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To some extent, the common assumption of zero-inflation steady state in modern macro models is theoretically flawed, empirically unfounded, and practically inconsistent. I build a medium-scale Generalised New Keynesian (GNK) model based on non-zero inflation steady state in order to study inflation persistence and the effect of trend inflation. This GNK model exhibits much more dynamics than a standard NK model in several ways: a) NKPC becomes flatter and more forward looking as trend inflation increases; b) price dispersion introduces huge inertia into the model as trend rises; c) backward looking feature is also present in the market wage equation, even though optimal reset wage is more forward looking. This model is then estimated using a Bayesian technique with quarterly US data from 1970 to 2017. The estimation results show the model is capable of capturing macro evidence in the postwar US, and annual trend inflation is estimated to be around 3 percent. Simulations show trend inflation does not generate significant alterations to macroeconomic dynamics under a moderately high degree of indexation, and this is consistent with the literature. However, once indexation is switched off, trend inflation alters the model dynamics in a very significant way: 1) in general, output and inflation fluctuate much more heavily with higher trend inflation after most shocks; 2) inflation exhibits a hump-shaped response with four percent trend inflation or above after a transitory monetary policy shock; 3) inflation reacts less on impact but becomes much more persistent with higher trend inflation after a monetary shock. The welfare loss, timing of the maximum effect and inflation persistence after a monetary policy shock provide very important implications to both economists and policy-makers

Could modern economics benefit from understanding the economic agent as a moral person? One that is not merely a holder of 'moral preferences' but takes active part in self-formation? In modern economics 'homo economicus' is routinely employed as an adequate account of the economic agent. This atemporal and amoral creature, limited to instrumental reasoning, is used to represent both abstract entities such as firms or markets, and individual human persons or groups thereof. Theories that translate economics into policy proposals ultimately intended to benefit individual human or communities (e.g. welfare economics) tend to inherit the thin concept of homo economicus as their implicit philosophical anthropology. But homo economicus, as economists happily admit, is not a person. It cannot then serve as a reference point in determining human welfare. Limited to instrumental rationality, it does not actively participate in determining its own ends. Human persons on the other hand, in taking responsibility for the larger part of their own lives, act as moral, not merely rational, agents. Large areas of economics have proper uses for homo economicus. But for areas where economics touches on the relations and actions of human persons, wherein instrumental reasoning holds insufficient explanatory power, I offer the 'aspiring agent' as a remedy for deficiencies of homo economicus. The aspiring agent is the aspect of the human person that strives for self-betterment through ongoing, conscious attempts to refine her own preferences. She exercises practical reason in line with who she wants to become and her vision of the good. This 'aspiring agent' involves anthropological assumptions of the virtue ethics tradition of Aristotle through the Scholastics, and Adam Smith's 'impartial spectator'. I develop the concept of the aspiring agent in analysis of certain recent attempts to correct for homo economicus's deficiencies. Most attempts ultimately end up reverting to it. These attempts are found in the growing research trying to explain preference formation and change, including behavioural welfare economics and the related policy tool of nudging. I argue that the aspiring agent is a better concept for achieving their own stated research or policy goals.

The main argument of the thesis is that the dominant form of economics and correlative form of economy - despite its apparently secular character - contains an inherently cryptotheological dimension. A theological analysis exposes the dominant economics/economy as an instance of ‘law’ understood (after saint Paul Franz Kafka and Walter Benjamin) as a process engaging the subject into an infinite endeavour of justifying oneself by one’s own works. Within the framework of the dominant economics/economy, all labour is formalised as steaming from lack and unrest and the final end of action is formalised as non-action. Therefore peace can only be conceptualised as a perfect lack of action (viz. death). As a consequence death itself becomes the final end, that cannot be achieved as long as the subject lives. The analysis is based on a close-reading of the works prominent economists, focusing on the exponents of the Austrian School - Mises and Hayek - who as I try to prove, express the theological prejudgements of the dominant economics/economy in the most radical and philosophically stimulating manner. The thesis is also a polemic with these critics of the dominant economics/economy who state that it could be effectively criticised for being simply anti-natural, atemporal and value-free science/practice. My point is that a viable critique of the dominant mode of economic acting and thinking cannot be constructed, unless the fact that the hegemonic economic model actually makes use of the concepts of time, judgement and nature is taken into consideration. Only when the way the dominant economics/economy uses the concepts of economy as natural environment, economics as an art of allocation of time and as a value-saturated theory - elaboration of alternatives (including an alternative formalisation of productive labour) might become possible.

