texts: Logically inconsistent optimality condition

texts:
I'm reading a book on monetary policy, and it defines the representative household's consumption as $$C_t = \int_0^1 C_t(i) di$$

so, basically a sum over the consumption of good $i$.

Then later on, it says that the consumption of each good is identical $$C_t(i) = C_t(j) = C_t$$

This equation makes no logical sense. How can $C_t(i) = C_t$ for all $i$? $C_t$ is DEFINED as an integral sum over all those $C_t(i)$. They cannot be identical.

That's like saying 4 = 2 + 2, and then say 4 = 2.


texts: Did real interest rates decrease during the Great Recession

texts:
Assuming the stock market/housing market crash decreased consumer wealth, decreased business confidence, and decreased expected appreciation rates on houses (thus increasing perceived user cost of residential capital), the IS curve shifted left at the onset of the Great Recession (in the IS-LM model):

But this indicates that real interest rates would have fallen.  Given that there was a liquidity crisis at the onset of the recession, I am guessing this did not happen.  Did it?  And if not, how could a liquidity crisis be accounted for in the IS-LM model?


texts:
Apparently (1, 2) Greece is running out of cash right now. I am wondering where the cash went.
One option that I can image is people withdrawing funds and taking them out of the country but this cannot be the core of the problem, can it?
The other possibility would be people just withdrawing money and saving it but eventually the money will have to be spend because people need to buy things so the problem might solve itself?
What am I missing here?


texts: The monopoly markup with inelastic demand?

texts:
This question is bothering me a lot... I think the answer must be really simple, but I haven't been able to answer it.

In a monopoly, $p=\frac{c}{1-1/|\epsilon|}$, where $p$ is price of the good, and $c$ is the constant marginal cost, and $|\epsilon|$ is the absolute value of price elasticity of demand.

Why is this equality not valid for inelastic demand $|\epsilon|<1$ ? If $|\epsilon|<1$, then we get a negative price... Where in the deduction of this formula, from the profit maximization firm's problem, do we have to assume that $|\epsilon|>1$?

Edit: So for the FOC we need $|\epsilon|>1$, but where in the description of the profit maximization firm's problem do we need implicitely the condition?


texts: Competitive Equilibrium in Securities Market: First Welfare Theorem

texts:
I'm working through Kerry Back's "Asset Pricing and Portfolio Choice Theory" book. Trying to work through the proof of the First Welfare Theorem in the context of securities markets on page 58.

Back is more general but for the context of my question let us assume that we have H investors, each with CARA utility with absolute risk aversion coefficient $\alpha_h$. The proof tries to establish that a competitive equilibrium in this economy is Pareto optimal. It proceeds by contradiction: assume that a competitive equilibrium (with random wealth for the set of investors given by $(w_1, \ldots, w_H)$) is Pareto dominated by some feasible allocation. WLOG assume the first investors expected utility can be increased without reducing the expected utility of the other investors.

Now Back defines a Pareto optimum that increases the expected utility of the first investor without changing the the expected utilities of other investors. For $h>1$, define $a_h$ by
$E[u_h( a_h + b_h w_m ) ] = E[u_h(w_h)]$
Where $w_m$ is the random variable giving the market wealth in the next period and $b_h = \tau_h/\tau$ where $\tau_h$ is the risk tolerance of investor $h$ and $\tau = \sum_{h=1}^H \tau_h$. Then set $a_1 = - \sum_{h=2}^H a_h$ and $w'_h =a_h + b_hw_m$ for all $h$.

Now here's the statement I don't understand "$w'_h$ is feasible for each investor". I guess maybe the phrase "for each investor" is throwing me off. I can see how this allocation would make the market clear. Is that all that is meant? But I don't see how we know that any budget constraints would be satisfied for each investor, which is how I would interpret his statement.


texts: Have countries ever tested economical measures at city level?

texts: Countries all the time takes measures at national level, and several times they create disasters. For example, they believe adding or removing a new tax will be positive for the overall economy, and it turns out to be bad and it causes a big problem. Are there examples of countries taking measures at city level, to see if that measure could succeed or fail nation wide? For example, trying how a tax affects economy in a small town first, if it impacts positively, trying it in a city, if it fails, restore the town's economy to its original state (since it is a small town a country with all its resources can fix economical mistakes in a town) and if it goes well scalate the measure, after the town, trying in a city, later in a county or deparment, later in a province or state, to finally reach nation wide. Do countries ever do things like that, is there any example of a country doing such thing?


texts: Why a new startup should ask a big investment company to value them as low as possible?

texts:
In "Silicon Valley TV Series" (in first episode of the second season) a bunch of guys, designed a new algorithm, and asked big companies to invest in that project and value their product.

At a certain time in the episode, they realized that instead of negotiating with companies for higher investment and higher valuation, they must somehow negotiate for the lowest possible valuation as they are new to the market, otherwise they will be bankrupt.

I can't figure out the reason!

In a simple language (as I know nothing about economy) can anyone explain it?


texts: Issues with an application of definite internal and marginal utilities

texts:
I'm going to state the problem without much context because it is an issue of the math I'm doing, rather than any specific econ concept.

Condition. I'm trying to prove this.
$$ V(q_l) - \theta_l*q_l  > V(q_h) - \theta_h*q_h$$

Given
$$q_l>q_h$$
$$\theta_l < \theta_h  $$
$$V'() > 0$$ $$ V'' < 0 $$
$$V'(q_l) = \theta_l $$
$$V'(q_h) = \theta_h $$

I'm trying to use definite integrals to prove this. But I think I'm getting something fundamentally wrong here.

$$ \int_0^{q_i} V'(q)dq = \int_0^{q_i} \theta_i  $$
$$ V(q_i) - V(0) = \theta_i*q_i$$

This gives two equations, one for each $q_l, q_h$. Substracting these two equations from one another.

$$ V(q_l) - V(q_h) = \theta_l*q_l -\theta_h*q_h $$

I'm definitely doing something wrong here. Any help?


texts: Speculation: Why is it referenced and how do we account for it?

texts:
I've been to a couple of presentations recently on the housing market in Toronto and I've heard the term "speculation" thrown around by economists/academics when discussing factors that are contributing to the rise in housing prices.

It seems to be just something to pin the blame of forecasting error on.

I am yet to see any clear measures of speculation but always see it mentioned again and again.


texts: GDP per Capita in Panel Data: Must the base year be the same for all cross-sections?

texts:
I'm trying to run a small project using time series in panel data. One of the variables used is the GDP per capita for a few countries (the countries are the cross-sections). Is there a problem if the base year for a few countries is different? Say for example, Spain's series has 2005 as base year while Germany's series 2010 as base year. Does this cause any sort of problems?
Thank you in advance.


texts: Is it correct to say opportunity cost is cost of giving up quantity of what you are selling?

texts:
In this video (https://m.youtube.com/watch?v=KEYYN-a_x6E), the instructor talks about the marginal opportunity cost and supply curve. (Begins talking about it at after 1:50).

He states that the opportunity cost of giving up a quantity of apples (what she is selling) is the opportunity cost.

Is this correct? I thought the opportunity cost is the cost of giving up alternative things. But he plots the points of "giving up an apple' on the marginal opportunity cost curve, even though she is selling apples, so wouldn't that not be the opportunity cost.


texts: Why do different countries have different currency ? Why not there are different currencies for each 10-20 kilometers?

texts:
I have researched a bit in different forums.

Main answers include:
1. So Different countries can control different monetary policies
2. So different countries can handle shocks(up and down).
3.Based on region,human resource, natural resources, geographical position, cultural diversity, ethnicity etc

1.My question is why not control money as if there is a single country (with more than one states(suppose each state is a country))?

2.Why currency will be divided based on region,human resource, natural resources, geographical position, cultural diversity, ethnicity etc? (states/places in a single country can also have diversity then how they can be managed and several countries cannot be managed?)

3.Because if that is the case who decides we need different currencies based on which conditions (eg. eurozone)?
If the division is true why not there are different currencies for each 10-20 kilometers(or where there is more rice growth,or where there is no agriculture but more tourism difference based on these differences)?

Edit : please don't make it duplicate because I am asking after seeing the other questions. After checking now I want to know more derived from that answers.. please refer q 2,3


texts:
I recently saw a meme, and the content was something like:

  In the near future, a meteor will 'hit' the Earth, and there will be
  gold rain, and hence everyone will be rich

The ridiculous thing with this is that if everyone has tons of gold, then gold becomes worthless, so in terms of poverty, nothing would change.

This got me thinking!

It is clear that you cannot solve poverty by giving poor people money because than the money would loses its value, and prices go up (since also you would need to print heck a lot of money). However, one thing that might work is if everyone had a job with decent salary. Then, everyone would earn enough money to have decent life.

However, this got me thinking even more!

This solution implicitly assumes that in such a case, everything would be the same except now everyone has enough money to support themselves, but if everyone has a job with a 'decent' salary, say a job with at least paying \$1000 per month, then the values of the money would (or could) drop because everyone has that \$1000, so then \$1000 wouldn't become a 'decent' pay, and not everyone would be able to support themselves with that much money now.

(same thing ...) even more!

Question: Is not having and poor people mathematically possible ?

If you think about it, the very fact that something is valuable, such as gold, depends heavily one the fact that not everyone has that item. Moreover, if all the wealth was distributed equally, and not allowed any imbalances, then we wouldn't be event survive as human species, but any imbalance would results in someone getting richer and some other getting poorer; and this means with some extreme exceptions, the existence of poverty is ensured mathematically.

