texts: maximize untility AND minimize disutility

texts:
DISCLAIMER: This could very well be all bogus, I'm talking about my intuition as a beginner/intermediate economics student, you have been warned.

I got the feeling agents do not just maximize utility but minimize disutility as well. Now my understanding is that from the convexity assumption follows that those problems would have the same optimum. But I think it could very well be the case that the utility function does not at all look like the disutility function (also different variables) and optimum of those two functions need not be unique (Am I with the duality gap on the right track?).

If this at all a valid intuition I would appreciate some pointers to empirical studies that examines utility and disutiliy, or some theories that incorporate the notion of disutiliy (not just as an inverse of utility) into preferences.

P.S. I got the idea while reading about The Paradox of Choice from Barry Schwartz (more choices could lead to confusion and in my interpretation disutiliy)


texts: In an IS-LM (real interest rate)-PC framework: what is the effect of QE?

texts: In an IS-LM (real interest rate)-PC framework. Would you say that quantitative easing shifts LM and PC because it increases inflation expectations or that it affects consumer and investors confidence thus shifting the IS curve instead?


texts: Say's law stated in terms of general equilibrium theory?

texts:
Say's law is roughly that "an increase in aggregate supply generates an equal increase in aggregate demand".

Can this law be stated, or derived from, a model of general equilibrium?

EDIT: what if we assume a dynamic economy? I.e. where saving is possible.


texts: Why is capital often not included in New Keynesian models? Is there a reason other than modeling difficulty?

texts:
In New Keynesian models, like the ones in Gali's simple New Keynesian model or even Mankiw-Reis NK model on sticky information, capital is often not included.

Now people do say that there are modeling difficulties and that's why capital ($K$) is not included, but is there another justifiable reason other than modeling difficulties?


texts: Data source for a corporate bond yield curve?

texts:
Yield curves are a valuable tool for economic analysis. It is particularly interesting to analyse the difference between Government Debt yields and Corporate Debt yields (credit spreads). This gives insight into confidence within the financial markets and economic health in general.

The government yield curve is easily accessible here but corporate yields are more difficult. I need a curve built from an index which gives an indication of the whole market.

There are some datasets available on quandl which give yields for different types of bonds. The S&P 500 Bond Index provides some good perspective on S&P 500 bonds. I can't find anything though that gives an indication of either corporate bond prices or yields at different maturities. The maturity breakdown is needed to build a yield curve.

Does anyone know where corporate bond yield curve data (corporate bond index yields/prices by maturity) is published for free? I'm particularly interested in XML/JSON resources.


texts:
Below is a picture of today's Rough Rice Options Quote. I would like to understand how to interpret the information in the table below.

Firstly, with regards to the future contract we see that it expires in July, which settled yesterday for $9.720 (per 100 lb, or hundredweight), today the price has increased by about 11 cents.

When we look at the American Options (i.e. right to exercise at any point before July, we see data for Calls (right to buy for a seller, obligation to sell for a seller) and Puts (right to sell for a buyer, obligation to buy for a seller). As well we see that there are a range of available strike prices for this delivery. How can the numbers of "prior settle" for call/puts be interpreted. Meaning what do the numbers "2'5" or "10682'5" mean? Similarly, I know the strike price is the specified price the underlying future contract will change hands for, but how can "2040.00" be interpreted in relation to the futures price?

Edited to add that specifically when looking at the rough rice options, there are the contract specs: http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/rough-rice_contractSpecs_options.html?optionProductId=337#optionProductId=337


texts:
From http://uk.businessinsider.com/bank-of-america-fourth-quarter-earnings-q4-2018-1?r=US&IR=T:

  Like the other big banks, Bank of America took a hit from the recently
  enacted tax law, writing down \$2.9 billion primarily in deferred tax
  assets that declined in value.

  JPMorgan earlier reported a \$2.4 billion fourth-quarter loss because
  of the new tax law, and Citigroup reported a $22 billion loss.

My simple minded expectation is that when you lower a tax rate companies should have more money.

I tried reading about 'deferred tax assets':
https://www.investopedia.com/terms/d/deferredtaxasset.asp

Where I found:

  The simplest example of a deferred tax asset is the carry-over of
  losses. If a business incurs a loss in a financial year, it usually is
  entitled to use that loss in order to lower its taxable income in
  following years. In that sense, the loss is an asset.

So perhaps there is a place for clever accounting around expenses and taxes. But what is the exact mechanism? Why some companies are reporting loss due to the new US tax law?


texts: what is the Intuition behind Cholesky identification in VAR/SVAR

texts: In my understanding of Cholesky identification, $RF$ in the model below should be ordered last since it is contemporaneously affected by all variables in the model. So why does Leeper EM, Sims CA, Zha T, Hall RE, Bernanke BS (1996) put $RF$ before $MI$? Or maybe order does not matter as long as we can put zero restrictions however we want to ensure exact identification or overidentification? Does order only matter in Cholesky identification without zero restrictions?


texts: Why does lowering interest rates transfer incomes from households to corporations?

texts:
In Financial Market, Public Policy, and the East Asian Miracle by Stiglitz and Uy (World Bank Research Observer, vol. 11, no.2, 1996), the authors state that:

  Lowering interest rates transfers incomes from households to corporations, and because the corporate sector has a higher propensity to save, aggregate saving increases.

Why does lowering interest rates benefit corporations over households? Is this presupposing that households are net savers, not net borrowers, and that corporations are the opposite?


texts: Constrainted optimization: merge two constraints into one

texts:
Consider the following problem
\begin{align}
&\max_u F(x,u)\\
\text{s.t. }& u \in [0,\bar u].
\end{align}

Any idea how to merge the two constraints $u \geq 0$ and $\bar u - u \geq 0$ into one constraint $f(u,\bar u) \geq 0$?


texts: A hypothetical question on neutrality of money

texts:
Let's assume that we start with an economy producing two goods, A and B, with each priced $100. Each good is weighted using the same quantity, so CPI equals 100. Nominal wage is also 100 dollars. An increase in money supply cause an equal increase of 20% for both good A and good B, while real wage fall because that CPI now equals 120. The question is that, relative prices between A and B did not change while the real wage fell (against CPI), what would be the result of these on real GDP? I presume that the producers would want produce the same amount as their relative prices did not change while the workers would reduce their quantity supplied as their real wage fell, compared to CPI. Thus, this would bid up wages until equilibrium in labor market is reached, as firms would find it non-optimal supplying any other quantity than initial level of real GDP because their MC would be bigger than their MR or vice versa.

Did I got the situation right? Any thoughts? Thanks in advance.


texts: Why is GDP growth so important that central banks are trying to impose negative interest rate?

texts:
BoJ just announced its negative interest rate policy in an effort to drag Japanese out of a deflationary mindset and hoping to shift the demand curve to boost the economy. However, my question is, if people don't want to spend, why bother?

Consider the following simple model of an ideal economy. Suppose this economy has a maxium output is 100 units of bread. Further suppose it is a one-factor economy, i.e. all output is produced by labor. Suppose everyone in the country is considered a labor and there is a total of 100 units of labor in the economy. Suppose the most comfortable level of consumption of bread by people is a total of 10 units. Then my question is why would the cnetral banks impose policies to force people to demand more of it when they do not want to? It only made sense under the following circumstance: since only 10 units of bread is needed, maybe only 10 units of labor is employed to do all the production and the rest of the people is not employed, which means they do not have any money to buy the bread. In this case, it made sense for government to raise demand so the rest of the people can have a job and earn money, and therefore spend money, which further helps the economy. However, in Japan's case, unemployment rate looks fine, around $3.5\%$ as I checked yesterday, partly because Japanese companies are reluctant in cutting employees. Connecting to the simple model I had beforehand, Japan's case is like having all the 100 units of labor employed to produce 10 units of bread, althought they really only needed 10 units of labor. This implies that all the people are getting what they want.

So why is there anything to worry about that the central bank of Japan even start to adopt these agressive monetary policies?


texts: Create simple graphs without functional forms

texts:
I am looking for a suggestion of programs that can be used to illustrate effects like the income/substitution effect with regards to the consumption choice etc.

With many programs, need you to specify functional forms, but if you are just illustrating the effects it can be a hassle to conjure up some functional form to make a mere sketch of the effects.

And using paint is just... wrong... and ugly.


texts:
Basically, I have the full intertemporal model (the two period model) with the consumer, firm, and government, complete with the investment. And there is this question: Determine an equilibrium path with the case in which workers have a preference shock that reduces the disutility from work $h-l$ in first period. Preferences are back to normal in second period.
Note: $h$ is the number of hours available to work, $l$ is the number of hours spent on leisure, so essentially $h-l$ is the number of hours spent working.

What is this question trying to ask? If I understand the question, I probably will be able to answer.


texts: Is education a part of the U.S. exports component of GDP?

texts:
I was searching for this but could not find an answer.

My question is whether education of the U.S. universities provided to foreign students counts in exports component on GDP.

And if so, can we call the U.S. "the largest education exporter in the world"?


texts: How digital currency (like Bitcoin) proponents solve the problem of its high volatility to make it a good candidate to replace fiat?

texts:
I have recently read an article about a family living with no fiat currency for several years. Indeed there are lots of advantages of using a digital currency.
I am wondering if having an important fraction of transactions relying on a digital currency is possible (basically replacing fiat with digital currency for an important part of the economy). The first counter-argument for this being possible is the high volatility of the digital currencies.
I have very little economical knowledge, but almost everything from small businesses to the entire country economy seems to rely on currency stability (e.g. inflation rate should be small enough and EU actually forces a maximum value, business plans require relative currency stability, people expect a rather uniform or at least predictable monthly income).
How digital currency proponents solve the problem of its high volatility to make it a good candidate to replace fiat?


texts: The EIB is holding large quantities of Greek bonds. if Greece would default on these bonds, how would these (paper) losses be felt by individual tax payers in the other EU countries? Would this be through direct resource transfers out of tax income by the otehr EU governments (to cover these losses)? or would the EIB simply "print" money, and the effect would hence be felt through general price inflation? Many thanks in advance, Wouter


texts: Why hasn't massive derivatives exposures at banks already led to disaster?

texts:
I recently heard that Deutsche Bank had
$72trillion of "derivatives exposure", which
is many times greater then the entire German GDP.

