texts: Why is the law of diminishing marginal returns justified?

texts:
Shouldn't it be easier to produce more quantity of goods for a producer?
Isn't it the case that the ease of production is inherently tied to the quantity you produce?
Shouldn't it be the case that the more you produce , the more easier it becomes to produce a bit more?
I understand why the marginal cost drops for lower quantities but am not sure why it should steadily climb up if the quantity crosses some threshold.

Of course , the fixed costs and variable costs as a result of increase in quantities produced could play a local effect in the increasing marginal cost but I don't see why in general the marginal cost curve seems to be increasing by the argument that it should be easier to produce a bit more when you are already producing a lot.


texts: How to design / interpret a difference in differences regression

texts:
I have a set of active scientists and editors. I want to study the effect that becoming an editor has on the different outcomes of a scientist (such as citation count and publication rate).
I decided to do a difference in difference regression. I'm not sure though is all the steps taken are correct.
I match scientists who did not become editors (control group) to scientists who did become editors later in their career (treatment group) such that they share certain characteristics in the beginning of their career. These characteristics are gender, rank of affiliation, first year of publication (to estimate "era" and "experience"), and discipline.
I define the year in which a scientist becomes an editor as year0. Then I look at the effect becoming an editor has on different outcomes over different years post editorship (year1, year2, ... , year10).
Question 1: Is it correct to have your treatment and control groups matched at the beginning of their career? I read many different opinions on the matter online.
I run a regressions as follows, and explain it as follows:

Question 2: What is the difference between gamma and delta, I know both explain the effect of being an editor, but one is the interaction and one isn't?
This is the way the final table looks like:

The "interaction terms" are the values for delta.
Question 3: Would it be correct to state that:

The impact (number of citations) of a scientist increases every year they become an editor
The impact of a scientist increases more than three folds by their 10th year as an editor compared to a comparable scientist that did not become an editor?
Becoming an editor has a slight negative impact on productivity over the years?


texts: How to find change in the optimal choice with a utility function in general form?

texts:
Suppose the utility function is represented as $U(x_1,x_2;I)$, where $I$ is the level of information the consumer possesses.

How to find the change in the optimal choice of $x_1$ as price of $x_1$ changes with and also with respect to changes in Information?

While I understand the procedure with a Cobb Douglas Utility function, I don't know how to work with general form.

My take:

The consumer maximises $U(x_1,x_2;I)$ subject to a budget constraint $px \leq Y$ where $p$ and $x$ are vectors and $Y$ is income.

The optimal choice can be represented as $x_1^*(p,w;I)$ - Marshallian Demand. Now differentiating this wrt $p$ and $I$ would be the solution.

Is my understanding correct?


texts: Cryptocurrencies: Is it possible to estimate price from market cap?

texts:
I'm looking at a website that figures out the potential price of a coin if it had a certain market cap.
I'm not sure I understand the underlying calculations though.
It's well established that: Market cap = Circulating Supply * Price
So, if you plug in a market cap value, you'd still need to know the coin's circulating supply to determine its price:  how is it possible to determine the circulating supply of a coin at any given point in time?


texts:
In The Classic economy, we consider the following macroeconomic model
$$Y=F(K,N)$$ where $F_N>0$, $F_K>0$, $F_{KK}, F_{NN}<0$ and $F_{NK}>0$
$$F_N(K/N)=w/p$$
The labor supply function is $$N^s=N^s(w/p, r-\pi)$$ where $N_{w/p}>0, N_{r-\pi}>0$
$$N=N^s$$
$$I=I(r-\pi), I’<0$$
$$C=C(Y-T), 0<C’<1$$
$$Y=C+I+G$$
$$M/p= m(r,Y)$$
where $m_r<0, m_Y>0$
where Y is real GDP; K is the capital stock, N is employment, w is the money wage, Ns is the supply of labor, p is the price level, r is the interest rate, $\pi$ is the anticipated inflation rate, I is investment, C is consumption, G is government expenditure, T is net taxes. The endogenous variables are Y;N;w=p;r;p;C and I: The exogenous variables are M;K;G;T;: Let dK = 0.
Is this system dichotomous?
—-
I consider the supply side block
By the labor demand function, $$d(w/p)= F_{NK} dK+ F_{NN} dN$$
By the labor market clearing condition,
$$dN=N_1^sd(w/p)+N_2^s(dr-d\pi)$$
By the output supply
$$dY= F-N+dN+F_KdK$$
When I combine these three equations under the assumption $dK=0$
$$dN= \frac{N_2^s}{1-N_1^s F_{NN}}(dr-d\pi)$$
$$dY= \frac{N_2^s}{1-N_1^s F_{NN}}\frac{w}{p}(dr-d\pi)$$
Next consider the demand side block
$$dC=C’(dY-dT)$$
$$dC= c’ \frac{N_2^s}{1-N_1^s F_{NN}}\frac{w}{p}(dr-d\pi)-C’dT$$
Investment demand
$$dI= I’(dr-d\pi)$$
Good market equilibrium condition
$$dY=dC+dI+dG$
$$[(1-C’)\frac{N_2^s}{1-N_1^s F_{NN}}\frac{w}{p}-I’](dr-d\pi)=-C’dT+dG$$
Dichotomous system means that the nominal variables does not affect the real variables. For example, the change in M doesn’t effect C.
But I cannot interpret this model. Is this system dichotomous? How can I explain this?


texts:
I am reading the definition of a price equilibrium with transfer in MWG on page 548, 524-5.

Consider two-consumer exchange economy. If social planner wants to transfer wealth, how does she achieve this?

Two consumers are born with some apples and oranges. So, the social planner lets these consumers sell at the going market place of what they are endowed with.  Then, does she collect taxes and transfer wealth in this way?

It seems like this wealth transfer can be achieved also by directly reallocating the apples and oranges distributed among consumers.

I am not exactly getting the terms like "there be some wealth distribution" or "equilibrium with transfers", "wealth transfers". What does it mean to say, "there is an assignment of wealth levels with ...."?


texts: What does it mean when we talk about "same basket" exactly for both GDP and CPI?

texts:
When we say about "the basket used for calculating the CPI is the same as the composition of GDP" What does it mean the "same basket"? Does it just mean the goods and service are the same but the weights of each good itself do not matter?(Basket of CPI and GDP are also included A and B but no matter weights) . Or it means the weights of each good in the basket are the also same? (Basket of CPI and GDP are included A and B, also the weights of A is 0.4 and B is 0.6 in both baskets)

I'm really confusing.

In additon, this is the original question though I think it would be useless for this question:

"Assume that the basket used for calculating the CPI is the same as the composition of GDP. Will CPI in a given year then equal the GDP deflator? If so why, if not why not?"

Thanks to all the people willing to help!!


texts: Have there been attempts to measure the value of specific taught skills?

texts:
I'm aware there is a body of research concerned with measuring the returns to schooling in general, and there are theoretical pronouncements about what the most valuable things to learn at school are.

Have there been any empirical attempts to estimate the value of being taught specific skills - for example, phonics or solving algebraic equations?


texts: Why are aeroplanes not made in one place?

texts:
As an example, different parts of an Airbus A380 are produced in factories all over Europe, and then assembled in a factory in France. Transporting these massive objects must be incredibly expensive (unless in fact they are shipped in small parts).

Why not build it in one place, like ships?


texts: The concept of information structure in incomplete information games

texts:
I would like your help to understand the concept of information structure in the incomplete information game at p.6-7 of this paper.

Let me summarise the game as described in the paper.

There are $N\in \mathbb{N}$ players, with $i$ denoting a generic player.

There is a finite set of states $\Theta$, with $\theta$ denoting a generic state.

A basic game $G$ consists of

for each player $i$, a finite set of actions $A_i$, where we write $A\equiv A_1\times A_2\times ... \times A_N$, and a utility function $u_i: A\times \Theta \rightarrow \mathbb{R}$.
a full support prior $\psi\in \Delta(\Theta)$.

An information structure $S$ consists of

for each player $i$, a finite set of signals $T_i$, where we write $T\equiv T_1\times T_2\times ... \times T_N$.
a signal distribution $\pi: \Theta \rightarrow \Delta(T)$.

A decision rule of the incomplete information game $(G,S)$ is a mapping
$$
\sigma: T\times \Theta\rightarrow \Delta(A)
$$

My question:

I interpret $\pi(t|\theta)$ as a probability that, conditional on the realisation $\theta$ of the state, the players receive as signals $t_1,...,t_N$, respectively. According to the given information structure, signals are more or less informative.

If this interpretation is correct, then I'm confused about the first sentence at p.7 of the linked paper: "If there is complete information, i.e., if $\Theta$ is singleton, [...]".

My first guess was that complete information is characterised by specifying $S$ and not by restricting the support of the state. In other words, I thought that complete information corresponds to the information structure $\bar{S}\equiv (\bar{T},\bar{\pi})$ such that

for each player $i$, $\bar{T}_i=\Theta$.
$\bar{\pi}(\theta|\theta)=1$.

Where am I wrong? Why the author defines complete information as having $|\Theta|=1$?


texts: Hayek's defense of competition regulation

texts:
This article claims Hayek endorsed competition regulation:

  As it evolved, neoliberalism became more strident. Hayek’s view that governments should regulate competition to prevent monopolies from forming gave way – among American apostles such as Milton Friedman – to the belief that monopoly power could be seen as a reward for efficiency.

In which work did Hayek advance such view?


texts: “Consumption lowers investment” mankiw explanation

texts:
I am teaching myself macroeconomics and I am stuck on this reading Mankiw:

  Because the economy’s output is fixed by the factors of production and
  the level of government purchases is fixed by the government, the
  increase in consumption must be met by a decrease in investment.
  For investment to fall, the interest rate must rise. Hence, a
  reduction in taxes, like an increase in government purchases, crowds
  out investment and raises the interest rate

Before that, we have the fined the following identity:

Y - C - G = I

Output - Consumption - Gov. spending = Investment.

Looking at the identity, it’s easy to see why the bolded part is right, but I can’t intuitively understand why an increase in consumption would decrease investment.


texts: How does Infrastructure impact on Aggregate Supply?

texts: I was just wondering how Infrastructure can impact on Aggregate Supply. More specifically, how does the improvement of infrastructure improve Aggregate Supply?


texts: Can a country survive and prosper without international trade or investment from overseas?

texts: To what extent can a country be 100% independent from the rest of the world? Is there any country like that in the world? Maybe North Korea, but North Korea receives supports from China.


texts: What is the size of European SMEs in case of money flow and revenue?

texts:
I want to focus my product on SMEs (B2B financial service). So to research the market size I decided to check the numbers first. I had not a very productive time studding EU statistic data on their official site.
I thought that it's possible to determine market size of SMEs by their total revenue or operational balance (money flow). If you have better metrics please feel free to advice.
Is there someone who know where can I get these numbers from?


texts: Deriving long-run cost functions from production function

texts: Suppose that I have a production function $(aK + bL)^3$ in a perfect competition where a and b are constants. I am confused on how to obtain the long-run cost function from this production function without using Lagrange. I have obviously tried $MRTS=w/r$, where w is wage and r is rent for capital, to express L in terms of K or vice versa. This does not yield to anything as the variables K and L just get cancelled in the MRTS. I am utterly lost. How do I go about this?


texts: How does one calculate compensating variation for multiple price change?

texts:
For a single variable price change,

$$CV = - \int_{p_x^o}^{p_x^f} x_H(\rho,p_y,v^o)d\rho$$

$x_H$ is the Hicksian demand function for good $x$. What happens if both prices change? How does one calculate this? What about for an $n$ dimensional price vector where all the prices are changing?

