texts: Can central bank interest rate hikes lead to a price gain in equities?

texts: I ran an empirical analysis on recent interest rate changes of European central banks on Swiss equity prices and found statistically significant results. A 1 percentage point increase in interest rates would lead to a around 5% increase in the daily return of equities on the day the monetary policy announcement was made. For bond prices my results show that this would lead to a negative impact on bond prices of about 1%, which is what I would have expected for equities too. So how can it be that the short term response of equity prices to a rise in interest rates is positive?


texts: Does merger control really affect market structure?

texts:
Pretty much since 1976 (the passage of Hart-Scott-Rodino Act) US antitrust authorities have been reviewing mergers, challenging only 1.8 per cent of the total number of above-threshold notifications (IIRC I read it in a book by Bob Pitofsky).

What are the studies that control for changes in technology, capital availability and perhaps other factors and quantify the impact of merger control on economy-wide market structure/concentration measures?


texts:
In the first 10 seconds of the following video: https://youtu.be/anZ58gZcxqk,
A claim is made that in the Exogenous Money Supply Model, Money Supply is not determined by interest rates. The person further adds that the money supply is independently determined by the central bank.
My question is that isn't the central bank only responsible for determining the interest rates? I know there are other tools such as open market operations that can be used to control the money supply in an Economy. But, If the central bank is determining the money supply, shouldn't it then be a function of interest rates.


texts:
I am trying to find L$^*$ and K$^*$ (Labour and Capital respectively) given the following:

  Q = $K^{1/4}$ $L^{3/4}$ where Q = 120, w=$24, and r=$128 (Not sure if you need w and r)

I know that if I can find either L$^*$ or K$^*$, I can find the other one easily.

I have found several questions relating to Cobbs-Douglas on here, but none where Q is given. A close example is this, but I don't have a budget constraint.


texts: How do tax payers have to pay for the tax deductions someone else receives due to a charitable donation?

texts:
"A USD 1,000 donation from a donor in the highest tax bracket costs that donor only USD 604. The federal government kicks in the remaining USD 396 in the form of a reduction in taxes", writes Ray D. Madoff in a piece for the New York Times.
Similarly, Paul Vallely argues in an article for The Guardian, that, for a tax-deductible donation, "the highest-rate taxpayer would need to pay out only £55, because the state would provide the other £45", hence "taxpayers contribute part of the gift".
While I do understand, that the government loses money in tax incomes, I don't understand how this directly increases the tax burden on other tax payers (except for, in the long term, the government might raise taxes to make up for lost tax revenues).
Can anyone explain how this works?


texts: What major fiscal policy actions were taken during the Great Recession (2007-09)?

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


texts: Whether the demand in the panels satisfies the weak axiom

texts:
The Walrasian demand function $x(p,w)$ satisfies the weak axiom of revealed preference if the following property holds for any two price wealth situations $(p,w)$ and $(p',w')$:
  If $p•x(p',w')\le w$ and $x(p',w')\ne x(p,w)$, then $p'•x(p,w)>w'$.
  Where $x$ is the amount of commodity, $p$ is price and $w$ is wealth.

The book(MWG's Microeconomics Theory, Page 29-30) says that the graph below satisfies the weak axiom. I have difficulty in understanding the graph. To be specific, I don't know why there is a dot in each of the budget set and I can't understand why it satisfies the weak axiom.


texts:
I'm trying to work out how to model a utility function that is bounded below some level. More precisely, given a specified limit $L$, I want to work out how to ensure that the utility of any outcome $o$ asymptotically approaches $L$ as the value of $o$ increases.

I'd really appreciate any help offered!


texts: How is signaling theory different from cue utilization theory?

texts:
I think they are quite similar. I am a bit confused. Can anyone explain this to me?

I got the name and the information about the cue utilitarian theory from a journal article that related to organic food consumption. According to the authors, when people buy products like organic food, they could hardly evaluate the quality by merely observing it, since organic food could be kind of credence product. It is difficult to evaluate whether it is really free from chemicals and pesticides. So, people tend to rely on some cues to make the quality evaluation indirectly. This is how the Cue Utilitarian Theory works.

Let me narrow it down to a consumer behavior context. It seems to me that both theories can be used to explain that when there is an information asymmetric between retailers and consumers, some product attributes will be used as cues to evaluate product quality. I just wonder if they are basically the same in concept, then how and which one should I use them respectively.


texts:
I'm attending to my first dynamic optimization course, and what I don't fully graps yet is that sometimes we have to use more than one bellman equation.
How do you realize that? I mean how do you know when your problem solution require more than one Bellman equation?
For example this problem taken from Sargent's Recursive Macroeconomic Theory 2nd edition.
An unemployed worker receives each period a wage offer w drawn from the distribution F(w). The worker has to choose whether to accept the job – and therefore
to work forever – or to search for another offer and collect c in unemployment
compensation. The worker who decides to accept the job must choose the number
of hours to work in each period. The worker chooses a strategy to maximize
$E\Sigma_{t=0}^{\infty}\beta^{t}u(y_t,l_t)$
and $y_t=c$ if the worker is unemployed, and $y_t=w(1-l_t)$ if the worker is
employed and works $(1-l_t)$ with $l_t$ leisure and  $0<l_t<1$
Analyze the worker’s problem. Argue that the optimal strategy has the reservation wage property. Show that the number of hours worked is the same in every
period.
The solution's manual goes like this for the part of stating the Bellman equations:
Let s be the vector of state variables. We choose $s=(w,0)$ where $w$ is the wage offer and $0=E$ if the worker is employed and $0=U$ if the worker is unemployed. Consider first the situation of an employed worker. Bellman’s equation is:
$v(w,E)= max \{u[w(1-l),l]+\beta v(w,E)\}$
and for unemployed worker:
$v(w,U)= max \{v(w,E);u[c,1]+\beta\int v(w',E)DF(w')\}$
So being more concrete.
Why the solutions requires two bellman equations and how do you realize that when reading the problem?
For example my first guess when trying to solve without looking the solutions I wrote:
$v(w,E)= max \{u[w(1-l),l];u[c,1]+\beta\int v(w',E)DF(w')\}$
Why is this different?
Thanks in advance.


texts: Marginal rate of technical substitution for multi-dimension inputs?

texts:
Suppose I have a vector x = ($x_1,x_2,x_3,x_4,x_5$) of inputs. How it is the MRTS($x_1,x_2,x_3,x_4,x_5$) ?

And which is the relation with the marginal products of inputs 1-5 ?


texts:
What happens to the Nash equilibria and minimax values of a strategic game, when we take its payoff table and modify all payoffs by raising them to the 3rd power?

My conjecture is that it depends:

If, in the original game, all Nash equilibria and minimax points are attained using pure strategies alone - then a positive monotone transformation should have no effect on them. When everything is pure (deterministic), the utility function is ordinal and it is robust to monotone transformation.
But if, in the original game, some Nash equilibria / minimax points are attained using mixed strategies - then a non-linear transformation might change them substantially.

