texts: Why are cost functions often assumed to be convex in microeconomics?

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Why are cost functions typically assumed to be convex in producer theory of (introductory) microeconomics?
For me this goes against the intuition of economies of scale. There are fixed costs (FC) which contribute to concavity of the cost function. There are also variable costs (VC) which may be concave, linear or convex. If we are on the concave part of VC, total costs (TC) must also be concave due to both FC and VC being concave. If we are in the linear part of VC, TC are again concave due to the concavity of FC. And if we are in the convex part of VC, TC may be either concave, linear or convex depending on the relative influence/weight of FC and VC on/in TC. However, even in the case where TC is convex, the producer does not have to operate that way. It can rather operate multiple copies of its production facility each at the level where TC is concave or linear to ensure the TC added over all production facilities is never convex.*,** This makes the assumption of convex costs suspect for me.
I do see one reason why convexity could occur, though. It is if resources are becoming scarce and the producer is big enough to influence the prices in the input markets. However, the producers are assumed to be small in perfect competition, yet their cost functions are assumed to be convex. This appears contradictory to me. So what am I failing to see?
*The fact that FC are incurred with each copy of the production facility might or might not make this a poor strategy depending on the relative weight of FC and VC.
**I think I borrowed the idea for this argument from Varian "Microeconomic Analysis". In 3rd edition, Section 5.2 "The geometry of costs" p. 68 it says:

In the long run all costs are variable costs; in such circumstances increasing average costs seems unreasonable since a firm could always replicate its production process. Hence, the reasonable long-run possibilities should be either constant or decreasing average costs.

The cost function is also shown to be concave in the subsequent section 5.4 "Factor prices and cost functions".

Edit: Thank you for all the great answers! It seems we can have different plausible stories with opposite implications. So far it seems one can plausibly argue for both convex and concave costs. The crux of the matter becomes the assumptions needed to make one story more plausible than the other. Thus the question is, what are the assumptions taken to make convex costs plausible (and concave costs implausible) in introductory microeconomics?


texts: Euler equation - Intuition behind setting $\beta(1+r)=1$ if the economy is closed

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The Euler equation is:

$$u(C_{t})=\beta(1+r)U(C_{t+1})$$

In my lecture notes, I noted that my prof. said something like:

  Since our economy is closed, we are going to assume that $\beta(1+r)=1$

What did he mean by this statement? I couldn't get it. Why would closed economy imply this condition. What would happen if $\beta(1+r)>1$ or $<1$?

I'm trying to understand the intuition behind it.


texts: How did the Plaza Accord revalue the Japanese Yen?

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In September 1985, Japan, the US, and three other nations agreed to the "Plaza Accord," which appreciated the Yen and Deutsche Mark. The value of the Japanese Yen appreciated from 200 Yen per Dollar to 100 Yen per Dollar.

How was this implemented? What of the free market? Did interest rates in Japan double? What are the mechanics by which an external intervention like this is made to hold in the "free" market (especially the FX market which is renowned for being so liquid and so "free").

Thanks


texts: Why are imported Chinese products in India cheaper than those locally produced?

texts: Why an imported Chinese product in India is cheaper compared to a locally manufactured item?


texts: Economists studying the eldery and intergenerational transfers

texts:
Does anyone knows who are the leading economists in the field of elderly and intergenerational transfers?

I'd like to know what are the current topics they are working on.


texts: Demonstrating that markets yield productive and allocative efficiency to introductory students

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Has anybody come across a nice, intuitive (i.e. neither formal nor technical) way to demonstrate how markets yield both productive and allocative efficiency?

I suppose the allocative argument requires just a very superficial treatment of the first fundamental theorem, which is doable. But what about productive efficiency?

I'm teaching Econ 101 and I don't like the textbook's treatment of the topic -- it basically asserts efficiency without even trying to argue it.


texts: Basic New Keynesian Model: Why variables are defined by integral equations

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In the basic New Keynesian Model most variables are described as an integral equation. Lets for Instance look at labour demand which is defined as:
$$N_t=\int_{0}^{1}N_t(i)di$$

What is the intuition behind that. How does the $N_t(x)$ function look like and why do we integrate it interval $[0,1]$?

I am reading Gali's book.


texts: Arrow of time and irreversibility in Economics

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In physics there is the concept of arrow of time, which states that time only evolves in one direction (forward), and that this should be visible in the material world. As the Wikipedia article states (emphasis mine):

  Physical processes at the microscopic level are believed to be either entirely or mostly time-symmetric: if the direction of time were to reverse, the theoretical statements that describe them would remain true. Yet at the macroscopic level it often appears that this is not the case: there is an obvious direction (or flow) of time.

The emphasis above wants to highlight an important question, which I think it is pertinent to economics. Namely, if the direction of time were to be reversed, would the theoretical statements described by these models still hold? This is, are dynamic economic models time-asymmetrical or time-symmetrical?

For example, consider a Solow model. Is there an arrow of time in this model?  To put it differently, draw a Solow diagram of the accumulation of capital. Draw the path of the economy from A to B. Does this imply necessarily a unidirectional time evolution?

This relates to the issue of irreversibility and determinism. If we use deterministic models (as the standard Solow), we can reconstruct "back" everything from "the future". However, complex systems, where uncertainty and stochastic shocks prevails are by definition irreversible.

As this article on the Chemistry Nobel prize winner Ilya Prigogine states:

  Prigogine contends that determinism is no longer a viable scientific belief: "The more we know about our universe, the more difficult it becomes to believe in determinism". This is a major departure from the approach of Newton, Einstein and Schrödinger, all of whom expressed their theories in terms of deterministic equations. According to Prigogine, determinism loses its explanatory power in the face of irreversibility and instability.

Any hints of how this discussion translates into economics?


texts: Principal Agent Question Private Benefit

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If an agent can take action which impacts social welfare in a noisy way, the private net benefit of the action is $P(x,t)=x-s(\frac{x^2}{2} + t)$, $s$ is $(0,1)$
How can I determine the privately optimal t?


texts: Where/What should I search to find the big companies annual paid salary information?

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I want to know how much salary paid by apple in 2017 to whole employees. Also the details of other payments of the company(How much they paid for raw materials for example). Also like to know these information about other big companies.

But my study field isn't economics and my English isn't well enough to know where and what should I search?

I will be happy if you guide me!


texts: Are government bonds internal or external debt?

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I was watching this video and since it's a bit oversimplified I wanted more information.
I was curious because internal debt is in the local currency from local lenders, while external debt is in a widely-used currency from foreign lenders.
Technically the government bonds market has foreign and local lenders so are govt. bonds both external debt and internal debt? At the same time, the bonds are traded in local currency, I assume, so are govt. bonds internal debt then?
If someone could clarify it would be much appreciated. Thanks so much for your time!


texts: Is possible that, in a choice structure $(B,C)$, $C(b) = \emptyset$, for some $b \in B$

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It is a very simple question but with some implications. I just start reading Mas-Colell and it's not clear for me if it is possible a choice structure, $(B,C(.))$, where $\exists b \in B, C(b)= \emptyset$.
For example:
$B=\{\{x,y,z\},\{x,y\},\{x,z\},\{y,z\},\{x\},\{y\},\{z\}\}$
$C(\{x,y,z\}) = \{z\}$
$C(\{x,y\}) = \emptyset$
$C(\{y,z\}) = \{z\}$
$C(\{x,z\}) = \{z\}$
$C(\{x\}) = \emptyset$
$C(\{y\}) = \emptyset$
$C(\{z\}) = \{z\}$
is a valid choice structure?
Mas-Colell defines choice structure and choice rules in section 1.C, page 10 on oxford press 1995 edition.
I first though about it because I think it would have some interesting implications, but it was false. Anyway, the question remains. Thanks!


texts: Correct way to measure Defence budget of a country like India

texts: I read that defence budget of the country is 2-3% of GDP, but isnt GDP  irrelevant when we are talking about expenditure? Shouldn't it be in a ratio of military import/total import?


texts: GDP Growth QoQ vs YoY: Why do the figures not match?

texts: According to statista.com, US Q4 GDP growth rate was 2.6% over the economy in Q3. However, why is the annualized growth rate for the US therefore not be a sum of all 4 quarters if their definition of QoQ growth is basically how much the economy grew over the previous quarter? i.e. why is according to statista, the GDP growth of the US in 2018-19 only 2.9%, and not 2.6 + 3.4 + 4.2 + 2.2?


texts: Why do some businesses choose scarcity as their business model instead of raising the price to meet the demand?

texts:
Here are some examples of what I'm talking about:

Mass events such as Burning Man, the Olympics, and the World Cup sell out tickets very quickly which forces fans to resort to scalping or using bots if they want to secure a spot
Concerts of popular artists sell out very quickly which creates a massive scalping market
Limited editions of clothing suffer from automated bots buying up and reselling almost all of their stock in a matter of seconds
Popular restaurants sometimes require making a reservation several days in advance or don't take reservations and have everyone wait in line for a long time
Daycares in Canada and the US frequently have waiting lists of several years which forces parents to sign up for one as soon as they conceive

I'm sure there are more examples of such practices that I'm not aware of. All of them could have addressed the difficulty of obtaining the product through some form of dynamic pricing - as demand goes up you increase the price, as demand goes down you decrease it. Various forms of auctions could also be used to determine the price, if required. This is how the world of airlines operates these days - planes are almost never sold out, but you might find that a ticket costs 10x the original price if you buy one right before departure.

What's the name for such business policies in economic theory?
Why would a business choose to follow such practices?
Can this strategy actually result in higher profits over the long term or are businesses losing money by not using dynamic pricing?


texts: How is there full employment level at equilibrium level according to Keynesian theory(AD-AS approach)?

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According to Keynesian theory :-

Equilibrium level is the point at which Aggregate Demand curve intersects Aggregate Supply curve .
And this point is termed as Full Employment Level

How do we interpret that this is level of full employment ?


texts:
I have made optimizations in continuous time that belong to the control theory, for example one case:
$\max(\min)V[u(t)]=\int_0^Tf(t,x(t),u(t))dt$
constraint to: $\dot x=g(t,x(t),u(t))$
Where:
$x(t)$: state variable.
$u(t)$: control variable.
And given this problem, one way of solving it is to form the Hamiltonian expression. Which is:
$ H(t,x(t),u(t),\lambda (t))=f(t,u(t),x(t))+\lambda g(t,x(t),u(t)) $
Now, we have to solve for the first order conditions:
$\frac{\partial H}{\partial u}=0$
$\frac{\partial H}{\partial x}=-\dot \lambda$
Now my question is, when I have an equivalent problem in discrete time (this could be expressed in different ways):
$\max(\min)=\sum_{i=1}^{T}f(t+i,x_{t+i},u_{t+i})\;\;\;\;\;$ Where $t$ is defined in a discrete space.
Constraint to $x_{t+1}=g(t,x_t,u_t)$
Now I can set (in a similar fashion as $H$) a lagrangian:
$L(t,x_t,u_t,\lambda)=\sum_{i=1}^{T}\left[ f(t+i,x_{t+i},u_{t+i})-\lambda_{t+i}[g(t+i,x_{t+i},u_{t+i})-x_{t+1+i}] \right]$
Now, what are the FOC for state $x$, and control $u$ variables in this case? I'd be thankful if you could apart from the answer, give some literature about it. Thanks!


texts: Using an instrument in IV that is not strictly exogenous to the variable it is instrumenting?