Now as I understand it, derivatives are essentially
just bets on the movement of assorted prices...
so I am assuming that "derivatives exposure" means
the total amount you would have to pay out if
you lost every single one of your bets. The
likelyhood of this scenario may of course be
vanishingly small, but presumably with
$72trillion of exposure, you wouldn't need
much of a losing streak in order to leave
you bankrupt.

So some people are saying - "ooh this looks
scary, it could lead to disaster"... but my
reaction is "ooh this is scary... but why on
earth hasn't it led to disaster already?".

Now I know there were multiple
disasters around 2007/8 already and derivatives
may have played a significant role in that... but
I'm referring to, lets say, the past five years.
How could Deutsche Bank have gotten to
$72trillion of exposure without blowing up
again? What kind of bets have they been doing
such that they haven't had enormous losses?

EDIT: FYI this question has a followup here.


texts:
Jevons (1875):

  Currency is to the science of economy what the squaring of the circle is to geometry, or perpetual motion to mechanics.

I can't make any sense of this quote. I know that the "squaring of the circle" and "perpetual motion" are impossible, but Jevons probably doesn't mean to say that "currency" is likewise impossible?


texts:
Please look at the following. Question which I posted.

I did not understand the answer for the part b - Pareto efficient.

I am happy if you explain it in more details. Thank you.

Also please explain which equilibrium Pareto efficient / dominant or optimal? How can I decide whether a equilibrium is Pareto efficient/optimal/dominate ?  Thank you


texts:
Let us have a finite state space, $\Omega = {\omega_1,\cdots,\omega_s}$, where $2 \leq s < \infty$. Define a bet as a function $x:\Omega \rightarrow X$, where $X \subseteq \mathbb{R}^s$ is the set of monetary outcomes. Assume that the agent only cares about expected payoffs. Let $\succcurlyeq$ be a rational, continuous preference relation on $X$.

Additivity:
$$\forall x, y, z \in X, \text{then} \ x \succcurlyeq y \iff x+z \succcurlyeq y+z$$

Monotonicity
$$\forall x, y \in X, \text{then} \ x \geq y \iff x \succcurlyeq y$$

Non-Triviality
$$\exists x, y \in X, \text{s.t.} \ x \succcurlyeq y$$

De Finetti Theorem

$\succcurlyeq$ on $X$ is rational, continuous, additive, monotonic, and nontrivial if and only if

$$\exists p \in \mathbb{R}^s \setminus {0} = \{p \in \mathbb{R}^s \mid \sum^s_{i=1} p_i = 1, \ p_i \in [0,1] \ \forall \ i \}$$

s.t. $\forall x,y \in X$, we have $x \succcurlyeq y \iff p \cdot x \geq p \cdot y$

Moreover, p is unique.

So my professor has asked us to prove the De Finetti Theorem, in which she told us that:

First, prove that $\succcurlyeq$ is rational, continuous, additive, monotone, and nontrivial.

$$( \exists \ p \quad \text{s.t.} \ \forall x,y \ \text{and} \ x \succ y \Leftrightarrow px \geq py )$$

Use the uniqueness of p with a proof of contradiction using:

Assume $\succcurlyeq$, then suppose $x \succcurlyeq y$ but $px < py \ \forall \ p$. Then suppose $px \geq py, \ y$  but $y \succ x \ \forall \ p$.

Second, let $U(\lambda) = px$, then show the property holds.

Then with the uniqueness of $p$, let $s = 2 \rightarrow ( p , 1- p)$

Consider $x \sim y$, and then suppose $p$ is not unique $\rightarrow$ $( p + \epsilon , 1 - p - \epsilon )$.

$\epsilon \in \mathbb{R}$

So the question is: how do I construct $\epsilon$ for it to be consistent with the model? Any help would be appreciated in applying the outline of this proof.


texts: Why Turkey's president thinks that by cutting interest rate it will lower inflation?

texts:
Recently, President Erdogan sacked the head of Turkey’s central bank because he didn't want to cut interest rates. He even said: “We said that if rates fall, inflation will fall. He didn’t do what was necessary.”

From my understanding of economics, this is the opposite of how things work. If we want to lower inflation, we should raise interest rates even further. So why President Erdogan is conviced of the opposite? Is there a sound economic theory that would agree with Erdogan's initiative?


texts: Econometrics - marginal effect of x on y at average values

texts:
I was solving a prep Econometrics exam, with STATA output provided on two different models.
They asked me to " Estimate the marginal effect of ability (x variable) on wage (y variable) for the models of output A and B for average levels of wage and ability."
Model A is a log-log model for the given x and model B is log-linear model. The answers they provided are
Model A: ∂wage/ ∂asvabc = 0.403*(wage/asvabc), at averages we get 0.153.
; Model B: ∂wage/ ∂asvabc = 0.008*wage, at average we get 0.169

Irrespective of the numbers, I don't understand how they know whether to multiply the marginal effect by x or x/y or... Can someone help me with the logic? Or if you know the rule for this?


texts: Why system of beliefs, $\mu(x)$, needed in dynamic incomplete information games

texts:
We need to make statements about the sequential rationality of players who are in information sets that are not singletons. In these non-trivial information sets, we need to be able to say something like ...

  "In this information set, player 2 is not playing a best response, and therefore his behavior is not sequentially rational"

But how does this motivate us to develop the system of beliefs? I don't exactly see why making every player to have a well-defined belief over where she is in each of her information sets do in dynamic games of incomplete information.


texts: a question on the endogenous growth model

texts:
I have such a question on the endogenous growth mode”:

  In the macroeconomics literature there are various ways in which the growth process in the Ransey-Cass- Koopmans model has been endogenized. For this question you are required to incorporate one of these endogenous growth mechanisms into the model. You can select the mechanism, but make sure that you explain and/or show how it will generate growth endogenously. Setup the optimization problems faced by the various types of agents in your model. Derive and interpret the first order conditions (or efficiency conditions) in these optimization problems. Finally, to the best of your ability use the model to explain the stylized facts of economic growth and development.

What I want is exactly not to give an answer. I just want to be explained this question. Summarize it. Give hint! especially on dark statement. For example can I explain something like AK MODEL Or ROMER MODEL, LEARNING BY DOING ...? What means endogenous growth mechanism?

I just try to understand the question. Thus I’m asking here.


texts: Can we model risk with only probability?

texts:
Sorry for the confusion! I am adding an example to see if it helps:
For example, consider a gamble A, with payoffs {a,b,c,d}, whose probability of each payoff being realized is equal (so 25% each); and another gamble B, with payoffs {a,b,c,d,e}, and the probability of each is 20%.
Now I would like to measure the risk difference between the two gambles A and B, but all {a,b,c,d,e} are unknown in the data; only the 25% and 20% probabilities, and the fact that payoffs of B include payoffs of A are known. So it would not be possible to estimate expectation or variance, and using only probability seems a lot more feasible. What will be the potential problems with using only the probabilities as the risk measurements? Is there any way to bypass using expectation or variance for this situation (the ultimate goal here is to measure marginal risk aversion)? Thanks a lot!


texts: Effect of population growth on Solow steady state

texts:
My textbook says that:

  Ratio of capital per capita to income per capita in the steady state is a positive function of s and an inverse function of η and δ.  Thus, k*/y* is a constant.  This means when saving increase, the ratio does not change as both capital per capita and income per capita increase at the same rate.  However, both capital per capital and income per capital decrease at the same rate if the depreciation and population growth rate are higher.

It also says that:

  When you get to the steady state of output per worker, it means that your economy will still grow, just that it will only grow at the rate of growth of the labour force i.e. equals to the rate of population growth)

Doesn't both statement contradict each other?  I mean if the population growth rate grows, why could the capital and income per capita decreases which the first statement seems to state.  Am I reading the statements wrongly?


texts: Is manufacturing automation really a bad thing for the economy?

texts:
Media loves to create a technophobia frenzy for automation and robots. Would REALLY automation in manufacturing cause the economy to collapse?

Taking an extreme case that is impossible to happen even in the far future due to technical challenges, but consider that EVERY job is replaced by robots. Manufacturing of a product from start to finish would be done by robots and no work from humans necessary. This product would essentially be for FREE. Shouldn't this the ultimate goal of an economy?

Ignoring this dystopia society, even if automation replaces some of the more redundant jobs, like taxi drivers, truck drivers etc. Wouldn't that allow for reassignment of human resources to more important tasks and help the economy grow?

I think the situation is similar to the introduction of steam machines and the fear people had about them replacing men. While in reality they didn't replace them, they re-assigned them to positions that required more skill and knowledge (Such as machine mechanic etc)

I don't see any way that automation in manufacturing is a bad thing. Our society is more data and knowledge focused and I think the ones that are afraid are the ones incapable of expanding their knowledge, learning a new skill or adopting to the changes. But should we stunt the growth of our society due to few lazy, unskilled people and literally wait until they die to introduce progress?

I believe that any human in order to survive will adopt and the people mentioned above are no exception.


texts:
What major monetary policy actions were taken during the Great Recession (2007-2009)?

Quantitative easing and unconventional policy actions such as asset purchases and "forward guidance". I think I'm missing some things.


texts:
I want to do an economics masters course (not a PHD) in the UK or US preferably with a focus on game theory, auction theory, mechanism design and contract theory though I understand I'll probably have to take at least one macro and metrics course.

I found that NYU has an MA in econ and has good game theory (by Ariel Rubinstein) but are there any others?


texts: Given the supply and demand function what is the difference?

texts:
Given some unspecified demand and supply functions.

I need to calculate quantity and price after taxation, but what is the difference between having a tax of 20% of total revenue and 20% of profits ($\pi$)? I mean how to calculate this tax in those two cases? And what precisely should be changed when calculating Q and P after tax of those two types is imposed on.

Whether tax of 20% of total revenue creates simply consumer price on a level of $1.2(\text{producerprice})$ or is it something different? In case of profits is it $0.8(\text{supplyfunction})$?
**hope this question now satisfies required format **


texts: How was the year 1925 chosen as a dividing point in the history of economic thought?

texts:
The JEL codes divide "History of Economic Thought" into "through 1925" and "since 1925".
What is the significance of the year 1925 in the history of economic thought? Or was this just some cutoff point that was quite arbitrarily chosen?


texts: Could the upper quintile pay the annual federal personal income tax for all other quintiles from their annual income?

texts:
I am wondering if, in theory, the upper quintile (20% of earners in the U.S.)  could pay the annual federal tax bill for all quintiles from their annual income?
I have been looking at 2013 CBO data  here  that shows quintile income as a percentage of total income and quintile taxes paid as a percentage of total taxes paid. What's necessary is the amount of total income and total federal taxes paid - does anyone know these values?


texts:
In international relationships, often the interacting agents are countries. For example, countries negotiate, sign agreements, give loans to each other, trade, etc. Thus it is interesting whether these interactions are analyzed analogously to economic interactions between individuals, starting with the assumption that each country has a utility function.