For example, in the following zero-sum game:

4 0
0 4
3 3

The maxinim value is 3 and a maximin strategy for the row player is selecting the bottom row (the column player can guarantee at most 3 by mixing the two columns with equal probability).

But if we raise to the 3rd power:

64 00
00 64
27 27

Now the minimax value is 32, and a maximin strategy for the row player is mixing the two top rows.

So my question is: In what conditions does a positive monotone transformation on a game's payoff not change its maximin and Nash equilibrium strategies?


texts: Does the growth rate of a neoclassical production function converge as all input factors grow with constant, but different growth rates?

texts:
Suppose you have a neoclassical production function with N-inputs

$F(x_t^1,...,x_t^N)$

All input factors grow in continuous time with constant, but not identical growth rates $g^j$. Assume $g^1 \leq g^2 \leq ... \leq g^N$. The growth rate of $F$ is then

$\hat{F}=\sum_{j=1}^N \varepsilon_{F,x^j} g^j$

with $\varepsilon_{F,x^j}$ being the elasticity of $F$ with respect to $x^j$. Since $F$ is linear homogenous I know that $\sum_{j=1}^N \varepsilon_{F,x^j}=1$ holds. $\frac{\partial F}{\partial x^j}>0$ and $\frac{\partial^2 F}{\partial {x^j}^2}<0$ imply $\varepsilon_{F,x^j}>0$. Hence

$g^1 \leq \hat{F} \leq g^N$ $\forall t$

My question is: Is $\hat{F}$ going to converge as $t \to \infty$? I find it hard to imagine that the elasticities fluctuate (periodically) around some value as all input factor ratios go to zero or infinity (or stay constant the whole time in case of equal growth rates).

I tried to show that the elasticities all converge. I suspect that the result might hinge on the propety that $\frac{\partial^2 F}{\partial x_j \partial x_k}>0$ for $k \neq j$ which always holds in the two goods case, but I'm not sure about that.

Thank you all in advance for your help! If my English seems a little awkward, it's because I'm German. But I hope you understand the problem anyway. :)


texts: Why New Zealand dollar keeps falling against USD and other currencies?

texts: New Zealand seems to have strong economy and governed well by the RBNZ. Agreed that recent decrease in the dairy prices globally has some negative effects on the economy. But with the large service sector of the country, why is the Kiwi dollar weakening against USD, GBP, AUD, etc. in recent months? Is the economy of the country really in a bad shape?


texts: Given $\mathbb Q$ and $X_t$ is $\mathbb Q$-Brownian, find $\frac{d\mathbb Q}{d\mathbb P}$ / Uniqueness of Brownian or Radon-Nikodym derivative

texts:
The problem:

Let $T >0$, and let $(\Omega, \mathscr F, \{ \mathscr F_t \}_{t \in [0,T]}, \mathbb P)$ be a filtered probability space where $\mathscr F_t = \mathscr F_t^W$ where $W = \{W_t\}_{t \in [0,T]}$ is standard $\mathbb P$-Brownian motion.
Let $X = \{X_t\}_{t \in [0,T]}$ be a stochastic process where $X_t = W_t + \sin t$, and let $\mathbb Q$ be an equivalent probability measure s.t. $X$ is standard $\mathbb Q$-Brownian motion.
Give $\frac{d \mathbb Q}{d \mathbb P}$.

Girsanov Theorem:

Let $T >0$, and let $(\Omega, \mathscr F, \{ \mathscr F_t \}_{t \in [0,T]}, \mathbb P)$ be a filtered probability space where $\mathscr F_t = \mathscr F_t^W$ where $W = \{W_t\}_{t \in [0,T]}$ is the standard $\mathbb P$-Brownian motion.
Let the Girsanov kernel $\{\theta_t\}_{t \in [0,T]}$ be a $\mathscr F_t$-adapted stochastic process s.t. $\int_0^T \theta_s^2 ds < \infty$ a.s. and $\{L_t\}_{t \in [0,T]}$ is a $( \mathscr F_t , \mathbb P)$ martingale where
$$L_t := \exp(-\int_0^t \theta_s dW_s - \frac 1 2 \int_0^t \theta_s^2 ds)$$
Let $\mathbb Q$ be the probability measure defined by
$$Q(A) = \int_A L_T dP \ \forall A \in \ \mathscr F$$
or $$L_T = \frac{d \mathbb Q}{d \mathbb P}$$
Then $\{W_t^Q\}_{t \in [0,T]}$ defined by
$$W_t^Q := W_t + \int_0^t \theta_s ds$$
is standard $\mathbb Q$-Brownian motion.

The solution given:
$$X_t = W_t + \int_0^t \cos s ds$$
Let $\theta_t = \cos t$:

It is $\mathscr F_t$-adapted

$\int_0^T \theta_s^2 ds < \infty$ a.s.

$E[\exp(\frac 1 2 \int_0^T \theta_t^2 dt)] < \infty$

Then $\{L_t\}_{t \in [0,T]}$ is a $( \mathscr F_t , \mathbb P)$ martingale, by Novikov's condition, where
$$L_t := \exp(-\int_0^t \cos s dW_s - \frac 1 2 \int_0^t \cos^2 s ds)$$
Thus, by Girsanov's Theorem, we have
$$\frac{d\mathbb Q}{d\mathbb P} = L_T...?$$

How exactly does that last line follow?
What I find strange is that the Girsanov Theorem defines $\mathbb Q$ and then concludes $X_t$ is standard $\mathbb Q$-Brownian motion while the problem says there is some $\mathbb Q$ s.t. $X_t$ is standard $\mathbb Q$-Brownian motion and then asks about $\frac{d \mathbb Q}{d \mathbb P}$. Is the problem maybe stated wrong?
To say that $L_T$ is indeed the required density $\frac{d \mathbb Q}{d \mathbb P}$, I think we need to use the converse of the Girsanov Theorem), or maybe the problem should instead give us $\frac{d \mathbb Q}{d \mathbb P}$ and then ask us to show that $L_T = \frac{d \mathbb Q}{d \mathbb P}$ possibly showing that $E[\frac{d \mathbb Q}{d \mathbb P} | \mathscr F_t] = L_t$ or some other route.

I tried something slightly different:
I define $\hat{\mathbb P}$ s.t.
$$L_T = \frac{d\hat{\mathbb P}}{d\mathbb P}$$
or
$$\hat{\mathbb P} = \int_A L_T d\mathbb P$$
It follows by Girsanov Theorem that $X_t$ is standard $\hat{\mathbb P}$-Brownian motion. Since we are given that there is some $\mathbb Q$ equivalent to $\mathbb P$ s.t. $X_t$ is also standard $\mathbb Q$-Brownian motion, it follows by the uniqueness of the Radon-Nikodym derivative that
$$\frac{d\hat{\mathbb P}}{d\mathbb P} = \frac{d\mathbb Q}{d\mathbb P}$$
$\therefore, \frac{d\mathbb Q}{d\mathbb P}$ is given by $L_T$.
Is that right? I think I'm missing a step somewhere.
So, is that indeed what the solution given is meant to be but just omitted pointing out uniqueness of the Radon-Nikodym derivative, if such justification is right?

