Mesoeconomics

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.

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 aggregate 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.

Areas claimed to be mesoeconomic

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 systems or the veil of money 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 theory. 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 Galbraith 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.

Information theory

The formalism of sending signals and receiving them or information theory 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.

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 Sornette and his model of stock market crashes.

Volatility

Instead of price, the focus of mesoeconomic reasoning is on other variables, including volatility 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 rotation 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 Schelling. (See also Infinite time horizon, Ricardian equivalence) hypothesis

Individuals associated with mesoeconomics

• Yew-Kwang Ng - 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 Mamalakis - He has written several papers on mesoeconomics and development, particularly in Latin America.
• Stuart Holland - 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 equilibrium and neoclassical economics.
• Niclas Andersson - Associated with analysis of the construction sector using the mesoeconomics of sectors.
• Kurt Dopfer - 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) - Historian of economics who has been a proponent of the need for a mesoeconomic scale in association with Stuart Holland.

Bibliography

• Dictionary Definition of Meso-. Vol. 4, The American Heritage Dictionary of the English Language, 2004.
• Dopfer, Kurt. "The Origins of Meso Economics Schumpeter's Legacy." In The Papers on Economics and Evolution. Jena, Germany: Evolutionary Economics Group 2006.
• Dopfer, Kurt ; Foster, John and Potts, Jason. "Micro-Meso-Macro." Journal of Evolutionary Economics 14 (2004): 263–279.
• Dopfer, Kurt ; Potts, Jason. "The General Theory of Economic Evolution." London; New York: Routledge (2008).
• Khanya-aicdd. Sustainable Livelihoods Principles, 2006. Available from http://www.khanya-aicdd.org/site_files/index.asp?pid=54.
• Mamalakis, Markos J. . "Poverty and Inequaliy in Latin America: Mesoeconomic Dimensiona of Justice and Entitlements." Journal of Interamerican Studies and World Affairs 38, no. 2/3 (1996 ): 181-199.
• Popov, Evgeny V. "Minieconomics as a Separate Part of Microeconomics " Atlantic Economic Journal 33, no. 133 (2005).
• Walz-Chojnacki, Greg. Markos Mamalakis: The Man Behind `Mesoeconomics' University of Wisconsin 2006 [cited 8 November 2006]. Available from http://www.uwm.edu/News/report/old/april99/people.html.