Please give an example using double integrals.


texts: How can I tell if 2 different utility functions represent the same preferences?

texts: I need to verify that $u(x,y)=x^{1/3}y^{1/3}$ represents the same preferences as $v(x,y)=x^3y^3$. Obviously these are completely different functions with different derivatives, so what am I comparing? What makes 2 utility functions represent the same preferences?


texts: How do you calcualte Yield To Maturity, given only the coupon rate and current required rate of return?

texts:
Suppose today a 10 per cent coupon bond sells at par. Two years from now, the required return on the same bond is 8 per cent. What is the YTM?

^That's a question I've been asked and have literally no clue about how to calculate the YTM.

My understanding is: YTM is the anticipated return on a bond if held to maturity. If I buy a fresh bond at say \$90 and the par value is \$100 at 10% coupon rate, the YTM will be 10/90 = 11.11%. So for this question, If I buy a bond on the secondary market at par value, the YTM should equal the coupon rate no? If so, how does rrr affect YTM?

I'm so confused, send help.


texts: Effort setting game - no idea where to start

texts:
I have been working on this problem for a few days but I am completely lost on how to start. Any suggestions, comments, hints are greatly appreciated. Here is a scenario:

  Participants are competing in a competition where only the best 3
  products will be chosen and awarded in the amount of $R$.

  To produce a product, each participant picks an effort level $e$. The
  quality of the product q is a function of $e$. Each participant can
  produce one and only one product.

  Each participant has a cost function $c$ which in a convex, increasing function of effort level $e$ and increasing in a cost parameter $\theta$. This
  parameter $\theta$ is uniformly distributed between 0 and 1.
  Participants know their own $\theta$ but do not know others. Although,
  they know the distribution of $\theta$.

The questions at hand are:

1) Assuming that participants can observe others' effort, what is the
probability that a participant who spend an effort $e$ wins a
competition (his product quality is among the top 3)

2) Given the reward amount $R$, what is the equilibrium effort level for a participant with a cost parameter $\theta$.

For me, this question is quite similar to the price setting problem: If there are N sellers in the market with different cost parameters, and buyers are looking for the cheapest product, how are they going to price their product? However, I could not find a reference about the solution to this problem also.

Again, any suggestions, comments, hints are greatly appreciated. Thank you very much!


texts: I am studying monopoly and I see that most exercises use inverse demand. why use the inverse demand function instead of the demand function?


texts: What does it mean by Portugal having a negative inflation?

texts:
Portugal is experiencing a negative inflation rate for 2020. This means that the prices of basket-of-goods are decreasing this year.

My first question is: is it a good sign for Portugal's economy?

Secondly, If Portugal's economy is not so strong, why are they experiencing a negative inflation rate?


texts:
What are the necessary and sufficient conditions on a utility function for gross substitutes? Gross substitutes is:

$$
  \frac{dx^*_i}{dp_j} \ge 0\ \ \forall_{i,j}\ i \ne j
$$


texts: How to compute elasticity of substitution in labor market of blacks and whites using experience-education groups?

texts:
I'm reading "Competition in the Promised Land – Black Migrants in Northern Cities and Labor Markets", by Leah Boustan, and I'm trying to understand her computation of black and white elasticity of substitution in labor market
She uses a Cobb-Douglas function:
$$Y=AL^{\alpha}K^{1-\alpha}$$
and then defines aggregate labor as:
$$L=\left(\sum_{e=1}^{n} \left(L_{e} \theta_{e}\right)^{\frac{\delta - 1}{\delta}}\right)^{\frac{\delta}{\delta - 1}}$$
aggregate labor by educational group as:
$$L_{e}=\left(\sum_{\substack{1 \leq e \leq n\\1 \leq x \leq m}} \left(L_{ex} \theta_{ex}\right)^{\frac{\eta - 1}{\eta}}\right)^{\frac{\eta}{\eta - 1}}$$
and aggregate labor by experience and educational group by:
$$\left(\left(L_{exb} \theta_{exb}\right)^{\frac{\sigma - 1}{\sigma}} + \left(L_{exw} \theta_{exw}\right)^{\frac{\sigma - 1}{\sigma}}\right)^{\frac{\sigma}{\sigma - 1}}
$$
Then she derivates the production function relative to $L_{exr}$ (where $r=w,b$) and obtains:
$$ln w_{exr}=ln(A^{\frac{1}{\alpha}}k^{\frac{(1-\alpha)}{\alpha}})+\frac{1}{\delta}\cdot ln(L)+ln\theta_{e}-(\frac{1}{\delta}-\frac{1}{\eta})\cdot ln(L_{e})+ln\theta_{ex}-(\frac{1}{\eta}-\frac{1}{\delta})\cdot ln(L_{ex})+ln\theta_{e_{exr}}-\frac{1}{\delta}\cdot ln(L_{exr})$$
I cannot figure out how to reach this expression. I thought what I need is just 1) to substitute the L terms backwardly, 2) take the derivative, and 3) apply log. The substitution gives:
$$A K^{1 - \alpha} \left(\left(\sum_{e=1}^{n} \left(\theta_{e} \left(\sum_{\substack{1 \leq e \leq n\\1 \leq x \leq m}} \left(\theta_{ex} \left(\left(L_{exb} \theta_{exb}\right)^{\frac{\sigma - 1}{\sigma}} + \left(L_{exw} \theta_{exw}\right)^{\frac{\sigma - 1}{\sigma}}\right)^{\frac{\sigma}{\sigma - 1}}\right)^{\frac{\eta - 1}{\eta}}\right)^{\frac{\eta}{\eta - 1}}\right)^{\frac{\delta - 1}{\delta}}\right)^{\frac{\delta}{\delta - 1}}\right)^{\alpha}
$$
But the derivative of this expression relative, for example, to $L_{exb}$ is a equation very different from the expression showed by the author (even after the log).
I must be making a very silly mistake here, but how can I get the desired expression from the equations of L? Is there a textbook where I can find a discusson about elasticity of substitution between demographic groups?
EDIT:  paper version of this part of the book can be found here. In my research I noted that Boustan's work is based on Ottaviano (2006), and Card and Lemieux (2001).
Here is a jupyter notebook with the equations


texts: Why don't public transport networks have more routes to each terminal in order to reduce the number of transfers?

texts:
When using public transport, we often need to transfer to a different route during of the journey. These transfers have costs – I can think of the following, but there may be more.

If we're reading, working, etc. on board, we need to stop, losing flow.
We spend time moving from one route to the next.
We spend time waiting for the next departure.
There are lots of passengers moving between routes. They take up space and cause queues when on- and off-boarding. This also increases the risk of accidents.

As far as I can understand, we could decrease the necessity of transfers by having multiple routes to the terminals (final stations).

I've reviewed the subway maps of London, New York and Oslo, finding that none of them do this to any significant degree – the terminals usually have just one route leading to them.

As an example, let's look at Oslo, the simplest of the three:

Imagine that you're travelling from Østerås (orange, left) to Ellingsrudåsen (orange, right). No transfers required – route 2 takes you all the way.

But if you're travelling from Østerås to Mortensrud (purple, bottom right), you would have to transfer from route 2 to route 3 at some point.

Let's imagine that we take some of the capacity from routes 2 and 3 to serve routes 6 and 7. Route 6 (gray) serves Østerås-Mortensrud, and route 7 (brown) serves Kolsås-Ellingsrudåsen:

With this design, some transfers could be avoided. If we added enough routes, many more transfers could be avoided. Granted, we would have to wait longer for a route that went exactly to the station we want to go, but we would always have the option of taking the first train and then changing like before.

(Note that I'm not suggesting adding new infrastructure, just using the existing one differently.)

So, I've been asking myself, why don't public transport authorities do this? These are the reasons I can think of:

Simplicity for passengers: When only one route serves a particular station, you don't have to think about which route you'll board. Also, the maps are simpler with fewer routes.
Simplicity for transport providers: More routes would mean more difficult (and therefore costly) planning and management.

From my (admittedly ignorant) perspective, the above reasons don't seem sufficient to outweigh the advantages of fewer transfers.

Have I overlooked some problems with adding more routes? Or am I underestimating the costs and/or overestimating the benefits of more routes?

Note that I have previously asked this question on Engineering Stack Exchange. I'm asking it again here because I didn't get satisfactory answers, and because I think it's more of an Economics question.


texts: What is an example of a choice which is not necessitated by scarcity?

texts:
I am first year economics student and for the past month we have had it constantly drilled into us that all choices have an opportunity cost and thus they are all necessitated by scarcity. Thus when I saw this quesiton in my homework I was baffled.

I don't need an exact answer to this, but a hint would be great. My current line of thinking is leaning towards infinite resources like the sun, but I simply can't work it out. Thanks.


texts: Has there ever been a first world recession where inequality didn't fall?

texts: Gini index fell everywhere in great depression, great recession, the 80s recession, and so on. Has this ever not been the case? Have any countries not seen inequality fall in recession?


texts: Core inflation, QE and credibility of ECB

texts:
In macro we learn that credibility is very important for a Central Bank (CB), since it allows for less onerous adjustments for the economy. In the recent(?) past, the newspapers have becoming increasingly concerned with ECB missing its target inflation of 2%. However, not every cause for a smaller inflation is a bad one, at current moment. The oil prices have been very low, and this shock to the price-setting curve is not bad, instead it can be seen as an increase in the productivity, increasing the level of the equilibrium output. This may decrease inflation, but does it necessarily bring about the problems of deflation?

Also, when reading this article on the impact of the QE of the ECB, it seems that they use not Inflation, but Core inflation and Core inflation-adjuted to energy prices to 'filter' the true impact of QE on the price level of the economy. Should we not also look at core inflation and its adjustment for energy prices when assessing the ECB policy efficacy?