Edit based on this: Even if Radon-Nikodym derivative is unique, $\mathbb Q$ may not be unique? If so, is it then that $\hat{\mathbb P}$ is merely a candidate for one of many possible $\mathbb Q$'s?
I think we conclude $\hat{\mathbb P} = \mathbb Q$ based on $X_t$ being standard Brownian motion under both measures. Is there a proposition for that? Uniqueness of Brownian motion measure or something?


texts:
I'm looking for an introduction to Industrial Policy, at the advanced undergraduate level, beginning graduate level.
I've tried the google scholar, and unfortunately all the results I read were just isolated papers, and one or two handbooks... No textbook, though.
It seems to me that Industrial Policy, in the western (USA/GB)  economic tradition has been cornered into a small subset of Industrial Organization, and a matter which is best left to the 'unregulated' market. Am I correct?
Many thanks


texts:
Different family members have different utility functions, but
All family members consume the same bundle.

For example, consider a family $F$ that has to select a bundle of  funiture ($x$) and electronic equipment ($y$). Each member $i\in F$ has a different utility function $u_i(x,y)$. The family has a budget $I$. How can the demand of the family be calculated?

I thought of several options:

Calculate an aggregate utility function, e.g:

$$ u_F(x,y) = \min_{i\in F} u_i(x,y) $$

Then, calculate the demand in the usual way: select a bundle $(x_F,y_F)$ that maximizes the aggregate utility $u_F$ in the budget-set.

A problem with this method is that it requires to normalize the members' utility functions to the same scale.

Calculate the optimal bundle of each family member separately: each member selects a bundle $(x_i,y_i)$ that maximizes his utility function $u_i$ given the family's income $I$. Then, calculate the family bundle as an average of the members' bundles:

$$(x_F,y_F) = \frac{1}{|F|}\sum_{i\in F} (x_i,y_i)$$
If the budget-set is convex, then this bundle is also in the budget set.

Divide the family income $I$ among the family members, such that each member $i\in F$ receives an income $I/|F|$. Then, let each member select a bundle $(x_i',y_i')$ that maximizes his utility function $u_i$ in given his fraction of the income. Then, calculate the family bundle as a sum of the members' bundles:

$$(x_F,y_F) = \sum_{i\in F} (x_i',y_i')$$

Each definition probably has different implications on results such as competitive equilibrium, welfare theorem, etc.

What is a good reference on this problem?


texts: What does Piketty mean by the C90/C10 ratio?

texts:
I am currently readings Piketty's "The Economics of Inequality", where he states in chapter 3:

  The P90/P10 wage ratio in the United States in the 1990s is 4.5, whereas it is “only” 3.2 in France (Table 1.7). From this one might deduce that in order to create as many jobs in France as in the United States, and in particular in order to stop the labor share of value added from decreasing further in France, one ought to increase the C90/C10 ratio between the 90th and 10th percentiles of wages plus social charges in France by about 40 percent, which would mean eliminating all employer-paid social charges on low wages and reassigning them to high wages.

I am aware of what the P90/P10 ratio is, but I have never heard of a C90/C10 ratio. The term is mentioned again several times in the following paragraphs, but receives no further explanation in the remainder of the book. An online search for an explanation did not return any results for me, so I am hoping someone here will be able to help me out.


texts: Perfect Complements - Walrasian Equilibrium

texts:
For a homework , I struggled to solve the following question but couldn't go further:

endowment of person 1 = (30,0)

endowment of person 2 = (0,20)

utility functions are such that:
\begin{eqnarray*}
    U (a_1,b_1) & = & \min(a_1,b_1) \\
\\
    U (a_2,b_2) & = & \min(4a_2,b_2).
\end{eqnarray*}
What I am doing is setting a1 equal to b1 and 4a2 equal to b2. After that I'm writing these;
$$
p_1 a_1 + p_2 b_1 = 30p_1 \mbox{ and } p_1a_2 + p_24a_2 = 20p_2
$$
Finally, by looking at feasibility condition, I'm writing down:
\begin{eqnarray*}
    \frac{30p_1}{p_1+p_2} + \frac{20p_2}{p_1+4p_2} & = & 30 \\
\\
    \frac{30p_1}{p_1+p_2} + \frac{4 \cdot 20p_2}{p_1+4p_2} & = & 20.
\end{eqnarray*}

Here, if I do some calculations, they result in $p_1 = p_2$ and accordingly $a_1=b_1=15, a_2=4$ and $b_2=16.$ But then the problem is that there is excess demand for good2 and there isn't a WE.

Alternatively, I am considering to have $p_2 = 0$ so that there exist a Walrasian Equilibrium.

BUT, I'm stuck at this point and lack the correct intuition for solving next steps. Or, I might be in a completely incorrect way. Please, explain me what will be done with this excess demand?

Thank you in advance.


texts:
The Dec 1996 Boskin report (May 1997 AER summary)

  concluded that the change in the Consumer Price Index (CPI) overstates the change in the cost of living by about 1.1 percentage points per year (the range of plausible values is 0.8-1.6 percentage points) (1997, p. 78).

Breakdown (1997, p. 80):

My question: What, if any, are some more recent and similarly-"authoritative" estimates of CPI bias?


texts:
I'm using synthetic control methods.
The treatment group has covariates that are the extrema of the values across itself and all potential donor units.
So, say, on covariate $x_1$, the treatment unit has the lowest value of the group over time, and on $x_2$ the treatment unit has the highest and so on.
In such a case can you really find a donor group, or does the method break down? Or in using several covariates can we use those that provide a good synthetic control in some cases which compensates for poor balance for other (important and we believe important)covariates?
Is there a literature on this issue?


texts: Why does optimal allocation call for unlimited distribution of information?

texts:
In his seminal paper Arrow (1962) states that information should be distributed without limit if an optimal allocation is to be achieved.
Quote (p. 614-615):

  The cost of transmitting a given body of information is frequently
  very low. If it were zero, then optimal allocation would obviously
  call for unlimited distribution of the information without cost. (...)
  The owner of the information should not extract the economic value
  which is there, if optimal allocation is to be achieved; but he is a
  monopolist, to some small extent and will seek to take advantage of
  this fact.

Quote (p. 616-617):

  In the first place, any information obtained, say a new method of
  production, should, from the welfare point of view, be available free
  of charge (apart from the cost of transmitting information). This
  insures optimal utilization of the information but of course provides
  no incentive for investment in research. In an ideal socialist
  economy, the reward for invention would be completely separated from
  any charge to the users of the information. In a free enterprise
  economy, inventive activity is supported by using the invention
  to create property rights; precisely to the extent that it is
  successful, there is an underutilization of the information.

Arrow makes the point that creating a market for information is difficult given the peculiar nature of the commodity information. But if information did not have those special attributes: Couldn't information be "produced" by an organization and sold without welfare loss? Why do property rights lead to suboptimal allocation in the case of information?