Utility functions of countries are mentioned the context of a fair division procedure called adjusted winner. This procedure has been applied (hypothetically) to some international agreements, such as the Israeli-Egypt peace treaty, the Spratley islands disputes,  and the Panama Canal treaty. In each of these cases, the authors assume that each of the two involved countries has a cardinal utility function over the debated issues, and apply the procedure to find a fair and efficient agreement.

My question is: are there other papers in international economics that assume such 'utility function' of countries?


texts: Travel Cost Method - how to treat people who live at a site

texts: We are about to do a survey using the individual travel cost method to value a harbour, located in a fishing society, which is visited by tourists each season. My question is - should we include in the analysis people who live in this society and who, therefore, have zero travel costs to go there? Or should we skip them in the econometric analysis?


texts: Should I use current prices or volumes estimates?

texts:
I am writing an empirical paper with National Account's data from the OECD. The analysis of the data consists basically in calculating the cross-correlations among countries of GDP, investment, consumption etc, over a period from 1960:1 to 2015:1.

The problem is that there is a huge amount of measurements available in OECD's website and I don't know which one to choose.

The OECD's website suggests that:

  To extract the historical series, the measures to be selected are: CARSA or VOBARSA for data expressed in national currency (respectively in current prices or volumes estimates) and CPCARSA or VPVOBARSA for data expressed in US dollars and GPSA or GYSA for quarter-on-quarter and year-on-year growth rates.

I think that might be adequate for me.

But I still don't know if I should choose between the data in current prices or in volumes estimates.

What are the differences between the two approaches? Which implications would I be faced with by choosing each of them?


texts: How to find $\phi$, that denotes the correlation of signals among informed traders?

texts:
Since I do not have an answer on Quantitative Finance in my question I cross-post here the problem to tag some other categories
The following assumptions are part of the paper of Back, Chao and Willard and I can not solve for the statistic that is denoted as $\phi$ in the sequel. I would be glad if anyone could help me. Below i set the assumptions and the equations of interest
Suppose that in the market, there are $N\geq 1$ informed agents, who trade a risky asset continuously in the time interval $[0,1)$. Each agent $i$ receives a mean-zero signal $\tilde{s}^i$ at time 0. We assume the signals and the liquidation value of the asset have a nondegenerate joint normal distribution that is symmetric in the signals. Symmetry means that the joint distribution of the asset value and the signals $\tilde{s}^1,...,\tilde{s}^N$ is invariant to a permutation of the indices $1,...,N$. Let $\tilde{v}$ denote the expectation of the liquidation value conditional on the combined information of the informed traders. By normality, $\tilde{v}$ is an affine function of the $\tilde{s}^i$. By rescaling the $\tilde{s}^i$  if necessary, we can assume without loss of generality that
\begin{equation}\tilde{v}=\bar{v}+\Sigma^{N}_{i=1} s^i\end{equation}
for a constant $\bar{v}$. For simplicity, we assume $\bar{v}=0$. Let
\begin{align}\phi=\frac{var(\tilde{v})}{var(N\tilde{s}^i)}\end{align}
The statistic $\phi$ is a measure of the quality of each agent’s information. Specifically, it is the $R^2$ in the linear regression of $\tilde{v}$ on $\tilde{s}^i$, that is, it is the percentage of the variance in $\tilde{v}$ that is explained by the trader’s information.
Letting $\rho$ denote the correlation coefficient of $\tilde{s}^i$ with $\tilde{s}^j$ for $i\neq j$, one can compute $\phi$ for $N>1$ as
\begin{equation}\phi=\frac{1}{N}+\frac{N-1}{N}\rho\end{equation}
If $\phi=1$, then either $N=1$ or the $\tilde{s}^i$ are perfectly corellated. In either case each informed trader has perfect information about $\tilde{v}$.
My questions are the following

what does it mean intuitively "a nondegenerate joint normal distribution" and in particular I would like to understand the term nondegenerate.
What does it mean "invariant to indices" ?
the liquidation value is equal to the sume of the signals, does this come from the assumption that it it an affine function of the $\tilde{s}^i$?
How do we find that measure $\phi$? is it from the linear regression of $\tilde{v}$ on $\tilde{s}^i$?
How $\phi$ is tranformed to
\begin{equation}\phi=\frac{1}{N}+\frac{N-1}{N}\rho\end{equation}

Here it is a link from the paper


texts:
I have seen in several places references to "capturing value". For example:

Value Creation vs. Value Capture
Work on Stuff that Matters: First Principles

I think that such considerations are particularly useful. For example digital rights management (DRM) does not create any value, it is there to ensure capturing some value. We may discuss whether that is good, bad, necessary or useless, but the concept of "capturing value" is very useful to describe this and much more.

The question is: Has this concept been properly defined in some "citable" reference? (a book, a journal paper, a conference paper, or similar)

As much as I consider it a very interesting and useful concept, it looks like few people are aware of it and providing links as the previous ones may help to understand what it means but they are not particularly descriptive on this concept. To me, the concept is obvious and correct (or so I think) but other people have problems grasping it (or perhaps they refuse to consider its validity without proper definitions). Therefore I would be interested in more reputed, rigorous or explanatory (better if all three) sources.


texts: Sample used in calculating the sample regression function

texts: Does the OLS (ordinary least squares) method of regression consider only one sample value in calculating the sample regression function (SRF)? If not, then how is the SRF created when there is more than one observation per $X_{i}$?


texts: making a utility model for CO2 compensating travel demand

texts:
I'm trying to make a model which is build around the idea of carbon offsetting fuel (the consumer pays an extra fee per litre fuel for the compensation of the emitted CO2). The goal here is to make a model which takes the following into account:

it maximizes utility
it has a budget constraint
it has an demand for kilometres driven (which gives positive utility) --> travel demand
these kilometres driven however also emit CO2 which the consumer is aware of and dislikes (the consumer experiences negative utility
from emitting CO2
there is a demand for compensation (the consumer doesn't recieve negative utility from driving if it compensates. However the
consumer has to pay more for the same km driven).
optional: the consumer can also consider taking public transportation (which is consider as an non polluting means of
travel, however this is less comfortable than driving in your own
car.

i've already tried different options, but i can't seem to get my demands for driving and compensated driving to make completely sense. I hope there is someone here who can help me with this problem


texts: Does $U(x,y) = x^2 + y^2 + 2xy$ represent transitive, monotonic preferences?

texts: I'm a monitor for a microeconomics course and a student came up with this question. That this utility function represents monotonic preferences I think it's clear. Both goods have positive and constant marginal utilities. What I think is less clear is if this preference relation is transitive. How can I assess it?


texts: Why is bartering uncommon in modern countries?

texts:
Recently, I witnessed two acquaintances of mine engaging in bartering, where one traded his services for the services of the other. Both services had about the same value. By trading them directly, they didn't pay VAT or tax on income, as no money or even goods were involved here. That wasn't the reason for the barter, but it's an interesting aspect.

I'm not pushing this behaviour, but it makes me wonder why there's not more people doing this, as it is an easy way to save money by leaving out money and thus taxes. AFAIK, this is legal, or at least a 'grey area'. I suppose in most countries some law exists to prevent this happening on a large scale, but it would be impossible to enforce it everywhere or on a small scale. Especially since goods can still be valued in terms of money, but it is much harder to do so with services. And their presence and traceability is volatile, unlike with goods.

I live in a rather small village where locals often (have to) make use of each others service, often requiring the service more than once. Taxes and VAT are high here in the Netherlands, so it would make a significant difference. I'd expect them to barter the service to save money, but they just pay by the bill. I did witness two people bartering once, but never before. I haven't heard it to be common in other modern countries either. Why is it not more common?


texts: Can someone explain graphically why MRS is invariant under monotonic transformation?

texts:
Let $U(x,y)$ be a utility function. Suppose I have an indifference curve for which $U(x,y) = \bar{U}$. Then $dU = 0$ along the curve and I can rearrange to find the MRS.

Suppose I have a monotonic transformation of my utility function. That is, some function $$W(x,y) = f(U(x,y))$$ $$f'(\cdot) > 0$$

Since it too is an indifference curve, $dW = 0$ and I can rearrange as follows

$$\frac{dy}{dx} = -\frac{W_x}{W_y} = -\frac{f'(U(x,y))U_x}{f'(U(x,y))U_y} =-\frac{U_x}{U_y}$$
Thus, we observe MRS is invariant under monotonic transformation.

My Question:

Can someone explain what this means graphically? I don't get why the slope remains the same. Why does MRS remain the same but MU changes?


texts: Housing Supply Elasticity: Proxy for Exogenous House Price Movements

texts:
Mian and Sufi (2014) say

  We use individual and zip code level data, and exploit cross-sectional variation in house price growth to estimate the impact of rising home values on borrowing and spending. We use the Saiz (2010) housing supply elasticity of a CBSA as an instrument for house price growth, and focus on the heterogeneous effects of house price gains on borrowing and spending.

And, later

  The question we seek to answer is: Are housing wealth shocks also shocks to cash on hand? We answer this question by empirically estimating how changes in housing wealth affect
  household borrowing and spending decisions.

I miss the step on how to get housing wealth shocks as opposed to general equilibrium changes in housing prices. In general, changes in housing wealth are not necessarily exogenous and unanticipated. How does the housing elasticity help to extrapolate exogenous price movements in the housing sector?


texts: what does historical volatility explain?

texts:
Let's assume we have close prices of one stock of period one year. As far as I understand historical volatility is standard deviation of log return, however I do not understand what this actually mean.

Let's assume last traded price was $120 and HV is 0.29.

What does this really mean? That we can assume next price will be within the range of 29,58 (which is 29 percent of 120) above or bellow $120?


texts: modelling Inconsistent production functions

texts:
last year I asked  How do we estimate production functions?. That answer provided was insightful from an econometric perspective and has helped me in applying such an understanding to the workplace.