Any help would be appreciated.


texts: Why is there a Lagrangian Multiplier in the Dynamic Programming Problem of the RBC model?

texts:
Suppose that the household faces the following problem:

$\underset{ c_t , k_{t+1}, n_t } \max  \mathbb{E}_0 \sum_{t=0}^{\infty} \beta^t \ln c_t + \ln (1 - n_t)$

subjected to

$ k_{t+1} = A_t k_t ^{\alpha} n_t ^{1- \alpha} - c_t $

Usually, in my macroeconomic course, we would formulate the Bellman equation as the following:

$ V(k, A) = \underset {c, k', n} \max \ln c + \ln (1- n) + \beta \mathbb{E} [V (k', A')] $

However, in his lecture notes, he formulated the Bellman equation as the following:

$ V(k, A) = \underset {c, k', n} \max \ln c + \ln (1- n) + \beta \mathbb{E} [V (k', A')] + \lambda [ A k^{\alpha} n_t ^{1- \alpha}  - c - k' ]$

What I don't understand is where the expression with $\lambda$ comes from? The method that we used to derive the Bellman equation does not give us the Bellman equation with the $\lambda$, but instead gives us the one without the $\lambda$ expression.


texts: Long-,short-term interest rates and inflation

texts:
I just read about the "dynamics" of long-, short-term intreset rates and inflation. Does the logic go as follows?

Centrals banks determine interest rates which in turn determine the short term rates. Inflation and expected inflation on the other hand determine how the central bank will most likely change the rates in the future(i.e what the market expects the central banks to do), hence

short term rate + expected inflation= long term rates?

Found the info here,

https://www.investopedia.com/articles/bonds/09/bond-market-interest-rates.asp


texts: Was Haiti the richest society in the world in the late 18th century?

texts:
Samuel Bowles writes:

  At the close of the eighteenth century ... Haiti was probably the richest society in the world.

Is the above claim true?


texts: What if the government impose both price control and supply restriction on the market?

texts:
Due to the virus outbreak, there is a surge in demand for mask and hand sanitizes. To prevent price hiking government impose a price ceiling on the products, however consumers are behaving irrational (I.e. mask hoarding and overbuying) then they impose a supply restriction on the market.

Isn't this causes the market to be very inefficient, because the dead weight loss is extended to the left or this lets the government buys up some masks for their own stock to cover the DWL? Do you think is there any other reason why government decides to implement this?


texts: Lee and Saez (2012): Pareto-Improvement?

texts:
I'm interested in the following quote that came up in this earlier answer.

  Second, when labor supply responses are along the extensive margin
  only, which is the empirically relevant case, the co-existence of a
  minimum wage with a positive tax rate on low-skilled work is always
  (second-best) Pareto inefficient.A Pareto improving policy consists of
  reducing the pre-tax minimum wage while keeping constant the post-tax
  minimum wage by increasing transfers to low-skilled workers, and
  financing this reform by increasing taxes on higher paid workers.
  Importantly, this result is true whether or not rationing induced by
  the minimum wage is efficient or not.

How are higher paid workers not worse off, given the increased taxes they have to pay?


texts:
Derivation euler equation in gali book, I don't understand

" β " transformation.

Jordi Gali book, page 42

There is no explanation gali book

the notes which are prepared by Drago Bergholt (Page 6)

explain FOC for "Ct"  (2.13)
and
(2.18) explain Euler equation

Writer uses FOC for "Ct" and FOC for "Ct+1" to form euler.

and I expect to different " β " for "Ct"  and for "Ct+1" in (2.18)
But there is only one " β " in (2.18)

My question is assumption of "In the baseline calibrations of the model’s preference parameters it is assumed β = 0.99" and
for this (0.99) need to βt+1 is less than βt. Is it possible ?

Sincerely


texts: Analytically solvable examples of quantal response equilibrium

texts:
I have been reading up on quantal response equilibrium and am looking for some simple examples which can be solved analytically (in order to gain some intuition about how exactly QRE works). To be more concrete, I am willing to consider the logit version of the quantal response function
$$ \text{P(choose A)} = \frac{\text{exp}(\lambda\text{(expected payoff from A)}}{\sum_X\text{exp}(\lambda\text{(expected payoff from X)}}$$

and (somewhat) happy to further impose $\lambda = 1$ if this makes finding the equilibrium easier.

Does anyone have any ideas? Examples where QRE contrasts starkly with Nash equilibrium would be especially appreciated.


texts: Consumption Externalities in partial equilibrium analysis

texts:
I've been working on a standard partial equilibrium with externalities problem and have been having some difficulty with these (relatively) basic concepts. My issue is primarly with solving for Pareto optimality and comparing it to a competitive outcome.
$$u^A(y_A, x_A, x_B)=y_A+\ln x_A+\frac{x_B^2}{2}$$
$$u^B(y_B,x_A,x_B)=y_B+\ln x_B-x_A $$
Solving for CE is fairly straight forward using the price normalization method of $(p_x,p_y)=(p,1)$
$$\max_{x_A,y_A} \mathcal{L}=y_A+\ln x_A+\frac{x_B^2}{2}+\lambda_A(m-px_A-y_A)$$
$$\max_{x_B,y_B} \mathcal{L}=y_B+\ln x_B-x_A+\lambda_B(m-px_B-y_B)$$
The allocation of goods in CE amounts of $x_A, x_B$ in this context is:
$$\{x_A^*,x_B^*\}=\left\{\frac{1}{p},\frac{1}{p}\right\}$$
Further for the pareto optimal allocation we solve:
$$\max_{x_A,x_B,y_A,y_B} u^A(y_A, x_A, x_B)+u^B(y_B,x_A,x_B)$$
$$\max_{x_A,x_B,y_A,y_B} \{y_A+\ln x_A+\frac{x_B^2}{2}+y_B+\ln x_B-x_A\}$$
Solving for $x_A$ is fairly straight forward via the FOC, we have:
$$x_A^{**}=1$$
for dealing with $x_B$ there is difficulty as:
$$x_B+\frac{1}{x_B}=0$$
where solving gives us
$$x_B=\sqrt{-1}$$
which makes no sense.
Im definately doing something wrong but cant figure it out.


texts: Calculating Service Contributions to GDP

texts:
Trying to get some clarification on how GDP is calculated for service industries.

Are input resources netted out (e.g. fuel for an airline), the same way wheat would be for a loaf of bread?

What about investment assets (e.g. airplanes for an airline) -- these get fully counted toward GDP the year they're purchased?


texts: How is currency depreciation related to import tariffs?

texts:
In the news today they were talking about how the US is "threatening to increase proposed tariffs on Chinese imports from 10 percent to 25 percent."
One of the reasons they gave for this was that Chinese currency has depreciation 8% which rendered the previous 10% tariffs ineffective. The news even described China as "fiddling" with their currency as if it was intentional to get around tariffs.
I'm wondering how these two are related. How does a currency being worth less effect the percent based tariffs?


texts: Helping in understaing new Pesaran and Timmermann test (and R code validation)

texts:
I am currently working with Pesaran & Timmermann test version from year 2009. Since I could not find any R package that contains function to calculate it (rugarch has 1992 version in DACTest). I recently posted thread in cross validated with similar question where kind user mlofton advised me to look into this list. Since cross-posting is not acceptable practice after over week of hard research I managed to develop R code for newPT_test. It seems to be correct, but since I had lots of doubts maybe someone will clarify my concerns.

Here is the formula I used (Pönkä 2017):

$$PT=(T-1)(S^{-1}_{yy,w}S_{y\hat{y},w}S^{-1}_{\hat{y}\hat{y},w}S_{\hat{y}y,w}) \sim {\chi}^2_1, $$

$$S_{yy,w}=(T-1)^{-1}Y'M_wY, $$
$$S_{\hat{y}\hat{y},w}=(T-1)^{-1}\hat{Y}'M_w\hat{Y}, $$
$$S_{y\hat{y},w}=(T-1)^{-1}\hat{Y}'M_w\hat{Y},$$
$$S_{y\hat{y},w}=(T-1)^{-1}Y'M_w\hat{Y}, $$
$$M_w=I_{T-1}-W(W'W)^{-1}W', $$
$$W=(\tau_{T-1},Y_{-1},\hat{Y}_{-1}),$$

"...and $Y=(y_2,...,y_T)'$",$\hat{Y}=(\hat{y}_2,...,\hat{y}_T)$,$Y_{-1}=(y_1,...,y_{T-1})$,$\hat{Y}=(\hat{y}_1,...,\hat{y}_{T-1})$ and $\tau_t$ is as $(T-1)\times1$ vector of ones..." From other source I learned that $I_t$ is identity matrix.

My main issue was notation. I understand that $y_t$ represents ones and zeroes depending on whether change between actual value and its last observation was positive ($1$) or negative ($0$)? Same for forecast $\hat{y}_t$.
I am not sure how to understand vectors: $Y=(y_2,...,y_t)'$  and $Y'$ in $S$ elements. I know that $'$ at the end of $(y_2,...,y_t)'$ means it is column vector, so $Y'$ indicates that now its row vector now?. Also it starts from $y_2$ which means I remove first observation from binary series while in $Y_{-1}=(y_1,...,y_{T-1})$ I remove last? That makes $\tau_{t-1}$ a $(T-1)\times3$ matrix right?

Here is R code:

nwPT_test=function(actual,forecast){

yt=actual #assign actual to yt to make code shorter
xt=forecast #assign forecast to xt...

delta_yt=as.matrix(cbind(ifelse(yt-lag(yt)>0,1,0)[-1])) #calc change of yt (delta)
delta_xt=as.matrix(cbind(ifelse(xt-lag(xt)>0,1,0)[-1])) #calc change of xt(delta)
nT=length(delta_yt) #number of Time periods
Yt=cbind(delta_yt[-1]) #Yt=(y2,...,yT)
Xt=cbind(delta_xt[-1]) #Xt=(x2,...,xT)
Yt2=as.vector(rbind(delta_yt[-nT])) #Yt2=(y1,...,yT-1)
Xt2=as.vector(rbind(delta_xt[-nT])) #Xt2=(x1,...,xT-1)
teta=rep(1,nT-1) #T-1 vector of ones
I=diag(nT-1) #Identity matrix
W=cbind(teta,Yt2,Xt2) #W matrix as in formula

Mw=I-(W%*%((t(W)%*%W)^(-1))%*%t(W))#calcualting Mw as in formula

#calculating elements S as in formula
Syy.w=((nT-1)^(-1))*t(Yt)%*%Mw%*%Yt
Sxx.w=((nT-1)^(-1))*t(Xt)%*%Mw%*%Xt
Sxy.w=((nT-1)^(-1))*t(Xt)%*%Mw%*%Yt
Syx.w=((nT-1)^(-1))*t(Yt)%*%Mw%*%Xt

PT=(nT-1)*(Syy.w^(-1)*Syx.w*Sxx.w^(-1)*Sxy.w)#finally calculating PT

p.value=1-pchisq(PT,df=1)#calculating p-value
#some code to make it looks nicer
summary=c(PT,p.value)
names(summary)=c("PT statistic","p.value")
summary
}

I managed to solve most issues from my previous thread. Here is the link:: https://stats.stackexchange.com/questions/372776/confusions-about-pesaran-timmermann-test-2009-version?noredirect=1#comment701286_372776
It might help understand the way I approached it. So far my code seems to give correct results.