Edit:

Guys, you are obscuring the core problem in here by dealing with specific details; forget money, thing in terms of wealth. There is some total wealth in the economy, and assume that there is some poverty threshold of in terms of wealth (it does not matter how this wealth is distributed or kept in practice i.e in terms of some money, gold, or silver; it does not matter.) What is this threshold.? we don't know, and we don't have to know for the time being. The analysis will show in what conditions, such a threshold can exists, and there can be no poor with respect to that threshold (of course, we then have to check, when we interpret our results in terms of real money whether that threshold corresponds to a "decent" one).


texts: Solving a Cournot Equilibrium, the case of Q=q1+q2, Q(q1,q2)=q1+q2

texts:
I am struggling with the differentiating between when to use $ Q=q_1+q_2$ and $Q(q_1,q_2)=q_1+q_2$

For a 2 player cournot game,
given
$$ P=a-bQ, with \ MC's \ c_1 \neq c_2   $$

I find the following:

FOC
 $$  q_{i}^* = \frac{a-c_i}{2b} - \frac{q_j}{2}  $$

which leads to me to a equilibrium value of $$q_i^{eq}= \frac{a-2c_i+c_j}{3b} $$

when using $$P=a-b(q_1+q_2)$$

$$ \textbf{HOWEVER} $$

The supplied answer is $$q_i^{eq} = \frac{2a+c_j-2c_i}{3b} $$

with FOC

$$ q_{i}^* = \frac{a-c_i}{b} - Q  $$

where the answer uses

$$P = a-bQ(q_1,q_2) $$

When am I supposed to use the different Q's? as all my lecture notes follow the method I used, and there are other questions which look identical and use $Q=q_1+q_2$ but there is obviously a time to use $Q(q_1,q_2)$.


texts: Optimizing Lagrangian Function Subject to 4 Input/Output Constraints:

texts:
The objective function:

$$\text{utility}=U\left(x_{c}, y_{c}\right)$$

subject to,

$x_{o}=f\left(y_{i}\right)$
$y_{o}=g\left(x_{i}, x_{o}\right)$
$x_{c}+x_{i}=x_{o}+x^{*}$
$y_{c}+y_{i}=y_{o}+y^{*}$

where o represents output, i is inputs, c is consumed, and * represents initial quantity stocks. Lagrangian is combined and the first-order conditions are as follows:
$$
\begin{array}{l}{\partial \mathscr{L} / \partial x_{c}=U_{1}+\lambda_{3}=0} \\ {\partial \mathscr{L} / \partial y_{c}=U_{2}+\lambda_{4}=0} \\ {\partial \mathscr{L} / \partial x_{i}=\lambda_{2} g_{1}+\lambda_{3}=0} \\ {\partial \mathscr{L} / \partial y_{i}=\lambda_{1} f_{y}+\lambda_{4}=0} \\ {\partial \mathscr{L} / \partial x_{o}=-\lambda_{1}+\lambda_{2} g_{2}-\lambda_{3}=0} \\ {\partial \mathscr{L} / \partial y_{o}=-\lambda_{2}-\lambda_{4}=0}\end{array}
$$

Simplification leads to the following expressions:
$$
M R S=\frac{U_{1}}{U_{2}}=\frac{\lambda_{3}}{\lambda_{4}}
$$
$$
M R S=\frac{\lambda_{3}}{\lambda_{4}}=\frac{\lambda_{2} g_{1}}{\lambda_{2}}=g_{1}
$$
$$
M R S=\frac{\lambda_{3}}{\lambda_{4}}=\frac{-\lambda_{1}+\lambda_{2} g_{2}}{\lambda_{4}}=\frac{-\lambda_{1}}{\lambda_{4}}+\frac{\lambda_{2} g_{2}}{\lambda_{4}}
$$
$$
=\frac{1}{f_{y}}-g_{2}
$$

Q: The text states that optimality in y production requires the individual's MRS in consumption equal the marginal productivity of x in the production of y. I do not understand this statement. We are optimizing utility not the production function?


texts: Trade in services between the US and China

texts:
International trade consists of both goods and services, yet in the case of US-China trade for some reason both the media and official government releases only seem to quote the goods component.

So for example for 2017 imports were $\$505.6$ bn, exports $\$130.4$bn giving a trade deficit in goods of $\$375.2$bn with China.

I cannot for the life of me find import and export figures for services to and from China.

Can anyone please point me in the right direction? Thanks.


texts:
A large number of US economists have signed a Statement on Carbon Dividends, advocating a revenue neutral carbon tax as the best policy measure to reduce carbon emissions and so mitigate climate change.  The statement also advocates (para IV) a border carbon adjustment system to ensure that such a carbon tax would not encourage carbon leakage (ie transfer of production to another country with a laxer carbon regime) and damage US competitiveness.

What are good sources explaining how a border carbon adjustment system might work, the pros and cons of such a system, and lessons from attempts (if any, anywhere in the world) to operate such a system?


texts: What are the consequences of having negative GDP growth?

texts:
Many countries are facing negative GDP growth due to coronavirus.
I am curious to know what will the significant consequences of having negative economic growth?


texts: Why are interpersonal utility comparisons not possible

texts:
Why is it not possible to compare utility across individuals?

Is this only impossible when we consider ordinal utility where we have no numerical unit?


texts:
How to read PPP$ aloud?

That is in a paper that I should read loud in a presentation, but I don't know the most

Is it "purchasing power parity in US Dollar,"

or "purchasing power parity in terms of US Dollar,"

or ... ?


texts: Is there an economic term that means the same thing as "personal inflation"

texts:
I don't have anything even close to what would be considered formal education in terms of economics, so the term "personal inflation," is just something I completely made up. What I mean by personal inflation is that, in terms of living condition, 1000$$ given to someone who is already a millionaire isn't going to be worth very much because, compared to the amount of money that person already had before, 1000$ isn't very much money. However, if that same 1000$ were to be given to someone who had little to no money, the money would be valued at much more and raise the living condition, for at least a little while, of that person much more than it would the millionaire.

What my questions is regarding is what the better term for this "definition" that is explained above is, and/or whether there are terms the fit this description above fairly well, but are slightly different.


texts: Why do Australian milk farmers need to protest supermarkets' milk price?

texts:
Sorry this might be borderline off-topic (and I am an economics layman at best), but I found this rather puzzling and would like to know why this is happening.

I just came across an article which documents another development in the quarrels between Australian milk farmers and big supermarket chains.

As I understand it, the farmers demand that supermarkets charge higher prices for milk and then pass on the additional revenue back to the farmers.

When I think of the free market, I would expect this to be unnecessary, as the farmers could charge more when they sell the milk to the supermarkets or, if that doesn't work (why wouldn't it?), some farmers would stop milk production leading to milk scarcity leading to higher prices or, more importantly, higher revenue for the farmers.

What am I missing?


texts: Effectiveness of recycling (consumer PET) plastic

texts:
Is recycling plastic, all things considered, efficient as compared to disposing of them and making new plastic?

I'm looking in efficiency rates in free market environment and also full process of production and disposal. No moral agenda, no subsidies, simply, is it worth to recycle plastic.

It is not easy task to find all the costs involved and it surely depends on place and politics so I understand some assumptions have to be set. I understand that keeping our backyard clean is also important so when disposal is considered it should be done in proper manner. No enforcement should be speculated (such as enforced sorting by the public), although voluntary action may be considered (motivated public).

The costs of production option of plastic should involve:
production (costs), introducing to the market (gain), disposal (costs)

The costs of recycling option of plastic should involve:
collecting (costs), processing (costs), reintroducing to the market (gain)

Anyone help is appreciated. It's not any project, just curiosity of my own. If anyone can at least point me to good resources and outline how to calculate everything objectively, I would much appreciate that.

One document that deals with the topic is here:
http://cdn.intechopen.com/pdfs-wm/37109.pdf

Although it doesn't give clear answer (hard numbers).

Update: What I seek here mostly is proper methodology of objective economic calculation of this very matter.
1. What are the partial processes to consider - the major contributor of costs/profits.
2. How to determine the costs/profits of each part.
3. Where to find objective data or how to get it.

I should have probably attempted to try something on my own, and I intend to. But once I start thinking about it I find that I either don't have objective output or that the calculation would require too much detail.
Example: landfill cost according to the EU document in comment, p.64 ( http://ec.europa.eu/environment/waste/studies/pdf/eucostwaste.pdf ) the prices range from 6 EUR/ton in Poland to 164 EUR/ton in Netherlands. Now, is the difference due to higher labor costs or due to taxes and directives?


texts: Utility Possibility Frontier with two consumers and 3 commodities

texts:
I am trying to solve the following problem:

Consider a pure exchange economy with three commodities and two households with individual endowments:

$$e_1=(1,2,3), e_2=(3,2,1),$$

respectively, and utility functions

$$u_1(x_{11},x_{12},x_{13})=x_{11}+2x_{12}+3x_{13}$$ and $$u_2(x_{21},x_{22},x_{23})=3x_{21}+2x_{22}+x_{23}$$
respectively.

Which of the following is the Utility Possibility Frontier?
Options:

A. $\displaystyle \max\left\{ u_1+\frac{u_2}{2}, u_1 + u_2, \frac{u_1}{2} +u_2 \right\}  = 32$

B. $ \displaystyle \max\left\{ u_1+\frac{u_2}{3}, \frac{3}{4} u_1 + \frac{3}{4} u_2, \frac{u_1}{3} +u_2 \right\}  = 24$

C. $\displaystyle \max\left\{ u_1+\frac{u_2}{3}, u_1 + u_2, \frac{u_1}{3} +u_2 \right\}  = 24$

D. None of the Above

My attempt:

I tried calculating the Pareto optimal allocations by taking two commodities at a time. I found out that between good $1$ and good $2$, the Pareto efficient allocations are where:
$$x_{21}= 4 \quad \text{or} \quad x_{12} = 4$$

Similarly, between good $2$ and good $3$, I find that:

$$x_{22}= 4 \quad \text{or} \quad x_{13} = 4$$
are  Pareto optimal.

Similarly, between good $1$ and good $3$, I find that:

$$x_{21}= 4 \quad \text{or} \quad x_{13} = 4$$
are  Pareto optimal.

Also I observe that the preferences among good $1$, good $2$ and good $3$ of individual 1 are:

$$ \text{good } 3 > \text{good } 2 > \text{good } 1 $$

And those of individual $2$ are:

$$ \text{good } 1 > \text{good } 2 > \text{good } 3 $$

Now I consider the following allocations:

$$((x_{11},x_{12},4), (x_{21},x_{22},0))$$

And the fact that
$$x_{11} + x_{21} = 4$$
$$x_{12} + x_{22} = 4$$

I find that:

$$u_1 = x_{11}+2x_{12}+3x_{13} = x_{11}+2x_{12} + 12$$

$$u_2 = 3x_{21}+2x_{22}+x_{23} = 3x_{21}+2x_{22}$$

$$\implies u_1 + u_2 /3 = 16 + 2x_{12} + 2/3 x_{22}$$
$$\implies u_1 + u_2 /3 = 16 + 2/3(3x_{12} + x_{22})$$
$$\implies u_1 + u_2 /3 = 16 + 2/3(2x_{12} + 4)$$

$$\implies u_1 + u_2 /3 \le 24 $$
because $x_{12} \le 4$.

Similarly I consider the allocation:

$$((0,x_{12},x_{13}), (4,x_{22}, x_{23}))$$

And find that:

$$ u_1 /3 + u_2 \le 24 $$

I am stuck here. I am not able to see how I can take it from to the options given. Please drop hints as to how I can.