This thesis studies loss aversion and reference-dependent preferences. The second chapter and the fourth chapter analyze the price strategy for the monopolist with a loss-averse consumer following the reference-dependent model of Kőszegi and Rabin (2006). The second chapter takes into account the happiness of not paying at the highest price and the disappointment of not paying at the lowest price and finds that this happiness has a positive effect on the monopolist's revenue and this disappointment has a negative effect on the monopolist's revenue. The fourth chapter proposes a two-period pricing model and shows that the monopolist could make use of two-price strategy to earn a revenue that is greater than the product value. The revenue of the two-period model is higher than one-period model when the weight of gain-loss utility is big enough. The third chapter studies the winner's regret with bidders when they have reference-dependent preferences in the sealed-bid first-price auction, second-price auction and all-pay auction and shows that the optimal bid is smaller with regret than without regret for loss-averse bidders, is greater for gain-seeking bidders and is the same for risk-neutral bidders.

This dissertation engages an academic discourse around the Capability Approach, and how human agency and functioning is understood in North Central Nigeria. The goal is to contribute a top-down theoretical and bottom-up communitarian human development model that is complementary, and that understands how human agency and functioning is interpreted in North Central Nigeria and its application in Development Studies. This argument is built on the thesis that what people value determines their development. I explore the conversation on the applicability of Sen and Nussbaum’s conceptualization of the Capability Approach. Both Sen and Nussbaum correct an earlier focus and emphasis on a quantitative measure of human development by making a case to measure ‘what people value’ using the instrumentality of democracy. I argue that Sen and Nussbaum’s Capability Approach is incomplete/top-down requiring bottom-up practical relational approaches to concretize it. I accomplish this by bringing in Alkire and Denuelin’s recommendations on the need to prioritize and show applicability of capabilities in policy using empirical data from the field. I demonstrate that a Capability Approach focusing on what people value requires a bottom-up methodological approach in two ways. First, I demonstrate that the incompleteness of the Capability Approach is its inability to recognize the role of institutions, history and cultural realities. I argue that institutions as rules of the game and patterns of social interaction constitute the core of democratization processes but are not adequately situated. Secondly, I demonstrate that a Capability Approach that is ‘fully human’ has to contend with, and give the right measure of analysis to ‘being’ and ‘doing’ using empirical field data. As a response, I present primary data to show how the people define development, understand Being through self-consciousness based on belonging as value. I contend that this informs their interpretation of human agency and function. In concluding, the dissertation argues for complementarity in application of top-down functional theoretical approaches with bottom-up practical relational models.

In this thesis, we study the causal relationship between functional distribution of income and economic growth. In particular, we focus on some of the aspects that might alter the effect of the profit share on growth. After a brief introduction and literature review, the empirical contributions will be presented in Chapters 3,4 and 5. Chapter 3 analyses the effect of a contemporaneous decrease in the wage share among countries that are major trade partners. Falling wage share and wage moderation are a global phenomenon which are hardly opposed by governments. This is because lower wages are associated with lower export prices and, therefore, have a positive effect on net-exports. There is, however, a fallacy of composition problem: not all countries can improve their balance of payments contemporaneously. Studying the country members of the North America Free Trade Agreement, we find that the effect on export of a contemporaneous decrease in the wage share in Mexico, Canada and the United States, is negative in all countries. In other words, the competitive advantage that each country gains because of a reduction in its wage share (to which is associated a decrease in export prices), is offset by a contemporaneous increase in competitiveness in the other two countries. Moreover, we find that NAFTA is overall wage-led: the profit share has a negative effect on aggregate demand. Chapter 4 tests whether it is possible that the effect of the profit share on growth is different in the long run and in the short run. Following Blecker (2014) our hypothesis is that in the short run the growth regime is less wage-led than it is in the long run. The results of our empirical investigation support this hypothesis, at least for the United States over the period 1950-2014. The effect of wages on consumption increases more than proportionally compared to the effect of profits on consumption from the short to the long run. Moreover, consumer debt seem to have only a short-run effect on consumption indicating that in the long run, when debt has to be repaid, consumption depends more on the level of income and on how it is distributed. Regarding investment, the effect of capacity utilization is always larger than the effect of the profit share and that the difference between the two effects is higher in the long run than in the short run. This confirms the hypothesis that in the long run, unless there is an increase in demand, it is likely that firms are not going to increase investments even in the presence of high profits. In addition, the rentier share of profits – that comprises dividends and interest payments – has a long-run negative effect on investment. In the long run rentiers divert firms’ profits from investment and, therefore, it weakens the effect of profits on investment. Finally, Chapter 5 studies the possibility of structural breaks in the relationship between functional distribution of income and growth. We argue that, from the 1980s, financialization and the European exchange rate agreements weakened the positive effect of the profit share on growth in Italy. The growth regime is therefore becoming less profit-led and more wage-led. Our results confirm this hypothesis and also shed light on the concept of cooperative and conflictual regimes as defined by Bhaduri and Marglin (1990).