Please answer only questions from current thread. Hope I updated my question enough to not be treated as double post... And thanks again to mlofton for informing me about this great SE subsite.


texts:
This might seem like a really simple question, but I am really troubled by it on a macro scale. The money has to come from somewhere. Someone might start up a business that creates things or takes things from the Earth. You could say this is "creating" money, but I argue it isn't, or I am missing something.

Here is how I see it. In order for that company to work, they have to make a profit which means they have to take more money than they are giving. This is the way all companies work. In the end logically, this money becomes concentrated in a few people. If this is the case, on the broadest level, how is it that standards of living increase? Isn't it inevitable that the rich get richer and the poor get poorer, with money being concentrated in fewer and fewer people over time? And if that is the case, won't capitalism eventually fall apart, with fewer and fewer people being able to purchase goods? If not, how is this corrected? Is there a way the rich can get richer with the poor also getting richer (which means money is magically coming out of thin air)? (The buying power of the poor becomes less as the amount of money they possess lessens; the opposite being true of the rich) (Poor = possessing small monetary volume; rich = large monetary volume)

I also have a similar question with trade deficits. How is it the United States can still grow, despite sending more money out than it takes in? Perhaps the answer to this question will solve the one above.


texts: Would a world-wide currency be a good idea?

texts:
While every country has it's own political ideals, enforcing laws and rules, in an ever more globalized world, I believe the idea of fragmented economy is limiting big growth opportunities while creating a lot of unnecessary problems and bureaucracy around the world. So would changing to a globalized currency model be a good idea?

The model

A single currency would require an entiity whose would control it and be responsible for it. While we could create a new one, we might as well just use an already existing entity to be responsible for it, like the United Nations. Picking the UN to regulate this currency world wide (or at least to the big list of State nations that are part of it), would give us the opportunity to add an extra layer to the government layers on top of the Nation layer, similar to what the European Union does.

This would allow the United Nations not only to suggest rules, like the Human Rights, but to enforce them as law to its member states.

The need

As mentioned before, we are living in a world more globalized every day. Some people work to different countries other than the ones they live in through the internet. This creates a currency exchange problem, where he is removing currency power from the country he's working for and giving it to the country he lives in, effectivelly lowering the first's value and raising the second's value. A single currency could solve this problem and also getting out of the way the whole exchange problem from the middle, and in some cases, the international bank transfer bureaucracy.

A single currency with an enforing entity controling entity could use this power to help countries in the desperate need to grow, I'm thinking about places like Zimbabwe, Niger and Ethiopia. By retrieving in the form of taxes a percentage of each nation's Gross Domestic Product (let's say, 3%?), summing it all up, then averaging it by the number of member states, and then redistributing this to each country, we would be in fact spreading resources from wealthy parts of the world to the poorest in a fair way. Everyone contributes as they can so a few gets back. To avoid countries which could use this system to just sit back doing nothing, waiting for the money to come in, their governments are obligated to use this money to invest in the country's industries (or whatever are the country's activities which make money)

Of course, this is just a simple idea which I didn't develop, it can have much more potential and bring it's own problems, that's why I'm posting it here, so we can discuss about them. Also I'm sorry for my weird english and terms used, it's not my main language and I'm not an economics student, but I hope it's understandable.


texts: Why could boasting oil during the current drop in oil demand be good for Saudi Arabia?

texts:
According to Bloomberg :

  Saudi Arabia is one of the few countries in the world that can boast crude production that’s profitable in the current environment. But the kingdom’s economy is at risk, too, as Riyadh needs much higher prices to fund its budget. So does Russia.

Why is boasting oil production in the pandemic-driven drop in demand of oil profitable for SA? I just don't get it.

The same article  next states:

  Russia argued at the time that it wasn’t willing to keep sacrificing production at its companies to prop up prices while shale explorers in the U.S. benefited from the cuts without contributing to them.

Follow up (I have to admit)

Why do shale explorers benefit from the current situation?


texts: How should the government react to 50% of the population being wiped out?

texts:
In Avengers Infinity Wars the villain snaps his fingers and wipes out 50% of all living creatures.

His rationale is that it will save people from starvation and collapse due to resource exhaustion in a finite universe.

Presumably the impact of the loss of half the workforce and half the consumers would threaten to implode the economy as many markets would effectively lose half their consumers.

Assuming governments and industry were able to in some way function after the snap, would  they reach for the tools they're used to deploying in economic downturns and try to stablise the economy through a massive stimulus package to fill the gap left by the missing consumers?

Would the intent of such a stimulus be to permanently negate the snap by enabling the remaining population to consume double the resources they previously did? Would it be successful?


texts: Elasticity of Substitution between 2 factors, without knowing relative prices

texts:
I'm trying to figure out the elasticity of substitution between input $s$ and input $v$. I know that the marginal rate of substitution between these two inputs are $\frac{v^2}{s(v+k)}$, where $k$ is another input.

Then, the elasticity of substitution is,

$$E_{sv}=\dfrac{dln\big(v/s\big)}{dln\bigg(\frac{v^2}{s(v+k)}\bigg)}$$

$$=\dfrac{dln\big(v\big)}{dln\bigg(\frac{v^2}{s(v+k)}\bigg)}-\dfrac{dln\big(s\big)}{dln\bigg(\frac{v^2}{s(v+k)}\bigg)}$$

But I'm not sure how to proceed to get the input elasticity of substitution between factors $s$ and $v$? Do I need to know the prices of both?


texts: How to add a third factor of production to a static CGE-Model in gEcon

texts:
I am currently using the tool gEcon trying to create static CGE-models. As a starting point I am using a sample model from the gEcon developers. I already implemented small changes and managed that I was able to find an equilibrium after loading the model into R.

The model which works is this (open in Notepad++) https://www.dropbox.com/s/ljcpaf557lotq54/Model_2factors.gcn?dl=0

You can check running it in R and finding an equilibrium. Just run the R-File after changing the filepaths for the gcn- and the two excell files.

R-File: https://www.dropbox.com/s/2cffc6zk1ry46am/R-file%20for%202%20factor%20model.R?dl=0

Table: https://www.dropbox.com/s/8x5ophhvi51tydp/2factor_table.csv?dl=0

Map: https://www.dropbox.com/s/y7so3zryz8b508z/2factor_map.csv?dl=0

From this point I am trying to add the third Factor 'R' into the model, with properties just as the other factors. I define everything analog to how the other factors were implemented, but I fail to find the equilibrium in R. (For trying out just change filepaths in the R-file)

gcn-file: https://www.dropbox.com/s/elkrbn5oy811khp/Model_3factors.gcn?dl=0

R-File: https://www.dropbox.com/s/x09eukjufh2lfey/R-file%20for%203%20factor%20model.R?dl=0

Table: https://www.dropbox.com/s/tpx6znhm9g22fhm/3factor_table.csv?dl=0

Map: https://www.dropbox.com/s/r6w8reii4c05vwt/3factor_map.csv?dl=0

I have tried many ways of defining the new factor (number of equations need to match number of variables) but failed to do so correctly. The error message popping up in R is somewhat misleading, as the cause is not that the initial values of the variables are too far of. There is just no other error message it this point. I even set them once one by one almost exactly onto their correct values.

Can somebody see what I am doing wrong with my new factor? Any suggestions what to try out? if you need further information, I am happy to tell you.

Greetings,
René


texts: Does the European Central Bank still conduct monetary policy under the assumption of NAIRU?

texts:
My question is about NAIRU (Non-Accelerating Inflation Rate of Unemployment) and its relevance with respect to the European Central Bank's monetary policy.

I have read somewhere that Philips Curve have been discredited because they are considered too simplistic. Is that the case for NAIRU as well? As I understand it, NAIRU estimates can have catastrophic error factors. Are economist capable of estimating it reliably?

Bonus points if you can provide some practical context about its relevance (or lack thereof) with respect to the eurozone. Or orient me to resources that would help.

1 Ball, L., & Mankiw, N. G. (2002). The NAIRU in theory and practice. Cambridge, MA: National Bureau of Economic Research.


texts: If one always spends the same amount, what's one's price elasticity of demand?

texts:
Source: p 109, Question 5.9, Principles of Microeconomics, 7 Ed, 2014, by N Gregory Mankiw
= Question 5.7, Principles of Microeconomics, 4 Ed, 2008, by N Gregory Mankiw

  9. $\color{green } { \text { Before looking at the price,}   }$ Jessie spends $d$ dollars on something  (abbreviate this S). What is Jessie’s price
  elasticity of demand?

  Given Answer: Jessie's price elasticity of demand is one, because he spends the same amount on S, no
  matter what the price, which means $\color{darkred} { \text { his percentage change in quantity  }   }$ is equal to the percentage
  change in price.

  From p 91: Price elasticity of demand $= \dfrac{ \text{
Percentage change in quantity demanded }} {  \text{ Percentage change in price } } $

The green implies Jessie's ignorance of prices, so % change in price = 0. Yet please explain the answer? Especially the red, because the question implies nothing about the % change in quantity demanded?

Footnote: I slightly generalised the question. Mankiw writes 'gas' instead of  'something'.


texts: Change in the way unemployment is calculated in the US?

texts: In the last 8 years has their been a change in the way unemployment is calculated? Is there a nuance that has changed in the polling info? Many of my right wing comrades claim the Obama administration has changed the calculation in some way to make it seem as though the number is lower than what it should be?


texts: Return on Assets vs Return on Investment

texts:
1) Is Return on Investment same as Return on Assets?
There are so many different definition in books so I am now confused...

2) Is ROA = Profit before taxes/Total Assets or Profit after taxes/Total Assets

3) I know to find ROI for some investment or project, but is it possible to find ROI for company from income statement and balance sheet?


texts: Do Keyensians believe that it's wrong for households to aggresively save money?

texts:
Many Austrian/Neoclassical websites argue that Keynes and Keynesians demonise saving and encourage individual people to spend rather than save.  Someone (not an economist) recently told me that I need to feel guilty for my frugal lifestyle and that I'm being unpatriotic and should spend more money to help the economy.  But I'm not convinced that this is what Keyensians actually believe, as opposed to a straw-man used by the anti-Keynesians.  I thought the point was not that it's damaging to the economy for individual people to save their money as aggressively as they want to, but rather that if there is a paradox-of-thrift type situation during a recession, the government should take corrective action to reflate the economy.  And I also thought that Keyensians believed that a higher household savings rate is always good in the long run, and that the debate was specifically about what happens during a recession.

Is my friend right or am I?  Is it really true that there is any significant school of economists who would think that individual people saving their money prudently was bad for the economy and that such people ought to feel guilty for being savers?  Or can I carry on saving aggressively guilt-free?


texts:
If I calculate debt to gdp ratios, do I include the interest payment on the debt as part of the debt?
Is debt defined as a recursive sequence?
Does current debt= interest on debt + previous debt?


texts: Update of Fed mandate(2020) - "shortfalls of employment"

texts:
In this Fed link, it's stated that 1 of the most important changes in the document describing the Fed mandate/framework, is

On maximum employment, the FOMC emphasized that maximum employment is
a broad-based and inclusive goal and reports that its policy decision
will be informed by its "assessments of the shortfalls of employment
from its maximum level." The original document referred to "deviations
from its maximum level."