Right now Im doing some consulting by a small medical sales business and they wanted me to do a workforce evaluation of their sales staff, and they wanted to know if they should expand their workforce. The numbers they are giving me are on a monthly basis, they did not provide me with numbers of what their revenues are but they have given me quantities like the table below. (Note the numbers provided are fictitious).

\begin{array}{c|lcr|}
n & \text{Sales}&\text{Staff}{}  \\
\hline
1 &103& 10\\
2 &234& 10\\
3&88&9\\
4 &115& 8 \\
5&63&9\\
6&91&10\\
7&130&10\\
8&168&9\\
...&...&...\\
\end{array}

We know mathematically a production function provide us with a single value, however as we can see from this table, the quantities produced by the input above differs by time and period.

How does one model such inconsistencies in production where the exact yield from inputs are not specific.


texts: Can the US government selectively cancel debt held by the Federal Reserve?

texts:
Sort of a follow-up to this question on the Politics SE, which asked about the US government cancelling debt held by China.
From the answers to that question, this kind of selective default is not much better than a full default, because the entity being defaulted on (China in this case) can seize US assets abroad as "payment" for the debt. How would this work if the US government decided to only cancel bonds held by the Federal Reserve? Since the Fed is part of the US government, presumably the government can decide not to seize its own assets (does that even make sense?) or retaliate in any way, and there'd be no consequences other than the fact that there's no more interest payment on debt.
Can the US government selectively default on debt held by the Federal Reserve? If yes, what are the possible consequences? I'm especially interested in economic consequences.
Related: What would happen if the US defaults on its debt? which deals with a wholesale default.


texts:
I tried to look for this term on the Internet, to no avail, as what I found does not fit into the context I found this word in.

My context is:
The incentive-compatible instrument of Vickrey Auction is that there is no incentive for bidders to submit speculative bids.

What does "speculative bid" mean here?

Thanks in advance.


texts: How exactly is a Bertrand equilibrium defined?

texts: By 'given the price set by other firm' does this mean the firm knows its competitor's exact output? I had read 3 textbooks, but one describes that they have a precise expectation of what their competitor's output might be but this sentence here sounds as though the firm is informed about their competitor's exact output. Could someone explain? Thanks


texts: Is there any historical example that a market is shrinking down after competition?

texts:
I was told that the advertising market as a whole shrank after Google became part of the marketing industry. Apparently, the decrease occurred in offline markets as well as online markets.

Is this a valid historical example (outside of theory) where a large increase in competition in a particular market has decreased the size of that market or was the marketing industry affected differently by Google?


texts: Measuring asymmetry between countries GDP per capita

texts: I am looking for an objective way of measuring the "asymmetry" (the overall level of difference) of the GDP per Capita in groups of countries involved in an international agreement. So far, the best measures I found are the variance, the Gini coefficient and the maximum divided by the average. Do you know any better way of measuring this? If not, which one of these measures would be the best in your opinion?


texts: Does constant money supply hinder economy?

texts:
Consider an hypothetical isolated economy (an island) where:

the only form of money is Coins
the amount of Coins is constant
the Coins are never lost or destroyed

In that scenario:

can the economy grow smoothly (e.g. produce more goods, produce at lower prices, develop new goods, etc.)?
or does the Government of the island need to increase/decrease the amount of Coins from time to time, to ease the economic growth?

I suspect the second is true but the mechanisms are not clear to me. Help!


texts:
Imagine if a country starts to pay $1000/month to all citizens.
Then my landlord knows that I can afford to pay a bit more rent from next month.
So will my favorite ice-cream place, my barber and in general the entire market around me raises it's price because of the theory of tragedy of commons and everyone would want a bigger piece of pie from my income.
Some of the proponents of UBI argue that we would effectively remove poverty with UBI, but with the logic above, it seems like a snowball effect will make everything more expensive and nullify the effect  of UBI to remove poverty by causing inflation.

When everything becomes more expensive, wouldn't it just raise the poverty line keeping the poor still in need of support?
Is there any research done on this subject?

P.S: I realize this is home-cooked economics, I have never studied economics academically so excuse me if the solution is fairly obvious but I can't see it and Googling it isn't helping as I don't think I know the right terms that I should lookup.


texts: What are the benefits of a first price sealed bid auction?

texts: All parties make a single bid. But do not disclose the bid to peers. The organizer chooses the maximum (or minimum) bid as the winner. What are benefits of such a system as opposed to normal auction where bidders openly declare the bids and keep updating based on the current maximum ( or minimum )?


texts: Maximisation problem in a multiproduct firm

texts:
I am currently reading the book "Microeconomics: Principles and Analysis" by Cowell on my own. I'm interested in the section of the multiproduct firm, but i'm confused with the use of the profit function. Specifically, about how to pose the target for the maximization problem. Here an example with two goods $x$ and $y$, two factor $k$ and $l$ and two Cobb-Douglas production functions.

\begin{equation}
\begin{array}{l}
\text{Max}\quad \pi=p_{x}q_{x}+p_{y}q_{y}-w(l_{x}+l_{y})-v(k_{x}+k_{y}) \\
\text{subject to:} \\
 q_{x}\leq k_{x}^{\alpha}l_{x}^{\beta} \\
q_{y}\leq k_{y}^{\gamma}l_{y}^{\delta} \\
L=l_{x}+l_{y} \\
K=k_{x}+l_{y}
\end{array}
\end{equation}

Am I posing the question well? How are the first order conditions?


texts:
I am interested in understanding the rationale behind discounting in the context of government policy appraisal.

As far as I understand it, there are three main components to the discount values normally used:

Estimate of catastrophic risk.
GDP growth.
Time preference value of money.

Adjustment of future costs/revenues to the first two of these make sense to me, but the third seems to include a "normative judgement" that I want to check I understand.

By adjusting for the time preference value of money in policy appraisal we are explicitly saying that we value the utility of present people more than the utility of future people? Not just because an event may lead to the destruction of society (1), or because the economy will grow and hence costs/benefits will be smaller in the future (2), but because future benefits mean less to current people now.

Any confirmation or challenge to my understanding would be appreciated.


texts: Understanding the use case of farming crickets in developed countries

texts:
Currently, farming crickets is quite labor intensive.

No wonder that if you compare prices, in developed countries you get crickets at say \$100/kg, while in Thailand they cost under \$2/pound, in an e-shop \$29/kg which comes close to production cost in a developed country.

Nevertheless, there are quite many cricket farms for human food opening in developed countries.

Why?


texts: Price Derivation in a Production Function

texts:
Here is a composite goods production function:

And here is the price ratio of Ys and Yg, derived from their marginal products:

Then the author normalized the price of final goods Y to 1 and somehow got the following relationship:

How is the last equation derived?

Thank you!


texts: What would be the defining characteristic of New-Keynsian thought?

texts: If you had to summarize New-Keynsian thought into one paragraph, or a set of equations, what would it be?


texts: How long can a population grow once it has reached the replacement fertility rate?

texts:
The Ministry of Health and Family Welfare answered in the upper house to a question that India has a fertility rate of 2.2 (link here). The replacement fertility level is usually given at 2.1 to 2.2.

These sources suggest that India's population is projected to grow at least until 2060 (2050 in some sources): Quartz, The Hindu.

The Quartz article even cits UN population projects and says:

  Even under the instant-replacement fertility variant, with the country’s fertility assumed to fall immediately to 2.1 births per woman, India’s population would reach 1.9 billion by the century’s close.

This source defines the replacement fertility level as:

  Replacement level fertility is the level of fertility at which a population exactly replaces itself from one generation to the next. In developed countries, replacement level fertility can be taken as requiring an average of 2.1 children per woman.

What I don't understand is: how can India's population be projected to grow until 2060 if it has already reached replacement fertility level in 2017? A 'generation' is usually 25 years. Even if we take it as 30 years, India's population should stop growing in a couple of decades. How does the UN project that it'll grow until 2060?


texts:
I would like to know if it is possible to have constant marginal costs (MC) in a business that is operating on a market, that is defined by monopolistic competition?

The company is a construction company, more specific a scaffolding company. My assumption is based on:

They have invested in their building materials one time. This means that they have a natural limit on how much work they can do.
They don't expect to buy more building materials in order to do more work, since they are also limited by number of employees.
All employees are on a fixed salary.
The only variable cost that is associated with each construction job is the transporation to/from site.

Since there is only one variable cost - the transportation, I am assuming that the marginal costs are constant, since transportation doesn't cost more whether they have 1 site (Q) or 10 sites (Q) to maintain.

Is this a valid assumption? Is it possible to have a constant MC such a market?


texts: In addition to demand and supply equilibrium

texts: Is there theory or study how fast or moment of the price that move away or back to equilibrium states?


texts: What activity or event(s) marks the point at which an economic "bubble" burst?

texts:
What general activity or event(s) mark the time at which an economic "bubble" bursts? e.g. the dot-com bubble, etc.

Would it be considered to have "burst" when intrinsic value is less than price?
What about when this drop in intrinsic value might be due to some news event, etc...

Is it simply when prices go down? When speculators exit the market, etc. or is it when "the something" happens that causes the drop in prices or the mass exodus from the market? Or something else altogether?


texts: Intuition behind fixed effects estimator

texts:
I understand that the fixed effects estimator in a panel model (say, individuals, $i$ across years, $t$) can be understood either as a including a dummy for each $i$ or running OLS on the time demean-ed data. My question is whether the estimate from the FE model (that is, the within estimator) is equivalent to the average of the estimates from running OLS on each individual separately. Consider the following two approaches:

$y_{it} = constant + \beta x_{it} + v_i + u_{it}$

$y_t = constant + \alpha x_t + e_t$ for all $i \in (1, 2, ... N) $

The second equation gives us an $\alpha^i$ for each individual and my question is whether $\beta =  \frac{1}{N} \sum_i^N \alpha^i$


texts: LM curve: How interest rate is changing without OMOs by the central bank?

texts:
The following is the gist from chapters - 3, 4 & 5 dealing with IS-LM model from Macroeconomics, Blanchard & Johnson, 6th edition.

Equilibrium in the financial market implies an increase in income leads to an increase in the interest rate, therefore the LM curve is upward sloping. The LM curve is derived at a given level of (real) money supply. It is further assumed that price level is fixed in the short run. further, it is assumed that  central bank changes money supply through open market operations (OMOs). When the central bank buys bonds, bond prices goes up & interest rate goes down. Conversely, when the central bank sells bonds, bond prices goes down and interest rate goes up. Hence interest rate is directly dependent on the OMOs.