Reference:

Kenneth Arrow, 1962.
"Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626
National Bureau of Economic Research, Inc.
url: https://ideas.repec.org/h/nbr/nberch/2144.html


texts: What happened to the dollar in Nov 1978?

texts:
Arthur Burns (1979):

"Benign neglect" of the external value of the dollar came to an end dramatically, and I would hope irrevocably, in November 1978.

What event(s) of Nov 1978 is Arthur Burns referring to?


texts:
The principal goal of Econometrics is to find causal effects between economic variables. But the growing technology level seems to show us that Big Data and Statistical Learning result in a tradeoff with econometrics, because of according to some professors (and professionals),  the Statistics field, once is applied in economics, must be guide by economic theory because its alternatives find  correlations (Not inference).

Given the above, is it possible to find causal effects between economic variables with Statistical Learning methods as alternatives to Econometrics?

Thanks!

(Pardon forerrors, I'm not a native English speaker)


texts: What is the new price after an import quota?

texts:
For a small domestic market that can buy completely price elastic imports from the world, the price of the good will be at (P world).

However, when there is an import quota of quantity (Q3 - Q2), why is the new price at (P quota), even for the imported goods? (At least that is what my notes said, and google did not give much answers)
For me, I feel that the price should instead be (P quota) for quantity Q2, and then at (P world) for quantity (Q3 - Q2), is that correct?

Can anyone explain this in words other than simply saying it's because thats where the demand curve intersects the supply curve?


texts: Deriving demand function in case of multivariable utility functions with min and max structures

texts:
Suppose I have utility function like this: $u(x_1,x_2,x_3)=min\{x_1,a-x_1\}\times min\{x_2,b-x_2\}+x_3$ where a and b are real numbers and $x_1\in [0, a]$ and $x_2\in [0,b]$. What will be a procedure of finding, for example, Marshallian demand $x(p,w)$?

My confusion: In case of more simple function without minimum or maximum structures I would simply use Lagrangian to define the demand. However, given function is not differentiable.

My question: can I apply Lagrangian here and, if so, how can I do it? If it is impossible to use Lagrangian in this case, what else sholud I do?


texts: Can value be defined as any increase in consumer or producer surplus?

texts:
I know that the term Economic Value Added is an internal measure that executives use to measure the financial performance of a company, say, executing a project. However, I'm doing some research in Complex Systems, and I'm interested in the term "value" as it relates to the economic system as a whole.

I came up with a definition of adding "value" as any activity that creates or increases the consumer or producer surplus. I'm now struggling to see how this definition related to the standard definition of Economic Value Added. What are the pros and cons of my definition as against the standard EVA term? Why isn't the definition that I'm using the standard definition, at least in economics?


texts: Is there a discrepancy between the ratio and total expenditure methods of measuring elasticity?

texts:
According to the Expenditure method of measuring price elasticity of demand, if the two expenditures in comparison are constant (in spite of changes in price), the demand is considered to be unitary elastic.
However, there are several examples where this does not seem to hold true.
For instance,

Price: 10 ; Demand: 12 ; Expenditure: 120

Price: 08 ; Demand: 15 ; Expenditure: 120

Here, though the expenditure is equal, if we calculate the percentage changes in price and demand, they come to be 20% and 25% respectively. So as per the ratio (or percentage method), the elasticity would be equal to 25% / 20%, which is not equal to 1. Then, how can we conclude that the expenditure method gives the right results?


texts:
I have the following question from my homework:

When calculating the net present value of an investment project, the firm of Henry & Norman expects profit in the first year to be $60,000, and they expect real profits to remain at that level over the next five years.
Since they are using nominal discount rate of 11 percent in their net present value calculation, they want to convert future real profits to nominal profits.  They expect inflation to be 4 percent per year over the next five years.
The nominal profit for year 2 of the investment project is ___________(correct answer, 62,400)
If the investment project has an initial cost of 200,000, the net present value in nominal dollars is _________  (my answer 64,474.50  book answer 38,264.90)

The difference between the book answer and my answer is that I used 60,000 as year 1 profit with no discount.  I realized this was incorrect according to the given methodology in my textbook of $NPV=-C+\pi_1/(1+R)+\pi_2/(1+R)^2+...$
What I don't understand is why we discount the profits in year one but don't consider inflation in year one.  This seems inconsistent to me.  Why do we discount the real profit in the first year and not the nominal profit, or if we assume nominal profits in year one are the same as real profit, why do we discount in year one?


texts:
Why are log returns used in finance? For example to calculate a stocks performance. There are a lot of articles on that topic yet I don't find them very helpful. Could somebody please explain step by step? Maybe also with pros and cons.

Thanks in advance.


texts:
I am a beginner at econometrics and I have to build a model explaining scholing (as dependent variable) by migration (independent variable) and a couple of covariables. I'm going to use fixed effects to do this.

Now my question is, where and why should I use a LOG? I already read a lot of questions and answers here but it didn't help me any further.

Should I log migration? Government expenditure on scholing? GDP/Capita? Literacy? Ratio of scholing?


texts: Why life expectance is growing faster than retirement age? - source needed

texts:
Need sources of information about "Why is life expectancy growing faster than retirement age?"

Is there any literature about "why the increased quality of life and medicine in rich countries doesn’t increase the ability to work for older people?"


texts: Why was the UK unemployment rate in July 2016 lower than forecasted by the Bank of England?


texts: Does Chile have a government owned Export Import bank like the US or India?

texts: If not, what type of trade financing do Chilean exporters or importers get? Is it all from private banks and insurers?


texts: Difference between "Debt Held by the Public" and "Total Public Debt Outstanding"?

texts:
On https://www.treasurydirect.gov/NP/debt/rss, we have three numbers:

Debt Held by the Public: $14,387,199,090,397.24
Intragovernmental Holdings: $5,552,709,700,473.24
Total Public Debt Outstanding: $19,939,908,790,870.48

It seems the latter number is often considered the U.S. national debt. What is the difference between the Debt Held by the Public and the Total Public Debt Outstanding?


texts: Differential equation for first-price auction

texts:
I want to solve a differential equation of the first-price auction. In particular, from Jonathan Levin's October 2004 lecture notes, we have the following differential equation:
$$b'(s) = (s-b(s))(n-1)\frac{f(s)}{F(s)}$$
Solving this, we should get
$$b(s) = s - \frac{1}{F^{N-1}} \int_\bar{s}^{s_i} F^{N-1}(\tilde{s}) \,{\rm d}\tilde{s}$$
I would like to understand how to get this equation.
I found a November 2011 paper by Timothy P. Hubbard & Harry J. Paarsch discussing this part. On page 6, although it is a regular expression of the differential equation, I should solve the following equation:
$$y=\frac{1}{\mu(x)}\int_{x_0}^x \mu(u)q(u) {\,\rm d}u + k$$
Could you help how to solve this equation to get $b(s)$?


texts: Supply curve when the marginal cost is zero

texts:
The supply curve is built as the average marginal cost (MC), when the MC is equal or higher than the average cost (AC)
The marginal cost increases, as a result of the opposite effect of marginal production
In this case, we get a supply curve that's rising from left to right: higher cost per rising quantity

In the case of marginal cost of zero, I can think of no other case than a supply curve that is equal to AC, and that the AC is dropping, since fixed costs do not change as a result of quantity
And so, we'll receive a curve that's dropping from left to right: lower cost per rising quantity

Real life cases can be broadcast tv, surpluses in production, "internet economy" etc.