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I am considering instrumenting HIV with ODA, to evaluate the impact of HIV on gold mining. There is a clear relationship between HIV and ODA, however it may easily be argued this is an endogenous relationship. There is nothing I have found in the literature to say this would invalidate the instrument - we would use this instrument to assess the exogenous impact of HIV on gold. There is no relationship between ODA and gold production.

Has anyone come across a paper that addresses such an issue with their choice of instrument? I think it could possibly impact the interpretation of the sign of the first stage coefficient.

Thanks.


texts: Leontief's Paradox and the amount of capital

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Leontief (1953) showed that US exports in 1947 embodied considerably less capital and somewhat more labor than would be required for domestic production of competitive imports. \$2.55 million worth of capital was used to produce \$1 million (against $3.1 million for "imports"). What is being measured here is the total capital stock which I guess exceeds that part of the capital stock that was used to produce exports that year.

Would it be more appropriate to measure the capital used that year by the depreciation on the total stock? Is there any reference on this?


texts: How much average value does 1 working hour produce? ( are there reliable statistics?)

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This is a non-economist's question.

As a philosophy teacher ( in a french high school) , I have to study the theme of " labour" in class. I'm looking for factual data in order to assess the contemporary validity of some philosophical theories regarding the employee/ enterprise relation.

I suppose there is no single answer to the question : how much average value does 1 working hour produce?

Are there reliable statistics dealing with this subject?

Either statistics by country, or by enterprise, or by social category/profession?

Has also the profit generated by 1 working hour been studied?

Has the historical evolution of this profit through time been investigated?


texts: In the US, do high wages in regions like New York and California offset the high cost of living?

texts:
It's well understood that the cost of living in New York City vastly exceeds the cost of living in, say, rural Louisiana.  It is also well understood that wages in New York City vastly exceed those in rural Louisiana.  My question is: who comes out ahead?

To clarify, let me offer a thought experiment (not sure if this is valid or not, I'm no economist).  Imagine we have two individuals: one in rural Louisiana with a low cost of living and low wage ("Lou" for short), the other in New York City with a high cost of living and a high wage ("Nue" for short).  Imagine that both Lou and Nue earn exactly the median household income for their respective region.  They live in virtually identical homes (paying the local rent).  They drive virtually identical cars.  They have the same number of children.  They have the same healthcare plan, and so on.  Now imagine that each day Lou and Nue both go to the mall, and buy the exact same items as one another (paying the local price).  Let's imagine they are spending very quickly, far more quickly than either can afford.  Who runs out of money first, Lou or Nue?

A follow up question: is there a single number which tracks this quality I'm trying to describe?  It seems like median income divided by local CPI would just about do it, but that's purely based on my own untrained intuition.


texts: Why do Latin American countries fare among the worst at managing inflation

texts: Does it have to do with cultural factors? Ex: they were colonies of Spain and Portugal who themselves are not that great at managing their economies relative to other western European countries.


texts: I am building a regression model on some panel data of sales and I am rather new to econometrics. I was thinking of introducing some indipendent variables built as Dummy1*Dummy2 . Is this new interplay variable acceptable or is it going to lead to some estimation errors in the model?


texts: Claiming that food delivery apps are purely rent extraction

texts:
I engaged in an argument with a friend about whether takeaway food ordering apps had any 'value'. I tried to persuade him that they were rent extraction enterprises but he wasn't convinced. So I want two things here. Firstly what the weak points of my argument are and secondly how I can articulate my points better.

My position was that apps are being used to provide marginal benefits to consumers who then use them at great expense to the restaurants that actually prepare the food. However, if those that benefit from the app (hungry consumers) had to shoulder the cost incurred rather than the restaurant, they would choose not to use the app. By this I mean if the money paid by the restaurant to the app firm was added as a surcharge to the customer bill, they would pick up the phone instead of using the app. Therefore because those who enjoy the limited benefits of the app would not be willing to pay to service the app, the app has no value and is a rent seeking enterprise by a tech firm to extract money from takeaway restaurants.


texts: I am doing some research on a potential U.S. Nationwide Sales tax.  I found per-capita sales tax revenues and sales tax rates for each of the 50 states and conducted a quadratic regression on them.  I got a quadratic regression with a $R^2$ of approximately 0.4.  Is this $R^2$ sufficient to state a good correlation and are there any other statistical tests I may need to do?  Thank you in advance.


texts:
I need to better understand the concept of negative expenditure in UK public spending. The definition says

  Receipts classified as negative public expenditure receipts are
  netted off, and hence reduce levels of total public spending. The most
  common examples are payments for goods and services. However negative
  PE receipts also include: royalties, income from insurance payments,
  guarantee fees and income from rent of buildings (but not land).

More on page 11 of this paper.

For example in the 2015 UK Budget's Total Managed Expenditure is £765bn, where the HM Treasury spending is -£43bn, because HM Treasury earned more than it spent in that period, and the sum of all other departments is 765+43=£808bn. My question is, what do we say is the "size" of the government budget? The government physically spent more than 765, they just did not financed all of it from tax revenue, that is all.

The problem becomes much more exposed if we look at one of the state agencies the Agriculture & Horticulture Development Board. It receives only £1.2M from the government budget but then it "earns" another £57.4M from Levies that enters the budget on the spending side as -57.4 and the total expenditures I see are over £66.3M. But in their annual report they reffer to it as

  The total 2014/15 income was £66.746

Apparently Total Income and Total Managed Expenditure are two very different things. What we say is the "size" of the budget? If we nett off the negative expenditures then the budget of this agency is only £1.2M but that is misleading, isn't it? What is the correct terminology?


texts: I noticed many textbooks in undergraduate microeconomics cover the impacts of taxation but hardly any go in depth about the types of tax (unit tax vs proportionate tax). My question is, is there any microeconomic texts cover a broad range and in depth topics in applied microeconomics?


texts: Is there a name for this family of games (Binomial games?)?

texts:
I'm wondering if there's a name for a $n$-player symmetric game, such that the payoff for player $i$ playing strategy $j$ only depends on the number of other players which played $j$.

Such family of games would capture many real-life games, such as career choosing (where the profit of becoming, say, a programmer, depends on the number of people studying programming, and it is not effected by the ratio of, e.g., agronomists to athletes).

There seems to be quite a lot shared properties for such games, especially if the profit $U_i(j)$ is decreasing as the number of players that chose $j$ increases, so I was wondering if such family was researched before and if it has a name.


texts:
I'm sure most of you are familiar with the paper titled "Bayesian Persuasion" by Kamenica and Gentzkow (2011), (you can find it here).

I was wondering what are your thoughts as to why it is called "Bayesian"? I understand that the receiver creates posteriors using Bayes rule, but this is true for any standard model of incomplete information.

A related question is what is the one minute explanation you would give to describe this framework to people who are not familiar with it? Say people who know the cheap-talk literature fairly well, for example.

I've tried a couple of things, with mixed results. I'm happy to discuss my ideas, but I would appreciate hearing some fresh perspective first.  Thank you.


texts: The current economic understanding of the effect of labour unions on employment and wages

texts: What are the currently largely accepted views on the effect of labour unions on employment and wages? Where can I read more about the currently established theoretical models that model labour unions?


texts: What are different ways of specifying utility and decision making?

texts:
This question is related to this question about the Machina paradox and about the expected utility model. In this question, I'd like to know a little more about various or even competing ways of specifying utility and decision making. It'd be nice if we could formulate a list of different formulations. To start, I suppose there is the Von Neumann–Morgenstern expected utility model, Savage's subjective expected utility model, or Prospect theory.

Is there anything else that is commonly used?


texts: Finding an economic policy that worked in a developed country but failed in a developing one

texts:
As the term paper of development economics in BSc, I am assigned this topic but I have no idea where to begin with. Of course I can’t look up every economic policy that was ever made then check whether it failed in a developing country but succeeded in a developed one. Can anyone suggest me a book or any article which might be of any use to me?

Thanks!


texts: Sum of residuals in multiple regression equals 0

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I understand that in multiple regression
$$\sum_{}^{} X_{i,j}\hat{u}_{i} = 0 $$
 but I do not understand how my textbook says that if we include the intercept in the regression ($X_{i,0} = 1$)then we get:
$$\sum_{}^{} \hat{u}_{i} = 0$$


texts: General equilibrium effects of affirmative action policies

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I am interested in the debate about affirmative action in college admissions and I would be happy to read some theoretical economic investigations of the effects of these policies. I would be glad if someone could point out a good and recent survey of this literature, or some papers addressing this issue. The following two questions are of particular interest to me:

the general equilibrium effects of affirmative action (say, in college admissions) on labor market outcomes (acquisition of human capital, wage differentials, etc.)
the welfare analysis of affirmative action policies, with some discussion of the appropriate social welfare criterion (e.g., fairness vs efficiency)

Any reference would be appreciated. Thanks in advance.


texts: How can two different utility functions represent the same preferences?

texts:
I have this question for microecon that asks do the following utility functions represent the same preferences:

$u(x_1, x_2) = x1 \cdot x2, \; v(x_1, x_2) = \ln x_1 + \ln x_2$
$u(x_1, x_2) = x1 \cdot x2, \; v(x_1, x_2) = x_1 + x_2$

How do I go about approaching this problem since they are two different functions?


texts: Simple Neoclassical Growth Model with Elastic Labor and Non-Standard Capital Adjustment Costs

texts:
I have the following social planner problem to maximize $\{c_t, k_t, n_t \}$

$\begin{gather*}E_0 \sum_{t=0}^\infty \beta^t U(c_t, 1 - n_t), 0 < \beta < 1\end{gather*}$

subject to

$\begin{gather}
y_t = F(k_{t-1}, n_t) \\
c_t + x_t = F(k_{t-1}, n_t) \\
k_t = h(x_t, k_{t-1})
\end{gather}$

For the final equation for capital stock evolution, $h$ is a function $h(x_t, k_{t-1}) = k_{t-1} g(x_t/k_{t-1})$ with $g(0) = 0$, $g' > 0$, and $g'' < 0$.