Part I comprises three chapters (2-4) that analyse the optimal combination of a universal benefit (B≥0) and categorical benefit (C≥0) for an economy where individuals differ in both their ability to work and, if able to work, their productivity. C is ex-ante conditioned on applicants being unable to work, and ex-post conditioned on recipients not working. In Chapter 2 the benefit budget is fixed but the test awarding C makes Type I and Type II errors. Type I errors guarantee B > 0 at the optimum to ensure all unable individuals have positive consumption. The analysis with Type II errors depends on the enforcement of the ex-post condition. Under No Enforcement C > 0 at the optimum conditional on the awards test having some discriminatory power; whilst maximum welfare falls with both error propensities. Under Full Enforcement C > 0 at the optimum always; and whilst maximum welfare falls with the Type I error propensity it may increase with the Type II error propensity. Chapters 3 and 4 generalise the analysis to a linear-income tax framework. In Chapter 3 categorical status is perfectly observable. Optimal linear and piecewise-linear tax expressions are written more generally to capture cases where it is suboptimal to finance categorical transfers to eliminate inequality in the average social marginal value of income. Chapter 4 then derives the optimal linear income tax for the case with classification errors and Full Enforcement. Both equity and efficiency considerations capture the incentives an increase in the tax rate generates for able individuals to apply for C. Part II (Chapter 5) focuses on the decisions of individuals to work when receiving C, given a risk of being detected and fined proportional to C. Under CARA preferences the risk premium associated with the variance in benefit income is convex-increasing in C, thus giving C a role in enforcement.

This thesis contributes to our understanding of the relationship between the material activity of human labour and the monetary forms of an economy by examining the theoretical foundations of the classical approach to economic analysis, in particular the objective costs-of-production approach to economic value. The classical labour theory of value suffers from two related problems: David Ricardo's problem of an invariable measure of value and Karl Marx's transformation problem. This thesis proposes to resolve both problems by constructing a more general labour theory of value. The more general theory provides a new perspective on related issues in the classical theory, including Marx's classification of money-capital as an irrational commodity, the meaning and significance of Piero Sraffa's standard commodity and Luigi Pasinetti's restriction of the labour theory to a normative role. According to the classical account of capitalist competition the scramble for profit causes market prices to "gravitate" to natural prices. This thesis proposes a nonlinear dynamic model of classical gravitation in which prices and labour costs converge to a state of mutual consistency in equilibrium. The dynamic model, combined with a general labour theory of value, establishes a lawful relation between prices and labour costs, which reconstructs Marx's version of the classical "law of value".