What I could not understand is why the interest rate is changing because of change in income, since there is no change in money supply and hence no OMO is going on?

Also, why would someone will buy the bond from central bank when the bond prices are going down?

Edit: (related to fixed money supply, first question) Since there is no interest rate on check-able deposits and bank money apart from reserves are used to purchase bonds, not for lending, people to people borrowing is an option. However, it does not seem to be a plausible due to the following reasons. The Money demand shift to right for an increase in income and intersects the Money supply curve at a higher point leading to increase in interest rate. Increase in income will suppress the people to people borrowing, leading to opposite of the required result, lower interest.

(related to variable money supply, second question) consumers who have already invested may hold on their bonds but may not purchase new bonds with the extra income. So the interest rate should not change. Moreover, if consumers buy and sell bonds among themselves without Central Bank Intervention and make major changes in the interest rate, they may not cooperate. e.g. CB decides to decrease money supply but consumers may not give up thier bonds as their income may have increase recently.


texts: "Wealth tax" on illiquid assets, how would people pay

texts: In the idea of a wealth tax, or even for properties taxes, many times assets are illiquid. What mechanisms can be introduced to promote compliance and ensure the revenue collection goals of the taxing authority in the face of illiquidity?


texts: What is the difference between knowledge-based and R&D?

texts:
So far, I always thought that knowledge-based companies and R&D companies were the same. But recently our TA mentioned that they are different, I've searched a lot to find the differences between them but the more I searched the less I found.

I would really appreciate if someone told me the difference between these two kind of companies.


texts: Many people want to try socialism because of valid criticisms of capitalism. So, are there any good ideas on improving the problems of capitalism before we go down the path of socialism?


texts: How would I assess Pesaran's «Time Series and Panel Data Econometrics»?

texts:
Has anyone ever read the book «Time Series and Panel Data Econometrics» by M. Hashem Pesaran? I'm trying to find a hardcopy near me, but I can't find it anywhere, even in libraries near where I live. Hence this question.

How would you compare the treatment of the subject by him, and Hayashi or Wooldridge? For me the main good points in Hayashi was the mathematical clearness, and rigour. Every demonstration was very rigorous. However, the intuition for the use of certain objects like Instrument Variables, Panel Data, etc. was a bit lacking, also his treatment of time series was almost inexistent.

With respect to Wooldridge, I really like the intuition he gives, but contrary to Hayashi, the proofs are not very rigorous, sometimes lacking in important(at least for me...) details. Also, he defines certain concepts in a very specific context, instead of giving a general definition and working with it right from the start. It's almost too ad-hoc. Also, there's almost no clear separation in the cycle: Motivation->Theorem->Proof->Examples/Properties->More Examples.( Repeat as needed)

Well this was the opinion I made after reading most of Hayashi, and a few hundred pages from Wooldridge.

Can someone help me to by telling me how the book by Pesaran would fit in the scale for someone who has this opinion on Hayashi and Wooldridge?


texts: Bertrand Duopoly Equilibrium for Discrete Prices

texts:
There are two identical firms, $1$ and $2$, with zero marginal costs. They produce homogenous product, which is demanded by a unit mass of identical consumers, each of which has inelastic unit demand with a reservation price of $2$. Prices are constrained to take only integer values. Using standard game theoretic reasoning, determine whether or not each possible pair $(p_1,p_2)$ can be regarded as Bertrand Nash equilibrium.

Would the Nash equilibria be $(p_{1}^{*},p_{2}^{*})=$ $\{(0,0),(1,1)\}$.
For symmetric prices, $\{(2,2)\}$ since the demand would be $0$, I can see how unilateral deviation to $1$ could increase profits for a firm.
However for prices $\{(0,0),(1,1)\}$, no unilateral profits are possible. For other non symmetric price pairings, unilateral deviations are possible. Therefore, the Nash equilirium prices are $\{(0,0),(1,1)\}$.
Is my reasoning correct?


texts: Banks have higher interest rate for debts than deposits to make money but does the U.S. treasury have the same interest rate for loans and deposits?


texts: Why doesn't national savings, in aggregate, always equal to zero in monetary terms?

texts:
Referring to this question and this one
Imagine you had a closed economy with two people and they both started off with $100 dollars. How would net savings in aggregate ever not be zero? Anything spent, net, by person 1 would be a positive savings for person 2, and a negative savings for person 1. The same is true vice versa.
I understand that if person 1 and person 2 both produced 10 bushels of wheat and then ate only 5 of them, and then ground up the other five and used them as fertilizer (bad example, I know) that they would have 'saved' and 'invested' 10 bushels of wheat in aggregate. However, in monetary terms, the personal savings rate in aggregate would still be zero because they didn't sell the wheat to anyone and thus had no personal income (again, in dollar/monetary terms).
So, to sum up, my first question is, in monetary terms, in a closed economy will aggregate savings always be zero?
Second, how does the BEA get a positive savings rate, and how do we have positive gross national savings, in addition to running a trade deficit?


texts:
I am writing a paper about SAPs. Its very controversial because of all the imposed policies on the country they are lending money to, the countries tend to get poorer instead of richer. I am still a bit confused though, the IMF certainly isn't a charity organization and they wont just give away money and forget about debts etc.
On the other hand I tried researching to find any country that benefited from SAPs and I failed. If nobody ever benefited except the loaners then isn't this a very obvious scam?

My questions are the following: Was any SAP ever successful? Is there anything good about them? And do the Netherlands have any official stance regarding SAPs?


texts: Possible regression biases with GDP [x] vs Health expenditure [y] (both per capita)

texts:
I am regressing per capita health expenditure on per capita GDP. I have 3 data columns (health expenditure, gdp, population)

So my regression function is healthexpenditure/population = b0 + b1.(gdp/population)

1) My question will be what are the possible problems of this model? Is dividing dependent and independent variable with population number problematic? This is a theoritical question, I want to explore possible biases in my simple model.

2) Suppose that I have plotted my data and it looks like this. Do you see a problem that are related?


texts: What are the textbook-like obvious advantages and disadvantages of tipping?

texts: I just came from a coffee place with tipping and now I'm in one without tipping... prices are higher, but there is not tipping. It's not obvious why some places get rid of tipping and others don't. I guess you want the server to be incentivized by the possibility o tipping to give outstanding, charming service. What other considerations are there?


texts: In this link, we can read "The revised reading of second-quarter gross domestic product growth beat analysts’ expectations triggering a stock-market rally and a bond selloff." Well, why can we assume that the upward pressure on the nominal interest rate won't be enough to decrease the stock values by counteracting the increasing nominal dividends that stocks provide?(i.e. the LM curve is flat)


texts: Are there any net benefits in reducing/increasing tourist-oriented retail business?

texts:
Hong Kong is currently experiencing a slump in foreign tourist-oriented retail sales. Shops selling jewellery, watches, infant formula or Chinese medicine experienced a 25-35% decline YoY in August.

This certainly reduces the city's GDP and employment. On the other hand, tourist-oriented businesses don't seem to benefit the city's residents (except by providing employment), and at the same time raise retail space rents to world-record levels, pushing out businesses that serve locals, such as restaurants, laundry shops and other local services.

If you take into account the GDP and employment, as well as rents, non-tourists oriented businesses, long-term prospects and quality of life, do economists generally consider there is a net benefit in decreasing foreign tourist-oriented businesses, or is there a net benefit in increasing the number of such businesses? Would the answer be different for Hong Kong considering the limited space available?


texts:
I'm not in economics, I'm actually studying sociology and I'm doing a subject about labor economics. I'm reading an article that talks about automation and says "The employment impact of technological progress in larger countries depends on the relative product elasticity-if the fall in price arising from the labor savings more than proportionately increases demand, we will see an expansion of employment. Since more open developing countries are often assumed to be price takers, we should therefore see any domestic innovations in productivity rewarded massively with a huge expansion in employment."
what does it mean by price from the labor savings?
http://documents1.worldbank.org/curated/en/869281482170996446/pdf/WPS7922.pdf


texts: CobbDouglas: Constant marginal costs and constant returns to scale

texts:
A company has a production function:
$$y=x_1^{\alpha}x_2^{1-\alpha}$$
where $0<\alpha<1$. Factor input 1 costs $w_1> 0$ and factor input 2 costs $w_2> 0$. The company wants to minimize its production costs when it produces y> 0 units of the output.
I have in a problem found that MC:
$$MC=\frac{\partial c}{\partial y}=w_1((\frac{w_2\alpha}{w_1(1-\alpha)})^{1-\alpha})+w_2((\frac{w_1(1-\alpha)}{w_2 \alpha})^\alpha)$$
We see that marginal costs only depending on $w_1$ and $w_2$ and thus not on y. So we have that the marginal costs are constant. But why is that the case?
What is the economic interpretation?
I think maybe I should use returns to scale?


texts: Finance vs. financial economics (terminology)

texts:
What is the difference between finance and financial economics?
E.g. we have tags for both* and I wonder when to use which, but not only.
*And one more on financial markets – see this thread on Meta Economics SE.


texts: How to prove that a concave production imply that the input requirement sets are convex?

texts:
According to page 7 of this slide, "A convex production set Y implies that the associated input requirement set V(y) is convex".
How can one go about proving it?


texts: Is GARP trivially satisfied with only 1 good?

texts:
As with all revealed preference work, when the number of goods is greater than 1, then GARP (Generalised Axiom of Revealed Preference) is not always trivially satisfied. However, is it always the case that GARP is trivially satisfied when bundles only contain one good?

My take on it is that it is possible to violate GARP when the consideration set is only 1 good. However, empirically speaking, it should never be observed, as it really does not make sense from any rational point of view (ceteris paribus).  So theoretically, it is possible to violate GARP in a 1 good economy, but this is something we would never imagine observing.

(I've been having this discussion with a supervisor, and he seems to believe that GARP should never be violated with one good as it makes absolutely no sense for it to occur, despite my argument that it is theoretically possible)


texts: Chicago Fed National Activity Index: underlying data download

texts:
Is there quick way to download the 85 time series (already transformed, i.e., seasonally adjusted and stationarized, if necessary) that are used to construct the Chicago Fed National Activity Index (CFNAI)?

https://www.chicagofed.org/publications/cfnai/index


texts: Is the shareholder-creditor conflict the same as debt-equity conflict?

texts:
I am having some problems understanding the difference between shareholder-creditor conflict and debt-equity conflict.