Thank you for reading this.


texts: How can the number of hairdressers in the UK be up 50% since 2010?

texts:
In this recent article, The Economist argues that one of the reasons behind the anaemic recent wage growth in Britain is that the recent job growth has been concentrated in lower-productivity jobs and cites the fact that the number of hairdressers in the UK is up 50% since 2010. How can that be?

The population is probably up c. 5% since 2010, which means that population growth can't explain this increase. It also seems far-fetched that people would consume 40-50% more haircuts per person per year. (As an example, that would mean that instead of getting a haircut once every 4 weeks or 13 times per year, you now get a haircut once every 2.7 weeks or 19.5 times per year.) What am I missing?

I ask this question because I do think that the growth of low-productivity jobs plays an important role behind stagnating real wages in the UK. (A continental European politician once commented on the British economy pivoting more and more towards services by saying, "you can't all make a living by opening doors for each other.")


texts: Evaluating the impact of US federal grants

texts:
There are a number of challenges with evaluating the impact/effectiveness of federal grants in the U.S.

In particular, it's easy to obtain a (somewhat comprehensive) record of transactions between grantors and grantees from websites like https://www.usaspending.gov/#/. However, it's unclear how to determine from that transaction data the amount of federal support at a given point in time, say to a given state. E.g., if a grant is associated with a single $1,000,000 transaction in the middle of the grant's 3 year period of execution, how should we determine the amount og federal support associated with that grant in years 1, 2, and 3?

I am looking for suggestions on how to deal with this issue, as well as examples of papers studying the impact of U.S. federal grants that could give me methodological clues on how to deal with this and other related issues.


texts: Is it easier to profit from selling, than buying, options?

texts:
Reasons 1-3 and 4-6 below look correct. Is the author's conclusion correct though?

To make a profit on the buying side:

You have to be directionally correct. The price must go up for calls, down for puts.
AND the share price move must be bigger than the premium you paid.
AND the share price move must happen before the option expiration.

You will notice that it is pretty unforgiving. Sure, when you are right, you can make a 100% to 1000% profit in a few months, weeks, or even days. But there is a big chance that you will suffer death by thousands of cuts with your long call or put contracts losing value every day and become worthless.
We were discussing earlier how volatile stocks can have a high extrinsic value. What happens to your option price if the share is changing a lot and suddenly calms down? The extrinsic portion of the option price will crater quickly because volatility dropped, and time is still passing every day.
The same way you can buy options, you can also sell call and put options. Instead of buying the right to exercise your ITM calls and puts, you sell that right to a 3rd party (usually market makers).
To make a profit on the selling side:

You have to be directionally correct.
OR the share price does not move as much as the premium.
OR the share price does not move before the option expiration.

Buying calls and puts mean that you need to have strong convictions on the share’s direction. I know that I am not good at predicting the future. However, I do believe in reversion to the mean (especially in this market :)), and I like to be paid as time is passing. In case you didn't guess yet, yes, I mostly sell options, I don’t buy them. This is a different risk, instead of death by a thousand cuts, a single trade can have a big loss, so proper contract sizing is really important.
It is worth noting that because you sold the right of exercise to a 3rd party, they can exercise at any time the option is ITM. When one party exercises, the broker randomly picks one of the option sellers and exercises the contract there. When you are on the receiving end of the exercise, it is called an assignment. As indicated earlier, for most parts, you will not be getting assigned on your short options as long as there is some extrinsic value left (because it is more profitable to sell the option than exercising it). Deep ITM options are more at risk, due to the sometimes inexistent extrinsic value. Also, the options just before the ex-dividend date when the dividend is as bigger than the extrinsic value are at risk, as it is a good way to get the dividend for a smaller cash outlay with little risk.


texts: What is the point of all the models in an economics degree?

texts:
I am a student of Economics doing my masters degree and I have to say I am a bit tired of all the models.

On the one side, there is these models where I can see how they are derived, which always seems to be a mixture of using the Lagrangean with some - often rather unconvincing - assumptions. But I kind of fail to see the deeper meaning. For example how do New Keynesian (or RBC) models help me understand the real world?

How would they be used in practice - is it reasonable to assume they could forecast inflation, growth or interest? It seems like these things are inherently impossible to predict.
Do they help me understand how they work? The understanding I have about them comes more from non-mandatory applied courses and my personal readings about past financial crisis etc.
But probably most importantly, do I believe anything that comes out of them which I did not assume already before? Certainly not.

Or the Solow model, how is the fact that some countries seem to have followed a path that vaguely resembles that assumed by the Solow model a justification for its validity? Drawing a simplified picture of a human doesn’t help me understand why they became sick.
There is extreme cases like Barro's model of Ricardian Equivalence which seems like either the world's most boring circus trick or an attempt to fool policy-makers without basic maths skills.

On the other side there is a few cases where I would say my understanding improved with models in a way it would not have without, e.g. the notion of externalities, Pigouvian taxation or comparative advantage. But I have to say - given the countless pages of Lagrangeans I have set up, hours I have spend maximising profit functions and arguments I had in my head trying to find ways to justify some micro axioms - this is not a lot.

Don't get me wrong, I am fascinated by the study of the Economy and everything it relates to, I just don't see how a lot of what we learn is actually a helpful tool. I am a good student and neither looking for an easy way out, nor do I want to rant about studying. I am just looking for some motivation where this all leads. Can somebody explain to me what the deeper meaning of economic modelling is and why we give it this much attention?

And yes I know all models are wrong, but how are they useful?


texts:
My question concerns the following problem: two players, $1$ and $2$, each owns a house. Each player $i$ values his own house at $v_{i}$. The value of player $i$'s house to the other player, i.e. to player $j\neq i$, is $\frac{3}{2}v_{i}$. Each player $i$ knows the value $v_{i}$ of his own house to himself, but not the value of the other player's house. The values $v_{i}$ are drawn independently from the interval $[0,1]$ with uniform distribution.

Payoffs and actions are defined as follows: each player announces simultaneously whether they want to exchange their houses. If both players agree to an exchange, the exchange takes place. Otherwise no exchange takes place.

As far as finding a Bayesian equilibrium is concerned, I have reached the following stage:

Given $j$ exchanges, $i$ exchanges so long as $v_{i}\leq\frac{3}{2}v_{j}$ and given $i$ exchanges, $j$ exchanges so long as $v_{j}\leq\frac{3}{2}v_{i}$. This means that $j$'s expected utility from exchanging (given $i$ exchanges) is $\frac{9}{8}v_{j}$ and $i$'s is $\frac{9}{8}v_{i}$. From this I do not know how to proceed.


texts:
Can beta be an exponent within a function prior to taking the log of that function to arrive at a simple, log-linear estimation equation?

I am curious because I found an equation that had beta as an exponent on page 7 of this article by Lee Branstetter(2004): http://bit.ly/1OGSFx9 titled: Is Foreign Direct Investment a Channel of Knowledge Spillovers? Evidence from Japan’s FDI in the United States

I believe there this is not out-of-order. I am however, seeking an explanation to the equation.

I have tried to check different sources and the closest explanation is that the function is a linear-log function.


texts: Does Inflation Make Money Eventually Worthless?

texts:
I used this calculator: http://www.buyupside.com/calculators/inflationjan08.htm
to estimate the future worth of 100 dollars in 100 years at 2% inflation. Does this really mean that a decent meal at a restaurant will cost about a $100 in the future or am I misunderstanding something? So basically what I'm asking is if at some point in the future will McDonald's Dollar menu become the Hundred Dollar menu?


texts: How does real gdp affect the domestic currency?

texts:
When the domestic real gdp per capita increases then it has a negative effect on domestic currency (depreciation)? Why?

Source: The real exchange rate of euro and Greek economic growth, Gregory T. Papanikos, The Journal of Economic AsymmetriesVolume 12, Issue 2, November 2015, Pages 100-109.


texts: I  cannot understand what (lny-lny0)/t means. Of course we use this to show growth rate. But in the mathematical sense, I cannot know what it is. Is it diferrentiaion?


texts: Relationship between expected utility and independence axiom

texts:
Jonathan Levin in "Choice under Uncertainty" wrote in Theorem 1 " A complete and transitive preference relation on a set of lotteries P satisfies continuity and independence if and only if it admits as expected utility representation". So it seems that if we have an expected utility function, preferences will definitely be independent and continuous, and vice-versa. Am I correct? But I am unsure that if preferences don't have expected utility form, will they necessarily not be continuous and independent?

i.e. if preferences are inconsistent with expected utility, does that necessarily imply that the independence axiom is violated?


texts:
How would the welfare analysis of a military draft look? My intuition tells me that it would look similar to a price ceiling below the equilibrium, with the exception that suppliers (civilians) are forced to supply the draft.

So we supply beyond P* x Q* and all the way out to the intersection of the demand curve and P-draft.

If we say that consumer surplus is the area above P-draft and below the demand curve, then how would we interpret the area that isn't our typical DWL? The area above P-draft, below the demand curve, and above the supply curve.


texts: Asymmetric Public Goods Game Reference request

texts: I am doing a literature search and wondering if anyone has any good references on something related to the following topic: a one shot public goods game with asymmetric costs and benefits. We can assume a general utility form for all players which is public information, but each player's parameters for the utility function are unique and private information. Furthermore, if the overall contribution does not meet the target, a punishment is shared by all players, not just the players who did not participate.


texts: Revenue maximization same as increase contribution margins?

texts:
Under which condition, will it be the same whether you choose to use revenue maximization or to increase contribution margins? In what industry is this possible?

In my thought process, I was thinking that before above condition can be true, the industry/company will need to have no variable costs, only fixed costs - but I am unsure.

Can anyone help me answer above since I can't seem to wrap my head around it.


texts: Why is the Chilean economy so much better than the rest of the countries in South America?

texts:
Why does Chile have a better economy than all of the other countries in latin America?

It is labeled as a high income country by the IMF,
It is the only Latin American country that is part of the US Visa Waiver Program
It is one of two Latin American countries that is an OECD member.
Unlike some of the other developed countries in South America,Argentina , they don't have chronic inflation problems.

What was is that set Chile apart? I've read a little bit about how "The Chicago Boys" played a big part of the country's success. What did they do differently in Chile? Didn't a lot of the policies that they helped to put in place take place under Pinochet? I read that Chile's chronic inflation problem was also solved under then Pinochet regime. If so, how do you think that affects the legacy of Pinochet?


texts: Isn't the parameter A denoting technological progress from Cobb-Douglas already included in alpha and beta?

texts: Does it not follow that if capital is better performing than labor it would be used more frequently? What exactly does parameter A actually mean, then?


texts: Consumer choice: How could a consumer weakly prefer A to B *and* B to A?

texts:
From Perloff, Microecomics, 6th edition (Pg. 75):

A consumer chooses between bundles of goods by ranking them as to the pleasure
the consumer gets from consuming each. We summarize a consumer’s ranking using
a preference relation, such as the consumer weakly prefers Bundle a to Bundle b, if the consumer likes Bundle a at least as much as Bundle b.