Standard variable terminology applies, $k_{t-1}$ is the capital stock carried into period $t$, $n_t$ is hours worked at $t$ and  $c_t$ and $x_t$ are consumption and investment at $t$.

To determine first order conditions in this type of problem, I would normally reduce the constraints down to a single equation. With standard capital adjustment, this would be trivial. However, the inclusion of $h$ is confusing me. It's easy to see that the first two constraints can be combined, $c_t + x_t = y_t$ , but is it possible to combine that and the remaining constraint without functional forms?

It's probably a simple mathematical property that I'm forgetting. Can anyone help me out?


texts: Economics: inductive or deductive? Verificationism or falsificationism?

texts:
Question 1: Are economic theories and models developed using induction or deduction?

My view: If we gather historical evidence and figure "so, people tend to be like this and that so let's call this the Law of somethingsomething", then the answer is clearly induction.

Question 2: Are economic theories judged using verificationism or falsificationism?

My view: It seems to be verificationism: if the theories and models seem to be at least somewhat in accordance with reality, then it is considered a verification of the theory.


texts: Is it possible for Gross value added be negative on a company level?

texts: In National Accounts production approach, can there situations whereby the Output of a company is far lower than the Intermediate consumption therefore the Value added is negative?


texts: Payoff value clarification - game theory

texts: Could someone please tell me why for the strategies $(H,H)$ and $(D,D)$, they use $\frac{v}{2}-k$ and $\frac{v}{2}-d$. Since if the animals get payoff $v$ and they hawk, they lose $k$, hence the payoff of both hawking is $v-k$? No? And similar logic for Dove.


texts: With inflation so low, why is it so hard to stimulate the economy?

texts:
Usually the limiting factor in stimulating an economy is how much inflation can a currency handle before the money being spent has a negative effect overall. But now we seem to have the opposite problem of having a lot of leeway, but somehow we are not able to use it to stimulate growth.

It seems like in theory, we could print a bunch of money and do a helicopter drop at the expense of higher inflation, which would help since the US is almost in a deflationary state. Obviously central banks (mostly US but also the rest of the developed world) have better ideas as to what should be done to help the economy, and so I would like to understand what those ideas might be and why they cannot take advantage of the low inflation.


texts: Where can I find economics theories to learn about?

texts:
I'm a beginner to economics so I do not have much knowledge. However, I enjoy learning new economics theories. For now, I normally search for economics theories by looking at those that won nobel prize. Do you know where can I find a list of other economics (particularly microeconomics) theories that don't win the nobel prize?
Thank you very much.


texts:
Lets say two players, $i=2$ compete in a standard prisoners dilemma game where the action space of each player $a_i \in A_i=\{C,D\}$

Let say the game is repeated $T$ times and all information of past histories is common knowledge.

the strategy function for any player $i$ at time period $t$ is $$s_i^{t}:H_t \rightarrow A_i$$

where the history set at time $t$ is $H_t=A^t=(\{C,D\} \times \{C,D\})^t$

Hence the strategy set $S_i$ of player $i$ for the entire T-repetition game is the cartesian product

$$S_i={\sf X}^{t-1}_{t=1} A_i^{A^t}  $$

My question is this:

Did I define the strategy set (above equation) of the player for the $T$ repetition game correctly? The reason why I ask if because lots of books define the strategy set differently, as the union of all histories mapped into the action space of the player, as such:

$$S_i={\sf \cup}^{t-1}_{t=1} H_t\rightarrow A_i  $$


texts: How can the share price of a company be less than its (theoretical) liquidation value?

texts:
A recent article from Bloomberg states that Deutsche Bank's share price is less than half its theoretical liquidation value.

According to Investopedia, liquidation value is defined as:

  The total worth of a company's physical assets when it goes out of business or if it were to go out of business.

This means, that the liquidation value does not include intellectual property, goodwill and brand recognition. Which would be reasonable factors why a share price can exceed the total worth of a company's physical assets.

Now, a company's total value, which includes intangible assets, is represented by the company's stock price.

Wouldn't this imply that:

If one bought all shares of Deutsche Bank and sold all its physical assets could make a fortune? (assuming that such action would not affect the share price)
If a company's total value is less than that of its physical assets, the company's intangible assets are negative?

So the question that I would have asked is: How is it possible, that the stock price of Deutsche Bank is less than half of the worth of its physical assets?


texts: Preferences where wealth effect dominates

texts:
King-Plosser-Rebelo preferences satisfy balanced growth requirements, we have that income and substitution effects of labor cancel. Labor does not respond to a change in the wage level.
Greenwood-Hercowitz-Huffman preferences shut off the wealth channel: There is only a substitution effect left, hence labor co-moves with wages.
Jaimovich-Rebelo create the nested case with a wealth effect within the two aforementioned.

Is there any commonly used preference specification for which the wealth effect dominates the substitution effect, and hence labor supply reduces as a response to an increase in wages?


texts: understanding the proof of stochastic dominance.

texts:
$\int_a^b u(x)dF(x)$ (1)$ = u(t)F(t)|_a^b - \int_a^b F(t)u^\prime(t)dt$ (2)$ = u(b)-\int_a^b F(t)u^\prime(t)dt$

$= u(b)-(\Phi(t)u^\prime(t)|_a^b-\int_a^b \Phi(t)u^{\prime\prime}(t)dt=u(b)-\Phi(b)u^\prime(b)+\int_a^b \Phi(t)u^{\prime\prime}(t)dt$.

From (1) to (2), I know that it is a partial derivative, but shoudn't it be $u(t)F(t)|_a^b - \int_a^b F(t)u^\prime(t)dF(t)$?? How can we transform $dF(t)$ to $dt$?

I also want to know why $\Phi(b)$ is not equal to 1.

I attach the original paper in case the information is not enough.


texts: Bertrand game with delivery risk and side payments

texts:
Consider three agents $A_i$, who engage in a Bertrand game. All agents have perfect knowledge on all parameters and the distribution $F()$.

$A_1$ moves first and selects price $0\leq p_1\in \mathbb{R}$. $A_2$ moves second and selects price $0\leq p_2\in \mathbb{R}$. $A_3$ moves third and selects $0\leq q_1\in \mathbb{R}$ and $0\leq q_2\in \mathbb{R}$, that is, the quantities that it buys from $A_1$ and $A_2$, which it sells at market clearing price.
$A_1$ tries to maximize $  q_1 p_1$.
$A_2$ tries to maximize $ q_2 p_2$.
$A_3$ tries to maximize $$((A - q_1 - q_2) (q_1+q_2) - q_1 p_1 - q_2 p_2) (1-F(-q_1 p_1))+
( (A - q_2) q_2- q_2 p_2+B) F(- q_1 p_1) $$, with $F$ being a continuous cumulative distribution function. $A_3$'s profit function captures that buying from $A_2$ comes at no risk, while $A_1$ might be unable to deliver. However, the higher $A_1$'s profits the smaller that risk and the higher the chance to capture the benefits/losses $B$.

Note, all agents have perfect knowledge on all parameters and the distribution $F()$.
Does $A_3$'s profit increase in $B$? How to prove this?
(If $F$ is uniform, $A_3$ will only buy from one of the agents and it is easy to show that the answer is yes. If $p_1$ and $p_2$, then it is easy to show that the answer is yes.)
In the general case, which is outlined above, my numerical studies suggest that the answer is yes, but I struggle to write down the analytical proof.


texts:
To find the equilibrium price I understand you set $$ Q^s = Q^d $$
and then solve for p. But as P is not indpendently labeled in $$Q^d$$ I am slightly confused how you would go about writing this equation? Thanks!


texts:
I have a very basic model about a small open economy. This is a summary:

  $$
E_0\sum_{t=0}^{\infty}\theta_t U(c_t, h_t)
$$
  utility function:
  $$
d_t = (1 + r_{t-1})d_{t-1} - y_t + c_t + i_t + \Phi(k_{t-1} - k_t)
$$
  evolution of foreign debt:
  $$
y_t = A_t F(k_t, h_t)
$$
  output:
  $$
k_{t+1} = i_t + (1 - \delta)k_t
$$
  stock of capital evolves according to:

  The first order conditions of the household's maximization problem are:
  \begin{align}
\lambda_t = \beta(c_t, h_t)(1 + r_t)E_t\lambda_{t+1}\\
\lambda_t = U_c(c_t,h_t) - \eta_t\beta_c(c_t,h_t)\\
\eta_t = -E_t U(c_{t+1}, h_{t+1}) + E_t \eta_{t+1} \beta(c_{t+1}, h_{t+1}) \\
-U_h(c_t,h_t) + \eta_t\beta_h(c_t,h_t) = \lambda_tA_tF_h(k_t,h_t)\\
\lambda_t[1 + \Phi'(k_{t+1} - k_t)] = \beta(c_t,h_t)E_t\lambda_{t+1}[A_{t+1}F_k(k_{t+1},h_{t+1}) + 1 - \delta + \Phi'(k_{t+2} - k_{t+1})]
\end{align}
  Law of motions of the productivity shock:
  $$
\ln A_{t+1} = \rho \ln A_t + \epsilon_{t+1}; ~~~~ \epsilon_{t+1} \sim { NIID}(0,\sigma_\epsilon^2); ~~~~ t\ge 0
$$
  we parametrize this as
  \begin{align}
U(c,h) = \frac{[c - \omega^{-1}h^\omega]^{1 - \gamma} - 1}{1 - \gamma}\\
\beta(c,h) = [1 + c - \omega^{-1}h^\omega]^{-\psi_1} \\
F(k,h) = k^{\alpha}h^{1-\alpha} \\
\Phi(x) = \frac{\phi}{2}x^2; ~~~~ \phi>0
\end{align}
  $$
\begin{array}{|c|c|c|c|c|c|c|c|c|} \hline
\gamma & \omega &  \psi_1 & \alpha & \phi & r & \delta & \rho & \sigma_{\epsilon} \\\hline
2 & 1.455 & 0.11 & 0.32 & 0.028 & 0.04 & 0.1 & 0.42 & 0.0129 \\ \hline
\end{array}
$$

I have computed the steady state, but how can I compute the impulse response function?


texts:
Oscar Tabarez, the current football manager of Uruguay National Team, have urged, after his good results, his governement to raise, as promised, the Education Spending on GDP Ratio to 6%.

It is a very good resolution indeed and it makes me looking how my country, France, is ranked.
Someone, could help to understand why France (i'm french) has a low level in comparison with Mexico, Brazil or Argentina and is one of the last country of OECD.

source : https://data.oecd.org/eduresource/education-spending.htm

Are we more efficient with Public Expenditure ?

It is large issue but any comments will help me.


texts: If a call may expire OTM, why won't a \$1 increase in the underlying's price necessarily increase the call's price by \$1?

texts:
Zvi Bodie, Alex Kane, Alan J. Marcus. Investments (2018 11 edn). p 723 scanned.