I understand what the shareholder-creditor conflict is about, but when I try to understand debt-equity conflict I get to the conclusion that it is the same since

-> A shareholder owns a piece of the company in the form of stock (equity).

-> A creditor lends money to the company (debt)

I am asking because I am reading two articles where the main conflict of interest in the first article is shareholder-creditor conflict, but in the second article the main conflict is debt-equity..

article: "The leverage ratchet effect" by Admati et. al. (2015)
article: "A theory of LBO activity based on repeated debt-equity conflicts" by Andrey Malenko and Nadya Malenko (2015)


texts: Calculating mixed strategy equilibrium in battle of sexes

texts:
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down vote
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In the following game, the mixed strategy equilibrium is found as player 2 playing B 3 out of 5 times and A 2 out of 5 times but I am not able to get it. Please find the mistake in the following calculation:
                         Player 2
                    A                      B

         A     3,2                    1,1

Player 1

         B     0,0                    2,3

Payoff for player 1 if he plays A: 3q+1(1-q)  assuming player 2 plays A with probability q. And if he plays B payoff is 0q + 2(1-q)
For an equilibrium both payoffs should equal so 3q+1(1-q)=2(1-q) which gives q=1/4 i.e. probability of player 2 playing A which is not correct.

Thanks in advance.


texts: Buying stocks in company merging/acquisitions

texts:
Does an acquiring company have to buy all the stocks of a target company to acquire/merge with it?
If so, why? I thought stocks give voting rights and dividends, but not direct control of company management.
If not, why do they usually do it?


texts: How to change the base year of a quarterly index

texts:
I have two indices with different base years.
The first is car registrations which is an index with the base year of 2010.
The other is harmonized index of car prices, with a base year of 2005.

The two are not comparable, so I need to change the base year of one of the variables to 2010. The problem is that the data is quarterly, so I'm not sure exactly how to proceed.


texts: What does an individual's demand function describe?

texts:
Now, this seems a super easy and straightforward question, right? From wikipedia:

  The demand curve is the graph depicting the relationship between the price of a certain commodity and the amount of it that consumers are willing and able to purchase at that given price.

To me, this reads as follows: for an individual, the demand function answers, for all values of $p$, the question: "if the price is $p$ per unit, how many units $q(p)$ would the individual buy?"

As an example, let's consider my personal demand curve $q = 10-p$ for a certain good. I would interpret that, also with the above definition, as follows: if the price is 10/unit or more, I purchase nothing. If it is 7/unit, I'll purchase 3 units.

The big point here is that this seems to imply, that I'd pay 7/unit for each of the 3 units. Is that correct? Things would be different if I were faced with a situation in which I had to pay more for the first 2 units. In that case, I might decide to buy less than 3 units. And I wouldn't be contradicting my demand function. At least, not, if it were as I interpreted the definition.

Alternative: it seems less close to the text, yet much more convenient to the mathematics, to interpret the demand function in the following way. The demand function answers, for all values of $q$, the question: "if an individual already has $q-1$ units, how much would he be willing to pay for unit $q(p)$?" (or, as an integral, "if an individual already has an amount $q$, how much would $p(q)$ be, with $p(q)dq$ the amount he's willing to pay for an additional amount $dq$?").

Thanks!


texts: Should I include lags in an LLC unit root test?

texts:
I have panel data (N = 10, T = 20), which I intend to run a series of regressions on. I first want to see if my data are stationary in levels or in differences. To do this, I have been performing Levin-Lin-Chu unit root tests in Stata with the -xtunitroot llc- command.

My issue is that I noticed that you can select a maximum number of lags for AIC to select from and changing this maximum number changes the outcomes of my tests. I'm not sure what I'm supposed to set it at or whether I should be including lags at all.

For example, the Stata FAQ gives the following relevant example using the -xtunitroot llc- command: https://www.stata.com/features/overview/panel-data-unit-root-tests/. I don't understand why they add the "lags(aic 10)" component, whether I should add such a component, and if so, what number I should you instead of 10.

Any help is greatly appreciated!


texts: The link between US debt of $250 Trillion dollars and "Promise to pay" on US Dollar currency

texts:
Giving background to my question: a prominent economist was discussing the problems of the US currency and predicting it's collapse, said the following:

"...a currency is a store of value, it's a promise of a government to repay"

He continued as follows:

"People are eventually going to realise, with the US issuing even more debt, historic amounts of debt, the dollar has to go down, because we can never repay the debt...we have 250-260 trillion dollars in debt when you include all the obligations that we have in terms of social welfare entitlement programs, medicare, medicaid and it just keeps going up and up and up, and eventually the dollar is going to go down and down and down...because people are going to realise they are worthless...".

So, my question is in 2 parts as follows: As the US uses fiat currency with no physical commodity attached to it (since 1971)...

(i) How does the economist link the total national US debt of 250 trillion dollars with the US governments promise to repay when defining currency?  In other words, what has 'a promise to repay' definition part of the currency got to do with the huge US debt?

(ii) The explanation of what the economist means when he defined the US currency as a "promise of a government to repay"?  I mean, what is there to repay when a currency has no physical commodity attached to it other than swapping it for another dollar?

Thanks.

Note: The link to that programme on youtube (please fast forward to position 15:33) is here.


texts: Could a carbon tax be a substitute for VAT?

texts:
VAT is a tax on consumption. However, while in some instances it taxes negative externalities (e.g. fossil energy consumption) in many other cases it taxes services without externalities or potentially positive externalities (e.g. advisory services on how to reduce carbon emissions).

If consumption is being taxed arguably it would make more sense to tax consumption that actually causes negative externalities. Carbon taxes would be an obvious candidate (though arguably not the only one). The price of a product in a value chain would increase as carbon is added to it, just as with VAT, only that the tax is on "carbon added" rather on "value added".

Presumably a carbon tax would also be easier to administer than a VAT since carbon is taxed only where it enters the economy?


texts: What's a good textbook on International Trade?

texts:
My professor for Int. Trade insists on using his unfinished notes as a basis for the class, so I'm looking for an alternative.

The syllabus goes as follows:

Gains from trade

Free trade equilibrium and offer curves

Applications of the basic trade model
Tariffs and welfare

Trade preferences

The Ricardian model

The hecksher ohlin model- fixed coefficients

The theory of international capital flows

As background: by this point we've had a few micro and macro courses, industrial organization, public economics, game theory, optimization, and linear algebra.

Thanks in advance


texts: Is investment in real estate a real investment?

texts:
In the book The Financial Crisis and the Free Market Cure in chapter 3 author said that investment in real estate is not really investment.

It is jobs that create houses not houses that create jobs

Author motivated it as: when we investing in factories we create new jobs which are producing some goods and after a year we have factory + goods and permanent skilled job place, but investing in real estate (homes) will create only temporary work place (real estate agents, builders etc.) which exists as long as new home is building as far as I understood.


texts: study question: change of Expenditure in terms of price and quantity

texts:
I am learning the Economic class and I have a very specific question regarding a basic economic concept: change of expenditure in terms of change of price and change of quantity.

I'v learnt below:

1. Expenditure = Price x Quantity (by definition)
2. change of Expenditure = change of Price + change of Quantity

I am really confused about how #2 above is inferred. I thought change of Expenditure is defined as

E - Expenditure, P - Price, Q - Quantity

(E2 - E1) / E1 = (P2 x Q2 - P1 x Q1) / P1 x Q1

But this is really not equal to

change of Price + change of Quantity = (P2 - P1) / P1 + (Q2 - Q1) / Q1

Can someone show me how does the formula "change of Expenditure = change of Price + change of Quantity" hold please?

Many thanks


texts: Human capital for under developed countries

texts:
I am currently undergoing a study on economic growth in 11 countries: Bangladesh, Egypt, Indonesia, Iran, Mexico, Philippines, Pakistan, South Korea, Turkey and Vietnam. I plan to use panel regression. I plan to follow an analysis such as Islam (1995) and Barro (1991) with an augmented Solow model with human capital.

As my human capital variable I am using the "Index of human capital per person" (based on years of schooling and returns to education), from the Penn-world tables. My question is, how would I go about finding the savings ratio $S_h$ i.e. the investment in human capital from the above index?


texts: Sources of data for GDP and BoP accounts

texts: When an American buys a coffee within the US, how does that 3.50 dollars worth of consumption expenditure make it's way to the US GDP account? Is the information obtained from the company's tax records? When a French citizen buys the same 3.50 dollar coffee in the US how does that information get reported so as to make it into the US and French Balance of Statements? I don't see coffee shops asking customers for passports when these order coffee so how does the coffee shop know how much it sold to whom? How does the French government get information about this coffee purchase by one of its citizens in the US to know to reflect it on its Balance of Payments statement?


texts: Identify whether a good is giffen good or not and under what condition

texts:
Given the following partial information about a consumer's purchases.He consumes only two goods.
In year 1, $p_1^1=p_2^1=100,x_1^1=x_2^1=100$

In year 2, $p_1^2=100,p_2^2=80,x_1^2=120$

Over what range of quantities of good 2 consumed in year 2(i.e,$x_2^2$) could we conclude that good 1 is an inferior good.

I feel confused because I'm not informed the choices after a change in wealth under the same price system, neither under $(p_1^1,p_2^1)$ nor $(p_1^2,p_2^2).$

But the solution given by my TA is :
Since $x_1^1<x_1^2$, so we need $p^2x^1>p^2x^2$, that gives $0< x_2^2< 75$. I don't know where this argument comes from and whether it is true or not.

Any help are going to be appreciated.


texts: How does a positive capital shock cause an increase in land price?

texts:
I am trying to determine the exact theoretical mechanism for a positive capital shock to create an increase in land price.

Assuming output is a function of land ($L$), labour ($N$)  and capital ($K$) :

$$ Y = A f (L, N, K) $$

I am unsure if I am correct, but so far I have,

Positive capital shock -> increase in the MPK -> labour demand rises -> wage rises -> qty supplied of labour rises -> MPN rises -> with more workers available to work the land, each additional unit of land is able to produce more output -> MPL rises -> price of land rises.