This dissertation focuses on testing and identifying individual ambiguity preference under the framework of "smooth ambiguity preference" developed by Klibanoff, Marinacci, and Mukerji (2005). Following the seminal contributions of Allais (1953) and Ellsberg (1961), experimental data have consistently demonstrated that individuals do not behave in accordance with predictions of the expected utility model when they face uncertainty. As one important class of ambiguity utility, the smooth ambiguity model distinguishes ambiguity aversion from risk aversion, which makes the comparative statics possible. However, currently there is little work on testing and recovering such preferences based on observable choices. The dissertation contains four parts. Chapter 2 uses two approaches to derive the necessary and sufficient conditions for observed individual portfolio choice to be compatible with the smooth ambiguity preference. The first approach is the revealed preference method, and is based on finite observations. The second approach is demand function testing, and is based on infinite observations. Chapter 3 establishes the conditions under which the smooth ambiguity preference can be uniquely identified from individual demand functions. In Chapter 4, I extend the argument of Varian (1988) to multiple observations and incomplete market case to non-parametrically test different shapes of risk aversion, and then to test hypotheses on shapes of ambiguity aversion. In Chapter 5, to use household survey data to identify household risk and ambiguity aversion, I build a simple parametric model to identify household risk and ambiguity aversion from their saving and portfolio choice. The data from the Bank of Italy Survey on Household Income and Wealth 2008 and 2010 support the constant relative risk aversion and constant relative ambiguity aversion hypothesis, and give evidence of the magnitude of household risk and ambiguity aversion.

This thesis investigates the choices under risk in the framework of non-expected utility theories. One of the key contributions of this thesis is providing an approach that allows for a complete characterisation of Cumulative Prospect Theory (CPT) preferences without prior knowledge of the reference point. The location of the reference point that separates gains from losses is derived endogenously, thus, without any additional assumptions on the decision maker’s risk behaviour. This is different to the convention used in the literature, according to which, the reference point is preselected. The problem arising from imposing the location of the reference point is that the underlying preference conditions might not be alligned with the predictions made by the model. Consequently, it is difficult to verify such a model or to test it empirically. The present contribution offers a set of normatively and descriptively appealing preference conditions, which enable the elicitation of the reference point from the decision maker’s behaviour. Since these conditions are derived using objective probabilities, they can also be applied to settings such as health or insurance, where the continuity of the utility function is not required. As a result, the obtained representation theorem is not only the most general foundation for CPT currently available, but it also provides further support for the use of CPT as a modelling tool in decision theory and fi…nance. Another contribution that this thesis can be credited with is an application of rank-dependent utility theory (RDU) to the problem of insurance demand in the monopoly market affected by adverse selection. The present approach extends the classical model of Stiglitz (1977) by accounting for an additional component of heterogeneity among consumers, the heterogeneity in risk perception. Speci…fically, consumers employ distinctive probability weighting functions to assess the likelihood of risky events. This aspect of consumers’' behaviour highlights the importance that the probabilistic risk attitudes within the RDU framework, such as optimism and pessimism, have for the choice of insurance contract. The analysis yields a separating equilibrium, with full insurance for a sufficiently pessimistic decision maker. An important implication of this result is that any low-risk individual who sufficiently overestimates his probability of loss will induce the uninformed insurer to o¤er him full coverage, thereby, affecting the high-risk type adversely. This outcome is consistent with the recent empirical puzzle regarding the correlation between ex-post risk and insurance coverage, according to which, agents with low exposure to risk receive a larger amount of compensation. By providing an explanation of this pattern of individual behaviour, the current work demonstrates that theory and practice of insurance demand can be reconciled to a greater extent. The paper also provides a behavioural rationale for policy intervention in the market with RDU agents, where the initial distortions in contracts due to unobservable risks are aggravated by the non-linear weighting of probability of a risky event.

In the first chapter, the structural stability of the hybrid New Keynesian Phillips Curve (NKPC) and possible changes in pricing behaviour of firms is investigated in the context of oil price shocks. Using quarterly US aggregate data, this curve is estimated in subsamples formed with oil shock dates by generalized method of moments (GMM) and continuously updated GMM (CU-GMM). The standard GMM estimates suggest that although the forward-looking behaviour is predominant in pre-oil shock period, it loses ground against backward-looking behaviour after every oil shock. The CU-GMM results confirm the structural instability of hybrid NKPC in presence of oil shocks but now forward-looking behaviour becomes more important after oil shocks. In the second chapter, the structural stability of the NKPC featuring evolving trend inflation derived by Cogley and Sbordone’s (2008) is tested by exploiting three major oil shocks and three macroeconomic regimes. This is estimated by adapting two-step procedure combining Bayesian vector autoregression with minimum distance estimation. The results suggest that when a large and persistent macroeconomic shock sets off a large and sudden increase in trend inflation, backward-looking becomes more rational. When we impose continuous evolving trend inflation across macroeconomic regimes known as Great Inflation, Great Moderation, and Great Recession, the estimates of firm pricing parameters implies a structurally stable NKPC. In the final chapter, a small open economy NKPC is derived and estimated for a developing oil-exporting economy sick with Dutch-Disease. This curve is estimated for standard closed and open economy specifications of the Iranian economy. Introducing open economy elements produces three differences in the estimation. First, the degree of price stickiness and the fraction of backward-looking firms decrease. Second, the degree of substitutability between inputs is close to unity for Iranian economy. Third, the forward-looking behaviour gains ground while the backward-looking behaviour becomes less important.