Am I wrong in my assumption?
Is there any reference of this type of equilibrium ?
Is it a stable equilibrium ? I mean, since the marginal cost is zero, there is no impact on increasing demand


texts:
I am looking at the 1979 cohort of the National Longitudinal Survey of Youth from the BLS. See here : https://www.bls.gov/nls/nlsy79.htm
I am just having some trouble interpreting the values for standard deviation.
Suppose I am looking at log of wages (natural log of wages).
Suppose my mean is 2.5, and standard deviation is 0.5.
How can I interpret my SD? Do I need to assume that the population distribution for log wages is normally distributed with zero mean and standard deviation 1?
I am just getting a bit confused here because standard deviation is a relational measure. We need to relate it to something, perhaps some standardized values, in order to conclude whether it is relatively high or low. Is it possible to do this without assuming anything about the population distribution? (such as zero mean or standard deviation 1)
Thanks.


texts: Subgame Perfect Equilibrium for Pure and Mixed strategy

texts:
In a game theory textbook there is something similar to the table below where there is one pure strategy nash equilibrium and multiple mixed strategy nash equilibria. It is a simultaneous game with the payoffs presented below.
If we assume that this game is played twice, How do I identify all subgame perfect equilibria for this game, as well as nash equilibrium that is not a subgame perfect equilibrium?
For a game with multiple pure strategy nash equilibrium I think I can find a solution by using backward induction, but for a game like this with just one pure strategy nash equilibrium and multiple mixed strategy nash equilibria, I have  no idea how to identify the subgame perfect equilibria and possibly a nash equilibrium that is not subgame perfect equilibrium, especially when there are mixed strategy equilibria included.
Any help in this would be appreciated.
\begin{array}{|c|c|c|c|}
\hline
  &  A    &  B    &  C \\\hline
A & (1,1) & (0,0) & (0,0)\\\hline
B & (0,0) & (2,1) & (1,2)\\\hline
C & (0,0) & (1,2) & (2,1)\\\hline
\end{array}


texts:
In the US, the drug sofisbuvir, brand name sovaldir, and used to treat  liver disease hepatitis C, was launched with a price tag of $1000 a pill; and in the UK, the manufacturer Gilead recommended a twelve week course that costs £35,000.
There are roughly 160,000 people in the UK that require treatment and unprecedentedly the NHS chose to phase the drug in. This obviously has to do with the cost of the drug.
Why are so many pharmaceutical drugs so expensive?


texts: What's the term for an economic policy that has negligible effect for most, but a significant effect for a few?

texts: I remember this came up around tariffs in the US on aluminum. They have a negligible effect on the price of an aluminum can, but aggregated across all the aluminum cans sold, it can have a significant impact for a handful of US aluminum producers.


texts: Who invented these key notions in Finance?

texts:
We often give credit to the origins of academic achievements. The Black-Scholes equation or the Gibbons Ross Shanken (GRS) test etc.

What about

Net Present Value (NPV),
Internal Rate of Return (IRR),
Duration of bonds,
Law of One Price (LOP),
Time value of money,
Stochastic Discount Factor (SDF) or pricing kernel?

These are fundamental things which are taught to undergraduates in one way or the other. But who first came up with these ideas?


texts: Applications of Pure Mathematics in Economics

texts: Are there any applications of number theory and abstract algebra in economics? An economist had told me that number theory had an application to a theorem in economics, however he did not remember what it is and my number theory professor in undergrad had also mentioned it but I can't find it. I know combinatorics and graph theory have applications in economics in regards to social networks. I am very curious about it


texts: Taxes and GDP, where do these come in in the formula?

texts:
We all know that the formula for GDP I'd given by

GDP = C + I + G + NX

I would like to know, whether I am right in deducing that when consumers and industry pay taxes, or when there are import and export taxes I suppose, these do not increase the value of C and I in the equation. Instead, these increase the value of G, provided that the money supplied in taxes to the government is spent.

Is this correct?

Thanks.


texts: Is there any empirical evidence for the so-called "law" of diminishing returns

texts: The "law" of diminishing returns is usually "demonstrated" with made-up examples (programmers working on a software, farmers acquiring land...), but rarely on evidence. Is there any empirical research on actual data to acknowledge and quantify this law?


texts: In my intro macroeconomics course, my professor tried to emphasize that the money supply changes ONLY by increasing or decreasing lending activity. However, I feel like he was trying to focus on lending because most people have the misconception that the Federal Reserve just "prints money" to increase the money supply. However, is it true that although the MAJORITY of the money supply increases with more lending, that in some cases the Federal Reserve does "add zeros" to their spreadsheets to influence the money supply? For example, if they wanted to increase the money supply they could "print money" and use those funds to buy bonds from banks which in turn would then lend out that money and increase the money supply.


texts: Under what circumstances is an increase in national output called economic growth?

texts:
An increase in output can be achieved in two basic ways.

The first scenario:
Aggregate demand increases, so supply extends. In this way the economy is making more use of its resources, but there is still spare capacity, and productive potential hasn't increased.

The second scenario: Aggregate supply increases. National output increases without demand increasing and productive potential of the country has increased.

Now I know that the second scenario is economic growth for sure, as economic growth is generally characterised by an increase in the productive potential of country. But is the first scenario also economic growth? That is, is it called economic growth if a country just makes use of more resources already available to satisfy increased demand?

Furthermore, can the first scenario be shown on a PPC? Perhaps a shift from a point within the curve to a point on the curve?


texts: Does 0% interest rate mean the minimum value of a currency?

texts: I would like to know if there are other factors that can devalue a currency. I think the effect of the negative interest rates will not be much greater than the 0% interest rate because simply a very few people would put their money in the bank.  Maybe increasing the salary of the governmental employees would devalue but I think it's not a practical solution. Does 0% interest really mean the minimum value of the currency?


texts: Do Hong Kong highschool teachers earn more than Hong Kong quants?

texts:
According to Teach in Hong Kong, Hong Kong highschool teachers earn around

  HK\$23,530 to HK\$54,665 (approximately \$3,000-\$7,000 USD) per month

while CUHK's Quantitative Finance Graduates Face Encouraging Employment Status (2004) says Hong Kong quants, at least those who are fresh graduates, have an initial

  average monthly salary of HK$13,291.

Is there anything suspicious about this? I would expect quants to earn more than highschool teachers. Then again, the figure for quants is for fresh grads while the figure for highschool teachers is for those who have at least 2 years teaching experience and with education degrees (eg PGDE).


texts: How to calculate Real GDP from quarterly change

texts:
How do I calcualte a countries Real GDP from QoQ changes?