         Figure 21.9 verifies that the slope of the call option valuation function is less than 1.0,
  approaching 1.0 only as the stock price becomes much greater than the exercise price. This
  tells us that option values change less than one-for-one with changes in stock prices. Why
  should this be? Suppose an option is so far in the money that you are absolutely certain it
  will be exercised. In that case, every dollar increase in the stock price would increase the
  option value by \$1. But if there is a reasonable chance the call option will expire out of the
  money, even after a moderate stock price gain, a \$1 increase in the stock price will not necessarily
  increase the ultimate payoff to the call; therefore, the call price will not respond
  by a full dollar.

Pls elaborate the embolding? The authors didn't spell out all the reasons. If a call has a chance of expiring OTM

why won't a \$1 increase in the underlying asset's price "necessarily increase the ultimate payoff to the call"?
why won't the call price increase by a full $1?


texts:
If I understand correctly, for a small country, whose supply chains needs to be transnational, protectionism introduces market inefficiency such that even unilaterally removing tariffs would be preferable.

But are there any circumstances where a small country would benefit economically from a protectionist tax policy?

If for example the whole world placed high tariffs on all goods and services from a country, would this make a protectionist policy desireable?


texts: How did Brexit wipe $2 trillion off world markets?

texts:
I read here (https://www.theguardian.com/business/live/2016/jun/24/global-markets-ftse-pound-uk-leave-eu-brexit-live-updates) and elsewhere that Brexit wiped \$2tr off world markets.

How did that happen?

Is this equivalent to \$2tr worth of a certain good, sinking to the bottom of the ocean?


texts: Are economic profits above normal for many firms in a perfectly-competitive increasing-cost industry?

texts:
In a perfectly-competitive constant-cost industry, all firms will have normal profits in the long run. This fact is very clear to me as the long run supply curve is perfectly elastic and hence each good produced in the market will have an economic cost equal to the market price and hence each good sold yields a normal profit. Thus, all firms in this industry will have normal profits in the long run.
This doesn't appear to be the case in a perfectly-competitive increasing-cost industry though. In an increasing-cost industry, the long run supply curve is upward sloping and so only the marginally good will yield a zero profit upon its sale. All others goods sold will generate positive economic profits since the supply curve only equals the market price at a single point. This would mean that some firms in the industry will generate economic profits even in the long run. But every source I've read from seems to indicate that economic profits should be zero for all firms in the long run even in the case of an increasing cost industry. They seem to suggest that as firms enter the market, they push up the price of all the firms in the industry. But an upward sloping supply curve in the long run would suggest that some firms in the industry should still have average costs considerably lower than the market price and hence some of them should make economic profits in the long run. I have attached an image with a brief explanation to hopefully help make my issue more understandable.

So I guess my question is simply : do many firms in a perfectly competitive increasing-cost industry incur positive economic profits in the long run?


texts:
Question: Is there any way to show that price controls might increase competition?

I'm trying to find a way, any way, that price controls might lead to an increase in competition between companies. I've done a few hours of research, mostly just reading long PDFs, but I'm having difficulty finding any sort of analysis that shows that price controls increase competition among companies.

The best I've gotten is that some people argue that price controls are a kind of competition law (?) which are designed to increase competition. But that's not really a warrant for the question.


texts: Game Theory: finding nash equilibria of an extensive form game (game tree)

texts:
How do you find the pure Nash equilibria from this commitment game?

The SPNE is (U, ps)

Do you find the NE by finding the best response (BR) of a player to a specific strategy of the other player?

e.g.

BR(p)={D}
BR(q)={U}
BR(r)={D}
BR(r)={U}

BR(U)={p}
BR(D)={s}


texts: Econometrics-using log-log or continuously compounded annual rate of change

texts:
I am trying to run an econometric model, where I want to estimate the effect of credit growth on consumption growth, among other variables.
Using data from Fred, I have the option of getting my variables as a continuously compounded annual rate of change. Are using these units and regressing normally the same as running a log-log regression?


texts: Should selling price depend on product quality or on work to produce the product if both not in positive correlation?

texts:
I am a Natural Science student and read a little about economics. I am not sure this question is related to economics or not, decided to give it a try.
Recently, I am looking for printing service. From more than one service providers, I got the details that, printing a page is more expensive than photocopying a page. I asked them why is that so, and they said because the quality from printing is better than the quality of photocopying (photocopying inevitably causes a little dislodgement, cannot be 100% same as the original). They confirmed that the inks and papers used for both are the same. This is what I replied: ''Raw materials required for both are equal, printing needs way less work than photocopying each page one by one, so I actually expect the price for printing to be at worst the same as photocopying if printing is not cheaper than photocopying.'' And I didn't hear back from them.
Who is right here?
If the shoppers are right and printing should cost more than photocopying, do you really want to penalise your customer for reducing you work?
If I am right and printing should cost less than photocopying, do the shoppers really want to give higher-quality product to customers at lower price?
Is there any economics theory for this and other similar everyday occurrence?


texts: The Case for Basic Income in developed and underdeveloped countries

texts:
From what I can tell, the idea of the basic income guarantee is very popular in some circles as an excellent alternative to a lot of modern welfare systems.

Has anybody developed a theoretic or empirical model in which minimum income is tested? In this model, what are the necessary and sufficient conditions for such a model to be preferred to a more traditional alternative?

If anyone has suggested readings on the topic, that would be appreciated as well.


texts: How often do banks borrow from the Federal Reserve?

texts: Though I've seen plenty of articles talk about in what circumstances banks borrow from the Fed, I haven't seen any quantification on that note. On average, what percent of the money that banks lend out is money from the Fed? Alternatively, how much money is borrowed from the Fed every year and how quickly is that money generally paid back?


texts:
could you help me to solve the task, please? The task is following.
Total costs of the сompetitive firm are $TC = Q^3 +6$ (Q in thousands \$). If the production is stopped then monthly costs are 4000\$. At what prices the company that maximising profit should shut off the production?
I know that if $P < minAVC$, then the company should stop producing.
So $VC = Q^3$ then $AVC = \frac{Q^3}{Q} = Q^2$ and $minAVC = 0$
So I get $P<0$ that sounds stupid. And I don't even know how to use that 4000\$.
The answer should be $P<3$
Could you help me to find out how to solve this?
Thank you in advance.


texts: Does commercial paper usually carry a higher yield than corporate bonds? Why?

texts:
In Banking: A Very Short Introduction, Goddard and Wilson write:

  [Commercial paper] usually carries a higher yield than corporate bonds.

But aren't corporate bonds longer term than commercial paper and so all else equal should pay higher yields/interest rates?


texts: $\epsilon_i$ is distributed uniformly on $[-\phi, \phi] $ where $\phi>1$. My working so far is as follows: $$\mathbb{E}U_1[I]=1+\epsilon_1\\\mathbb{E}U[N]=0\\$$ Therefore, the optimal strategy for player 1 is for all $\epsilon_1>-1$ to play $I$ and for all $\epsilon_2<-1$ to play $U$. This strategy specification is the same for player 2. In terms of pinning-down a BNE, I am lost beyond this point. Thank you.


texts: Supply elasticity on a piece-wise linear supply function

texts:
The supply elasticity at a point is the willingness to produce more or less after the price has changed (due to whatever reason?).

$$\mu_{Q,P}=\frac{\partial Q_S/Q_S}{\partial P/P}=\frac{\partial Q_S}{\partial P}\cdot\frac{P}{Q_S}$$

Where $Q_S$ is the quantity supply function, $P$ is the price. $\frac{P}{Q_S}$ is the current ratio (the one at the point of measurement or at equilibrium) of price to quantity.

Imagine there are three different suppliers with different supply functions $Q_1,Q_2,Q_3$ For low prices some suppliers won't be able to afford to produce so there will only be one supplier for example. for a certain range $(p_0,p_1]$ we can have that two firms are producing, and for $P\in(p_1,\infty)$ all three firms are producing.

In this example it just so happens that the aggregate supply function is continuous.

Say the equilibrium price is $p_1$ and the aggregate supply is $Q_S(p_1)=Q_1(p_1)+Q_2(p_2)$ (only two out of three firms produce for this price). If the slope of $Q_S$ is some number $\alpha$ at that point, (on the left, because on the right supplier 3 also produces and so the slope is different, say $\beta\ne\alpha$), then the supply elasticity is $\alpha\cdot \frac{p_1}{Q_1(p_1)+Q_2(p_1)}$.

Since the slope on the right of $p_1$ is beta, and the aggregate supply function is continuous (that implies $Q_1(p_1)+Q_2(p_1)=Q_S(p_1)=\lim\limits_{p\rightarrow p_1\\p> p_1}Q_1(p)+Q_2(p)+Q_3(p)$) the supply elasticity is $$\beta\cdot \frac{p_1}{Q_1(p_1)+Q_2(p_1)+Q_3(p_1)}$$

Can the "right and left" elasticities be different in absolut value?

How should we understand a market where supply elasticity is not continuous at the equilibrium?

NB: if we had to impose that the elasticity has to be continuous that would be imposing $$Q_3(p_1)=\frac{(\beta-\alpha)(Q_1(p_1)+Q_2(p_1))}{\alpha}$$


texts: Is printing money to pay government expenses regressive or progressive taxation?

texts:
Lets say that the government decides to pay some of its expenses by printing money*. This (according to some schools of thought) effectively increases the inflation rate and devalues the value of the country's currency. So the government skims off a little bit from the whole country's money & the money everyone had is worth a bit less.

So we have a weird indirect form of taxation.

Would this form of taxation be:

Regressive  (taxing the 'poor' disproportionately)
Progressive (taxing the 'rich' disproportionately)

*Not actually printing, but you get what I mean.
*Lets assume the amount created is below the amount which would trigger hyper-inflation.


texts: How can a good be considered both a luxury and a normal one?

texts:
Let's say I spend $20$ on pizza with an income of $100$. If my income jumps to $110$, I then spend $25$ on pizza. While my income grew by 10%, my expenditures towards pizza grew by 25%. Hence, I would consider this good a luxury, where $\Delta Q_{D\%} / \Delta I_{\%} > 1$.

How can pizza be considered a normal good in this context.


texts: Use of DSGE models for the day-to-day government policy decisions? If no - then what are obstacles?

texts:
Are DSGE models used for the day-to-day government policy estimation and optimization? E.g. can DSGE model be used for estimation of the return of additional investments in education and how those education gains propagates to the whole economy (possibly DSGE in multi-sectoral setting this propagation will be sector-dependent). Can similar estimations be made for investments in healhtcare, for industrial policy, for investments in R&D, for estimation for welfare programmes? Can DSGE models be tuned monthly estimations, for making arguments about budget decisions?

