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The Disutility of International Debt: Analytical Results and Methodological Implications

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  • Greg Hannsgen

    (The Levy Economics Institute)

Abstract

In dealing with the problematic relationship of morality to rational choice theory, neoclassical economists since Lionel Robbins have often argued that they can incorporate moral values into consumer theory by putting those values into the utility function. This paper tests the viability of such an approach in the context of international finance. The moral value at stake is autonomy, which may be lost when borrowers must submit to the edicts of international financial institutions. When such a value is inserted into the utility function of a small economy, the growth rate of consumption and the level of investment change. Furthermore, potential borrowers may lose their ability to credibly commit to paying back loans, resulting in a complete absence of borrowing where it might otherwise take place. The author argues that while this model illustrates the possibility of analyzing a noneconomic value (sovereignty) through rational choice theory, it also shows that standard methods of empirical inference, policy evaluation, and welfare analysis may fail in such a situation. To answer questions that mix morality and economics, economists must seek tools other than conventional rational choice theory.

Suggested Citation

  • Greg Hannsgen, 2005. "The Disutility of International Debt: Analytical Results and Methodological Implications," Method and Hist of Econ Thought 0505001, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpmh:0505001
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    References listed on IDEAS

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    8. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-115, March.
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    More about this item

    Keywords

    : Values; Lionel Robbins; international debt; methodology;
    All these keywords.

    JEL classification:

    • B - Schools of Economic Thought and Methodology

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