Given this weak preference relation, we can derive two other relations. If the consumer weakly prefers Bundle a to b, but the consumer does not weakly prefer
b to a, then we say that the consumer strictly prefers a to b—would definitely
choose a rather than b if given a choice—which we write as a b.

If the consumer weakly prefers a to b and weakly prefers b to a —— then we say that the consumer is indifferent between the bundles, or likes the
two bundles equally.

My question is: When you have declared that a consumer weakly prefers A to B, how could you then argue that a consumer could also prefer (weakly) B to A? Aren't they mutually exclusive?


texts:
I am aware of the details of Uncovered Interest Parity, namely that the expected depreciation of a currency vs another one should equal the interest rate differential. I am also aware that empirically it doesn't seem to hold.

However, my question is by what mechanism should this parity be achieved? As in, if the currency appreciates, what incentivises traders to push it downwards?

Edit: One explanation is that after the initial increase in the interest rate differential, investors invested in the relatively higher yielding currency and bid it up.
This pressured interest rates lower and investors don't invest as much now because the interest differential is less attractive.

I don't see how that leads to a selling of the currency though. Is it because the drop in the differential induces selling of the currency?


texts: Difference between Giffen and inferior goods. Why aren't all inferior goods Giffen goods?

texts:
What is the difference between an inferior good and a Giffen good?
Are the two following definitions for an inferior good equivalent?

Def 1: An inferior good is a good for which the demand decreases after a decrease of its price.

Def 2: An inferior good is a good for which the income effect leads to a decrease of demand after a relative decrease of its price.

A Giffen good (1) is when after a decrease in price of good (1) the demand for (1) decreases but the demand of some other good (2) increases.

Or is Def 1 just the definition of a Giffen good, which is a special type of inferior good ?

For a Giffen good the Income Effect is strong enough to outweigh the Substitution Effect... But isn't it also the case for all inferior goods? The change in their demand is going to be negative (we consume less after the decrese in price) and that change is equal to the sum of SE and IE, so we also get that Income Effect is strong enough to outweigh the Substitution Effect.


texts: Is it possible for a Central Bank to escape from a deflation trap by 'hiding' information?

texts:
I'm reading this book on macroeconomics.

When determining the nominal interest rate, the Central Bank has in mind its real interest rate goal. By the Fisher Equation: $i_t=r_t+\pi^{E_{CB}}_{t+1}$, since at time $t$, I would need to know the price level at time $t+1$ to know inflation for next period, we use an expected value for inflation. I put the superscript $^{E_{CB}}$ to denote that the expectancy is formed by the central bank.

In the usual Philips Curve, we have $\pi_{t+1}=\pi^{E_{SS}}_{t+1}+\alpha(y_{t+1}-y_e)$ I put the superscript $^{E_{SS}}$ to denote that the expectancy is formed by the Supply Side (wage and price setters, i.e., with all available public information).

Recently, from a talk with someone who worked at a central bank, I learned that there's some difference in amount/quality of information that it's publicly available to wage and price setters, and that which is available to the Central Bank.

In the book I'm reading, the authors state one possible way of escaping a deflation trap, even if in practice it will not always work, is that to have higher expectations so that the minimum threshold for the real interest rate is lower enough to increase output until equilibrium.

Now I was wondering if it was not possible for, in some situation, the CB publicly divulged information lead to workers and firms have higher expected inflation, while the CB would know those expectations to be a bit too optimistic, such that in reality that period real interest rate would be much lower to be enough to get out of deflation trap?

I think I must be making some errors in this reasoning.

Any help would be appreciated


texts:
A CLEC, competitive local exchange carrier, is described...

A competitive local exchange carrier (CLEC), in the United States and
Canada, is a telecommunications provider company (sometimes called a
"carrier") competing with other, already established carriers,
generally the incumbent local exchange carrier (ILEC).

The source for this quote... is a Wikipedia page.
It is my understanding that the ILEC is a former monopoly and that former monopolies usually exist because they were or are natural monopolies. The introduction of a CLEC does not change the fact that the infrastructure of the ILEC has a high cost to create and that cost is an insurmountable obstacle to creating a parallel infrastructure. In fact, the CLEC typically does not create a parallel infrastructure and instead it will rent use of the original electronic or optical fiber infrastructure of the ILEC.
The basis of competition would seem to originate in infrastructure other than the electronic or optical fiber infrastructure. This might take the form of what used to be a call center, although these people can work from home so physical call centers do not even need to exist. Websites can replace call centers for a business that wants to completely avoid talking to people. What remains is the mental effort to create a website to advertise and support customers of the CLEC and perhaps some retail locations to do essentially the same thing that the website does. CLECs exist on what is a small fraction of the infrastructure of the ILEC. If the infrastructure is small there is not a big domain in which to innovate. If the industry is mature there may not be obvious ways to innovate. If there is no innovation then the large scale operation wins; the ILEC wins.
Obviously the CLEC can exist if the ILEC decides not to force the CLEC out of business through competition. The ILEC wants to be popular with politicians and regulators and politicians want to be popular with voters. The CLEC can thrive if politicians want it to thrive and if the ILEC knows what the politicians want. An different way for politicians to be popular with voters is to regulate the profit of the ILEC and voters will pay lower prices. The ILEC profit might be so low that there will be no CLECs.
Edit: The question is "how does a CLEC innovate?" There were comments that suggest CLECs are not innovating and that CLECs are "innovating better ways of getting your money, not better ways of making the Internet work". These comments seem to take a narrow view of innovation being necessarily connected to technological improvement and at the same time seem to allow that "getting your money" is an (ironic?) innovation. I do not subscribe to the narrow view and the irony. I think the word innovative is appropriate to describe any business that can sustain itself in a competitive environment. My broad view is that every form of differentiation is an innovation whether we can prove the individual differentiating choices are beneficial or not. Since there is uncertainty we cannot rule it out. This question recognizes that the status quo shows that the CLEC business model works, but how and why?


texts: Use of Normal distribution in financial simulations

texts:
In paper such as this, I see the normal distribution being used to model the process of a financial investment. This seems strange because aggregating i.i.d. normal variables yields a mean that increases linearly.

I would have expected the an investment account value to be better modeled by something like,

$ \nu_t = \exp \sum_\tau X_\tau $ for $ X_\tau \sim \mathcal{N}(\mu, \sigma) $

while linear is a reasonable model short term, exponential would seem to be superior long term because of the scaling concerns.

Is the exponentiated Weiner process the "correct" process to use here?


texts: Can higher working hours reduce productivity?

texts:
Are there studies about the impact on per-hour output (productivity) of increasing the number of hours worked each week by employees? If every employee works 3hrs/week longer (from 41 to 44hrs), does productivity  increase or decrease?

Edit
About who and how much; if every worker works 3hrs more. So there is more time spent on building machines with the same amount of money. But my hypothesis is, that the more time demotivation overcompensates this marginal plus.


texts: Why didn't the money printing by the US Federal Reserve since 2008 lead to inflation?

texts:
http://www.telegraph.co.uk/finance/comment/liamhalligan/8484530/Americas-reckless-money-printing-could-put-the-world-back-into-crisis.html

  America's reckless money-printing could put the world back into crisis
  Last week, Ben Bernanke suggested that the US base interest rate will
  stay close to zero for an "extended period". It's been there since
  December 2008.

Today, the opposite has happened. Deflationary forces are strong in the U.S. Europe is even worse given the negative yield. Why has deflation prevailed despite money printing by central bankers?


texts: Is there any paper that looks at the distribution of wages? I'd like to see how many workers are in each percentile of labor income. I know that you could compute it using CPS or US tax data, but I suppose somebody must have done that before..


texts: Please explain the difference between Bank rate and Repo rate. Do the Bank and Repo rates affect each other?


texts: How to estimate Robot density in a country?

texts:
I'm writing a thesis where a key element is the degree of automation (for Switzerland) through time.

I was counting on the IFR to get those data but I need to pay 2000k to get them...
Does anyone have an idea of how to estimate that? maybe a proxy? I cannot think of anything...

Thank you for your help


texts: Books on Technological Progress and Growth

texts: I've done some google search for good, reader friendly albeit technical, books on technological progress/change and economic growth. However, I've not found what I want. If you are using or have heard about a title on the above topics, do please list them below in your post.


texts: What are the economic after effects of a 10% pay cut to all state employees?

texts:
I am attempting to ask this question as impartially as possible, setting aside the political and social ramifications.
Given: the shut down that began on March 2020, as a response to a contagious virus, known as COVID-19, decimated state and local tax revenues.
The Governor in reaction to discovering his tax revenues were well below his expectations asked all state employees to take a 10% pay cut.  Additionally, he is asking for teachers to be retrained so that they can video conference their classrooms.
Meanwhile, some local politicians are reacting by drafting a stimulus bill.
I understand businesses respond to a crisis like this by not hiring as many employees and reducing salaries until they can ramp back up to pre-crisis mode.
My question is which of the following approaches is better for the economy at large, and what are their economic effects and why? And how long would it take for each one of these approaches to stabilize the economy?  Is there another approach that I am missing?

A) 10% across the board cut in salaries to state employees
B) A laissez-faire response
C) A stimulus bill


texts: Directed search with privately informed buyers and capacities

texts:
My question seems to be a basic one and there should be a rather well-known reference in the (IO or labor) search literature.
I will upvote (and comment on) any relevant answer and I will accept an answer pointing to a reference addressing exactly the model below.

In the simplest case, consider the following model:

There are 2 sellers ($j \in \{1,2\}$) and each seller offers a single good.
In stage 1, both sellers set an individual price $p_j$.

There are 2 buyers ($i \in \{1,2\}$) who are privately informed about their valuation $v_i$ which is an iid draw from some distribution $F$.
In stage 2, buyers observe the prices and decide which seller (if any) they want to visit.

Buyers have single-unit demand. Buyer $i$'s payoff is $v_i - p_j$ if they got a good and zero if they got rationed or did not visit any seller. Sellers do not have opportunity costs (and cannot produce additional goods), so their payoff is $p_j$ if they trade.

A guess for a reasonable equilibrium candidate: In equilibrium, both sellers post the same price $p_1=p_2=p$, buyers with $v_i<p$ abstain from buying and high-value buyers ($v_i\geq p$) randomize equally over both sellers.