Does "maximum employment" mean potential rate of employment?
In what way does the substitution of "deviations" for "shortfalls" change the mandate?


texts: Increased inflation rate on borrowers and lenders

texts: I'm trying to understand a concept in microeconomics. So if inflation increases while nominal interest rate stays the same, what are the substitution effects and income effects on borrowers and lenders for current consumption (two time periods: current and later)? I think SE is positive while IE is negative for both. My logic is that since inflation increases while interest rate stays the same, consumption in the future is more costly for both borrowers and lenders. Thus, SE for current consumption increases. As for IE, inflation means that both have less money to spend in total, so both have less real income and thus have a negative IE. I'm not exactly sure of my thinking. Could someone please let me know if I'm right or wrong?


texts: Is oil supply really inelastic in the short term

texts:
Is oil supply really inelastic in the short run?

Though it remains evident that in the short run, the known capacities of oil can't be increased and hence we can assume that there remains a upper cap which ensures that even if there is high price change, our quantities supplied can't go up. However, if we consider the case of price decrement, then certainly, oil companies can horde oil and reduce the quantity supplied, making the elasticity go high? Then why do we assume that the oil supply in short run is nearly inelastic?


texts: Why can we see the Current account as variation in NIIP?

texts:
Let's designate the Net International Investment Position(NIIP:it's the net international wealth of a country), as $B_t$.

Why can we see the current account at time t, as $CA_t=B_{t+1}-B_t$ , when we know that $CA_t=TB_t+i^wB_{t}$?

$TB_t$ is trade balance at time $t$, and $i^w$ is world nominal interest rate.

Intuitively it makes sense, since the variation of a country net international wealth should mimic its international 'consumption/expenditures'. However, I'm looking for a more formal derivation. I think it would probably be related to the Financial and Capital Accounts.

Any help would be appreciated.


texts: Shortcuts for elasticity of substitution

texts: How can I find the elasticity of substitution (I know the definition) if I know the utility function $u(x,y)$? I know its increasing in $x$ and $y$, etcetera, and has  everything else you want from a reasonable utility function. Is there a way to get the elasticity of substitution without the tedious algebra (writing $x/y$ as a function of mrs/price-ratio etc)?


texts: Effect of a depreciation on foreign interest rate?

texts: According to the interest rate parity condition , if there is a depreciation of the domestic exchange rate, then the domestic interest rate will increase and the foreign interest rate will decrease. Am i Correct?


texts: What is the interpration of results if adding or subtracting a control variable effects the significance of explanotary variables?

texts: I am conducting some regressions on economic growth determinants and I am disillusioned. Essentially by choosing what groups of variable to regress I can get the desired significance. What does this tell about whether the explanatory variables influence economic growth?


texts:
Need help solving last two parts of this problem. We’ve solved for the general equilibrium but not sure how to go from there.
The endowments of two consumers are given by $w_1 = (40,80)$ and $w_2 = (40,20)$, and the consumers’ preferences are given by $U_1= x_1^a x_2^{(1-a)}$ and $U_2= x_1^b x_2^{(1-b)}$,
What is the range of exchange rates that can support trade between the two consumers?
What will be the allocation of goods after the consumers engage in trade under the exchange rate $p_1/p_2 =1$?


texts: What mechanisms are at work when the market falls dramatically one day and then rises just as dramatically the next?

texts:
We've seen this scenario several times over the past few weeks:  The major stock market indexes will plummet one day and then rise dramatically (though perhaps not to the previous days starting price) on the following day.  Yes, in some of the cases there was a policy pronouncement or some such that might have had some effect, but usually not.

One would think that traders, if they were doing a normal risk/benefits analysis, would not change strategies so abruptly.  Is there some non-obvious benefit to abruptly "betting" one direction and then the other, or is some sort of mechanical market force at work?


texts: Infinitely repeated games and real-world situations?

texts:
I do understand the gist of what infinitely repeated games are in that T=$\infty$ ; that is the stage game is played each period for an infinite number of periods.

In his book "Strategy", Watson makes the following claim:

  Although such a game may not seem realistic at first (people do not
  live forever), infinitely repeated games are useful for modeling some
  real-world situations.

With reference to the part in bold, could you elaborate?

Thanks.


texts: If public roads are public goods, in what way are they non-rivalrous?

texts: I get why, say, the military is a public good, but I don't get why public roads are public goods, since they can't be non-rivalrous, given that at any time only a subset of the population can actually be on them.


texts: The question is related to topic consumer surplus

texts: Suppose the demand function is 12-3p=q and price falls from 3 to 1. How much is the change in consumer surplus?


texts: How is India able to increase its foreign exchange reserves despite historically running a trade deficit?

texts:
Balance of Trade: https://tradingeconomics.com/india/balance-of-trade

Foreign Exchange Reserves: https://tradingeconomics.com/india/foreign-exchange-reserves

Remittances do help (avg. \$4B/mo) but are not enough to offset the trade deficit (avg. \$15B/mo).

India Remittances: https://tradingeconomics.com/india/remittances

Please note that the time scales in the above charts are not the same.


texts:
I have started studying producer theory on my own and there are some confusions.

We know that a production plan is $y=(y_{1},y_{2},y_{3}....y_{L})$ where $ y_{i} $ is an output if its greater than $0$ and input if it's less than $0$. The production set $Y$ is such that any $y \in Y$. The vector $y$ is also called a netput vector.

1. Take free-disposal: if $y \in Y$ and $y^{1} \leq y$
, then $y^{1} \in Y$. How are we comparing the vectors $y^{1}$ and $y$ here? Are we taking the cartesian length(norm) of both vectors and comparing? (or does it mean that each component of $y^{1}$ is smaller than the corresponding components in $y$) ?

2.Non-increasing returns to scale is given by:if $\forall y\in Y \implies ay\in Y$ for $a\in[0,1]$, then $Y$ shows non-increasing returns to scale.This  would mean that vectors smaller than $y$ are also in $Y$. The way I knew it, decreasing returns to scale means output changes less than proportionately to change in inputs. How does these two ideas relate?

3.What is the difference between the transformation frontier and an isoquant? I am having a hard time vizualizing them. What would the frontier and isoquant look like if we draw $Y\in R^{3}$ using level curves for outputs and the two axes for the two inputs?

I hope I explained my questions clearly.

Thanks


texts:
I have a seller say S and I have a buyer say B. Buyer’s willing to pay is equal to x which is private information. But Seller believe that it falls in the range [0,x1]. Seller’s belief distribution is F and cdf of F is f which is positive.
Take it or leave it price offer is p which is offered by seller. Buyer accept it iff p is less then and equal to x. How can I write seller’s profit maximization.

How can I construct maximization problem. I cannot imagine it. But after construction I can solve it. Please give me a hint to construct it.

What I did is

$$\Pi_s=(1-F(x))q.r-pq$$
where r is income q is quantity.


texts:
We know that when n=2, If the SCR F is weakly Pareto optimal and Nash-implementable,
then F is dictatorial. But when N is at least three, is dictatorial SCR Nash-implementable?
Also again when N is at least three, top correspondence SCR nash-implementable?


texts: Multivariate linear regression: how to test for whether the slopes are the same?

texts:
If I regress wages on education and the dummy variable gender using a linear conditional expectation function (wage = a + b(education) + c(gender)), how can I test that the slope b is the same for both males and females? i.e. the returns to education are the same?

Intuitively, I was thinking that one could conduct simple linear regressions of wage on education for males and females separately and then do a two-sample hypothesis test for whether the slope estimates are significantly different. Would this introduce issues with the omitted variable gender? Thank you.


texts:
How do profit margins vary over "business cycles" in the new Keynesian model?

I'm interested in responses of profit margins (actual price markups) to all three standard shocks in NK models:
- TFP shocks
- Demand shocks
- Monetary policy shocks

As an example, here is what I came up with for TFP shocks, but I don't really trust my analysis on that.

If BC are driven by TFP shocks, a bust implies lower marginal productivity of labor. Assuming flexible wages, this implies a decrease in costs. Since there is an optimal markup that firms are targeting, this implies that firms want to decrease their prices. Those that cannot adjust prices now have higher markups, and too high markups (compared to their desired markups). Those that can adjust prices will achieve their desired markup - their markup is constant through a decrease in prices. So as a response, average markups increase when hit by a negative TFP shocks - but holding the negative TFP shock constant, over time markups will go back to $\epsilon$ as all firms have adjusted their prices.


texts: Why is basis point defined as "1/100 of a percent"?

texts:
Shouldn't it be defined as "1/100 of a percentage point"? If you take "1/100 of a percent" verbatim, it could mean the following :
If 1% increases to 1.01%, that is a 1% increase, which, according to the definition "1/100 of a percent", could mean an increase of 100bp.
Instead, the above case means that an increase of 0.1% points is equal to an increase of 1bp, not 100bps.
Defined "1/100 of a percent", "percent" could mean a ratio increase, instead of a point increase. So the definition itself is ambiguous.


texts:
Let $W$ denote the investor's wealth $B$ is the the investment in the risk free asset (suppose that the risk free rate is taken to be zero) and $X$ is the investment on the risky security which has price $P$. Se the investors total wealth is:
$$W=B+PX$$
The capital gain that is generated in some some time interval $[t-1,t]$ is about $X_{t-1}(P_t-P_{t-1})$ and the portfolio rebalancing then occurring to the intertemporal budget constrained is:
$$B_t+P_tX_t=B_{t-1}+P_tX_{t-1}$$
I wonder why does the last equation hold? Does this come from the intertemporal budget constraint and how?

In the sequel it refers to the wealth change that is:
$$W_{t}-W_{t-1}=X_{t-1}(P_{t}-P_{t-1})$$

$\underline{Note:}$ It is from Kerry Back 1992 paper


texts: Pure exchange economy with two consumers and non differentiable utility functions

texts:
We have a pure exchange economy, two consumers $A,B$ and two goods $x,y$. The utility functions are as follows $$u_A=\min\{x_A,y_A\}\qquad u_B=\min\{x_B,\sqrt{y_B}\}$$
The endowments are $$\omega_A=(30,0)\qquad \omega_B=(0,20)$$

I want to derive the equilibrium price and the equilibrium allocation. Now, I can understand that if the vector of prices $\mathbf{p}>>\mathbf{0}$ the equilibrium does not exist because the offer curves do not intersect (and this is evident once you have drawn the Edgeworth Box). My problem is that I don't know how to approach the case in which one of the two prices is zero. How should I study this situation? Should I derive formally the two offer curves as functions of prices?


texts: Comparing baskets of goods in this exercise

texts:
Max buys two goods, apple and ketchup. We do not observe his preference but we know it satisfies the three assumptions, completeness, transitivity, and more is better. And as usual, we know his preference does not change with prices or income. Furthermore, we know Max seeks to maximize his utility. Initially, Max’s income is \$40, the price of apple is \$4 and the price of ketchup is \$4, and Max chooses 3 units of apples and 7 units of ketchup to maximize utility. Let A denote this basket. Consider basket B that contains 5 units of apples and 3 units of ketchup. Suppose the price of ketchup becomes \$1.5 and Max’s income becomes \$24.5, while the price of apple remains at \$4. Given the new price and income, is it possible for basket B to be the optimal choice of Max? Briefly explain.