Example - Australia
2018 - Real GDP was 1432195178668.32 $Billion
2019  Q1 was 0.5%
2019  Q2 was 0.6%
2019  Q3 was 0.4%

How do I calculate real GDP on Q3?


texts: derivation of pigou taxes in multiple polluter case

texts:
I can`t quite wrap my head around one step in deriving the pigou tax in a multiple polluter case.

There are j firms, which produce joint product in amount of $k_j$.
Joint product can be abated, where the cost function $C_j(a_j)$
denotes the costs for firm j for abating $a_j$

Social damage costs: $ e = \sum_{j=1}^{m}{(k_j -a_j) }$

To minimize total social cost:

$min_{(aj)_{j=1}^{m}}\sum_{j=1}^{m}C_j(a_j)+ \sum_{i=1}^{m}D_i(e)$

With FOC we should, according to my script, arrive at:

$C_j^`(a_j)=\sum_{i=1}^{n}D_j^`(e)$  for all j = 1,...,m

But I don't understand why it isn't:
$\sum_{j=1}^{m}C_j^`(a_j)=-\sum_{i=1}^{n}D_j^`(e)$

I think for example the partial derivative of $\sum_{j=1}^{2}C_j$ is equal to the partial derivative of it's parts.
So $[\sum_{j=1}^{2}C_j]' = C_{1}^{'}(a_1) + C_{2}^{'}(a_2)$
and therefore:

$\sum_{j=1}^{m}C_j^`(a_j)+\sum_{i=1}^{n}D_j^`(e)= 0$

I don't really know, where I`m going wrong with this and would be really happy if someone could point me into the right direction.

Best regards :)


texts: Negative interest rates - Fiscal Policy (Demand-side)

texts:
(This is part two of a series of questions I've posted here under "Negative interest rates")

Motivation:

I've happen to stumble on two articles, with some weeks, that the central bank(CB) of switzerland, due to Russia ruble crisis, and , has decided to use a negative interest rate for reserve deposits of banks at the CB, to facilitate the exchange rate peg. Bank of Japan(BoJ) also seems have implemented a negative interest rate, even if for different reasons(not sure...).

In all textbooks, the topic of negative interest rates is easily dismissed, or simply tought of as impossible, and so the authors work with non-negative lower bound(ex:deflation trap). Now, how is this negative rate going to affect the theory? Almost every part of the economic theory is going to be influenced by this.

Hence I'm dividing my question into several.

This part is for Fiscal Policy. With negative interest rates, what changes for demand-side policy(scope, effects,debt repayment capabilities etc.) can we expect?

Any help would be appreciated.


texts:
Suppose I've just won 1'000'000 dollars in a game show. At the end of the program they tell me that they will pay me the prize as following: they will deposit in my bank 50'000 dollars every year for twenty years with a constant annual interest rate of 6% (this to prevent me from wasting too quickly the one million dollars I've just won). The present value of my prize is given by:$$V_t=z\frac{1-\left [ \frac{1}{(1+i)^n} \right ]}{1-\left [ \frac{1}{(1+i)} \right ]}$$

with $z=50'000$, $i=0.06$ and $n=20$ I get  that: $$V_t\approx 50'000 \left (\frac{0.688}{0.566}  \right )\approx 608'000$$

My book says that is a really great prize, but I'm not a millionaire at this point. I would have been a millionaire if they'd paid me the one million dollars right at the end of the program. But I can't understand why it looks like I'm less rich. Suppose I won't spend money they'll give me, in twenty years I'll have: $$1'000'000\cdot(1+0.06)=1'060'000$$
Which is obviously greater than 1'000'000. Could you please explain me what's the reasoning that there is behind the present value of 608'000 dollars? Thanks for any help you can provide.


texts:
The market demand for a good is described by the inverse demand function $P(Q) = 120 - Q $ where $Q$ is total quantity demanded and $P(Q)$ the market price. Two firms $i =1,2$ have identical cost functions $c_i(q_i) =0.5 q_i^2$ where $q_i$ denotes firm i's output quantity hence $Q=q_1+q_2$.
a) Find the Cournot Nash Equilibrium.
b) Suppose that both firms cooperate by making the arrangement to produce joint profit maximizing quantity $Q^M$ together (i.e. every firm has to produce $Q^M/2$). Compute that quantity. What is firm 1's best response if firm 2 indeed produces $Q^M/2$ ? does this arrangement constitute a Nash equilibrium?

My Answer:
Part(a) is straightforward. So I found that $q_1^*=q_2^*=30$
Part(b)
For firm i $\forall i =1,2$
$$\pi_i (q_1,q_2)=(120-Q^M)(Q^M/2)-0.5 (Q^M)^2/4$$
$$\partial \pi_i/ \partial Q^M = 120-Q^M-(1/4)Q^M=0$$
$$120 = 5/4 Q^M $$
$$Q^M = 96$$
so $$q_1 = q_2 = 96/2 = 48$$
since $48 \not= 30$, this result is not Nash equilibrium.
Does this answer make sense? I am not sure about that. Please share your ideas and corrections with me. Thank you.


texts: About studying econometrics in undergraduate

texts: I’m currently undergraduate student studying economics and mathematics. I took econometric class and mathematical statistics class last semester. So during the vacation, I decided to study econometrics more because I’m planning to do Phd in economics in the future and I thought it will be helpful. But, come to think of it, I feel like I made a wrong choice. I don’t know what the exact reason is, but whenever I study econometrics, I find that I’m just ‘reading’ a book. And I think that’s because of my lack of statistics and other math ability. So now I’m considering to study mathematical statistics more deeply and other maths, and postpone studying econometrics. One of my professor said that it’s fine not to study econometrics now deeply because I will study during Phd course, but it’s crucial to fully study and understand maths, statistics before Phd. What do you think?


texts: Outputting Regressions as Table in Python (similar to outreg in stata)?

texts:
Anyone know of a way to get multiple regression outputs (not multivariate regression, literally multiple regressions) in a table indicating which different independent variables were used and what the coefficients / standard errors were, etc.

Essentially, I'm looking for something like outreg, except for python and statsmodels. This seems promising but I don't understand how it works:

http://statsmodels.sourceforge.net/stable/generated/statsmodels.iolib.summary.Summary.html#statsmodels.iolib.summary.Summary

To be fully clear here, I wondering how to make tables similar to the example below:


texts: Why a Current Account deficit implies a Financial Account surplus

texts:
Every macro textbook out there states that if a country has a Current Account deficit, it must have a surplus in the Financial account, but I have not heard a convincing explanation.