To evaluate deviations, it matters what happens when. say, $p_1 > p_2$.
Of course this depends on the rationing function, i.e., what happens when two buyers show up at the same seller. Fixing a certain form of rationing (random rationing, efficient rationing, introducing an underlying model in which sellers have additional preferences over customers, etc), one can express the expected utility from visiting each seller in a reduced form and solve. Now I guess my question is: How is this done in the literature (which I find interesting, but don't know much of)? I am happy about references and suggestions and I will provide some myself.


texts: One pure Nash equilibrium, no mixed equilibrium?

texts:
I'm given a 4x4 payoff matrix
\begin{bmatrix}(0,7)&(2,5)&(7,0)&(0,1)\\(5,2)&(3,3)&(5,2)&(0,1)\\(7,0)&(2,5)&(0,7)&(0,1)\\(0,0)&(0,-2)&(0,0)&(10,-1)\end{bmatrix}
There isn't any strategy that is dominated for both players.
As a combination of best responses, I see that (3,3) is a pure strategy Nash equilibrium. I tried to compute mixed strategy Nash equilibrium by setting probabilities of row player's actions as p,q,r,s and equating the payoffs for the column player, which yields p= -1/3
Does this mean there is no mixed strategy Nash equilibrium? Thus only one Nash equilibrium exists?


texts: What would be the disadvantages of a TTIP?

texts:
Well the question kind of says it all, what I would like to know is,if a TTIP between America and EU is put in place even though not only Europe and America will benefit from it but also other countries who export to Europe and America because of the augmentation of demand, would there be any drawbacks for consumers? I know that some companies will find it hard to compete with others but then again what could that cause for us consumers ?
Sorry for my bad English its been a long time.


texts: Self policing incentive in Goods and Services Tax

texts: Amongst several advantages of GST (Goods and Services Tax) I read one as that it prevents tax evasion through self policing incentive. But self policing incentive is already provided in VAT (Value Added Tax). So what's new in GST that improves the current self policing incentive system?


texts:
What is the definition of "First Best", "Second Best", etc. in contract theory?

Especially, what is the difference between "First Best" in contract theory and "ex-post efficient" in mechanism design?


texts: What data/factors/attributes do the professionals monitor in a top-down analysis on the macroeconomics?

texts:
I am learning to do top-down analysis on a number of sectors in the US equity markets. I have never done it before and I would appreciate it if some professionals can share their experiences with me.
Specifically, I would like to know the list of attributes/data/factors I should be measuring and monitoring.
Most of the websites I can find are vague about this subject. They mostly generally list a few vague things such as GDP, inflation, treasury bond yields, etc. However, I would like to know the more specific data used. Take treasury bond yield for example. I have learnt from elsewhere that people are monitoring the 2Y yield vs 10Y yield for indication of an economical reversal. I can't find any website that gives this kind of working examples on a top-down approach.
Can you tell me what other specific measures/data the industry's professionals normally would look at in a top-down sector-wide analysis?


texts: What would be the consequences of universal parity of buying power (wage value) and freedom to buy?

texts:
I've wondered about this for many, many, years..... maybe there's an answer (or several answers?) after all.

As the global economy is set up, one reason a person in the US and EU can afford a nice new \$400 smartphone is because the cost is much lower than \$400. The cost is much lower in part due to mechanisation of the process (assembly line robotics, efficient bulk transport, etc) but largely because the people assembling it (summing down the supply chain) are paid at a rate that equates to considerably less than $400 per device pro-rata.

Put another way, some people's ability to buy expensive items is because (largely for historical reasons) many people in other places live in economies where the average earnings, cost of living, and expectations of things needed to be bought, are a lot less. And put another way again, it's essentially akin to the laws of thermodynamics - a bit like a consequence of some kind of "work being done as a result of non-entropy"; the living standard and expectation of being able to buy such things, in some countries, is a result of differentials between those countries and other countries. (This also would apply to all items that can be transported - food, for example, as well).

But suppose these differentials didn't exist. Suppose the person who mined the copper and gold and rare earths, the person who shipped it, the assembly factory and sellers and other persons involved in its production, were to have wages with the same buying power (on average) as those who buy the devices? Equivalently, suppose everyone on the planet were to have parity of buying power with their wages. Ignore disruptions such as trade barriers, differences in health and age, etc, and any transient effects that will level out over time, for simplicity.

Or put it another way, suppose one created a city with a closed economy, and in which all people can afford to buy the same things (same wages).

Now, your factory worker making iPhones wants to buy an iPhone, and can - because all persons in the supply chain are paid in the same dollars and with the same amount as the end consumers of iPhones for their various works), do we get a situation where everything is inevitably pushed out of price reach (due to resulting inherent inflation)? Does the sum of people's time equating to the sum of people's income (in some sense) mean that the community as a whole can only afford to buy things at cost? Does the ability actually to buy things depend inherently on differences between different people (and groups of people) having higher and lower purchasing power or value of money? What would happen?

So a factory can mechanise, but the persons designing and creating the mechanisation (computers, software, factory robotics) also have wages of identical value, so that might be no solution.

Would the removal of value-of-money differentials, wage differentials, and buying power (and freedom to buy) differentials, kill the ability of an economy to work? If not, what happens?

(Sorry if the question is poorly phrased, I don't know how to rigorously define the point I'm asking about)


texts: Log linearization and Conditional Expectation

texts: How to log linearize an equation that has a conditional expectation? Any reference or example would be appreciated.


texts: I don't know what to take as the cost of accepting the job. Kindly guide me through deciding how to frame the equation.


texts: Are business cycle fluctuations usually studied in a (New Keynesian) DSGE model, or can they also be studied in a growth model?

texts: I wonder if business cycle fluctuations are usually studied in a (New Keynesian) DSGE model, or can they also be studied in a growth model?


texts: How do organisations diversify? Determinants of choosing new target industries

texts:
A very weird question I agree.

I am interested in understanding the motives behind firm behaviours of diversification. Why would some firms choose new target sectors/activities?

Is there any difference between for profit and non-profit organisations, particularly those grassroots NGOs. I have read newspaper, sociological articles about their altruism, needs of the community they serve and so on. But, perhaps they are money-driven, they choose some activities where the money/funding goes. For example, if there is a huge wave funding for HIV prevention (Gates Foundation), there is a substantial number of newly registered NGOs. This case, in my opinion, should be distinguished with those organisations working on disaster relief (such as after 2004 Tsunami, 9/11 ...). But well, I still feel that NGOs now are not purely altruistic, they might shield their true motive under their brand.

My questions are of economics and related literatures:

Could you please point out some (economics) relevant readings, both theoretical and empirical at micro-level, on how a non-profit organisation may choose some certain activities? and how it may introduce some activities?
Could you please point out some relevant readings at micro-level on how/why organisations may choose/introduce/switch to some activities?

I am aware of some papers of entrepreneurs, but I feel that the body of literature is still growing and most evidence is macro-based. Am I right?

Thank you very much.


texts: Why would a cash-rich company borrow money?

texts:
I have read that Apple Computer issues corporate bonds.

Considering that it has $200 billion in cash, and the company complains it has been unable to spend its enormous amount of cash, why would they be issuing corporate bonds?


texts: Where to find series of capital-output ratio for the US?

texts: While the capital-output ratio is widely used in Macroeconomics as a target in calibration, it is usually just set to be equal to 3, without specifying the data source nor the methodology used to compute it. After doing online research, I couldn't find any available data with the series of capital-output ratio.


texts: Does GMM have any assumptions that you can't test empirically (and must instead argue qualitatively for)?

texts:
My understanding is that you can empirically test some of the main assumptions required for using a GMM estimator. Namely, I understand that you can test over-identifying restrictions with Hansen's J test and the Sargan test; and that you can test that the original error term is serially uncorrelated.
Are there other assumptions that cannot be tested empirically? If so, what are they and what intuition is required to satisfy them?


texts:
Background
I've done some research to get an understanding into the issue I want to ask about. Regrettably, I found out general descriptions of the mechanism and/or evidently biased explanations, which I've got no means to question. Please excuse me if I refer to a concept in a less than optimal terminology. I'm a bright guy but definitely not a scholar of economics.
Please note that I'm not asking for how fractional banking works in mathematical terms. I'm questioning the sanity of it. Well, not questioning - rather not grasping how it differs from hiding the lack of funds.
The traditional approach
Alice owns X units of currency but doesn't use them. Bob comes by and asks to borrow it for a period of one unit of time. As a reward, he promises to return 5% higher amount. Carol comes by and makes the same request with the difference that he promises 10% return on the investment.
Alice considers the chances of the money being paid back in full including the interest as corresponding to the pay-off (e.g. Bob pays up 1.05 X with the probability of 95% and in any other case he's good for nada, zero, ziltch). Alice regards the offers and realizes that there are three options (partial investment of X units isn't of interests).

Keep the money in the mattress (0 risk, 0% gain).
Present the money to Bob (5% risk, 5% gain).
Present the money to Carol (10% risk, 10% gain).

Here, Alice might ask himself if the inflation forces him to invest into anything, if there's any slightest difference in correlation (5% gain but 5.01% risk) etc. But that's not the aim of the question.
The mechanics of the above is obvious to me. The bigger the risk (time the money invested), the bigger the gain. If at loss, only the amount being risked is lost. I.e. only the money risked to get the gain is being risked to getting lost. This part I view as sane and self-controlled.
The banking approach
Suppose there's this typical bank, Bank of Scandinavia. As far I've understood the regulations, it's allowed to lend more money than it actually possesses, as long as it doesn't go bananas. The government of Scandinavia decided that the bananas level starts at 50%, meaning that if BS owns 10 X units, they can lend out 20 X without being considered unstable.
This part puzzles me, because the gain of the bank is being generated based on equal parts of the money risked to getting lost and some money that doesn't even exists.
It's my understanding that the stimulation of the economy is far greater using this approach. I also hear that the wealth created this way is sustainable, at least if we keep the bananas level fairly modest.
As far my research went to its conclusion (and by that I mean that I got tired of googling and watching suspected cartoons on YouTube claiming to reveal the ugly truth), I've learned that some governments set the bananas level to 10% (meaning that BS could lend out 100 X). In fact, during a period, there was the level of 3% in US and it was frown upon as too restrictive.
Main question
Is it correct to regard the lending set-up as unhealthy, bound to implode and cause mayhem (at an extremely low risk, which in practice guarantees that such won't take place)?
Or is there a regulatory system covering either the tiny-whiney risky part or, alternatively, a means to recreate and pay back the part of the lost money that wasn't really there? Are there other gains to this set-up except boosting the economy (at incrementally larger risk)?


texts: Features of the set of Bayes Correlated Equilibrium in a single-agent decision problem with uncertainty

texts:
I would like your help to better understand the notion of Bayes Correlated Equilibrium (BCE) in a single-agent decision problem with uncertainty The notion of BCE is provided in this paper for a generic $N$-player game.