Are there government papers (no matter which government, just sample could be acceptable) which uses DSGE models for such estimations?

If DSGE models are not used for government decisions about issues that are outside monetary and fiscal scopes, then - what is the reason why DSGE (as the best macroeconomic models available today) is not used for government policy optimization? Are parameter estimation costs so large?


texts: Equivalence of inada conditions and non-negativity constraints?

texts:
In a standard constrained utility maximization problem with an agent's preferences defined over good(s), does the imposition of Inada conditions on the utility function preclude us from adding non-negativity constraints while setting up the Lagrangean? The latter seem redundant because the Inada conditions will guarantee an interior solution.
Thanks!


texts:
Using the Microeconomic Theory Basic Principles and Extensions, Nicholson, W. and Snyder, C., I've reached to the point where Monopoly and Imperfect Competition is discussed (Chapter 14 and 15 to be more specific).

It's kind of easy to deduce that Marginal Cost equals Marginal Revenue at the point of profit maximization. In the imperfect competition in the long-run (or in the perfect competition) no one can surpass the point where price equals marginal cost equals average cost, because above this point firms will have negative economic profit.

The main question is why (and not only the graphic explanation please) the firm will choose AC (average cost) = MC (marginal cost)?

Graphically, it looks like the slope of the Demand Curve makes this choice the best one, but why in imperfect competition is this choice not pursued by the firm instead of the Supply Curve?


texts: Can one prove Pareto efficiency in an n-party system by showing all Pareto improvements between any two given parties are made?

texts: I've made a proof of Pareto efficiency of a funding system that I've developed. There are effectively four types of actors. I've shown all Pareto improvements are made between any two given parties are made (including between two actors within the same party). I believe that this proof by cases is valid, but I'm not 100% certain. My one concern is that maybe there is some tricky three-way or four-way trade that is somehow not captured in my proof. Thoughts?


texts: Prices set by firms are the same in a Salop circle. But why?

texts:
Trying to calculate the prices charged by each firm, I don't understand why the solution argues that all firms set the same price. If I use the assumption that they are the same, I can figure out the value. I just don't understand why they should be the same.

For those unfamiliar with a Salop circle, Levy and Reitzes describe one, depicted below with evenly spaced firms (A through F). Consumers are uniformly distributed along a circle of unit circumference (say, on every point of the circle is a consumer, and the circle has a circumference of $1$) and served by one firm only. Firms only compete directly with their neighbors. Using profit maximization strategy and finding the market segements for each firm (through finding the indifferent consumers), the price set by firms is given by

$$
p_i=\frac{1}{4} (p_{i+1}+p_{i-1} ) + \frac{1}{2} (t/N^2+c),
$$
where $p_{i+1}$ ($p_{i-1}$) is the price set by the clockwise (counterclockwise) rival, $t$ represents the cost consumers experience per unit travel, $N$ is the number of firms in the market, and $c$ is the marginal production cost (this is the same for all firms).

But here is the part that I don't understand. From this, it is then argued that with a Bertrand-Nash equilibrium, firms cannot directly influence the prices of their rivals. And therefore the prices should be the same.

This I already find strange: in the formula above, you would naturally argue that the prices set by firms $i+1$ and $i-1$ have an influence on that of $i$. And even if you were to assume they cannot influence each other's prices directly, how would you interpret the equation above? And how could you derive that the prices set by all firms are the same? Would it be derived mathematically from the formula above, or would it be argued by economic intuition in words?


texts: Meaning of assumptions regarding continuum of agents in economics models

texts:
I am reading an economics paper which contains a model with households and banks. In the model, banks are owned by households. The authors make this assumption when they discuss households (section 2.2, page 8):

  There is a continuum of risk-neutral households denoted by $h \in [0,1]$ ...

When they move to discussing banks, they make a similar assumption (section 2.3, page 9):

  There is a continuum of banks denoted by $b \in [0,1]$ ...

I have seen countless papers in economics with such assumptions regarding continuum of agents. Most of the time, I just gloss over this but I don't really understand what these assumptions mean, what they are useful for and why there are there in the first place. It seems like it's something basic and nobody discusses it but I really want to grasp the meaning and purpose of this assumption.


texts: Converting per capita growth rates for subgroups into contribution to total per capita growth rate

texts:
You are given total debt for the second quarter of 2003 and the second quarter of 2004 for the overall population and four age groups. The four age groups collectively account for the entire population and their debt holdings account for overall total debt.

Quarter, Age_Group, Population, Total_Debt, Per_Capita_Debt
Q2 2003,0,1000,10000,10
Q2 2003,1,250,3000,12
Q2 2003,2,400,5000,12.5
Q2 2003,3,250,1500,6
Q2 2003,4,100,500,5

Q2 2004,0,1300,15000,11.5
Q2 2004,1,380,4000,10.5
Q2 2004,2,450,7000,15.6
Q2 2004,3,270,2500,9.3
Q2 2004,4,200,1500,7.5

The per capita growth rate for age group 0, representative of the total per capita growth rate is 15 percent. But how does one convert the individual per capita growth rates to the contribution to the total rate? Perhaps weight by the population shares? Taking a weighted average of the per capita growth rates yields approximately 6 percent. Dividing the change in per capita debt for each of the groups over the per capita debt level for the population doesn't work as it would when using total debt. The result should be r1 + r2 +r3 + r4 = r0 Where rn is the growth rate for age group n.


texts: Where does investment originate from in the circular flow model?

texts:
The above image is from my macroeconomics textbook.
I’m struggling to understand the “financial markets” corner. If financial markets refers to banking and perhaps the stock market, is it true that its only input is savings from households? Don’t firms also participate?
And if investment refers strictly to capital goods and additions to inventory, then shouldn’t the I arrow originate from firms, who make the investments?
If everything that a firm makes becomes income, then where does it get money for investment? It seems from the diagram that all of the firm’s profit goes straight to the resource market—paying employees, etc.
(On a more basic level, how does wealth ever actually increase/the economy ever grow if everything is a cycle? I understand that a central bank could do things in the financial market to increase money supply, but assuming such a system as a gold standard, is it even possible for the economy to grow?)
I appreciate your answers.


texts: Has the Nash Equilibrium led to any significant economic discoveries?

texts:
The Nash Equilibrium provided a new look at certain economic problems and won the Nobel Memorial Prize in Economic Sciences in 1994.  Since its creation, the Nash Equilibrium has been applied to "international relations" specifically for war and arms-race scenarios. However, has the Nash Equilibrium lead to any significant economic discoveries?
I had heard rumors of the Nash Equilibrium being applied to bank-runs and other financial crises but nothing to back it up.


texts:
I'm trying to understand intuitively what a homothetic preference is, and I am still not quite there. I understand the definition, that a homothetic preference implies that the slope of the indifference curve remains constant along any ray from origin.

But intuitively, like in real life, how would we know that a preference is not homothetic? If its not strictly monotonically increasing (i.e. you don't prefer more of a product to less of it always), does it mean that the preference is not homothetic? Can someone give an example of what exactly is not a homothetic preference so I understand what is?


texts:
Consider the following infinitely repeated hawk-dove game:

$\hspace{1cm}\hspace{1cm}\hspace{1cm}$

For what discount rate $\delta$ can tit for tat sustain $D,D$? My professor says the answer is $\delta=1$ (discounts are applied by multiplication e.g. payoff of 1 in the next period yields $\delta$).

It seems to me like two cases need to be considered:

1) Suppose we start with $D,D$, then tit-for-tat sustains this $\iff$ $\frac{4}{1-\delta}>8+\frac{\delta}{1-\delta} \iff \delta>4/7$.

2) Suppose we start at $H,H$, under tit-for-tat, player 1 would restore $D,D$ if $\frac{1}{1-\delta}<0+\frac{4\delta}{1-\delta} \iff \delta>1/4$.

What am I doing wrong?


texts: How can I test for autoregressive residual terms in a fixed effects panel Poisson model?

texts:
I have panel data for counts of new firms in different regions for six years. I am estimating a static poisson regression with multiplicative fixed effects$^*$; I have also tried to estimate a dynamic model by introducing a lagged dependent variable, but could not make that latter model work. Now, I would like to test the residuals from the static model for autocorrelation, so that I have an idea of the importance of the dynamics. However, I cannot find any diagnostic tests for this in a textbook (I've looked at Wooldridge, Cameron & Trivedi, Winkelmann, Greene), and also have not seen such a test in a research paper. Since the individual effects in the model are not identified, I don't know how to compute meaningful residuals in the first place.

Does anyone 1) know how to compute meaningful residuals; and 2) know of any diagnostic tests for these panel fixed effect poisson models?

FYI: I am using Stata (version 12.1) -xtpoisson, fe vce(robust)- command for the static model. Stata's postestimation commands can compute predicted values etc, but only assuming that the individual effects are all zero.

$^*$ The cross-section (or pooled) Poisson regression models the expected number of counts $y$ as $E[y_i|x_i]=\exp(X_i\beta)$, with $\beta$ the coefficients and $X_i$ the variables. A common way to add individual fixed effects with panel data is to let the effects $\alpha_{i}$ enter the model multiplicatively: $E[y_{it}|X_{it},\alpha_i]=\alpha_i\exp(X_{it}\beta)$.


texts: Most profitable conversion of stock into money

texts:
When Forbes-lists of top billionaires are published we are usually aghast of their riches and statements such as "the 8 richest people own as much as the poorer half" are disseminated.

I was wondering however, most of these top billionaires have a huge concentration of their wealth in the form of stocks/securities. Is this kind of wealth then calculated as "number of stocks possessed x latest stock price"? That would entail a subtle commitment/choice because of the reason that when a large shareholder such as a billionaire sells of his stake in a short period time (to consume the proceeds) this sudden excess of supply in shares deflates the stock-price thus rendering the total proceeds lower than the value previously proposed.

Q: is there a simple way to answer the question how large the proceedings can optimally be if a large shareholder wishes to liquidate his shares in a time-interval $T>0$ (assuming something like a rational-markets hypothesis applies to all other parties)?


texts:
I'm reading this great intermediate level macroeconomic book by Carlin and Soskice, and on page 31, when discussing the empirical studies testing the Tobin's q theory to explain the behaviour of investment (excess sensitivity of investment over GDP), the following sentence appears « A testable prediction of the q theory is that current cash flow should have no impact on investment. The reason is that forward-looking firms should take into account any credit constraints that they face:  these should already be incorporated into the stock market valuation, Q.»

Note that 'Q' is the average q, and 'q' is the marginal q. (sorry for the redundancy)

My question is the following: This incorporation of information is only valid for semi-strong efficient markets hypothesis (EMH), i.e., only for publicly foreseeable changes, which are the one incorporated in the market valuation, right? It seems that the average Q theory fundamentally depends on that semi-strong EMH. If the EMH fails, so will the average Q theory?