Imagine a country that imports something and does not export anything. Why is it that macro textbooks state that the only way for a country to pull that off is by borrowing from the country from which they import. Why? The company that did the importing need not have borrowed to buy the imports. In aggregate, imagine that a country is using its savings to finance the current account deficit so no borrowing takes place. What am I missing here?


texts:
Can anyone please help me understand how fixed costs in the long run are zero? In Microeconomics by J. M. Perloff, the author gives the example of a factory's rent and says that if we are talking about the short run (till the time the rent agreement is valid), the company has to pay rent even if it stops its operation. However, in the long run (when the agreement expires), the company can choose to close down the factory and stop paying the fixed cost and hence we can assume that in the long run all fixed costs are zero.

This example doesn't bode well with me. We are doing analysis of costs on the first hand to plan for our long term use. If an example talks about making our fixed costs zero by shutting the whole production, then it itself defeats the purpose of planning. I, therefore, haven't been able to understand as to how we can have zero fixed costs in the long run (enough time to change all the factors of production) if we continue to work.

Any help will be appreciated


texts: What is the impact of inflation on Pakistan's exports?

texts: I want to know about the relationship between inflation and exports. What is the effect on exports when inflation increases or decreases?


texts: Why does loan waiving lead to a decrease of Non performing assets?

texts:
Context: Loan waving  to small and marginal farmers in India.

  In wake of fulfilling poll promises and increasing farmer protests and
  suicides in India, many state (federal) governments have decided to
  waive loans to small and medium scale farmers.

However, I found on going through various newspaper sources that loan waiving is not a good idea from the economic point of view. Why does then loan waiving lead to a decrease of the NPAs (Non performing assets)?


texts: Discrete choice model without outside option?

texts:
In most empirical studies of discrete choice, the presence of an outside good is assumed.

Can you give an example of a (well published) empirical paper, where there is no outside good and thus utility normalization is w.r.t. to any of the inside goods?


texts:
I have a difference-in-differences analysis. My treatment is at the county level. Each county received the treatment at a certain point in time.

I want to proceed with a propensity score matching as an extension to get DiD-matching results . I know everything about PSM, however, I am not quite sure how to get the STATA command in order to:

Generate Pre- and Post-treatment dummies since I don't have a
treatment at one point in time; i.e. DD is staggered.
Use the DD with pscore


texts: How will London's role as a financial center be affected after the Brexit and what are possible alternatives?

texts:
I looked around on this site and couldn't find anything close to what I'm asking on Economics SE, so I hope it is the right place to ask. I am interested in but have no background in economy, so all my assumptions are based on what I have read in European newspapers over the past weeks and months.

Before the Brexit referendum one argument of the "remain" supporters was that London as a whole profited very much from Britain's EU membership. With the free flux of people and money within the EU London could establish/defend its role as an international financial center. Many banks chose London as their seat as they could have access to the EU from an international and English-speaking environment. It was also argued that London acts as a bridge between Europe and North America.

After the Brexit vote I read that many financial institutes consider leaving (or preparing to leave) London in favor of some other places. I have no idea how a typical day of someone working in the financial area looks like, but from my position I do not really see a big impact if Britain leaves the EU. Several disadvantages already exist today, like varying Euro-Pound exchange rates or border controls. The only real reason I can think of is that there may be higher costs on financial transactions between the UK and the EU. Is that all? How would London's financial market be affected should the UK definitely leave the EU?

Also, where would these institutions go? The most frequently heard names are Frankfurt and Paris. Paris as the capital of the second-largest economy in Europe with strong presence of financial industry, and Frankfurt as the main financial center of Germany with important institutions like the European Central Bank. Arguments against are that in Paris it will be rather difficult to communicate in English in everyday life, and Frankfurt is a relatively small city (while I don't know how that alone would be a disadvantage). So what would be potential alternatives for a firm deciding to leave London?


texts: How prevalent is the use of machine learning among economists?

texts:
I wonder how machine learning, particularly deep neural net which is considered the state-of-the-art among many data scientists, is used among economists, or other experts who is in in the similar field to predict economic situations, such as bank analysts, etc...

I know in econometrics people heavily use statistics. But it is focused on  statistics, not on machine learning, let alone deep learning.

How prevalent is it? What kind of methods/algorithms/models, if any, are frequently used for what kind of purposes among what kind of economists? Where can I see their work (e.g. blog, paper, etc...)


texts: Why is the Marginal Cost (MC) of a monopoly horizontal

texts: I presume it's because they're price makers, but this doesn't really answer much. Furethermore, in a monopoly is it Marginal Cost or Long run marginal cost that's horizontal?


texts: Estimating aggregate production function with sharp decline during a crisis period

texts:
How could one go about estimating a long term aggregate production function, when there is a sharp decline in both factor inputs (i.e. investment and hours worked) and output for a few consecutive periods?
I have seen some research, where the authors either adapt a regime-switching errors technique Bartkus, A., 2016 (although this technique was used in forecasting GDP as a random-walk process, and not estimating a production function), and in another - the authors omitted the "undesireable", "anomalous" data (the three or four consecutive quarters that the sharp fall in GDP was observed in the GFC) from the estimation alltogether.

What other, robust, methods are used when estimating the aggregate production function from such heteroscedastic(?) time-series data? Without going too much into business cycle theory teritory.


texts:
I am writing a paper on European poverty and I am using a treatment control setup
similar to Difference-in-Difference methods.
Now, since the data I am using is rather recent, I would like to condition on "austerity levels", i.e. I would like to make sure that countries in the control group and those in the treatment group are equal in terms of austerity that has been employed.

This is what I have so far:

First of all I defined austerity as umbrella term for the following:

Public wage and employment cuts
Cuts in welfare expenditure
Rescaling labour protection institutions
Changes in pension age
Cutting the minimum wage
Ad-hoc tax rises

First, I thought about using GDP change as a measure. Oviously, there might be a host of other reasons
why GDP changes, especially when there has just been (or there still is) a large economic downturn (defined by declining GDP).

Then, I thought of social welfare spending as an indicator. However, welfare spending might also (and indeed does)
increase in times of crisis, because more people might become unemployed and need support, even though the individual height of the
help has decreased. Moreover, different countries might have chosen completely different approaches to
austerity. E.g. Italy has chosen to increase the tax burden, to change the pensionary system and to fight inefficiencies in taxation and government,
while Latvia has primarily chosen to cut down public salaries (sometimes by 50%), while Greece seems to try both desperately.
That means that it is not so clear that austerity always reflects the same way and especially that social welfare spending is a bad proxy.

Thirdly, I thought of the height of government debt as a proxy, the logic being:
countries which are highly indebted might be forced to cut down on the welfare state.
Again, this is a rather weak predictor for austerity, simply looking at some examples:
Latvia, with a public debt of 40% of GDP in 2012 had to go through a multilateral bailout, while
Germany, with a public debt of about 80% was involved in many bailouts in the recent years.

What I came up with in the end is the following:
the 10 year government bond interest rates show how much confidence financial markets have in the country in question, moreover high interest rates
simply force the country to save, in order to stand a realistic chance of being able to service the debt in future.
Therefore, conditioning on the 10-year government bond interest rate should be able to control for at least some of the austerity effects.