For this question, I drew out the initial and new budget lines. I introduce a new point C (5 units of apples and 5 units of ketchup). Can I say that B cannot be the optimal choice because if we assume by contradiction that B is indeed the optimal choice, then B>C although C is cheaper. However, since the assumption more is better is satisfied, C>B which is a contradiction. Thus, B cannot be an optimal choice. Is my reasoning incorrect?


texts: Is there any evidence for consumer utility-maximising behaviour, at individual or market level?

texts:
Even though utility maximisation is ubiquitous in economic textbooks to model consumer behaviour, its usefulness is rarely demonstrated by evidence.

Is there any evidence that some consumers do behave that way on at least some markets?

Utility maximisation applied to a representative agent is also often used to model the demand side of a whole market. However, here also, this is hardly ever justified by evidence. On the other hand, alternative models seem to have good properties too: for instance in Complex Economics by Alan Kirman, it is said that random consumption + heterogeneity of income suffices to construct an aggregate demand that decreases as price increases. Random consumption does not seem more stupid than perfectly informed utility-maximisation... but sounds definitely simpler.

Is there evidence that utility maximisation used as a model of the demand side of a market is actually better than other (simpler) models of consumer behaviour?


texts: Given a 2X2 model (2 goods, 2 inputs), if the factor intensities (capital/labour ratio) of the two goods along the Pareto set are unequal, then we get a concave PPF. Can we get a convex PPF in some cases, for example with increasing returns to scale?


texts:
The utility function of the consumer is $5x^{0.5}y^{0.5}$

The income of the consumer is $5000$

The price of good $x$ is $1,000$ and the price of good $y$ is $500$.

Determine the optimal consumption bundle.

Using the formula $\frac{MU_x}{P_x}=\frac{MU_y}{P_y}$ (1) I have derived the functions:

$MU_x = 2.5x^{-0.5}y^{0.5}$

$MU_y= 2.5x^{0.5}y^{-0.5}$

Substituting them into (1) gives:

$\frac{2.5x^{-0.5}y^{0.5}}{1000} = \frac{2.5x^{0.5}y^-{0.5}}{500}$

I'm not sure where to go from here?

Thank you in advance


texts: What is the relationship between indirect utility function and the expenditure function? Explain what accounts for this relationship.


texts: How do I predict Macroeconomic indicators?Or are there any free resources where I can get the predicted values?

texts:
I am building a time series forecasting model in which I am considering the macroeconomic indicators as predictors.I wanted to ask 2 things

How do I get the future values?I have seen trading economics and some other sites but they are paid. Also if I want predict indicators on my own how should I go about that?

All the data for indicators are given in two forms on govt websites - seasonally adjusted and seasonally not adjusted. I am using seasonally adjusted data for my model building.Is that correct?

3.I am building a product demand forecasting model. I have chosen 20-30 macroeconomic indicators and other exogenous variables. I wanted to understand how do I check with explanatory variables will help me in forecasting the demand. How do I compare two time series .Can I build a separate regression models for each indicator with dependent variable as demand and then select variables which are significant into my final forecasting model. Or can I use Cross Correlation or Granger's causality approach to determine significant predictors?
Any help would be appreciated


texts: Is it true that the U.S has to run a chronic trade deficit with the rest of the world as a price to pay for being the world's reserve currency?

texts:
I have heard of the argument that in order for USD to be reserve currecy, the rest of the world must own enough USD to store it as reserves. In order for the rest of the world to own enough USD, U.S has to buy more goods than U.S sells to the rest of the world. In other words, run a trade deficit.

Is this a sound economic argument? If no, what are some holes in this argument? If yes, wouldn't the trade tariffs that President Trump is imposing on its trade partners all over the world lead to the end of USD as world's reserve currency?

https://qz.com/1266044/why-does-the-us-run-a-trade-deficit-to-maintain-the-dollars-privileged-position/


texts: In demand and supply chart, why is it assumed that import will only happen if domestic suppliers are unable to supply?

texts:
First Review What I do understand,
The demand and supply chart shows once imports are allowed...

Tariff is added on imports resulting in loss of consumer surplus and increase in supplier surplus.

I get everything up until to this point. However...

Is this wrong? But this traditional textbook version. Green represents both, width represents imported quantity and area represents govt surplus. This is not what happens in real life. If there are two products both priced $10, I'd buy either one all things being equal regardless of what company or country it was made in. For most products I'm not going to care whether they were imported or domestically made. YET, this graph very clearly assumes import will stop where local suppliers are able to provide.
Correct version should be like this:

or maybe like this:


texts: What qualifications does a bank need to create USD funds?

texts:
It is my understanding that, while any entity can create dollar-denominated assets (stocks and bonds) and sell them on the open market, only banking institutions in the United States can engage in fractional reserve banking and thus truly increase the supply in US Dollar funds.

These funds are liabilities of the banking system as a whole to deposit holders and I am certain must be regulated in some way. What does an institution need to do to have this powerful ability to create new USD funds? Is it to be part of the Federal Reserve System? Is it to join the FDIC -- some state banks are outside the Federal Reserve System? Is it to be subject to other regulations and requirements to take deposits at all?


texts: How low can interest rates go? How deeply negative?

texts:
Ten years ago, negative interest rates were an impossibility, an intellectual curiosity. Now it's a common policy.
Just read a claim that there is still an absolute lower bound, even if it happens to be a little bit below zero. But having had one certainty smashed, I'm curious--what stops rates from going even further below zero?
The Bank of Japan has had very low rates for a very long time, partially made possible by the deflationary environment. Even if the money in the bank doesn't earn very much interest, it just buys more over time.
What happens if the whole world goes the way of Japan, with constant and sustained deflation? Ie, assuming all government bonds carry a negative coupon.
Say global economy that is deflating at -.06, is -.05 still  the 'real world lower bound' of interest rates?  Can a lower bound be said to meaningfully exist, or is there only the spread between the rate of deflation and the interest rate?
I think the economics frame of this is that the nominal rate is -.05, but less deflation -(.06), the actual interest rate is .01?
So I guess my actual question is: Is there a lower bound for nominal rates? Or are very negative rates possible as long as they are less than the rate of deflation?
(I am not an academic economist. Pardon my lack of jargon).


texts: Proving the asymptotic normality of th Non-linear Least Squares estimator

texts:
Our model is $Y=X(\beta_0)+u$, where $u\sim IID(0,\sigma_0^2I)$, and $X(\beta)$ is a non-linear function of the beta.

When trying to minimize the $SSR(\beta)$ we get the following FOC:

$\nabla X(\beta)^T(Y-X(\beta))=0$, where $\nabla X(\beta)$ is the gradient.

Well, the FOC is equivalent to $n^{(-1/2)}(\nabla X(\beta)^T(X(\beta_0)+u-X(\beta))=0$.

If we apply a taylor expansion of the first order to each component $X_t(\beta)$ of $X(\beta)$, we obtain $X_t(\beta)=X_t(\beta_0)+\nabla X(\bar\beta_{(t)})^T(\beta-\beta_0)$, where $\bar\beta_{(t)}$ is a point in the line segment that joins $\beta$ and $\beta_0$. This point may be different for each taylor expansion we do, and that's why it's indexed by $t$.

Inserting the taylor expansion in the FOC:
$n^{(-1/2)}(\nabla X(\beta)^T(u-\nabla \bar X^T(\beta-\beta_0))=0$, where $\nabla \bar X$ is the matrix with $\nabla X(\bar\beta_{(i)})$ as each i-th column.

Are all of the above calculations correct? I ask this because in this book, the authors state in page 225 that we should obtain a term with second derivatives of $X(\beta)$... I do not understand why this is.

Any help would be appreciated


texts:
Suppose we have a static economy with one firm and one consumer. Consumer owns the firm and decides on how much to consume and to work: $$\max U(c,1-n_s)\ \text{s.t.} \ pc\leq wn_s+\pi$$
The firm is maximizing profit: $$py-wn_d\ \text{s.t.}  \ y\leq F(n_d)$$
We will assume that production function is characterized by increasing return to scale and $F(0)\geq 0.$. How can we show that there is no competitive equilibrium?
Since we have F is IRTS then $F(\lambda k,\lambda n)\geq\lambda F(k,n)$ and based on the theorems that CE is inconsistent with increasing returns to scale since a competitive firm would not have enough revenue to pay competitive prices for its inputs, there would not be a CE in the first place. To prove it do we need to follow dynamic programming or is there another way?


texts: Is there a possibility to have an inferior good (x) in a utility function where x & y have 0 cross elasticity?

texts:
A question I got on an exam that I think I messed up on:
If we have cross elasticity of 0 (x & y are independent), can x be an inferior good? I answered with a yes. Am I wrong?


texts: Analzying K-12 Education: Cost vs. Expenditure?

texts:
I have heard constant complaints, particularly from teachers, that (United States) schools are underfunded, and that budget cuts only stand to exacerbate this problem.  My own high school couldn't even afford a library.

Nevertheless, it seems that in inflation-adjusted dollars, school funding has only increased—and greatly at that.  We see charts like this:

We can point to the last section of the chart and call it a funding cut, but this hardly seems significant given the overall trend.

I initially was going to ask about this disparity, but further research turned up a plausible explanation: the rising cost of education.

In this graph, we see that the cost from 1970 to 2010 has basically tripled (while from the previous graph in the same time the expenditure has only doubled).  This would explain why schools complain about being underfunded.

However, this itself seems like a problem.  Both these charts are inflation-adjusted.  We clearly see that education cost is rapidly outpacing inflation.

Why should this be?  It doesn't seem that we're educating better for that higher cost.  As you can see (also on that chart), student achievement in reading and math is basically the same, and science has actually declined a little.

Here I haven't been able to find clear answers.  Is it additional administrators increasing costs?  Are the benchmarks we're using to measure achievement changing, so that it only looks like educational effectiveness is constant?  Are we spending more on technology for no good reason?  Are my sources just wrong?

My question:

(To confirm:) Is the explanation of schools' complaints indeed due to per-pupil expenditure being outpaced by the rising cost of education?
What explains the rising cost of education?