The first chapter introduces the thesis and reviews the literature on loss aversion, the endowment effect and the willingness to pay/willingness to accept gap, and the effects of experience. The second chapter reports an extended version of Knetsch's exchange of goods experiment to explore how different types of experience influence the endowment effect. The experiment has four treatments, which compare the behaviour of subjects with experience of consuming, owning, and choosing goods to a control group. The results are consistent with earlier studies in that an endowment effect is observed; however, the strength of the effect is less than in earlier studies and differs between treatments. In particular, there is a significantly stronger endowment effect in the treatments in which the endowment is acquired in two steps rather than one step. The third chapter reports a repeated market experiment in which subjects buy and sell lotteries under symmetric and asymmetric information. Buying and selling bids and prices are compared. A gap between buying and selling prices decays under symmetric information but persists under asymmetric information. Furthermore, there are spillover effects. When the regime switches between symmetric and asymmetric information, subjects do not immediately adjust their behaviour. The results are interpreted as evidence that behaviour is driven by heuristics. The fourth chapter reports another repeated market experiment in which subjects buy and sell lotteries. How the lotteries’ odds are presented and whether the lottery gets resolved after each trial vary between treatments. Among the findings is that the gap between buying and selling bids decays when lotteries are not resolved each trial but persists when they are. The final chapter summarises the findings of the three experiments and identifies common patterns. Directions for future experimental and theoretical research are suggested. Finally, implications for policy are discussed.

My doctorate thesis investigates a particularly controversial issue in both philosophy of economics and philosophy of mind, namely, the problem of interpersonal utility comparisons (IUCs henceforth). As I take utility to be a numerical representation of the intensity of individual preferences, IUCs are judgments about how different people's preferences compare in terms of strength. As factual judgments, IUCs appear to be either underdetermined by the empirical evidence or indeterminate. This casts doubt on whether or not we can have (scientific) knowledge of, or, at least, (scientifically) justified beliefs about, how different people's preferences compare in terms of strength. In general, IUCs can be justified if the assumption of interpersonal similarity, in one of its forms, can be vindicated. I consider two strategies, which attempt to vindicate this assumption by means of, respectively, an inference to the best explanation type of argument and a nativist argument. I argue that both strategies fail. These results suggest that preferences may be interpersonally incomparable with respect to the dimension of strength. I consider four 'possibility' arguments addressing this challenge. I argue that, although some of them may solve the conceptual problem concerning the interpersonal comparability of preference strengths, they all fail to solve the epistemological problem of IUCs. Nevertheless, I argue that a 'modest' transcendental argument shows that IUCs can, at least, be justified, provided that we embrace a coherentist view about the structure of epistemic justification.

In the face of ongoing socio-economic problems such as inequality and the degradation of ecosystems, the question of the proper scope of markets remains a pressing one. Here, a theoretical framework for addressing this question is established, that is based upon a close analysis and synthesis of the contributions of the Austrian economists, Mises and Hayek. The radically pro-market conclusions of the Austrians have been strongly criticised by many writers who show them to overlook the normative significance of the problems of the market. Such critics propose that markets be limited in their scope, or possibly even replaced entirely, by non-market, political decision-making. Yet these writers tend to overlook the force of the challenge that the Austrian thesis poses to their proposals. Aside from their commitment to the normative primacy of a strictly procedural, market-orientated conceptionofliberty, the Austrian thesis shares with non-market advocates some important philosophical premises concerning the incommensurability of values and the spatio-temporal dispersion of knowledge. In the face of such complexity, the Austrians argue that the market process, by facilitating the encapsulation and discovery of knowledge, is an indispensible means of achieving coordination between individuals across society seeking to attain a plurality of different ends. The Austrian thesis offers profound insights into the epistemological challenge facing non-market, political institutions seeking to shape socio-economic outcomes. Yet the Austrian critique is directed towards a simplistic, neoclassical-inspired model of non-market decision-making. The Austrians overlook the potential for non-market processes and institutions to be designed to perform the same kind of epistemological functions as they argue can only be fulfilled by markets. Here, Austrian theory is shown to offer valuable insights for assessing the potential offered by a number of different, often recently developed, approaches in the fields of computation, planning, political theory and institutional practice. An 'immanent critique' ofthe Austrian case for markets is thus offered that draws from Austrian-inspired, theoretical insights in order to establish a framework for assessing the potential for non-market institutions to address the challenge of complexity.