Any help would be appreciated.


texts: What are the fundamental economic dimensions?

texts:
DIMENSIONAL ANALYSIS IN ECONOMICS: A STUDY OF THE NEOCLASSICAL ECONOMIC GROWTH MODEL
I have several questions relating to this 30 page working paper having the above title:
https://arxiv.org/ftp/arxiv/papers/1802/1802.10528.pdf
Nominal page 1:

Dimensional  Analysis  studies  the  properties  of  observable  quantities  with  dimensions  and the  properties  of  mathematical relationships  that  incorporate  them  (Sonin,  2001).  This analysis   is   applied   in   the   natural   sciences;   its   principles   (dimension,   homogeneity, measurement and unity) are key in the formation of scientific thought since they are part of the  basic  principles  of  science.  Compliance  with  the  principles  of  Dimensional  Analysis, and  in  particular  the  principle  of  dimensional  homogeneity,  is  a  basic  prerequisite  for proper  mathematical modelling, as it  allows  to  verify  ex  post  the  dimensional  consistency of  the  mathematical  relations  and  points  out mathematical restrictions  to  the  relations  that are proposed between the variables.

Nominal page 3:

The  present  study’s primary  objective is  to display  the  basic  principles  of Dimensional  Analysis  in  the framework  of  economic  theory, with the  purpose to  apply these principles  to  the  fundamental  relationships  that  underlie the models  of  economic growth.   Specifically,   dimensional   analysis   tools   are   used   to   evaluate   the analytical consistency  of  the  Neoclassical Growth model. This  analysis suggests the  need  for  a correction in the model so that it complies with the principle of dimensional homogeneity.

Nominal page 12:

Once the concepts of stock and flow have been discussed, it is appropriate to consider what kind of dimensions could be used in Economics. Outside the field of Physics, the choice of the fundamental dimensions is not so straightforward, as it depends very much on the area of application  and  the  theory  used.  For  example,  in  the  case  of neoclassical economic theory,  it  seems  to  be  sufficient  to  have  as  fundamental  dimensions  the  time  (),  the monetary  value  (),  the  quantity  of  elements  ()  and  the  utility  (). This  set  of dimensions presents a good starting point to incorporate the question of dimensions in the economic growth  models,  since  there  seems  to  be  no additional fundamental  economic characteristics than those represented by these four dimensions. For this reason,they will be used throughout this article.

NIST Guide to the SI, Chapter 4: The Two Classes of SI Units and the SI Prefixes
https://www.nist.gov/pml/special-publication-811/nist-guide-si-chapter-4-two-classes-si-units-and-si-prefixes
Table 1 shows SI base quantities (dimensions) and units. Tables 2-4 show derived quantities and units also expressed in terms of SI base units.
MY QUESTION
My first question is this: Are the fundamental economic dimensions in fact limited to time, monetary value, quantity of elements, and utility?
Comment: If yes then derived quantities and units in economics could be expressed in terms of these fundamental quantities and units via analogy to Tables 1-4 for SI units in the reference above.


texts: Pros and Cons of Elasticity of Demand Represented as an Absolute Value

texts:
I've been reading quite a bit about elasticity of demand. There seems to be an argument among texts as to whether elasticity of demand should be represented as negative or as an absolute value. The argument for one method over the other depends on the text, but generally boils down to "because this is how we do it." I'm looking for a more meaningful discussion about this topic.

What are the pros and cons of using the negative? Of the absolute value?


texts: What is the real reason for china's stock market crash (August 2015)?

texts:
I have read douzons of explanations and they all basically claim the following:

  China's stock market continued to boom despite the country's increasingly gloomy economic outlook, and this eventually created a bubble that popped.

The above sentence cannot be more vague and although everyone claims it's true, no one seems to give an explanation for why it is true.

Why is there a bubble? what is a bubble? Can someone explain to me in more depth how would a booming stock market accompanied with a slow growth economy create a crash?


texts: Can the Bellman Equation be used for Finite time problems?

texts:
Its known that the Bellman equation in recursive macroeconomics is used for the following problems:

$$\sum_{t=1}^\infty\beta^tU(c_t)$$
$$s.t. c_t+k_{t+1}=f(k_t)$$
$$k_0>0$$

Im wondering if we can apply the bellman equation to problems with finite horizon. The reason why I ask is because it would be considerably easier solving a bellman for a policy function than to solve for these values sequentially.


texts: Are there any experiments about financial games with just one player?

texts:
I was wondering if there are any experiments of financial games (laboratory games under controlled circumstances like Plott and Sunder's Rational Expectations and the Aggregation of Diverse Information in Laboratory Security
Markets in 1988) with just one player? I'm not really interested in the outcomes of such an experiment, but rather on how should it be designed. How many assets should there be? Is it fine for the price to distribute just like a normal distribution (with mean on price*(1+expected return)). How many periods are fine? And so on.


texts: How to Calculate Price Elasticity of Demand When Perfectly Elastic?

texts:
When we have perfect elasticity, the demand curve is a horizontal line and the elasticity of demand coefficient is equal to infinity.

How do we arrive at a solution equal to infinity?

We know that

  Elasticity of Demand Coefficient = Change in Quantity Demanded /
  Change in Price $x$

If we change price by $x$, how do we get what the change in quantity demanded is if there is no quantity demanded at the new price?


texts: Why does the profit function in standard neoclassical theory have exactly one maximum?

texts: In neoclassical theory is said that the highest profit occurs when Marginal Cost equals Marginal Revenue, but this condition wouldn't be enough to determine the maximum if there were more than one. The fact that the maximum can be determined like this means that the uniqueness of the maximum derives from the assumptions of the theory? My professor said that the uniqueness is determined by the static nature of the theory, but this seems to me a little vague. How can it be explained in a more satisfactory way?


texts: The Cake Eating Problem with Depreciation (Modelling difficulties)

texts:
How does one go about modelling the cake eating problem with depreciation? (i.e The cake goes bad over time)

The problem I have is the following.

Lets define a cake eating problem sequentially as:

$$\max_{c_t} \  U(c_t)=\sum_{t=0}^\infty\beta^t\ln(c_t) $$

Subject to:

1.$ \ \  f(k_t)=c_t+x_t$ (resource constraint $c_t$ is consumption, $x_t$ is investment).

2.$ \ \  f(k_t)=k_t$ (Goods defined as dependent on cake size/capital at time $t$ as denoted by $k_t$).

3.$k_{t+1}=(1-\delta)k_t+x_t$ (law of motion).

4.$k_0>0$ (Initial capital stock).

when dealing with the case where $\delta=1$ the problem is fairly straight forward to solve recursively with the bellman equation of:
$$v(k_t)=\max_{k_{t+1}} \left\{\ln(k_t-k_{t+1})+\beta v(k_{t+1}) \right\}$$

However If we were to consider the case of where "the cake goes bad" over time (meaning there is a cost to saving) it seems that modifying the standard framework would be necessary.

This is because if we allow for $\delta\neq0$ we end up with a result of "re-eating" of previously consumed cake. How do we go about addressing this problem?


texts: What is the difference between aggregate supply and GDP?

texts:
Usually when I read online, I see the following repeated frequently: aggregate demand is equal to GDP. I understand that aggregate expenditures is the aggregate demand at a particular price level, and that sometimes AE will exceed GDP (causing growth in GDP) and vice versa, according to the Keynesian cross model.

Obviously at equilibrium, AS = AD = GDP. But I've never seen anywhere that aggregate supply in general is equal to GDP. Yet this definition makes more sense to me.

One definition that I've seen for aggregate supply is "the total supply of goods and services produced within an economy at a given overall price level in a given time period" (source). Another that I've seen is "the total supply of goods and services that firms in a national economy plan on selling during a specific time period" (Wikipedia).

Which of these definitions is correct? If it's the latter, I can see some obvious differences (it doesn't include inventories, for example). But if it's the former, that seems to be the same as GDP: "the monetary value of all goods and services produced within a nation's geographic borders over a specified period of time." To rephrase, how is the concept of aggregate output distinguished from aggregate supply? I guess the first two questions should naturally answer this last one, since aggregate output is GDP.


texts:
In a typical NKPC:

$Inflation_t = \alpha_1 Inflation_{t-1} + (1-\alpha_1) \mathbb{E}_tInflation_{t+1} + \alpha_2 RealMarginalCost + \epsilon_t$

From a micro-foundations perspective, does the parameter $\alpha_2$ (the slope of the NKPC) depends on the elasticity of demand since it is a markup over the marginal cost?


texts: What are some good resources to read on Development Economics from a neoliberal or Austrian perspective?

texts:
I have tried to look for development economics from a neoclassical (Chicago school) or Austrian School approach. However, I could not find any references for this topic. Is it possible that this school had nothing to say on development economics or development studies? But that seems implausible with the existence of the Washington Consensus.
Thank you all.


texts: Estimating Equilibrium Price for Advertising using Simultaneous Equations Model

texts:
I am attempting to build a simultaneous equations model that estimates the equilibrium price of display advertisement, but I have only seen textbook examples with Quantity being the dependent variable - this question is similar: Equilibrium Price - OLS Regression. However, I assume that quantity is also endogenous, and I think I should use two stage least squares to produce unbiased estimates. Display advertisement is bought/sold in online marketplaces, and that led me to believe this model would provide a good fit.

$P_{Dt} = \beta _{0} + \beta _{1} Q_{t} + \beta_{2} Visits + u_{t}$

$P_{St} = \alpha _{0} + \alpha _{1} Q_{t} + \alpha_{2} Print_{t} + \alpha_{3} Prod_{t} + u_{t}$

$P_{Dt, St}$ = Inverse Demand and Inverse Supply
$Q_{t}$ = Quantity of Display Advertisement
$Visits$ = Index of web traffic/visits (akin to income effect)
$Print$ = Price of print advertisement (substitution effect)
$Prod$ = Creative production costs (factor of production)

If anyone has experience modeling structural equations with price as the dependent variable I would really appreciate hearing your thoughts on how I should create a predicted value for Quantity and finalize a reduced form equation. Thanks!


texts: What were the limits of trade and exchange in the Soviet Union? What about other communist countries?

texts: I'm particularly wondering about what implications the abolition of private property had for families. Since private property was to be abolished, I assume houses were not legally allowed to be traded between individuals, whether as gifts, inheritance, etc. What were the limits of this? How much giftgiving was allowed? Were gifts above a certain monetary value disallowed, or did they need to carry some "productive" essence, in the way that some will argue for a distinction between private/productive and personal property?


texts: 1929 stock market crash and unemployment rate

texts:
Thomas Sowell has repeatedly made the case that government intervention is largely responsible for the Great Depression. For example, he notes what happened with the unemployment rate in the months after the stock market crash of 1929. Based on Out of Work by Vedder and Gallaway (alternatively available through JSTOR), page 77, one sees that the unemployment rate went from 5% (Nov. 1929) to 9% (Dec. 1929) and down to 6.3% (June 1930). It is then that Hoover signs the Smoot-Hawley Tariff Act, which Sowell contends is the first cause of the Depression. He then notes that by December 1930, the unemployment rate had shot up to 14.4%. Furthermore, aside from minor fluctuations in early 1931, the unemployment rate dips just below that 14.4% figure in 1936, but that is still the unemployment rate in December 1939.