Note: this could fit on politics or academia.stackexchange as well.  I'm asking here because I'm interested in the underlying economic explanation, before I get to policy or practical matters.


texts: Analyzing Farm Bureau's claim that milk prices would double at the retail level if all the illegals were deported

texts:
A 2015 article on the Farm Bureau's website states:

  Half of all workers on U.S. dairy farms are immigrants, and the damage
  from losing those workers would extend far beyond the farms, nearly
  doubling retail milk prices and costing the total U.S. economy more
  than $32 billion, according to a new report commissioned by the
  National Milk Producers Federation.

According to an analysis at Progressive Dairy, out of the 3.40 a consumer pays for a gallon of milk at the supermarket, 1.53 goes to the farmer. In terms of hundredweight, the numbers are 39.40 cwt and 17.85 cwt.

According to a survey of dairy farms in the Northeast, the labor costs of running a dairy farm in terms of cost/hundredweight were [also] about 3.40 (with variations by herd size, etc).

Various sources put the hourly wage for illegals on dairy farms between 10.00 and 14.00 dollars per hour. Let's assume a dairy farmer hires only illegals and he pays them 12.00 per hour. Then they are all deported. In order to attract quality legal workers to take their places, lets say he needs to pay 24.00 per hour and that the full amount of that cost is passed directly to the consumer.

Since 24.00 is twice 12.00, we can multiply the labor share of a dairy farm's expenses per hundredweight by 2 which equals 6.80 and then add the increase into the farmer's share of the consumer's dollar / hundredweight, or 17.85 + 3.40 = 21.25.

A gallon of milk weighs about 8.6 pounds which means there are about 11.63 gal of milk in a hundredweight. So we take the 3.40 new labor costs and divide between the 11.63, which is a .29 per gallon increase.

So, the next time you bought a gallon of milk it would be 3.69, up from 3.40--a very far cry from "nearly doubling".

Question: How can we analyze the veracity of the claim that milk prices would double at the retail level if all the illegals were deported?

The article was a press release from the "National Milk Producers Federation", which is located in the heart of dairy country, Arlington, VA.


texts: References? -- Coordination Between Groups

texts:
Can anyone provide references for research that focuses on coordination between groups of decision makers rather than within group coordination with individual decision makers? \

Edits given the questions posted in comments:

1 - I am interested in behavioral/experimental work.
2 - Coordination/Cooperation between groups within any context. So...could be groups as groups, groups as nations, etc.


texts:
I was talking with friends about soil exhaustion in agriculture. They tell me that it is very frequent because of the methods employed in modern agriculture. They suggest that this amount of exhaustion is 'unsustainable'.

What strikes me in contrast with other environmental issues is that there seems to be no externality here : each farmer degrades his own land. So what should we think :

a) These are long-term effects, so that it is a problem of intergenerational equity.

b) Farmers do not know about the effects of these methods, or are not rational.

c) There is no problem : soil exhaustion is the rational outcome of intertemporal planning and is due to time preference of farmers and consumers.

Any references on the subject are welcome.

Thanks,
U.


texts:
I've plotted my data log(GDP) which displays an albeit small upward trend.

However, after performing an ADF unit root test log(GDP) it suggests that I can reject H0 [that there is a unit root] at the 5% level. I tested the level effect with trend and intercept due to the nature of the graph. Both the intercept and trend are statistically significant and removing the trend only makes the t statistic lower so that you can reject H0 at the 1% level.

Why might I be getting this result as from the graph the data definitely looks nonstationary.


texts:
First, I'm not an economist - just a regular Joe interested in a small part of the subject.
Second, I apologize if this is a better question for the 'politics' stack exchange, but I figured I might get a more thorough/technical answer here.

The question: What is flawed with the following scenario (i.e. what are the downsides or why is it not realistic)?:

A government's tax model is hard on the wealthy. For simplicity's sake, let's say it caps an individual's annual income (total via employment, capital gains, gifts or anything else) to $1,000,000 USD. So if they make more than that, the rest goes to taxes (or same-year purchases, I suppose) - no exemptions for this tax bracket.
The government invests the additional taxes into education - providing high quality, cheap/free high level education. In theory, boosting the education level of the country as a whole - and hopefully stimulating innovation, etc.
Other taxes flow back into businesses - incentives to start and run small businesses. This could keep the markets competitive (plus, no business 'too-big-to-fail' or gross monopolies). Since owners/stakeholders wouldn't profit beyond a point, the focus may go to social/science/tech advances (making a name for one's self), giving back, etc. They could also hire more, use more services, and otherwise stimulate the economy that wat. I suppose you'd need some 'business savings account' to allow large businesses to have a safety net as they could otherwise become unstable.

Anyway, maybe it's just me, but it seems like making $1M/year would still make for a fantastic living and one you could retire on quickly. You'd still see people making 20x what others earn, so the point isn't to completely flatten the social scale, just even it out.

It seems like this would result in:

A more just society where the bottom 40% of the nation controls MORE than 1% of the wealth. Obviously you'll still have bums, drug addicts, etc. but that's a reality everywhere so unless it worsens the problem I wouldn't consider that a flaw; and perhaps a rehabilitation system could be funded.
Create a more robust economy as you'll have a lot of businesses competing and lots of educated people pushing the limits and as stated before, perhaps looking to higher-minded goals than the bottom-line.
A higher standard of living on average - as more people would be educated, employed and contributing to society.

So again - why doesn't this work? What are the downsides? Or is this just the wrong stack-exchange?

Thanks!


texts: Do heterogeneity in consumption baskets lead to very different inflation rates for different consumers?

texts:
CPI is measured against a single consumption basket. In reality, consumers each have their own set of consumption goods, so each face their own "individualized CPI" rates.

But how different are those "individual CPI rates"? Has there been work on this?

Why I'm asking: economists frequently state that investors should invest in "inflation-adjusted products" to hedge against inflation. The problem is, if each individuals' consumption basket is sufficiently different from that used to compute CPI, holding inflation-linked securities may not be a hedge, but rather introduce more risk.


texts: Collusion model with imperfect public monitoring

texts:
It is well known that consumers' intertemporal incentives may play a key role on the potential of firms to sustain collusion. To my knowledge, most previous efforts studying the topic have assumed perfect observability of actions. How would imperfect public monitoring affect the usual results of industrial organization, regarding symmetrical punishments and price wars mechanisms? Would the results hold?

Since Coase (1972) there has been awareness that intertemporal incentives play a key role on determining industry configuration and the extent to which firms may exercise market power. Ausubel and Deneckere (1987), Gul (1987), Dutta et al. (2007) and Schiraldi and Nava (2012) analyzed this in an oligopolic setting, particularly the effect of product durability on the feasibility of sustaining a collusive agreement. Their findings nevertheless contradict Coase's, as they show that the greater the patience of forward-looking rational consumers, the easier it was for a cartel to sustain collusion.

These results, however, asume perfect observability of firms' actions. So, what would happen if we lift this (rather restrictive) assumption? I'm thinking of Dutta et al. (2007)'s model for studying a cartel in a durable goods market and considering what would happen if one would extend it into a stochastic environment, making consumer's turnover rate random, which leads to an imperfect monitoring setting.


texts: Stata code for linear regression that controls for state effects

texts:
Someone told me I should put a variable in my regression to see the state effects. (States in the United States) So he wrote this code and said to put in my variables where the ... is.

xi: reg ... i.STATE, robust

(The robust is because the data is heteroskedastic)

So here's what it is with the variables:

sust_all form_type_dum EDUCPAY HAZARDPAY SHIFTPAY SKILLPAY MILPAY COLLBARG RESPAY CHIEFMAX  OPBUDGET OPBUDGEST POPULATION i.STATE, robust

But I'm getting an error in Stata:

invalid syntax

What am I writing wrong? Or is there a better way to see state effects? Can I just leave that out of the regression?

Background

I'm doing a regression on data from 2007 where the dependent variable is number of sustained complaints per 10 officers in a police department. I want to see if any variables about pay or department budget will explain it. The data comes from Law Enforcement Management and Administrative Statistics (LEMAS), 2007. The survey is administered by the US Department of Justice. The STATE variable is the state where the agency is based out of.


texts: Is there a per country estimation of the GDP drop due to COVID?

texts:
I've been looking around for some per-country estimation of the expected GDP drop due to the COVID pandemic.
I've found this answer in this site but it only mentions a few countries. I understand not all countries will have such an estimation, but maybe for the G20 or similar groups?


texts: Difference between social choice function and mechanism outcome function

texts:
Mas-Colell, Whinston and Green's Microeconomic Theory (3rd edition) defines the social choice function as the following:

Later, the mechanism outcome function is also defined:

The relationship between a social choice function and a mechanism is then stated as:

What is the difference between a social choice function and a mechanism outcome function?


texts: Is there an equilibrium between privately owned and publicly listed companies?

texts: Private equity funds are increasingly taking formerly public companies off the exchanges. Is there an economic reason for any public companies to exist and what is the equilibrium share of public companies in the total corporate 'population'?


texts: How does price-elasticity of supply affect the incidence of tax on consumer and producer

texts:
From what I've read only price-elasticity of demand (PED) (not price-elasticity of supply (PES)) affects the burden of tax on the consumer/producer. However, my graphs suggest PES does affect it. Why is this??

(The red lines represent the supply curves of firms with elastic PES and the blue lines are for inelastic PES. The S1 lines show supply before tax and S2 shows supply post tax. I have used a demand curve with unitary PED.)

According to the graph the proportion of tax paid by the consumer on goods with price elastic supply (P1P2AB out of P3P2AC)is significantly greater than the proportion paid on goods with inelastic PES (P1P2DE out of P3P2DF. Why is this?


texts:
We often see news that some company destroys items they couldn't sell in time.

Also we can see news of supermarkets destroying food just because it's not fresh although it's perfectly edible.

If someone destroy goods, he would get $0 for it or even need pay for the disposal. How can this act be profitable for a company?


texts: Does any guys know how to find the data source of US individual wage earnings from 1920 to 2018?


texts: What did Adam Smith mean by "putting [the pins] into the paper"?

texts:
In his famous description of the division of labour:

  One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper ...

What did he mean by "put them into the paper"? Was this just some sort of paper packaging for the pins?

(By the way, my understanding is that pins are what we'd today call nails. Please correct me if I am mistaken.)


texts:
As far as I have understood emission right certificates are some kind of currency. Each company may emit as much of say CO2 as its certificates allow. Certificates may be traded, i.e. bought and sold. If a company emits more than it is allowed to it pays a fine (to the country where the pollution occurs).

My question is: How is it prevented that a wealthy company in a rich country buys lots of certificates (to a modest price) from a poorer company in a poorer country which in turn is forced to emit more pollutants than it is allowed to (because it sold all its certificates) - but its country doesn't force it to pay the fine.