The following articles submitted in partial fulfillment of the requirements for the degree of PhD by published works attempt to restate, refine and extend various themes in the tradition of the Austrian School of Economics and their relationship to selected topics in political economy. It is argued that two traditions developed out of the "marginal revolution" in economic theory, beginning in the 1870s: the Neo-Classical and Austrian approaches. In the Neo-Classical tradition, a theory of economic equilibrium is formulated on the basis of a "static" view of man and the market, in which actors are assumed to have a "given" ends-means framework in which agents narrowly maximize to attain "optimal" results within their respective decisions and across individuals for determination of interpersonal equilibrium. The Austrians, on the other hand, developed a more dynamic process theory of market activities based on a conception of man as an intentional being who creates his ends-means framework and initiates actions to improve his circumstances. The Austrian framework emphasized the role of time, uncertainty and imperfect knowledge, with a focus on the temporal-sequence of market interactions that may tend to bring about a pattern of interpersonal coordination of individual plans. It is also explained how the Classical Economists' concept of man and the market was much closer to the Austrian perspective than to that of the Neo-Classical Economists. The Austrian approach is extended by showing a "phenomenological foundation" to Austrian Economics in the writings of Edmund Husserl and its influence on the methodological works of Ludwig von Mises. The sociological contributions of Max Weber are shown to be the starting point for Mises' theory of "action," and how Weber's conception of the Ideal Type was adopted by Mises as a tool for understanding the process of expectations-formation in the market. The writings of Austrian sociologists, Alfred Schutz, are used to explain the reasoning behind the Austrian theory of action and the mental processes through which the social actors creatively imagine what becomes the endsmeans framework, which the Neo-Classical Economists assume are "given." Schutz's refinement of Weber's Ideal Typification schema is reformulated to explain the process through which individuals in the social and market arenas construct situational and personal ideal types that create the structures of intersubjective meaning enabling expectations-formation and the potential for interpersonal plan coordination. Lastly, the Austrian theme of acting man and the market process are applied to the issues of economic calculation under socialism, problems with Neo-Classical assumptions concerning government intervention in the market economy and the limits of economic policy within the market order.

This work examines some of the effects that developments in economic theory might have had on concepts of economic justice that are associated with it. Classical economics, as represented by Adam Smith and J.S. Mill is a good example of models of general equilibrium where moral responsibility cannot be evaded. Indeed, in the ethical analysis of these models- conducted by the same people who suggested them- the role of desert was prominent. Contrary to the general belief that classical economists advocated natural liberty for its moral goodness as much as for its economic efficiency, analysis by desert reveals a serious moral inadequacy of natural liberty. This, in turn, may explain the discrepancy between the received view and the fact that the works of classical economists are sometimes full with moral apprehensions about natural liberty. To reach such conclusions there is a need to re-interpret the works of Smith and Mill at both levels of economics and ethics. The bulk of this work is devoted to that purpose. A new interpretation of Smith's ethics is being offered. It is based on the consistency of human character and on the existence of some 'rationalistic' considerations in his work. Such an interpretation offers an alternative (and more comprehensive) solution to what became to be known as the Adam Smith's problem (old and new). Also, the application of his moral theory to the analysis of actions implies that a correlation must exist between intention and consequences. Thus the moral significance of the proposed spill-over of beneficence derived from the 'invisible hand' mechanism, is questioned. A new interpretation of Smith's economic follows where 'pre-market demand' relates the capitalists' decisions on saving to equilibrium prices. A distinction that has a moral significance is then being drawn between 'market-price' and 'natural price'. The study of Mill's methodology serves as a foundation to interpret some apparent contradictions in his moral theory (the relationship between Utilitarianism and Liberty). Ethology, which is the theory of character formation plays a major role in it. Coupled with Mill's theories of Free-will and Individuality, it is possible to establish a solution to the problems of Utilitarianism and Liberty without expanding the concept of utility. Similar principles are then introduced to Mill's discussion of economic justice. The principle of individuality is being presented in the form of Mill's principle of 'proportional remuneration'. A discussion of his theories of property follows and then, the question of the meaning of 'proportional remuneration' is being put forward. Before, however, an exposition of Mill's economic model in the framework of 'cost of production' general equilibrium is being offered. Then, the principle of proportional remuneration is being investigated. It is also related to a much wider question of the role and meaning of the labour theory of value in classical economics.

