionary or competitive/cooperative framework for economics.
Institutional economics
In the 1950s John Kenneth GalbraithJohn Kenneth Galbraith
John Kenneth "Ken" Galbraith , OC was a Canadian-American economist. He was a Keynesian and an institutionalist, a leading proponent of 20th-century American liberalism...
began writing on the effects of institutional inertia and behavior on economics, drawing from work in management
Management
Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...
and studies in business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
. Recently it has been argued that such institutional effects cause economic actors to behave in ways differently from rational expectation maximalizing and profit maximalizing.
Information theory
The formalism of sending signals and receiving them or information theoryInformation theory
Information theory is a branch of applied mathematics and electrical engineering involving the quantification of information. Information theory was developed by Claude E. Shannon to find fundamental limits on signal processing operations such as compressing data and on reliably storing and...
has been used to argue that the mechanics of information transmission lead to behaviors that are not easily explainable as micro or macro economic effects. These include the work of Joseph Stiglitz on unemployment, where information asymmetry
Information asymmetry
In economics and contract theory, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. This creates an imbalance of power in transactions which can sometimes cause the transactions to go awry, a kind of market failure...
is used to profit, contrary to normal economic reasoning where actors profit by increasing the rate of dissemination of information.
Non-linear dynamics
Another argument advanced for the utility of a non-micro and non-macro paradigm is the use of non-linear dynamics. This often rests on models of information flow, for example Didier SornetteDidier Sornette
Didier Sornette is Professor on the Chair of Entrepreneurial Risks at Swiss Federal Institute of Technology Zurich . He is also a professor of the Swiss Finance Institute, a professor associated with both the department of Physics and the department ofEarth Sciences at ETH Zurich, an Adjunct...
and his model of stock market crashes.
Volatility
Instead of price, the focus of mesoeconomic reasoning is on other variables, including volatilityVolatility (finance)
In finance, volatility is a measure for variation of price of a financial instrument over time. Historic volatility is derived from time series of past market prices...
and skedasticity of price and volume movement.
Sector and welfare
In Wealth of Nations Adam Smith observed that different industries would have different rates of expected profit. One area claimed to be mesoeconomic is the distribution of incentives between sectors in an economy, and between different groups of economic actors. For example, are there permanent structural advantages to produce cars instead of trucks, or are some ethnic or racial groups systematically excluded. In this sense mesoeconomics is said to focus on economies at the level of sectors. Since a great deal of investing is done in funds which concentrate on sectors, and seek to engage in sector rotationSector rotation
Sector rotation is a term normally applied to stock market trading patterns. In this context, a sector is understood to mean a group of stocks representing companies in similar lines of business....
to achieve above market returns or below market risk, this area has had an effect on some investment strategists.
Criticisms of mesoeconomics
While many economists using the term use game theory and evolutionary economic concepts, the converse is not recognized to be the case: there are many who dispute the need for a meso scale theory of economics, arguing instead that rational expectations at infinity can appropriately model price strategies. Notable examples of this line of thinking include Robert J. Barro and Thomas SchellingThomas Schelling
Thomas Crombie Schelling is an American economist and professor of foreign affairs, national security, nuclear strategy, and arms control at the School of Public Policy at University of Maryland, College Park. He is also co-faculty at the New England Complex Systems Institute...
. (See also Infinite time horizon
Time horizon
A time horizon, also known as a planning horizon, is a fixed point of time in the future at which point certain processes will be evaluated or assumed to end. It is necessary in an accounting, finance or risk management regime to assign such a fixed horizon time so that alternatives can be...
, Ricardian equivalence
Ricardian equivalence
The Ricardian equivalence proposition is an economic theory holding that consumers internalize the government's budget constraint: as a result, the timing of any tax change does not affect their change in spending...
) hypothesis
Individuals associated with mesoeconomics
- Yew-Kwang NgYew-Kwang NgYew-Kwang Ng is an economist at Monash University. He graduated with a Bachelor of Commerce from Nanyang University in 1966 and later a Ph.D. from Sydney University in 1971....
- His 1980 article is described by Robin Marris as having marked the beginning in studying imperfect competition. He uses the term in 1986 to describe a hybrid of micro and macro analysis. - Markos MamalakisMarkos MamalakisMarkos Mamalakis is a Greek economist specialising in development economics, particularly in Latin America....
- He has written several papers on mesoeconomics and development, particularly in Latin America. - Stuart HollandStuart HollandStuart Kingsley Holland is a British Labour politician and academic.He represented the Vauxhall constituency in Lambeth, London from 1979 until 1989, when he applied for the Chiltern Hundreds to take up a post at the European University Institute, Florence...
- Author of a 1987 book which argued that market economics was moving from a micro to a meso paradigm - He-ling Shi - Advanced a theory that business cycles are the result of mesoeconomic behavior, and not based purely on aggregate demand and real interest rates as implied by General equilibriumGeneral equilibriumGeneral equilibrium theory is a branch of theoretical economics. It seeks to explain the behavior of supply, demand and prices in a whole economy with several or many interacting markets, by seeking to prove that a set of prices exists that will result in an overall equilibrium, hence general...
and neoclassical economicsNeoclassical economicsNeoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...
. - Niclas Andersson - Associated with analysis of the construction sector using the mesoeconomics of sectors.
- Kurt DopferKurt DopferKurt Dopfer is the Professor at the Department of Economics, University of St. Gallen, Switzerland, and also the co-director of the Institute for National Economics....
- Argues that the failure to link micro and macro economics shows that there is a need for a meso level of economic thinking based on evolutionary concepts. - Richard Parker (economist)Richard Parker (economist)Richard Parker is an economist from the United States. He is a graduate of Dartmouth College and the University of Oxford, and has worked for the United Nations Development Programme. Parker co-founded Mother Jones magazine and is on the editorial board of The Nation...
- Historian of economics who has been a proponent of the need for a mesoeconomic scale in association with Stuart Holland.