Consider the following single-agent choice problem under uncertainty.

Let $V$ be the state of the world with support $\mathcal{V}$ and probability distribution $P_V\in \Delta(\mathcal{V})$. First, let nature draw a realisation $v$ of $V$ from $P_V$.
Then, let the decision maker choose an action $y\in \mathcal{Y}$, with $\mathcal{Y}$ finite, without observing $v$. Upon the decision has been made, the decision maker gets a payoff $u(y,v)$.

Before choosing an action, the decision maker can receive some signal to refine her prior about the state of the world.

Now, I want to use Theorem 1 in Bergemann and Morris (2016) to characterise the set of optimal strategies under minimal assumptions on the amount of information that is processed by the decision maker. To do that, I introduce the notion of one-player BCE.

A one-player BCE of the game described is a probability distribution $P_{Y,V}\in \Delta(\mathcal{Y}\times \mathcal{V})$ such that:

1) $\forall v \in \mathcal{V}$
$$\sum_{y\in \mathcal{Y}}P_{Y,V}(y,v)=P_V(v)$$

2) $\forall y\in \mathcal{Y}$ and $\forall \tilde{y}\neq y$
$$
\sum_{v\in \mathcal{V}} [u(y,v)-u(\tilde{y},v)] \times P_{Y,V}(y,v)\geq 0
$$

Let $\mathcal{P}$ be the set of BCE.
Let
$$
\mathcal{Q}\equiv \{P_Y\in  \Delta(\mathcal{Y}): P_Y(y)\equiv \sum_{v\in \mathcal{V}}P_{Y,V}(y,v) \text{ }\forall y \in \mathcal{Y}, P_{Y,V}\in \mathcal{P}\}
$$

Questions:

1) Is $\mathcal{Q}$ convex? I guess it is because $\mathcal{P}$ is convex. Could you confirm?

2) Let $ \mathcal{B}\equiv \{b\in \mathbb{R}^{|\mathcal{Y}|}: b^Tb\leq 1\}$ be the unit ball in $\mathbb{R}^{|\mathcal{Y}|}$. Let us stack in a $|\mathcal{Y}|\times 1$ vector the image set of every probability distribution $P_{Y}\in \mathcal{Q}$. With some abuse of notation, let us still denote any such a vector by $P_{Y}\in \mathcal{Q}$. Does
$$
\max_{P_Y\in \mathcal{Q}} b^T P_Y
$$
exists $\forall b\in \mathcal{B}$? I guess the answer to this question depends on the features of $\mathcal{Q}$. For example, if $\mathcal{Q}$ is compact, then the maximum above exists. Could you help?


texts: Episodes of Housing Crashes and Never Recovering

texts:
Looking at many housing markets in major cities around the world today it looks like most (London, New York, Sydney, Beijing, Toronto,...) have become totally detached from the earnings of the local market. This seems unsustainable but I can only think of one chart, see below, of Japanese property that goes into a boom, crashes and never recovers.

Are there any other episodes in recent history where the price of real estate crashes and never recovers in price?


texts:
Suppose, there are 100 banks in a country. 50 of them are government owned.

What would be the possible effect on a country's economy if private banks are declared as non-profit? I.e. they can not show any profit. If they have any profit, they must return that profit either to the government's treasury or spend in government's humanitarian projects.

How would that affect or effect a country's economy?


texts: Correlated Equilibrium for Rock Paper Scissors

texts:
Consider the game of Rock, Paper, Scissors (RPS), with payoffs given as follows:

Is there a correlated equilibrium in this game?

Consider, for example the signal given to both players not to play the third strategy. In this case, the game (conditional upon one's opponent following the signal) becomes:

Which has a NE of playing the second strategy for both. This seems like a correlated equilibrium? On the other hand, if you know that your opponent follows the signal and plays the second strategy, you should respond by playing the third strategy. Hence, intuitively, as the signal reveals information on your opponent's play (conditional upon her following it) you should be able to exploit that by violating correlated equilibrium.


texts: Does the Samuelson condition assume all the prices for the private goods are the same?

texts:
Suppose I have two agents with utility functions $U_i$ and $U_j$ and budgets $p_x x + p_g g = m_i$ and $p_y y + p_g g = m_j$.

If I solve a social planner UMP, I will get for my g FOC (after plugging in the other FOCs)

$$ p_x MRS_i + p_y MRS_j = p_g$$

If I assume $p_x = p_y$ then I have after rearrangement

$$MRS_i + MRS_j = MRTS =\frac{p_g}{p_x} $$

But suppose $p_x \neq p_y$. Does the Samuelson condition hold?

As I wrote the question, I noticed the following:

I can see one would write for $n$ agents

$$\sum_{i} p_{x_i}\frac{MU^i_g}{MU^i_{x_j}} = p_g$$

Now we can write that as

$$\frac{MU^i_g}{MU^i_{x_i}} + \sum_{j\neq i} \frac{p_{x_j}}{p_{x_i}} \frac{MU^j_g}{MU^j_{x_j}} = \frac{p_g}{p_{x_i}} $$


texts: Are there any economic studies of License-On-Transfer agreements?

texts:
A recent entry at GitHub's blog caught my attention: https://github.com/LOT.

The "network" claims to provide protection from patent trolls by entering into an agreement automatically granting all members perpetual licenses to any patent assets sold to third parties.

The network's member list is quite impressive: Asana, Canon Inc., DropBox, Inc., GitHub, Inc., Google Inc., Khan Academy, Inc., Newegg Inc., Pure Storage Inc., Red Hat Inc., SAP SE, SAS Institute Inc., SolarCity Corp.

Membership fee schedule is based on annual revenue and heavily biased against small businesses:

<$10M           $1,500
$10M to $25M    $2,500
$25M to $50M    $5,000
$50M to $100M  $10,000
$100M to $1B   $15,000
>$1B           $20,000

  Under the License On Transfer (LOT) Agreement, every company that participates grants a license under its patents to the other participants that becomes effective with respect to a particular patent when that patent is transferred to a non-participant, e.g., a patent assertion entity (PAE). This structure protects LOT participants from patent attacks by the non-participant (e.g., a PAE) to which the patent is sold while completely preserving the real business uses of a participant’s patent portfolio. The Agreement includes value-preserving provisions. For example, Transfers as part of a Change of Control to a Non-Assertion Entity or qualified M&A are carved out.

Would be nice to have any refs that may answer the following questions:

Is the agreement pro- or anticompetitive?
At what scale would it be effective against patent trolls?


texts: How is the Corona $2 trilion stimulus package going to be financed?

texts: Perhaps this is a simple question but as a non-US citizen I don't understand how the US government is going to finance the $2 trillion stimulus package to combat the economic damage due to the Corona pandemic. Is the government going to somehow delegate this to the FED and if yes, how?


texts: Is there a conventional list of pollution categories to consider in calculations?

texts:
In researching economic damage from various pollutants, I often find that it's very random sources that inform me of various pollutants I need to be mindful of in calculations. Is there any kind of overarching list of known problematic pollutants that one needs to consider in calculations for environmental factors?
For instance, you might have pesticides, heavy metal aerosols, heavy metal colloids and solutions, fertilizer runoff, sewage, etc. But, how do I know there aren't more? There must be some kind of standard list, maybe the European Union or one of the environmental agencies in North America has a list of pollution categories that damage the environment.


texts: Can anyone enlighten me if there are economic theories where labor is considered as a commodity like cloth and wine in the Ricardo theory, so that it can be exported and imported similarly to other commodities? I would be grateful for references.


texts: Why is the prime rate typically 3% higher than the fed funds rate?

texts:
What is the right framework to think about the prime rate in relation to the fed funds rate?
Idea 1: A bank is safer to lend to than even trustworthy institutions so there's a premium on prime rates. Why is this true though? I could imagine several institutions with great credit could be safer than some banks. Is there something that makes a loan to a bank safer?
Idea 2: A bank can borrow at the fed funds rate. So banks could borrow at fed funds and lend to customers at higher rates. If their borrowing rate changes, their lending rate changes with it to reflect their cost. Perhaps though this is uncommon because lending on borrowed capital would inherently have a smaller margin than lending on unborrowed capital, so it would be hard to compete with borrowed capital.
Basically the causality can come from the fact they can lend at the fed funds rate or borrow.


texts:
Due to McFadden Economists usually interpret Random Choice, in the population sense, as each DM being drawn from the probabilistic choice rule independently and identically. However, Psychologist have maintained that individual DM are actually stochastic, in the sense that when presented with the same menu several times they would choose different alternatives. I am not fully convinced by either way of understanding probability in Decision Making, is there any work on understanding this, neuroeconomics, epistemological or anything related.
In short, what is the interpretation of random choice for an individual DM?


texts: Are there real world examples of a shoe event horizon?

texts:
This is a famous quote from Douglas Adam's The Restaurant at the End of the Universe:

  Many years ago this was a thriving, happy planet – people, cities, shops, a normal world. Except that on the high streets of these cities there were slightly more shoe shops than one might have thought necessary. And slowly, insidiously, the number of the shoe shops were increasing. It’s a well-known economic phenomenon but tragic to see it in operation, for the more shoe shops there were, the more shoes they had to make and the worse and more unwearable they became. And the worse they were to wear, the more people had to buy to keep themselves shod, and the more the shops proliferated, until the whole economy of the place passed what I believe is termed the Shoe Event Horizon, and it became no longer economically possible to build anything other than shoe shops. Result – collapse, ruin and famine.

Are there real world examples from history where a society's economy has become so mono-industrialised that it collapses? Does this situation have an alternative (more serious) name in economics?

I'm not sure if this will be a constructive question. A potential edit could be to ask if something like Ireland's potato famine is an example of the shoe event horizon.


texts: Can the function of the Central bank become automated?

texts: How plausible is the idea of the central banks function becoming automated. Central Banks seem to function as a feedback depending on the flow of money, inflation and fractional reserve. If the plausibility of automatizing the central bank, what kind of electronic data will it need - will it look something like blockchain technology where there is a ledger for each transaction?


texts:
Let $f=f(K,L)$ - production function.
Let $f(1,2) \le4 $ and a production function is defined to have increasing returns to scale.
What maximum product can the firm produce using K=3 and L=6?