My purpose is to build an explanation of production that takes time into account. Adam Smith and the English Classical economists approached the problem by studying the relation between profits and wages or wages and capital. they emphasise the time aspect of production by saying that capitalists "advance" wages to labour long before its final consumption product is ready. On the background of that conception they painted a rough picture of production through time. I follow the classical tradition both in the title of my work and in parts 2. and 3. of my work where I approached the problem of production by studying equilibrium between the rates of interest and wages. Some light is thrown on the nature of this equilibrium by the statistics of distribution of the national income. My main results are in part 4. which contains a fairly general theory of production that takes time into account, found the use of mathematics indispensable. The best known attempts to formulate such a theory are Bohm-Bawerk's, Professor Fisher's and J.B. Clarks's (which is exemplified by Dr. Hicks' Theory of Wages). As I show Bohm-Bawerk's famous doctrine of the "average period of production" is based on a mathematical mistake. Professor Fisher's analysis of the "output streams" while very instructive, contains a greater number of unknowns than equations to determine them. Dr Hicks assumes that capital is a homogeneous factor of production assisting the production of consumption goods which emerge wither instantaneously or after time lags. If there are time - lags, Dr. Hicks assumes it makes no difference what these lags are. This is an attempt to deal with the time aspect of production by means abstracting from it. In recent articles (Economica and the Economic Journal) a very distinguished economist, Professpr F. Knight, appears to think that the problem of capital is incomprehensible and that it is no use trying to understand it. All these difficulties of theory mean that the pronouncements of economists on every concrete question of production - such as wage policies - are necessarily surrounded by a penumbra of considerable doubt. And no substantial improvement can take place until matters of general principles are cleared up. I try to clear them up. The essence of my analysis in part 4 is this. Assuming for simplicity that each competing firm controls a vertically completely integrated process of production of a consumption good, and writing t=0 as "the present", and entrepreneur finds himself in possession of a set of goods c at t=0 and is aware of a large number of alternative production plans. Each plan provides for future investment at a rate f(t) in values terms and for output of the consumption good at a rate of u(t). For simplicity we can take the good as the "numeraire". As between all the alternatives plans the functions u(t), f(t) are different. I.e. they have certain fields of variation. the central idea of the analysis is this: for each particular input function f(t) the output function u(t) can be varied within a certain field by varying the methods of production. This is the "missing link" which the earlier theories failed to bring out. Given the interest rate p, the condition which determines which plan is chosen is that the present value of the collection of goods c is maximised. I.e. that the present value of future profits is maximised (and is zero under perfect competition). That means that for each possible input function f(t) such an output function u(t) has to be considered as maximises x. I.e. the first partial variation. As f(t) is varied, different output functions u(t) become possible, and for each f(t) an output function u(t) is segregated which maximises x i.e. satisfies (2). Thence, in (1) f(t) becomes the only independent variable, and the equilibrium condition is that x is maximised with respect to the input function f(t). This condition determines which plan is chosen i.e. determines the unknown functions f(t), u(t). From (1) (2) (3) i.e. the present value of the future marginal product equals the present value of the future marginal costs. In this way a marginal productivity theory is built up which takes time into account. Then the theory is extended: account is taken of uncertainty, of "vertical disintegration" etc., etc., until a fairly comprehensive picture is reach of the course of production through time.