If you know any papers that deal with this particular mechanism please let me know also.


texts:
If I have 3 consumers who I want to sell package 1, 2 and 3 to respectively. Meaning consumer 1 I would like to sell package 1 to, consumer 2 I would like to sell package 2 to and so on. The packages consist of the price and quantity of a good (let's say bananas)  (p,q). Consumer 3 has demand D3, consumer 2 D2, and consumer D1, where the reservation prices can be described by the following relationship $v_3>v_2>v_1$.

In order for me to price discriminate my profit function needs to comply with some incentive compatibility constraints (I found 6 in total):

$$v_3(q_3)-P_3≥v_3(q_2)-P_2$$

$$v_3(q_3)-P_3≥v_3(q_1)-P_1$$

$$v_2(q_2)-P_2≥v_2(q_3)-P_3$$

$$v_2(q_2)-P_2≥v_2(q_1)-P_1$$

$$v_1(q_1)-P_1≥v_1(q_3)-P_3$$

$$v_1(q_1)-P_1 \geq v_1(q_2)-P_2$$

Where I suppose my profit function is:

$$\pi=P_3+P_2+P_1-c(q_3+q_2+q_1)$$

where c is the constant marginal cost.

How do I deduce the optimal prices?

The problem is I've only seen problems with two types of consumers where the optimal prices were:

$$P_1=v_1(q_1)$$

$$P_3=v_1(q_1)+v_3(q_3)-v_3(q_1)$$

Any help would be appreciated. If anything is unclear just let me know, since I had a hard time articulating the question.


texts: Does anybody knows where I should look for a proxy for consumption to estimate a two factor C-CAPM?

texts: Has anybody seen, any textbook recommendation that refers to the proper proxy for consumption. I am trying to estimate a two factor consumption CAPM, namely we I add a second factor apart from consumtion in the model. But the paper that I read, it only refers to non-durable goods and services as a proxy. I am wondering if there is some other type of proxy and any recommendation would be very helpful.


texts: Finding the % of the total consummation by category using elasticity and MPC

texts:
Given a total consummation of 1000 and a total revenue of 2000 with

Cat 1 => elasticity of 0.5; MPC of 0.1

Cat 2 => elasticity of 1, MPC of 0.3

How would I go about to calculating the % of the total revenue for each category?

I tried using both these formulas

and tried to figure out the first category by assuming the variation of revenue to be 2000 (2000-0) and the initial consummation to be 0.

which gives me a value of 500 for c2. But then, using the MPC formula, it does not seem to make any sense


texts: "omission bias" vs "action bias" -- how can they be reconciled?

texts:
I'm having trouble reconciling these two biases. They seem to be the exact opposite of each other. Yet humans are allegedly pre-disposed to both.

How can they be reconciled?

Omission Bias:

  The omission bias is an alleged type of cognitive bias. It is the tendency to judge harmful actions as worse, or less moral than equally harmful omissions (inactions) because actions are more obvious than inactions.

Action Bias (academic source: Bar-Eli et al., 2007)

  Simply put this means that just about everyone, when faced with ambiguous situations, especially those circumstances associated with risk, gets the feeling that they need to take some action regardless of whether this is a good idea or not.


texts:
This may be one of the more 'elementary' questions on this site.. But I really can't wrap my head around it and a search on the web hasn't yielded much.
Given that Pareto efficiency is defined as when the allocation cannot make any party better off without making anyone worse off, it seems that something like breaking up monopolies is in fact not a Pareto improvement, as it's making the consumers better off by making the monopolist worse off?
I'm inclined to say that antitrust measures are (theoretically) a Pareto improvement, because that's moving closer to the allocative efficient level in a perfectly competitive market. However I don't know how to incorporate the definition of Pareto improvement into this.
Would be extremely grateful for any help!!
Many many thanks,
Shine


texts: Any major theory/model that considers return due to idiosyncratic risk?

texts:
Are there any classical, major theories/models that consider positive return due to idiosyncratic risk? For example, CAPM only considers return due to systemic risk but not idiosyncratic risk. If there are no major theories/models that fit the criterion, are there perhaps unorthodox ones worth mentioning? I would be grateful for references.

(I am a novice in asset pricing, so pardon if the question is too basic.)


texts: Impact of government subsidy on labour supply

texts:
If the government pays a certain amount $b>0$ to every person who is not working, what is the impact of this subsidy on labour supply? How does it alter the reservation wage? Is your answer modified when payments are restricted to persons who are looking for a job?

My attempt: Suppose $A$ is an individual in the labour force. For an individual who is not in the labour force, there is no impact on labour supply. Therefore, it makes sense to apply the analysis to a person in the labour force.

In the income-leisure ($i$-$l$) diagram (of a week) for an individual $A$, without any government aid, let $w_R$ be the reservation wage. Suppose $G$ represents $A$'s other sources of income. Let $T=168$ be the number of hours in a week. Our analysis is done in the interval $[0,T]$ of the $l$-axis. We have the line $i=G+w(T-l)$ or $$i+wl=(wT+G).$$ At $l=T$ and $w=w_R$, $A$ is most happy (maximum utility) to not work at all. However, $w_R$ is the maximum wage rate at which $A$ doesn't work (by definition).

With the given government intervention, $A$'s original line shifts upward by $b$. $A$ comes to a higher utility point (than in previous case without government intervention) whether he is working or not. It is impossible to tell how the $w_R$ will be altered in this case. It is possible that if $A$ was working before, $A$ is not working now and vice-versa.

Am I correct?


texts: What conditions must we demand for the economy to be always on the saddle path?

texts:
Is it enough to assume that agents have perfect foresight, or have 'rational' expectations for the economy to always - except in few cases - be in the stable saddle path?

With rational expectations, I think with shocks, there can be a temporary dislocation from the stable path, but then the agents will reoptimize, shifting the economy back to the stable path.

Are there more situations where this may happen?

Edit: Looking for conditions in the deterministic and stochastic case.


texts: What properties does a stable economy possess?

texts:
Given the large amount of commentary on the state of the economy, I've found that most of the time the theme of the articles are always that there is something wrong/ abnormal with regards to the economy.There seems to be call for change of policy all the time.

With all this noise its often difficult to know when a "business as usual" policy should be implemented (i.e nothing should be changed or advanced). When is it possible that we should change nothing in an macroeconomy (i.e no changes in interest rates, domestic taxes or trade taxes)?

What properties would a country with a stable economy posess?


texts: What are the Impacts on an economy when a large mining venture begins to reduce production and lay off workers in a remote region?

texts:
I am currently unsure about how such a question above should be answered. To clarify , I am confused as  of which topics relating to the question i should discussion in order to answer it. (For example) Fewer jobs in the region means fewer small business due to poor economic conditions which impacts the region's long term trade.

Does any with experience in the economics have an idea of how such a question is to be answered?


texts:
Are there some known examples where the use of mathematics in Economics (as opposed to economic intuition or experience) has led to flawed models or some other kind of issues?

I often hear people say that they don't like the use of mathematics in economics .... but why? So I was wondering maybe it lead to flawed models, perhaps because human behavior isn't as nice as some mathematical equation?


texts: Simple General Equilibrium Model of Public Goods: Intuition?

texts:
We assume a two person economy, denoted by person A and B. Good y is an ordinary private good, and each person begins with an allocation of this good given by $ y^{A*} $ & $ y^{B*} $ respectively.
Each person may consume some y directly or devote some portion of it to the production of a single public good, x. The amounts contributed are given by $y_{s}^{A}$ and $y_{s}^{B}$, and the public good has production function defined by
$$
x=f\left(y_{s}^{A}+y_{s}^{B}\right)
$$
Resulting utilities for these two people are given:
$$
\begin{array}{c}{U^{A}\left(x, y^{A *}-y_{s}^{A}\right)} \\ {U^{B}\left(x, y^{B *}-y_{s}^{B}\right)}\end{array}
$$
The necessary conditions for efficient resource allocation in this problem consist of choosing the levels of public goods subscriptions ($ y^{A*} $ & $ y^{B*} $) that maximize, say, A’s utility for any given level of B’s utility.
The Lagrangian expression is
$$
\mathscr{L}=U^{A}\left(x, y^{A *}-y_{s}^{A}\right)+\lambda\left[U^{B}\left(x, y^{B *}-y_{s}^{B}\right)-K\right]
$$
where K is a constant level of B's utility. The first-order conditions for max are
$$
\begin{aligned} \frac{\partial \mathscr{L}}{\partial y_{s}^{A}} &=U_{1}^{A} f^{\prime}-U_{2}^{A}+\lambda U_{1}^{B} f^{\prime}=0 \\ \frac{\partial \mathscr{L}}{\partial y_{s}^{B}} &=U_{1}^{A} f^{\prime}-\lambda U_{2}^{B}+\lambda U_{1}^{B} f^{\prime}=0 \end{aligned}
$$
A comparison of these two equations yields
$$
\lambda U_{2}^{B}=U_{2}^{A}
$$
and when substituting into the preceding equation the end result is:
$$
\frac{U_{1}^{A}}{U_{2}^{A}}+\frac{\lambda U_{1}^{B}}{\lambda U_{2}^{B}}=\frac{1}{f^{\prime}}
$$ or more simply,
$$
M R S^{A}+M R S^{B}=\frac{1}{f^{\prime}}
$$

  For such goods, the MRS in consumption must reﬂect the amount of y that
  all consumers would be willing to give up to get one more x, because
  everyone will obtain the beneﬁts of the extra x output. Hence it is
  the sum of each individual’s MRS that should be equated to dy/dx in
  production (here given by $ \frac{1}{f'} $).

Q: I follow the order of operations mathematically but don't understand the bolded statement.


texts: Why do housing and parking cost more in urban than in rural areas, but road access doesn't?

texts:
In city centres, land is more expensive than in suburban or rural areas, as land is scarce.  Consequentially, housing and parking in cities cost more.  However, the same is not true for using the road (such as driving).  Indeed, if two people are driving into a city (in one car) to run an errand, it will usually be cheaper for one person to drive around in circles while the other runs the errand, than it is to park the car and run the errand together, even in cities with a congestion charge.

What is the origin of this discrepancy in pricing?  Is it merely because we haven't implemented road pricing for technical and political reasons, or are there economic reasons that there is no pricing on roads?


texts: Question about the Ellsberg Paradox in Expected Utility Theory

texts:
The von Neumann-Morgenstern theorem states that, assuming a person's preferences under risk satisfy certain rationality axioms, then there exists a utility function u, the von Neumann utility function, such that the person will tend to maximize the expected value of u.  For this reason, the hypothesis that people satisfy the von Neumann-Morgenstern rationality axioms is known as expected utility theory.  Now one of the major challenges for expected utility theory is the Ellsberg Paradox.  It goes as follows.