I'm wondering what alternative factors or explanations could explain the quick increase to the unemployment rate followed by a decrease that approaches the previous numbers and then the marked and sustained increase, or if such alternatives even exist.


texts: How to calculate constant GDP in international $ from nominal GDP in local currency units

texts:
I want to calculate a constant GDP serie from 1995 till 2014 based on nominal GDP expressed in Yuan (Chinese currency).

I already get stuck on how to first make a constant GDP serie based on Yuan, let alone on international dollars.

Would it be enough to use the GDP deflator with base year 2014 to get constant GDP series in Yuan in 2014 prices?


texts: How to tell if F-Stat is significant? And at which significance level?

texts:
This question has been posted on

http://forums.eviews.com/viewtopic.php?f=18&t=12403

But no reply.

Question:
How do I tell if the F-stat is significant at 1%, 5%, or 10% level?
Or not significant?


texts:
I'm having troubles to understand the difference between the Real Exchange Rate and the PPP rate.

I know the first one is calculated using a basket of goods and services so that the non-tradeable basket costs the same in 2 countries (imagining a 2-country world).  Now, isn't that the rate that would hold if PPP applies?

I think I'm wrong if I say that the real exchange rate is the one that makes PPP become valid.  Any help appreciated.


texts:
The durable goods monopolist can charge different prices by every periods. Critical type consumers are indifferent between buying today and buying tomorrow. So I construct a Bellman equation like below.

My lecture note says the optimal pricing strategy is a form of P(q)=β(1-q) where

The thing is that I can't get that answer... There is a chance that I established the equation wrong, but if it's correct can you solve the above optimization problem and get the answer?

Thanks a lot in advance :)


texts: Preference relation value representation without uncertainity

texts:
Let $\succeq $ be a weak order in $\mathbb{R}^n$. If

$ x\geq y \Rightarrow x\succeq y$
for any $x\succ y\succ z$ there exists a unique $\lambda \in (0,1)$ such that $y\sim \lambda x+(1-\lambda)z$,

then there exists a value representation of $\succeq$.

Could anyone give me an example where the Value representation theorem(with out uncertainity) in the $n$ dimensional Euclidean space can be applied and a counter example that cannot be applied?


texts: What is the long run equilibrium in layman's terms?

texts:
My textbook states
An economy's long-run equilibrium is the position it would eventually reach if no new economic shocks occurred during the adjustment to full employment. You can think of long- run equilibrium as the equilibrium that would be maintained after all wages and prices had had enough time to adjust to their market-clearing levels. An equivalent way of thinking of it is as the equilibrium that would occur if prices were perfectly flexible and always adjusted immediately to preserve full employment.
Does this mean that, in the long run, ordinary people like me have already found jobs with our wages already adjusted to price levels affected by inflation and monetary policy by the Fed? In comparison to the short run, is the transition period where the price of money fluctuates with increasing/decreasing money supply by the Fed non-existent? What is the long-run equilibrium for the average Joe and how does this affect me personally?


texts: "Increasing trade barriers causes a country’s currency to appreciate"?

texts:
Mishkin (2016, p. 476) writes:

  Barriers to free trade such as tariffs (taxes on imported goods) and quotas (restrictions on the quantity of foreign goods that can be imported) can affect the exchange rate. Suppose the United States increases its tariff or puts a lower quota on Japanese steel. These increases in trade barriers increase the demand for American steel, and the dollar tends to appreciate because American steel will still sell well even with a higher value of the dollar. Increasing trade barriers causes a country’s currency to appreciate in the long run.

I do not quite understand why this is so.

Here are two simple thought experiments where the US imposing trade barriers might cause the USD to depreciate:

The US imposes a quota on the import of Japanese steel. However, US demand for Japanese steel is inelastic, so that the JPY required to buy the quota of Japanese steel is actually higher than before. Since demand for JPY rises, the USD depreciates.
Say that soybeans are the only US export and foreigners want USD only to buy US soybeans. Say now that the US bans the export of soybeans. Then wouldn't demand for USD fall, so that the USD falls?


texts:
I am fairly new to economics, and we were introduced to budget sets,
The professor mentioned that the budget set $B(p,w) = \{x \in R^{l}_{+}: px \leq w\}$ is non empty and closed  - I could prove the latter (the closed part) by taking sequences, but how do I claim that it is  non empty?
Also, if the price of one commodity goes to zero, what happens to boundedness of $B(p,w)$? - I know zero prices means "free goods", and person can purchase infinite amounts of it. but how to prove it rigorously?


texts: Where does the money required for reserves and loans come from?

texts:
I understand that banks must keep a certain percentage of money in its reserves and it can loan the rest out. What I don't understand is how the money supply increases

For example, let's take a scenario where somebody deposits 100 dollars into a bank. So the bank has 10% of required reserves, so 10 dollars is subtracted from this 100 dollars. So 90 dollars can be used for loans.

But wouldn't this mean that if the person who payed the 100 dollars wanted the 100 dollars back in cash, the bank has spent all the money?

Edit: I watched a video stating that the 90 dollars is created by the bank. Is this true?


texts: How do you find out how much money is in circulation?

texts: I was watching a video about how money gets its value.  They say the answer has to do with how much money is in circulation.  But how does one find out how much money there is in circulation as set by the Fed?


texts: Impact of reducing fertility rate of poor, high birth rate, agricultural country in Africa

texts:
In a poor, population-dense country in Africa with an economy based entirely on agriculture (like Burundi) and a high birth rate that is contributing to poverty due to existing food insecurity, what would be the impact of reducing the birth rate?

Would there be any downsides of bringing families down from an average fertility rate of 4-6 kids? Since most people depend on utilizing the children's labor to help in the fields, would a lower birth rate actually hurt the country's economy?


texts:
Question from Intermediate Microeconomics by Hal Varian:
"We claimed in the text that if preferences were monotonic, then a diagonal line through the origin would intersect each indifference curve exactly once. Can you prove this rigorously?"
What I've done:
Preferences in the indifference curve can be represented using utility function and all the bundles that are indifferent are assigned a single value. And each value of the utility function also represents a fixed point on the diagonal line drawn through the origin. So, if one indifference curve intersects the diagonal line n times (say), then (n-1) points belong to different indifference curves and thus it would mean that the indifference curve in question has intersected another indifference curve, which is fundamentally not possible.
Does it prove the statement satisfactorily?


texts: Why would higher expected inflation increase corporate earnings and dividends' rate of increase?

texts:
A Random Walk Down Wall Street (2015 11 ed). p. 125.

Determinant 4: The level of market interest rates. The stock market does not exist as a world unto itself. Investors should consider how much profit they can obtain elsewhere. Interest rates, if they are high enough, can offer a stable, profitable alternative to the stock market. Consider periods such as the early 1980s when yields on prime-quality corporate bonds soared to close to 15 percent. The expected returns from stock prices had trouble matching these bond rates; money flowed into bonds while stock prices fell sharply. Finally, stock prices reached such a low level that a sufficient number of investors were attracted to stem the decline. Again in 1987, interest rates rose substantially, preceding the great stock-market crash of October 19. To put it another way, to attract investors from high-yielding bonds, stock must offer bargain-basement prices.*
  *The point can be made another way by noting that because higher interest rates enable us to earn more now, any deferred income should be “discounted” more heavily. Thus, the present value of any flow of future dividend returns will be lower when current interest rates are relatively high. The relationship between interest rates and stock prices is somewhat more complicated, however, than this discussion may suggest. Suppose investors expect that the rate of inflation will increase from 5 percent to 10 percent. Such an expectation is likely to drive interest rates up by about 5 percentage points to compensate investors for holding fixed-dollar-obligation bonds whose purchasing power will be adversely affected by greater inflation. Other things being the same, this should make stock prices fall. $\color{red}{\text{But with higher expected inflation, investors may reasonably project that corporate earnings and dividends will also increase at a faster rate}}$, causing stock prices to rise. A fuller discussion of inflation, interest rates, and stock prices is contained in Chapter 13.

Please expound the sentence that I reddened overhead?


texts: Applying ensemble modelling to VAR models

texts: It is ok to apply ensemble modeling to VAR models? I mean, using several specifications of the VAR model instead of just one specification. So, for example, if you want to check that $x_{t-1},...,x_{t-p}$ granger causes $y_t$, you compare results across the different specifications. If you have 5 specifications and 4 of them say yes, and 1 says no, then we conclude that $x_{t-1},...,x_{t-p}$ granger cause $y_t$. If 4 of the specifications say no, and 1 says yes, we conclude that $x_{t-1},...,x_{t-p}$ do not granger cause $y_t$. This idea is from machine learning. Not sure if there is a paper out there that has used something similar.


texts: Firms Entry/Exit Due to Economic Profit in a Perfectly Competitive Market

texts: According to the textbooks,in a long run equilibrium, the market price will be equal to the minimum point of firm's ATC curve. But every firm's ATC curve will differ i.e each one of them will have different cost structure. In such scenario, how do we identify the representative firm?


texts: Proof that for increasing AC MC(Q)>AC(Q) at any Q>0?

texts: I know the "common sense" proof, but how can we prove it algebraically?


texts: How do I choose the correct model for a regression?

texts:
So the central question of my project is to what extent does a country's level of export contibution towards GDP (i.e. exports as a % of total GDP) affect its GDP growth.

I'm comparing this hypothesis for two different countries, China and India.

I have annual time-series data for exports as a % of total GDP for both countries and their GDP growth for the last 30 years, but I have no idea how to choose a correct model to begin to anaylse it with.

I was thinking of pehaps using Autoregressive model one, any thoughts? If this is correct then I how would I begin to model it using my data?


texts: How would one model wage suppression from non-poaching agreements?

texts:
Motivating example: Google, Apple, Microsoft et al were recently fined $430 million for wage collusion and anti-trust violations regarding hiring of employees. Their employees were involved in a class action lawsuit. My uninformed guess is that the wage collusion and anti-poaching agreements adversely affected market wages as a whole for everyone in software. I'd like to know how one might prove that.

To limit the scope of the question a little: how would one go about calculating the impact of anti-poaching agreements on market wages? My intuition for a solution involves brute forcing an implausibly accurate dataset, but I know you economists are clever folks.


texts: Does improvement in human capital reduces regional disparity?

texts:
I am an undergraduate student and I am finding out if this could be a good thesis topic since I haven't encountered any text regarding this also when I found one related to this it is on the other way around like how does income affect difference on human capital between regions.