This thesis investigates nominal frictions in price setting behaviour from both microe-conometric and macroeconometric perspectives. Chapter I and II use the unpublished retailer-level and producer-level microdata underlying CPI and PPI in the UK statisti-cal authority to study empirical price rigidity and price setting mechanisms. Based on the conventional frequency-based method, little rigidity is found since the implied price duration is less than half a year. However, this method is shown to significantly underestimate the true duration due to oversampling of short price spells. Alternative-ly, a trajectory-based cross-sectional approach is adopted, giving an unbiased and ro-bust estimate for average duration over 9 months (retailer price) and 15 months (pro-ducer price). That is to say, producer price has higher degree of rigidity than retailer price if cross-sectional approach is used. Both time-dependent and state-dependent features exist in price setting. In particular for retailer price, results also suggest con-spicuous heterogeneities in price rigidity across sectors and shop types, but weak dif-ference across regions and time. The overall hazard function of price change can be decomposed into a decreasing component from goods sectors and a 4-month cyclical component from services sectors. The empirical findings in the microdata not only contribute to the microdata literature on price setting behaviour, but also make possible the calibrations of macroeconomic DSGE model with heterogeneous price setting. Hence, based on the microdata find-ings in Chapter I and II, Chapter III uses Classical maximum likelihood and Bayesian inference to evaluate and estimate DSGE models with various price setting mecha-nisms. A vital problem with homogeneous price setting models is that they cannot generate enough persistence while keeping calibration of average price rigidity con-sistent with microdata evidence. In contrast, this ―persistence puzzle‖ is successfully resolved by heterogeneous price setting models, which greatly improve the dynamic performance of macroeconomic models.

Abstract This thesis makes three main contributions to the literature on Dynamic Stochastic General Equilibrium (DSGE) models in Macroeconomics. As no previous studies have studied the Chinese economy from the perspective of DSGE, the first contribution of this thesis is estimating a DSGE model for China through a Bayesian approach using the Chinese quarterly post-economic reform data representing the main macro-economic time series 1978.Q1-2007.Q4. Second, this thesis adopts a new method of evaluating macro-economic models in its evaluation of the estimated DSGE model for China. Rather than the classical methods used to evaluate a macro-economic model such as the Maximum Likelihood method, the method of Indirect Inference is used to test the DSGE model. This method differs from other methods in its adoption of a VAR as the auxiliary model that mimics reality. A hybrid model is adopted to improve the ability of the DSGE model to replicate real world results and compared to the original New Keynesian version of the DSGE model developed by Smets and Wouters. Third, considering the restrictions that the prior distribution imposed on the estimated parameters of the model in the Bayesian estimation, the estimation method of Indirect Inference is used in the last chapter of this thesis and compared with the Bayesian estimation. The results of the Bayesian estimation are in agreement with most of the existing literature on DSGE models. However, the results of Indirect Inference testing suggest that the adopted DSGE model does not closely resemble the real data, with a Hybrid model with 50% weight on the NK part performing significantly better. Indirect Inference estimation produces the same results and provides a better estimation of the model.

The ‘New Keynesian’ model assumes that prices and wages are in an extreme ‘sticky’pattern. In this model, the ssumption that a lagged indexation scheme increases the persistence of inflation is in widespread used; however, in reality, this ad hoc indexation setup is inconsistent with the real data. Moreover, there is extensive evidence on micro price data indicates that heterogeneity in price stickiness is a commonly found feature of price setting throughout the Euro area. Therefore, this thesis aims at incorporating this micro price evidence in an elaborated New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model by using a Generalised- Taylor-Economy (GTE) and Generalised-Calvo (GC) price settings. This thesis first presents the models, which are an extension of Smets-Wouters (SW) model (2003) which replaces Calvo with indexation price setting with heterogeneous price settings. In these new price settings, the micro evidence of heterogeneous price stickiness is directly emerged into macro DSGE models. The findings suggest that heterogeneous price stickiness can generate long-lived inflation and output persistence. Indirect inference is then used to evaluate the DSGE models of the French economy under different price settings. The results of the testing show that all models with differentprice settings are comprehensively rejected. The models are then estimated with Bayesian techniques as SW (2003) by using seven key macroeconomic observables. The results show that the GC model has the best performance. The rankings of the different price setting models are also proven to be robust to different priors and observables. Indirect inference evaluations are then conducted based on Bayesian estimated models, and all models are rejected. Indirect inference is then used as an estimation method. The testing results are improved on all models. The GC model is still considered to be the best performance model among all of the different price setting models.