So we know that $f(3,6) = f(3*1, 3*2) > 3*f(1,2)$ and $f(1,2)\le4$

But what should I do next?


texts: Relationship of Customer discrimination and discrimination by a firm

texts:
The following question relates to Becker's Theory of Discrimination.
In the context of the question of whether a firm taste-discriminates against a minority group, I was of the opinion that the firm only discriminates against the minority group if the firm has a positive discrimination coefficient. In particular, if there is customer discrimination (positive discrimination coefficient for customers), but not employer discrimination, I was of the assumption that there is no discrimination against the minority group on behalf of the firm: The firm still pays them the Marginal Revenue Product, albeit a reduced one thanks to customer discrimination. However, my professor argued that if the firm responds to the customer discrimination by cutting the wage of the minority group, they still discriminate against the minority group. What is the correct view in the literature?


texts: Transversality Condition in neoclassical growth model

texts:
In the neo-classical growth model there is the following transversality condition:

$$\lim_{t\rightarrow\infty}\beta^{t}u'(c_{t})k_{t+1}= 0,$$
where $k_{t+1}$ is the capital at period $t$.

My questions are:

How we derive this condition?
Why do we require this, if we want to rule out paths with no debt accumulation?
Why are the Lagrange multipliers $\beta^{t}u'(c_{t}) = \beta^{t}\lambda_{t}$
the present discounted value of the capital?


texts: Do Human Resources use information on applicants' child rearing effort as a signal

texts:
In Spence's Job Market Signaling paper (a non-paywalled version is available here) firms observe applicants' educational investment. From these signals the firms glean information on the "type" or productivity of the applicants, the idea being that if one was able to suffer through Multi-dimensional Numerical Marketing Synergies in Corporate Finance and get a decent grade one is likely to do well at work unrelated to the subject as long as it requires similar intellectual capabilities and endurance.
It occured to me that completing work related tasks while caring for a small child would also say a lot about one's endurance (not sure about intellect, perhaps that too). There are some obvious difficulties, such as the cost of caring being split between two people, idiosyncratic postpartum symptoms, measuring how well the tasks were completed etc. One could argue similar problems exist w.r.t. educational investment.
Has there been academic research on this?
Googling around on Scholar reveals little, as there are tons of research for some combinations of the keywords: income + children, signaling + children, etc.


texts:
When a central bank 'pays' interest rate X / year, what does it mean exactly? Is that pure money printing? Where does that money (interest rate) come from? does it increase the debt of the country?

A popular way to fight high inflation is to increase interest rate, but doesn't that mean printing more money -> more inflation?

Thank you!


texts: Differences between international and national creditors

texts: When considering a nations debt, how does it affect the nation whether its debt is held by national or international creditors? If there is preference does this translate into different prices for the debt?


texts: Interest rate and yield curve in a mild recession

texts:
I came across this statement in a fairly official document, the phrase in bold does not seem consistent. I cannot contact the authors of the said document, so I am posing my question here. Here is the statement.

"Under a mild recession followed by a sluggish recovery and inflationary pressure,
interest rates rapidly increase and yield curve flattens."

Why would interest rates rapidly increase? Is it understood that the interest rates here refer to the rates the Federal Reserve sets?


texts: Is it possible to derive a demand curve from a discrete choice multinomial model. For instance, a logit model would give the probability of purchasing each good. But can I translate that into a demand curve.


texts: If I employ someone to destroy a building, what is the net GDP impact?

texts: Can this one-off cases be extended? For instance, if I employ someone to destroy 50 buildings and rebuild them, does that contribute an increase in GDP?


texts: How to calculate Shapley Value with uncertainty?

texts:
So I'm trying to estimate a Shapley value in a game with uncertain payoffs. Specifically, imagine a game where the payoff function as as follows

(A) = 1
(B) = 2
(B,C) = 4

For instance, you can imagine this game representing Person A and Person B deciding whether to go into business by themselves or together.

Calculating the Shapley value for this game is very straightforward by listing all the permutations along with the marginal contribution of each person in the given permutation divided by the number of permutations:

[A, B] = [1, 3]
[B, A] = [2, 2]

[A, B] = [(1+2)/2, (3+2)/2]
[A, B] = [1.5, 2.5]

So Person A should get \$1.5 and Person B should get \$2.5 in the grand coalition.

However, I am struggling to figure out how I would go about computing the Shapley value in the presence of uncertainty. For instance, imagine I change the payoff function to use confidence intervals as follows:

(A) = 1 ± 0.2
(B) = 2 ± 0.6
(B,C) = 4 ± 0.5

This is important as I am trying to compute the Shapley value in an real life setting with experimental data.

What will the Shapley value be in this case WITH uncertainty?


texts: How is it real wages = old wages * new cpi / old cpi? It seems this discounts back to the reference period and then multiplies out to current day. This would give us new (nominal) wages?


texts: What are Eurodollars? How are they distinct from plain old dollars? Asking as an interested but non-specialist outsider, though I do know what demand deposits are and am familiar with the conversation regarding fractional reserve banking.


texts: Topology on the space of measurable functions

texts:
The context is as follows:
Suppose we have a 2 period sequential game, with player $i$ in stage $i$, with action set $A_i$.
Give $A_i$ all the nice properties, as compact, separable metric spaces (I'd be happy to even consider $A_i \subset \mathbb{R})$.
A strategy for player 1 is a map $\sigma \in \Delta(A_1)$, and for P2 a measurable function $\eta:A_1 \rightarrow \Delta(A_2)$.
Its clear that when I endow $\Delta(A_1)$ with the weak topology, I can talk about a sequence of strategies having a convergent subsequence.
Is there a topology I can put on $\Sigma=\{\eta:A_1 \rightarrow \Delta(A_2) : \eta \text{ measurable}\}$ that allows me to extract convergent subsequences?


texts: Why has this type of research fallen out of grace?

texts:
I am reading Dasgupta's Very Short Introduction to Economics. He talks about culture. Specifically the work of Max Weber trying to explain the influence of protestant ethic on the rise of capitalism. After that he says:

  Using culture to explain economic performance hasn't been popular among social scientists in recent decades; but there has been a revival.

Why has there been a decline of interest on this type of research? What kind of research replaced it? And finally, what modern work follows Weber's line of research?


texts: Is there an intuitive explanation for the tax incidence formula from elasticity?

texts:
You're probably familiar with the formula for tax incidence (in a standard Principles framework) from elasticity. Specifically, that the consumer share is

$$\frac{\varepsilon_S}{\varepsilon_S+|\varepsilon_D|}$$
and the producer share is
$$\frac{|\varepsilon_D|}{\varepsilon_S+|\varepsilon_D|}$$

I had always assumed that this was just a byproduct of linear supply/demand and therefore not of much interest, but just now have proven to myself that it's not with a few nonlinear supply/demand forms that also produce this result.

Is there an intuitive reason why the tax incidence takes this particular functional form, or is it just a common mathematical happenstance? This isn't the only functional form that satisfies what I think of as the intuitive tenets of the tax incidence solution (consumer + producer shares add to 1, increase in your side's elasticity increases your side's burden). Another form that satisfies this, but is not in fact a calculation of incidence share, is $$\frac{(|\varepsilon_D|/\varepsilon_S)}{(|\varepsilon_D|/\varepsilon_S)+(\varepsilon_S/|\varepsilon_D|)}$$

I suppose an alternative explanation is that the counterexamples I happened to test this with satisfy some condition necessary to have those be the shares, and it's not actually universal.


texts: Decreasing consumption prices and increasing housing prices

texts:
It's election time in my country. The government boasts a decrease of 5% in consumption prices thanks to removing regulations, while the opposition blames the government for an increase of 5% in housing prices. I am wondering if there is any economic relation between the two facts. Consider the following model:

There are two nearby towns, A and B. Initially, each town has a single grocery store. In the housing market, there is a competitive equilibrium between the two towns, with $r_A$ the rent in A and $r_B$ the rent in B.

Now, the mayor of A decides to remove regulations and allow new discount stores to operate. This immediately decreases the price of consumption goods in A. People living in B hear about this and go shopping in A. Some of them, when their rent period terminates, decide to move to A in order to live near the discount stores. House owners in A notice the increased demand and decide to raise the rent.   Finally, the housing market achieves a new competitive equilibrium, with the rent in A increasing to $r_A'>r_A$.  In effect, the house owners have pocketed the gain from the removal of regulations.

MY QUESTIONS:

Is this description economically correct?
Is there an empirical evidence showing that a decrease in consumption prices causes an increase in housing prices?
If there is a relation, what is its magnitude? I.e, how much of the gain from decreased consumption prices is pocketed by the house owners?


texts:
This is a problem I cannot solve because I don't see why the athlete doesn't choose the time allocation all at once...
Problem:
You are a professional athlete preparing a triathlon. For each sport, your score is:
$S = 500\sqrt{h/H}$, where $h$ is the number of hours of training and $H=(100, 75, 50)$ the number of hours required to have a perfect score of 500. You will train at least 25 hours for each sport, but have a total amount of 150 hours of training to spend. You decide it is more efficient to spend a whole day on each sport at a time (15 hours). Therefore, $h$ is a multiple of 15 for each sport.
Solve the problem as a dynamic program. Determine the state variable (with its transition law) and decision epoch, the reward function, write out the optimization problem and solve it for the right time investment strategy.
Where I am:
I think the state variable is $h_t$ the vector of hours already spent on the 3 sports. I am not sure how to write down the transition law though... or the optimization problem.
Many thanks for any help!


texts: When would prices increase according to Malthusianism?

texts:
Malthusians and Neo-Malthusians believe that, eventually, the population of the earth will be exceed the number of people able to be sustained by the earth's food production.  As such, they advocated different forms of population control.
However, it appears that an increase in the population beyond that of the food supply would cause an increase in the overall real price for food.
Proponents of Malthusianism, evidently, are not waiting for food prices to rise before advocating population control, but I do not see how we should be worried until the real price of food increases.
If Malthusianism is correct, how soon before the population crash would prices begin to rise?


texts:
Estimating how much of physical goods a somehow typical person or household owns today (say in the Western world, compared to former times) is not so easy I guess, but there is one single number that might tell it: the typical weight/volume per person that is transported when moving a house. (This gives not the number, kind and economic value of physical goods, but only their cumulated weight/volume, but that would be OK for me for the moment.)

Removal companies know these numbers, and I wonder if they are available somewhere,  broken down by country, state or other region of the world, and of course broken down by time. (Of course the numbers from removal companies tell only about people who can afford to hire a removal company, but that would be OK for me for the moment, too.)