Thus the intended effect of emission right certificates would be undermined. By which measures is this tried to be avoided?


texts: Dynamic programming, optimal consumption-savings (finite horizon) problem

texts:
Let $w_t$ denote a consumer's wealth at time $t$ and $c_t$,
the amount she chooses to consume, so her savings exiting this time period are $w_t-c_t$. Given this savings decision, her savings $w_{t+1}$ at time $t+1$ are determined by a random process in which $w_{t+1}=\alpha w_t$ or $w_{t+1}=\beta w_t$, where $\alpha,\beta$ are postitive constants, each with probability $\dfrac{1}{2}$ and independent of past rates of return on her savings. At time $t$, when she is choosing $c_t$, she knows $w_t$ but she doesn’t know
anything about future returns except the probabilistic law just given; she does know her past consumption decisions, of course, and past rates of return. Considering a log utility, i.e. $u(t)=ln(c_t)$ and assuming that the consumer is impatient, so that he discounts future utility by a factor $b$ each period, where $0 < b < 1$, then the consumer's decision problem can be written as follows:
$$v(c_t)=\max_{c_t \geqslant 0}\sum_{t=0}^{T}b^{t}u(c_t)$$

If the consumer can not borrow, then what is the optimal consumption level for the consumer?

$\underline{Note:}$ The problem is based on David M. Kreps' microeconomic theory book, but it is adjusted to be a finite horizon problem. Kreps, in his book, solves this problem in a fuzzy way for $T=3$, that is not obvious to me. However, due to the fact that I know little of dynamic programming, since I am in the begining of examining this topic, I would appreciate it, if someone could provide a solution in the finite horizon. If the problem is not set in a rigorous way, I would be glad too to see somene making any appropriate change. I beleive that it is a classic problem in the field of economics.


texts: Net saving as a percentage of net income

texts:
In "Is Piketty's Second Law of capital fundamental?" by Per Krusell and Anthony A. Smith Jr the authors say, in a footnote:

  Specifically, from the FRED database, we use series A023RX1A020NBEA on real gross national income, series W206RC1A156NBEA on gross saving as a percentage of gross national income, and series W207RC1A156NBEA on net saving as a percentage of gross national income. These series all come from the Bureau of Economic Analysis; with them, it is straightforward to construct a series for net saving as a percentage of net national income. (p737)

They say it is straightforward to construct a series for net saving as a percentage of net income. Can anyone explain how this series is constructed from the three given series?

The paper is available at  http://www.jstor.org/stable/10.1086/682574 .


texts: Difference between a multiple regression and several linear regressions?

texts:
Context: I'm an undergrad who took Intermediate Econometrics more than a year ago and I'm trying to brush up on some of the skills.

As I was reviewing multiple regression, I realized I didn't quite understand what makes the regressor coefficients different when doing a multiple regression vs doing a univariate regression. For instance, if I were to regress wages on years of education, why would the coefficient on years of education be different than when I regressed wages on years of education and test scores?


texts: World Stock Markets that went up in 2008

texts:
We all know that the US stock market(s) collapsed in price in 2008, see https://en.wikipedia.org/wiki/United_States_bear_market_of_2007%E2%80%9309.

I was wondering what countries' stock markets went up throughout this period.

Include things like frontier markets and not just developed countries.

I cannot find a data source online.


texts:
I hope this question is not inconvenient for any of you, so I would appreciate if you do not mark it as not useful.
I want to work with the data of the CPI from the BLS (I am not American, and this is the first time I am using the BLS). I want to ask where I can find the raw data and the relative importance of components. My goal is to build some aggregate categories of my own.
Also, I would like to know if there exists any R script or Stata do file that explains how to build the CPI.
Thank you in advance for your help.


texts: How to find the profit-maximizing output level?

texts:
Table 11 In this post, step 5 states the profit-maximizing output level is quantity 5. But in this case, $p=28$, $MC=30$, $p\neq MC$. Why it is the profit-maximizing output level?

Step 4 states the output level where price equals the marginal cost is the output level that maximizes profits. If so, both $q=4$ and $q=5$, the profit is $\$40$. Why we don't choose $q = 4$ as the profit-maximizing level?


texts: I've heard a lot of definitions given for structural estimation. But it's never seemed entirely clear to me. Some times I've heard that what one person might call "reduced form" estimation should actually be called structural estimation. Sorry I don't have an example to illustrate, but I was wondering if somebody could clarify, hopefully with a link to a paper or some other source. What is structural estimation compared to reduced form estimation? Does the potential outcomes framework count as a structural equation?


texts: Change in Welfare from an Incentive based Supply Restriction

texts:
My question is related to the following graph:

The supporting example is given with regard to a policy of an acreage limitation program to provide incentive for farmers to leave fields fallow.

Why does the cost to the government include all of $D$, and not just the portion of $D$ to the left of  $Q_0$?

My textbook (p. 327, Pindyck & Rubenfeld, Microeconomics, 7th Ed.) says:

  Incentive Programs In U.S. agricultural policy, output is reduced by incentives rather than by outright quotas.  Acreage limitation programs give farmers financial incentives to leave some of their acreage idle. [The figure above] also shows the welfare effects of reducing supply in this way.  Note that because farmers agree to limit planted acreage, the supply curve again becomes completely inelastic at the quantity $Q_1$, and the market price is increased from $P_0$ to $P_s$.

  As with direct production quotas, the change in consumer surplus is $$\Delta CS=-A-B$$ Farmers now receive a higher price for the production $Q_1$, which corresponds to a gain in surplus of rectangle $A$.  But because production is reduced from $Q_0$ to $Q_1$, there is a loss of producer surplus corresponding to triangle $C$.  Finally, farmers receive money from the government as an incentive to reduce production.  Thus the total change in producer surplus is now $$\Delta PS=A-C + \text{Payments for  not  producing}$$

  The cost to the government is a payment sufficient to give farmers and incentive to reduce output to $Q_1$.  That incentive must be at least as large as $B+C+D$ because that area represents the additional profit that could be made by planting, given the higher price $P_s$. (Remember that the higher price $P_s$ gives farmers and incentive to produce more even though the government is trying to get them to produce less.)  Thus the cost to the government is at least $B+C+D$, and the total change in producer surplus is $$\Delta PS=A-C+B+D=A+B+D$$


texts:
Consider a game where a decision maker (DM) has to choose action $l\in \mathcal{Y}$ possibly without being fully aware of the state of the world $V$.

The choice set $\mathcal{Y}$ has cardinality $L$. The state of the world is an $L\times 1 $ vector and we denote its $l$-th element by $V_l$.

The state of the world has support $\mathcal{V}$.

When DM chooses action $l\in \mathcal{Y}$, she receives the payoff $V_l$. That is, she receives a payoff equal to the $l$-th element of the vector $V$.

Let $P_V\in \Delta(\mathcal{V})$ be the DM's prior.

The DM may also process some signal (formalised by the concept of information structure) to refine his prior and get a posterior.

Let us define the concept of 1 player Bayesian Correlated Equilibrium provided in Bergemann and Morris (2013,2016,etc.).

$P_{Y,V}\in  \Delta(\mathcal{Y}\times \mathcal{V})$ is a 1 player Bayesian Correlated Equilibrium if

1) $\sum_{l\in \mathcal{Y}}P_{Y,V}(l,v)=P_V(v)$ for each $v\in \mathcal{V}$

2) $\sum_{v\in \mathcal{V}}V_l P_{Y,V}(l,v)\geq \sum_{v\in \mathcal{V}}V_k P_{Y,V}(l,v)$ for each $l$ and $k\neq y$.

Bergemann and Morris show  that the set of Bayesian Correlated Equilibrium is equal to set of optimal optimal behaviours under a range of information structures.

QUESTION: Consider a search model, in which we design a protocol according to which the DM discovers information about the state of the world.

For example, suppose that the DM engages in a sequential search where he discovers the $l$-th element of $V$ if and only if the maximum utility secured up to that moment is lower than a reservation value.

Can this model always be written as prior/information structure/posterior? In other words, does the framework of Bergemann and Morris nest search models?


texts: Examples of behavioural breakdowns in game theory?

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I'm trying to compile multiple scenarios of the breakdown of game theory. Specifically, I'm looking for scenarios where game theory predicts certain behaviours, but in real-world scenarios or experiments, people tend to behave quite differently.

Here's an example of the kind of thing I'm looking for, based on the ultimatum game:

Two players, A and B, are offered a certain amount of money, for example, 100€, to share between them.
Player A first decides the split (e.g. 50-50, 60-40, 90-10, or whatever player A decides).
Player B chooses to either to accept Player A's split, in which case each player receives the amount dictated by Player A; or Player B refuses Player A's split, in which case both players receive 0€.
The game is played only once; there is no repitition.

Classic game theory predicts that as long as Player A offers any split in which Player B receives more than 0€, Player B would accept the offer. For example, if Player A offers 99-1, then Player B would accept the offer since 1€ is better than nothing. However, from what I understand, experiments have shown that for many offers below 50-50, Player B refuses the offer. The explanation is that when Player B perceives that Player A is being unfair, Player B often prefers that both players receive nothing rather than undergoing what they perceive to be unfair treatment. Apparently, the refusal depends on how much Player B would eventually receive. (For example, Player B might refuse a 90-10 split if 100€ is at stake, but might grudgingly accept it if 1000€ is at stake.)

Could anyone please offer any examples where game theory predictions are known to differ from actual human behaviour?

Strictly speaking, in the example I gave, the problem isn't with the "theory" part of game theory; the problem is with correctly specifying the utilities. The players' real utility is a function of both the money they would receive and their perception of fairness. Because the game classically only specifies their utility in terms of money, the prediction fails because the perception of fairness is also important, yet neglected. It is neglected because it is much harder to quantify and to accurately specify on the same scale as money. In fact, I strongly suspect that all cases that I'm asking for would involve a similar element: the game theoretic prediction fails because players have some very important behavioural aspects of their utilities which are not specified in the game model because they are hard to quantify.

I cross-posted this question with Cognitive Science StackExchange because I originally posted it on the Mathematics StackExchange but didn't receive much helpful answers there.


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The are various opinion whether entrepreneurs are more or less risk-averse than the general population. The commonly held belief is that they are less so, but the contrary opinion exists as well. There's even one small survey in the UK that seems to back up this view.

Is there more empirical research in this respect?


texts: A theoretical/mathematical approach to cost-benefit analysis and cost-utility analysis in health economics

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I am looking to get some resources looking at health economics from a pure mathematical point of view, ie developing models using partial differential equations or complex analysis.

In particular, I am looking for derivations and models relating to cost-benefit analysis, cost-utility analysis, the relationship between CBA/CUA and social welfare and so on.

I am currently going through Health Economics by Peter Zweifel, and though it has a serious bit of mathematics, I am looking for something even more theoretical.

In addition, I am looking for research papers published that deal with different types of models relating CBA and CUA - again more mathematical in nature.


texts: I am looking for a recent literature review of consumer demand theory and its empirical applications. I have tried common places (google scholar, jel and jep papers) but no success. Any help is really appreciated.