Suppose you have an urn which has a total of 90 balls, 30 of which are red and each of the other 60 balls is either black or yellow.  And suppose a ball is drawn at random from the urn.  Then would you rather have lottery A, where you get 100 dollars if a red ball is drawn, or lottery B, where you get 100 dollars if a black ball is drawn?  Most people would prefer lottery A.  And would you rather have lottery C, where you get 100 dollars if you draw a red or yellow ball, or lottery D, where you get 100 dollars if you draw a black or yellow ball?  Most people would prefer lottery D.  But the thing is, preferring both lottery A to lottery B and lottery D to lottery C is inconsistent with expected utility theory; see this Wikipedia article for the proof.

I'd like to understand this logic a little better.  Consider a new urn that just has 60 balls, and each ball is either black or yellow.  Then would you rather have lottery A', where you get 30 dollars guaranteed, or lottery B', where you get a dollar for every black ball in the urn?  I think most people would prefer lottery A'.  And would you rather have lottery C', where you get 30 dollars plus a dollar for every yellow ball in the urn, or lottery D', where you get 60 dollars guaranteed?  I think most people would prefer lottery D'.

So my question is, does it violate expected utility theory to prefer both A' to B' and D' to C'?  I think it's consistent with expected utility theory.  Assuming I'm right, couldn't you just change the currency from "dollars" to "lottery tickets" everywhere in my example, where a lottery ticket entitles you to a 1/90 chance of getting a 100 dollars?  That would transform my example into the example in Ellsburg's paradox.  So where's the flaw in my reasoning?


texts:
I'm trying to represent the following as a pay-off matrix.
I have 100 dollars to invest in one agricultural stocks with a choice of apples, pears or grapes. Return on investment relies on whether enough water is available (with scenarios of 'yes there is enough' and 'no there isn't enough' occurring with equal probability) and whether the weather is ideal (again with scenarios of 'yes its ideal' and 'no it isnt ideal' occurring with equal probability). Both the availability of water and weather are independent to each other.

With ideal weather and enough water, I will receive 130 dollars from
apples, 110 dollars from pears and 130 dollars from grapes.
With ideal weather and not enough water, I will receive 120 dollars from
apples, 110 dollars from pears and 120 dollars from grapes.
With unideal weather and enough water, I will receive 110 dollars from
apples, 120 dollars from pears and 105 dollars from grapes.
With unideal weather and not enough water, I will receive 100 dollars from
apples, 105 dollars from pears and 100 dollars from grapes.

I know this is a decision problem under uncertainty, so the states of nature would be one of the 'players' in a normal form game and then the decisions would be another. So would it be appropriate for the table to have three rows corresponding to investing in each fruit and then four columns corresponding to each possible combination of the weather and water outcomes? And if so, how exactly would I bring the probabilities of each occurring into the mix? The four possible outcomes of the weather and water are all equally likely to occur ($p=0.25$), so could I just multiply all the dollar return amounts and put expected returns in the table instead?
Any help would be greatly appreciated.


texts: How is using a reserve fund different from printing money?

texts:
It is a common knowledge and has been explained here on SE that the source of value is production and consumption rather than money, and that accumulating money is thus pointless. Yet, "rainy day funds" do just that. What is their purpose?
For a layman like me, it seems extracting money from circulation to a reserve decreases inflation, while using that money later would just increase inflation. Then, I must be misunderstanding some basics.
Indeed, a sovereign does not normally save in its own currency, but rather in foreign currencies or other valuable assets, over the value of which it has no direct control, but only an indirect influence as any other actor. However, for a governmental-scale fund, the influence (presumably deflationary for increasing the fund and inflationary for spending it) would be so strong that it may print new money as well. Where is my understanding flawed?


texts:
Back in the 1980s leveraged buyouts were a common event. Financiers like T. Boone Pickens would borrow money, buy a controlling interest in a publicly traded stock and then re-engineer the company, for example, by selling it off in pieces.

This activity seems to be a thing of the past. I assume some law was passed to prevent leveraged buyouts. What was the cause of the demise of leveraged buyouts?


texts: How does supply and demand determine price for the following scenario?

texts:
Two individuals are stranded on an island.  Bob and Jill.

By themselves they can produce:

Bob: 5 fish & 5 coconuts
Jill: 5 fish & 5 coconuts

If they specialize and trade, they can produce:

Bob: 20 fish
Jill: 20 coconuts

What would the supply and demand graph look like for this situation?  What would be the price?  Would Bob end up with say 13 fish and 11 coconuts.  Would Jill end up with 7 fish and 9 coconuts?  What determines this ratio or price?

If Sam then ends up on the island and can produce by himself 20 fish or 20 coconuts, does this matter?


texts: What would be the costs of declaring/legislating that Scottish banknotes be legal tender?

texts:
Bank of England:

  English banknotes aren’t legal tender in Scotland. Scottish notes aren’t legal tender in England or Scotland.

Committee of Scottish Bankers:

  Scottish Bank notes are not Legal Tender, not even in Scotland.  In fact, no banknote whatsoever (including Bank of England notes!) qualifies for the term 'legal tender' north of the border and the Scottish economy seems to manage without that legal protection.

Both pages also go on to argue that legal tender has little practical significance.

But people do in fact attach some significance to this, with the result that Scottish banknotes are less widely accepted than they would otherwise be.

And so, why does the UK not simply declare/legislate that these notes be granted the status of legal tender? What are the costs of doing so?

A similar situation also exists with Singapore and Brunei currency (which are interchangeable), with the similar result that Brunei currency is often not accepted in Singapore. See e.g. this 2017 story.


texts: How to calculate inter-annual variation of inflation for a 3 months period?

texts:
I have the monthly indexes taken from the National Institute of Statistics of my country (below), then I can calculate its inter-annual variation easily:

((index month year - index same month year - 1) / index same month year - 1) * 100

But my problem is that I want to compare this inter-annual variation against Financial Statements that show 3, 6, 9 and 12 months values. Then this inter-annual variation is useless because it shows the price variation only for a month and not for 3, 6, 9, 12 months period.

To solve this problem, should I calculate the cumulative inflation of 3, 6, 9 and 12 months of each year, then calculate de inter-annual variation of that cumulative inflation and finally be able to compare them to the Financial Statement inter-annual variation?

Is there any other way to do this more accurately ?


texts: $a\geq 0$, $x\sim y$ implies $x+a\sim y+a$ so the preference is linear?

texts:
$\succsim$ is a countinuous and convex weak order.

$x,y,a$ are vectors in $\mathbb R^n$

We say $a\geq0$ if all directions of the vector $a$ is greater or equal to zero.

We want to prove (or disprove by counterexample) that:

Suppose $x\sim y$ implies $x+a\sim y+a$ for any $a\geq0$ and $x,y\in\mathbb R^n$,

Then the preference is linear.

One definition of linear preference is that $x\sim y$ implies $x+a\sim y+a$ for any $x,y,a$.


texts: Ownership in Neoclassical Economics/Property Rights Question

texts:
I'm currently looking at New Institutional Economics and I can't get my head around the assumption of the neoclassical irrelevance theorem stated by the neoclassical economics.

It doesn't matter whether the factors of production are owned or rented by their users
(see Samuelson 1 957, 894: "Remember that in a perfectly competitive
market it really doesn't matter who hires whom: so have labor
hire ' capital, ' . . ." )

I can't seem to find an explanation for that statement. Can someone explain it in terms of neoclassical thinking?

Best Regards


texts: How to intuit a necessary optimality conidtion involving growth rate of Lagrange multiplier in Ramsey growth model?

texts:
I encountered a necessary optimality conidtion involving growth rate of Lagrange multiplier in this note on Ramsey model

$$\frac{\dot \lambda}{\lambda} = \mathcal {v} - (f^\prime(k)-\delta-\xi)$$

in which $\mathcal {v}$    is the time preference rate, $\xi$   is the population growth rate, and $\delta$   is the depreciation rate.

Is there some way to make sense of it in a similar fashion as Euler equation?


texts: What would happen if a country defaulted on its public debt?

texts:
Could someone explain in full detail to someone that does not understand much what would happen if a country refused to pay its pubic debt?

Someone told me if this happens banks would fall and citizens wouldn't have jobs and savings, but I cannot link these two events. How are these events related? How does one thing lead to another?


texts: What does it mean when the natural rate of unemployment is greater than the actual rate?

texts:
According to this graph:

I just don't get when natural unemployment is greater than actual unemployment.

Why is this the case?


texts: How to calculate the spending multiplier from a given set of equations?

texts:
So i have this question:

I go along and get

Then i need to calculate the effect on the optimal output is G increases by 80:

And on the answer sheet it states that the spending multiplier is:

From my knowledge i know that

Now how come that the spending multiplier is 1/0.4? Where are they getting the 0.4, which should be 1-c1-d1 from the original equations?

A friend told me that the 1/0.4 is derived from 1/1-c1(1-t)

then 1/1-0.8(0.75)= 1/0.4. He said that since there is no d1 in the equations ( in the investment equation) we don't use it.

Can somebody explain the meaning behind this 1/0.4) Thanks!


texts: How much should it cost to close the beach?

texts:
For most of the past week a private surfing contest has closed off Steamer Lane
- one of California's most popular waves - while paying only a few hundred dollars in permit fees. I think this is far too cheap.

Consider the following thought experiment: If somebody were to set up
at the beach and offer \$1 to each surfer who stays out of water they'd
all decline. However, if the amount were upped to \$100, several would
accept. To me this indicates that the price to close off the beach should be tens of thousands of dollars rather than a few hundred.

Is this a reasonable way to price externalities? Is there some other model where it would make sense to charge only a few hundred dollars for beach closures?


texts: AS-LM Model and derivation of the LM curve

texts:
When we derive the LM curve, we assume that supply of money is exogenous.
However, let's say the central bank has some target interest,r1, and it adjust supply of money to keep interest rates equals to r1

With this assumption, what is the slope of the LM curve?

I think it will be horizontal because supply of money is horizontal.

What is the slope of the AD curve?

I think it will be vertical because there will be no change in output since the LM curve is horizontal.

I am not sure about those two.. so can someone tell me whether they are right or wrong?