I would find it astonishing if these numbers had not grown significantly in the last decades, but I'm open to any answer. (For example, modern people might decide to dispose many of their physical goods before moving, and re-buy them at their new location. This would be interesting in its own right.)

If the approach via removal companies is not found sensible: Which statistics could you recommend alternatively? What about homeowner's insurances? Or are there official detailed statistics available, say for the U.S., Europe or e.g. Germany?

(If this forum is not the right one to ask such questions: Which one would you recommend?)


texts: How does the Fama and French 3-factor model explain stock covariance?

texts:
Does it at all? If so, how?

It is understood that size and value play a role in determining returns and there are proposed explanation those these, but what about covariance?


texts: Economic Surveys for Japan other than the Quarterly Tankan?

texts:
I am doing a project that requires economic survey data. I have already finished for Europe (which has the European Commission survey that is released monthly) and for the US (ISM Reports, National Association of Home Builders, Conference Board etc, also monthly). However, when I look at Japan, the only thing I can find is either the Tankan which is released quarterly and the Manufacturing PMI and Services PMI (both in monthly frequency). As I prefer a monthly observation for my study, is there any other economic survey for Japan (both in quarterly and monthly basis), even if it's not freely available ?
Thanks.


texts: Steady State in Korinek and Simsek (2014)

texts:
I was reading a paper by Korinek and Simsek (published in the AER in 2016). The version I cite is an IMF Working paper from 2014. The authors essentially describe an economy which has two types of agents: borrowers and lenders. The model starts at Period 0 and goes on infinitely. From period 1 onwards, the borrowers suddenly face borrowing constraints and are forced to deleverage. From period 2 onwards, there are borrowing constraints, but nothing else changes. The authors say:

  In the following, we make two simplifying assumptions. First, starting date $t = 2$, we assume that the output from the tree is a constant $y$ and there are no further shocks. Second, we let the discount factors of the two agents
  $\beta^l=\beta^b=\beta$. Together,
  these two assumptions imply that the economy will be in a steady state starting date 2 in which debt is constant at $d_t = d_2$.....

Question: I'm not sure why we suddenly enter a steady state. It seems a little intuitive but is not entirely convincing.

The link to the paper: https://www.imf.org/external/pubs/ft/wp/2014/wp14129.pdf\

The quoted part is on page 29.


texts: Predicting covariates into "observed" and "unobserved" part

texts:
I recently saw a paper where they run a regression of the covariate of interest $X_{1}$ on the outcome $Y\in\{0,1\}$ without further controls
$$
Y = \alpha_{1} + \beta_{1} X_{1} + \epsilon_{1} \tag{1}\label{1}
$$
where $Y$ and $X_{1}$ are such that one may wonder whether $E[\epsilon_{1} |X_{1}]=0 $ holds. Then they argue that they decompose $E[Y|X_{1}]$ into an observed and an unobserved part by regressing
$$
X_{1} = \alpha_{2} + \beta Z + \epsilon_{2} \tag{2}\label{2}
$$
where $Z$ is a matrix of predictors of $X_{1}$ and $\beta$ the respective parameters (not necessarily instruments, indeed I would suppose most $Z_{1}, ..., Z_{n}$ would not satisfy the mean independence restriction $E[\epsilon_{1}|Z] = 0$) and calculate two sets of predicted values, namely $\widehat{X_{o}}$ based on the linear prediction of $ \eqref{2} $, as well as $\widehat{X_{u}}$
based on the residuals of the linear prediction in $ \eqref{2} $. Then they estimate the following two models
$$
Y = \alpha_{3} + \beta_{2} \widehat{X_{o}} + \epsilon_{3} \tag{3.1}\label{3.1}
$$
$$
Y = \alpha_{4} + \beta_{3} \widehat{X_{u}} + \epsilon_{4} \tag{3.2}\label{3.2}
$$
to argue that $\beta_{2}$ gives the observable effect of $X_{1}$ on $Y$ and $\beta_{3}$ gives the unobservable effect of $X_{1}$ on $Y$ and go on to make claims which one is more important. I am puzzled by this procedure, and not sure what to make of it. It looks like control function approach, but there is no guarantee or even mention that $E[\epsilon_{1}|Z] = 0$.
Would be interested to hear what others think about this approach of making claims about the portion of observed to unobserved effects? Sources on the method or other papers doing similar "decompositions" are very welcome as well.


texts: Why does the stock market tend to grow over time

texts:
At its most basic, the value of a stock depends on how much people are willing to pay an entity that already owns the stock to transfer ownership. The question is, why does the amount people are willing to pay typically go up over time?

Obviously, a single rational investor may be willing to pay more for a stock if they expect that may other investors will also increase the amount they are willing to pay. But why would they expect other investors to come to the same conclusion? It would seem there needs to be a base reason that an “initial” investor would pay more for a stock than other investors.

I can think of two reasons that they may use:

Dividends: A stock not only has value from its potential for others to increase their valuation of it. But owners of some stocks may get direct payouts simply by being an owner.
Voting Rights: An owner of a stock has may have voting rights within a company. With enough stock, an investor may have sizable control over the actions of a company.

Are there many other reasons why investors may increase their valuation of a stock over time? Or is my (obviously very simplified) model just completely flawed?


texts:
As far as I understand an overnight loan is a loan that is settled the next day.
Who are the entities that would find it useful to take a loan just for a day? and, what would they use an overnight loan for?


texts: Find Price Elasticity of Demand for p = 0

texts:
Given a linear demand curve $q(p) = a - bp$, how would one find the price elasticity of demand at $p = 0$? The quantity that would be demanded is given: $Q_0 = a$

The formula for the price elasticity of demand then dictates:

$\epsilon_{p=0} = \frac{dq}{dp} *\frac {p}{q} = -b * \frac{p}{a} = -b * \frac{0}{a}= 0$,

this would mean perfectly inelastic. Thus, no matter the change in price there should be no change in quantity. This does not seem to make sense as at this point demand should be the most elastic. Where did I go wrong?

As an example one could think of a free good (e.g. straws), the demand for which can be observed. Then a levy is imposed and the new demand is being observed, allowing one to derive a linear demand function. How would one find the price elasticity for straws when they are free ($p=0$)?


texts: Does Pascal's Wager fail archimedean property?

texts:
I assume most people have heard of Pascal's Wager, in case you have not: https://en.wikipedia.org/wiki/Pascal%27s_Wager

By the Stanford encyclopedia of philosphy:

"We have a decision under risk, with probabilities assigned to the ways the world could be, and utilities assigned to the outcomes. In particular, we represent the infinite utility associated with salvation as ‘∞’. We assume that the real line is extended to include the element ‘∞’, and that the basic arithmetical operations are extended as follows:
For all real numbers r: ∞+r=∞.
For all real numbers r: ∞×r=∞ if r>0."

Doesn't this contradict one of the axioms of the expected utility theory? In particular the archimedean property states:

Let l, l’ and l’’ be three lotteries in L such that $l \succ l’ \succ l’’$. Then there are $p,q \in(0,1)$ such that:
$pl + (1-p)l’’ \succ l’ \succ ql + (1-q)l’’$

and it basically means that there are no infinitely preferred or infinitely despised lotteries.

But in the Pascal's Wager, $l$ = salvation = $ + \infty$, $l'$ = nothing (god doesn't exist), $l''$ = damnation = $ - \infty$,
but then there does not exist a probability $p > 0$ such that any mixed combination of damnation and salvation is strictly preferred than "god doesn't exist".
What do you think?


texts: Is this a valid or legitimate way of comparing countries on traits and characteristics?

texts:
Country A has 16 million inhabitants and 2.000 MW of solar panel
generated power, also a GDP of $50.000 per capita

Country B has 160 million inhabitants and  2 MW of solar panel
generated power, also a GDP of $10.000 per capita

Would it be correct to say that country A has two thousand times as much solar
power because:

If country A was as populous as B, they would have 20.000 MW in solar power.
But if country A  was as poor as country A, they would have 4.000 MW solar power.  So, after adjusting for differences in population and
wealth, country A still has 2000 times the solar power that country B
has?

Is it correct to adjust for differences in population and
wealth in that manner, or not?

Follow up question: Is there a formal way, when comparing countries or
groups, to adjust for differences in various traits (such as
population size and GDP per capita?)


texts: What types of 'market mechanisms' are said to exist besides auctions?

texts:
The book Understanding Auctions states:

  The term auction covers a wide range of market mechanisms that are used to exchange products and services by determining who receives an item and how much is paid for it. Although there are different auction designs, all of them share two properties. First, they are universal, that is, they can be used to sell (or buy) anything. Second, auctions are anonymous, which means that the identities of the participants do not affect the outcome of the auction.

It then goes on to describe a wide range of mechanisms that facilitate the exchange at some agreed price, all classified as types of auctions, including:

dynamic vs sealed bid auctions
single item vs multi item auctions
sequential vs simulataneous auctions
clearing vs continuous double auctions
combinatorial auctions

Combinations of two or more of the above are also possible and still auctions. I'm struggling to think of a market mechanism that is not an auction! So my question is what other types of market mechanisms can be said to exist?! Can someone point me to a good taxonomy of "market mechanisms"?

Aside; this paper discusses "negotiation protocols" and distinguishes between:

Voting
Auctions
Bargaining
General Equilibrium Market Mechanisms
Contract Nets

But this paper is from 1999, and the author classifies 'auctions' only the conventional type - what would be single item, monopolistic forward auctions in the first authors taxonomy. "General Equilibrium Market Mechanisms" kind of seems different but, it could also be interpreted as a multi-item, simultaneous, dynamic, clearing double auction. In fact a well known mechanism used to solve for a general competitive equilibrium is the Walrasian Auction.


texts: When should one use Lagrange Multipliers as opposed to calculating the ratio of Marginal Utilities for MRS?

texts:
As far as I could see in the examples I found, they led to the same result through relatively similar processes.  I have only looked at 2 variable utility functions, so is does the use of Lagrange become evident beyond that?  I.e. U(x,y,z) and if so is that the only real use for Lagrange Multipliers?

Edit:  For clarity, I was wondering about why Lagrange Multipliers are used instead of simply calculating partial derivatives individually to find the MRS.  What MRS-related situations are Lagrange Multipliers used in?  Why are they used in those situations?


texts:
Market is supplied by: 50 competitive companies all of them have relatively low costs given by an equation $C_l(q)=350+2q+q^2$ and by n companies of higher costs given by an equation $C_h(q)=400+2q+q^2$. Market demand is given by $Q=250-10P$. If none of the companies with higher costs will  gain positive profits, how large is n? What is the profit of companies with low costs?

I have no idea how to solve this question, i do not know how to start.