Sub-question: Will increase in human capital create convergence between regions?


texts:
For the following Question

The Answer is

First:
Scenario 1 : I wonder how the customer pay as whole 12000 dollar after 12 years for a 8525 dollar product if the interest rate = 0%

I think that , there is about 3% interest

Second:
What is the criteria upon which the company decide in first scenario to pay 1000$ /year and for the second scenario to pay the full amount?


texts:
A lot of my family is concerned about a future insulin shortage and it's reported that this shortage is growing.  When I read articles from Harvard about it, they imply it's pure greed:

  There are no generic insulins. Over the past twenty years, prices for the most commonly prescribed “analog” insulins have risen from about $20 per vial to well over \$250 per 10 mL vial, an over 700% increase after accounting for inflation. In contrast, insulin today costs roughly five dollars per vial to produce. With deductibles far outpacing wages, insulin has become unaffordable even for well-off Americans.

If it costs us 5 dollars to produce, why don't we all start insulin companies and sell it for $15, attracting all the business (as well as popularity since we have better prices).  Is greed really the issue, or is there another economic explanation, like the resources involved in insulin-making are in a shortage?  Or the regulation of producers?  Or the possible lawsuits producers face if they make a mistake?

It sounds like anyone could compete against these greedy companies and put them out of business.  What am I missing?


texts:
Suppose the government of a country issues a bond. A certain bank buys that bond:

The bank loaned a certain sum of money to the government.
The government has to pay interest every x intervals of time and the face price at the maturity date to the bank.

What if the bank sells that same bond that it bought to the public. What happens then? If I buy the bond:

I give a sum of money to the bank
The bank now has to pay me interest and the face price at the maturity date?

What happens to the government in the equation?


texts: What is the relation between probability of default and country's interest rates?

texts: Is probability of default expected to increase with increase in the interest rates set by the central bank?


texts: Update of value function in continuous time - HJB

texts:
When solving (numerically, by value function iteration) a dynamic programming problem in discrete time, such as

$$V_1(a) = \max_{c} \ u(c) + \dfrac{1}{1+\rho}V_0(a')$$

we maximize with respect to the control variable and get a first order condition that we then plug back into the functional equation shown above. The result of this step, $V(a)_1$, will then be used on the RHS of a second iteration

$$V_2(a) = \max_{c} \ u(c) + \dfrac{1}{1+\rho}V_1(a')$$

and we repeat this process until $V(a)_n-V(a)_{n+1}<\epsilon$.

My question is how does the update of the value function work in continuous time?  I have been working on a paper that uses continuous time dynamic programming, so the Bellman equation looks as follows

$$\rho V_n(a) = \max_{c} \ u(c) + \dfrac{\partial V_n(a)}{\partial a}da_t \quad (*)$$

where the transition equation is represented by $da_t$. From what I have seen, the update of the value function is done by calculating $\Delta$:

$$ \Delta = \ u(c(a^*)) + \dfrac{\partial V_n(a)}{\partial a}da_t(a^*) - \rho V_n(a)$$

where $u(c(a^*))$ and $da_t(a^*)$ represent the control and transition equation as functions of the optimal policy. That is, we maximize the RHS as in the previous example (the discrete time case), but then we subtract $\rho V(a)$ from both sides. Then updating the value function is done as follows:

$$V_{n+1}(a) = V_n(a) + \Delta$$

How can this be so? I would have thought that I would just use the maximised RHS of (*) and plug back in a new iteration. How come the other method is the correct one?


texts: What are some reasons for decline of georgism?

texts:
I understand that Georgism was a major economic idea in the late 19th century.  The idea of a simple land-value tax and basic income derived from an equitable distribution of natural resource exploitation seem to be great ideas solving many of the challenges faced in other economic systems.  Also, Progress and Poverty was one of the most popular books on economics in the late 19th century.

Why has this seemingly great concept lost popularity?  My speculations is that it either does not benefit the ruling elites (so, politics) or that, more plausibly, the idea of basic income derived from natural resources was calculated to be unsustainable amid the population growth of the turn of the century.


texts: Doing a PhD Economics without background in formal theorems?

texts:
I could really use some advice. I am a new PhD student in Economics and Finance. My background is in economics, and while I did mathematics in my Master's course, it was more data-analysis based rather than formal proofs. So, for instance, I have become quite adept at analysing data in SPSS, STATA, R etc, but struggle when it comes to being given a formal problem and then having to prove using formal means; e.g. proving that a particular sequence is Cauchy or Martingale, etc.

What are the best ways to become better at formal theorem-proofs? I know that practice is the most obvious answer, but is there a base from which I should be starting? e.g. are there certain "bread-and-butter" proofs in mathematical economics such as law of large numbers, central limit theorem etc, that being able to prove would make it easier to prove others?

Would appreciate some advice on how to get better at the theorem-proof method, or even some textbooks/resources that would help with this, given that my background in this area is very limited.


texts:
What is the difference between a free trade agreement and a preferential trade agreement?

What is the difference between a free trade area and a free trade agreement?


texts: Who paid the difference on a warrant if i am winnnig

texts:
I am discovering the mechanism of a warrant but there is still something that i can't understand.

Let's take a simple example a call warrant with a strike of \$10. I buy it when the underlying product is at \$5 and now the underlying is at \$20. If we keep it simple who will give me the \$20-\$10 = \$10 difference.

The bank I suppose. Does the bank hope that on all its warrants it will earn money? Can the warrant put a bank on bankruptcy in extreme case?


texts:
Hi Im looking for some books or articles or books on the basics of housing economics.

Where should I start?


texts:
Are there any mathematical models of a planned economy like in the soviet union? Specifically id like to know how we would model 5 year plans.

Do any exist?


texts: Why can't a government print money to pay its debt?

texts:
I have written an explanation to one of the famous questions "why can't government print money to pay its debt".

Is my explanation correct?

Is this the similar situation which happens in real life?

Is there really a foreign exchange bank?

Do companies like Verizon really buy other countries' currencies?

In Country X, President thinks we have too much debt to be paid to USA. Let us print money and will pay the debt off. Country X uses currency Y.
After printing money, since X has to pay to USA in dollars, X goes to foreign exchange bank and try to catch some "fool". Suppose a telecom operator in USA say Verizon wants to expand business in  X, wanted to buy Y since X may need that money to construct office, hire people, bribe politicians etc. So Verizon buys it from X in return for USD. Now X pays its debt off to USA in USD and sleeps happily.
Now Verizon expands business in X, effectively returns the money they got it from X to the people of X, by paying for construction, employees, etc.
So people of X have more money but the production of X remained same. This is a classic case of inflation. So countries tend not to print money to pay off debt!


texts: First order approximation of consolidated budget constraint describing the evolution of government debt

texts:
I am trying to derive a first order approximation of the government's budget constraint around a zero inflation steady state.
This is from Jordi Galís 2020 paper "The effects of a money-financed fiscal stimulus"
Government's consolidated budget constraint is given by
$$
P_t G_t+B_{t-1}(1+i_{t-1})=P_t T_t+B_t+\Delta M_t
$$
where $G_t$ are real government purchases.
$\mathcal{B}\equiv B_t/P_t$ is defined as real debt outstanding and $\mathcal{R}\equiv(1+i_t)(P_t/P_{t+1})$ is the (ex-post) gross real interest rate.
The consolidated budget constraint is rewritten as
$$
G_t+\mathcal{B}_{t-1}\mathcal{R}_{t-1}=T_t+\mathcal{B}_{t}+\Delta M_t/P_t
$$
where $\Delta M_t/P_t$ is the seigniorage in period t.
It is assumed that there exists a steady state with constant government purchases $G$, taxes $T$ and government debt $\mathcal{B}$ and zero seigniorage $\Delta M = 0$.
Then $T=G+\rho\mathcal{B}$ must hold in steady state where $\mathcal{R}=1+\rho$ and $\rho$ is the discount rate for the households.
Seigniorage close to the steady state, as a fraction of steady state output, can be approximated as
$$
(\Delta M_t/P_t)/(1/Y)=(\Delta M_t/M_{t-1})(P_{t-1}/P_t)L_{t-1}/Y \simeq \varkappa \Delta m_t
$$
where $L_t\equiv M_t/P_t$ are real balances, $m_t\equiv \log M_t$ and $\varkappa\equiv L/Y$ is the inverse income velocity of money.
$\hat{b}_t\equiv (\mathcal{B}_t-\mathcal{B})/Y$,$\hat{g}_t\equiv (G_t-G)/Y$,$\hat{t}_t\equiv (T_t-T)/Y$ are deviations of government debt, government purchases and government taxes.
A first order approximation of the rewritten budget constraint around the zero inflation steady state of debt is supposed to yield:
$$
\hat{b}=(1+\rho)\hat{b}_{t-1}+b(1+\rho)(\hat{i}_{t-1}-\pi_t)+\hat{g}_t-\hat{t}_t-\varkappa \Delta m_t
$$
but I arrive at
$$
\hat{b}=(1+\rho)\hat{b}_{t-1}+\hat{g}_t-\hat{t}_t-\varkappa \Delta m_t
$$
Where does the term $b(\hat{i}_{t-1}-\pi_t)$ come from?


texts: Do applied papers introduce new notation for every regression?

texts:
I am currently writing an empirical paper which reports on the results from estimating a number of regression models.
Question: is it standard to introduce new notation for each of these models, or should one stick to $\beta_0$, $\beta_1$, etc. every time? I am trying not to re-use notation but am running out of Greek letters...
NB I do realise that this is not a question about economics per se and do apologise for this in advance!


texts: How large is the Underground Economy in the U.S

texts: How large is the Underground Economy in the US, and is it growing or getting smaller as a percent of GDP?


texts: First-price auction with discrete values

texts:
Exercise 4.5 in Vijay Krishna's Auction Theory:

  Suppose that bidder 1 always has value $X_1=2$, while bidder 2's value, $X_2$ is equally likely to be $0$ or $2$. Find equilibrium bidding strategies in a first-price auction. (Note that since values are discrete, the equilibrium will be in mixed strategies.)

I don't understand why it is that since values are discrete, the equilibrium will be in mixed strategies. Is there some rule/principle to this?
How do I set up for the problem? Since equilibrium are in mixed strategies, I can suppose that player 1 bids $b_1,\ldots,b_k$ with probabilities $p_1,\ldots,p_k$ respectively. But that seems too general to make any progress.


texts: Can someone suggest a good resource on homothetic technologies and what properties they imply about cost function, profit function, input demands, output supply etc? Also is it possible to have inferior inputs with homothetic technology?