My problem is that I didn't find many recent year studies using a treatment control approach for aggregated data, and even less which would describe
the choice of the right austerity indicator and I am not really trusting my logic.
It seems like I am missing something or that I am making life somewhat too easy.

I would be really interested in hearing your thoughts and your critique, or in the best case someone knows a well-established austerity indicator.
Thank you in advance!

Best wishes


texts: A question related to purification theorem

texts:
I am stuck at some point in part b, I would be very happy if you could help. My calculations are below the question.

a)
P1 plays N with probability p. P2 plays N with probability q.
Mixed Nash: $((\frac{1}{2},N),((\frac{1}{2},N))$
b)
P1 plays N if $(1+x\epsilon_1)q+x\epsilon_1(1-q)>q0+(1-q)1$
$\epsilon_1>\frac{1-2q}{x}$
P2 plays N if $(x\epsilon_2-1)p+x\epsilon_2(1-p)>p0+(1-p)(-1)$
$\epsilon_2>\frac{2p-1}{x}$
The distribution is not necessarily uniform. pdf's are not specified explicitly, so I need to find a general solution.
$p=Pr(\epsilon_1>\frac{1-2q}{x})=1-Pr(\epsilon_1<\frac{1-2q}{x})=1-F_{\epsilon_1} (\epsilon_1<\frac{1-2q}{x})$
$q=Pr(\epsilon_2>\frac{2p-1}{x})=1-Pr(\epsilon_2<\frac{2p-1}{x})=1-F_{\epsilon_2} (\epsilon_2<\frac{2p-1}{x})$
I am stuck at this point.


texts: The ability of markets and prices to direct resources to higher valued uses: Is this a short run or a long run attribute?

texts:
I came across the following quote in a lecture:

"In economics, we often talk about the power of markets and prices to
direct resources to higher valued uses." - Mike Munger

Is this ability of the markets to direct resources to higher valued uses considered to come into effect in the long run or the short run?

Everything below this point has been edited keeping the comment of user:Giskard in mind.

I suspect it is a long-run attribute of markets for the following reason:
Imagine that two firms A and B are bidding for raw materials. Society values the good of firm A more highly than that of firm B, and therefore is willing to pay more for the former than for the latter. In the short run, there may be discrepancies in their respective efficiencies, such that A is less productive and therefore less profitable than B. In the long run, A can adjust its methods of production and "catch up" with B in terms of profitability, thereby ensuring that it is able to outbid B (remember that society is willing to pay more for A's output). To me, it looks as if only in the long run can the resources be seen to be allocated according to its highest value to society, due to the above reasoning. Is this argument a sensible one?


texts: Why did Mankiw especially write the two insights below? Is there any necessity or not? ("Principles of Economics" by N. Gregory Mankiw.)

texts:
I am reading "Principles of Economics" by N. Gregory Mankiw.
The author wrote the two insights below.
When a market is in equilibrium, those buyers who value the good more than the equilibrium price choose to buy the good; buyers who value it less than the equilibrium price do not. Similarly, those sellers whose costs are less than the equilibrium price choose to produce and sell the good; sellers whose costs are greater than the equilibrium price do not.
So, the two insights below are obvious. The two insights below are just special cases of the statement above.
Why did the author especially write the two insights below?
Is there any necessity or not?

These observations lead to two insights about market outcomes:

Free markets allocate the supply of goods to the buyers who value them
most, as measured by their willingness to pay.
Free markets allocate the demand for goods to the sellers who can produce
them at the lowest cost.

Thus, given the quantity produced and sold in a market equilibrium, the social
planner cannot increase economic well-being by changing the allocation of consumption among buyers or the allocation of production among sellers.


texts: Long Term Economic Profit for Perfectly Competitive market

texts: When we consider a perfectly competitive market, in the short run we will run a firm if the total economic profit though negative till price is above shutdown point.In long run we will run at an equilibrium where total economic profit is 0. I am not able to understand why would we run a firm if the profits are negative or 0 ?


texts: Do mechanisms always result in a series of strategic games being played out?

texts:
Mechanism design is an offshoot of game theory, and many call it "inverse game theory", since it involves the use of incentives to ensure that the end result of the game being played out is beneficial to the designer of the game.

That being said, is it always the case that whenever a mechanism is implemented, it results in a game being played out amongst the players?

My intuition says "no", since no game will take place if it is the dominant strategy for all players to reveal their true preferences. Am I correct?


texts:
I am reading a paper by Michal Andrle, Jan Brůha,
Serhat Solmaz (On the sources of business cycles: implications for DSGE models). The authors use data at a quarterly frequency for their empirical analysis. But they also have this statement in their paper, 'Our empirical approach boils down to a multi-country dynamic principal component analysis of data at business cycle frequencies'.
What does the term 'business cycle frequency' mean? And what does it mean to analyze data at business cycle frequency? I have yet found a simple definition for it.


texts: What is the observable definition of "preference" by Frisch?

texts:
To make things weird, although Frisch was fully aware of the importance of random distribution in economics relations, he never mention the randomness in binary preference relations!
How to define preference? I learned that $x\succ y$ means the decision maker is more likely to choose $x$, but I don't know the sources of this.
I found the following definition on Wikipedia:

Suppose a person is offered apples (x) and oranges (y), and is asked to choose one of the two.
Under several repetitions of this experiment (and assuming laboratory conditions controlling outside factors), if the scientist observes that apples are chosen 51% of the time it would mean that $x\succ y$. If half of the time oranges are chosen, then $x\sim y$. Finally, if 51% of the time she chooses oranges it means that $y\succ x$. Preference is here being identified with a greater frequency of choice.

I see that Block, Marschak, Tversky, and Luce use this definition, but their first occupation is not economist I guess. My question is, did Frisch (or other old famous economists except Debreu) used this definition?

Debreu wrote: "The relation $p(a, b) > 1/2$ is read "$a$ is preferred to $b$"
For example, see "Topological Methods in Cardinal Utility Theory" and " STOCHASTIC CHOICE AND CARDINAL UTILITY (Econometrica)"
Tversky use the same thing, for example, in his 1969 "Intransitivity of preferences".

To clarify, the "observable definition", emphasized in the title, means an equivalent condition of "$x$ is preferred $y$" that is economically observable, economically intuitive, experimentally or empirically testable. Of course, everyone who exposed to any microeconomics courses understands the mathematical definition of preference. In contrast, this question asks what is the meaning of "preference" in economic experiments and real world.


texts: How could Euro bonds serve as a "safe haven" asset in the long run?

texts:
The German Bund has been the major safe-haven asset in the Eurozone despite the advent of the Euro. However, I noticed that there is mounting anticipation around a potential 750 billion worth of Euro issuance in coordination with the recovery fund.
The market consensus is that this is a positive for Euro bonds, but I still find the situation a bit perplexing. The commission has had years to promote the Euro (if they agreed that's what they wanted to do), but it's only now, faced with a pandemic, that significant issuance is undertaken. If it takes something as colossal as a pandemic for a meaningful increase in the volume of the Euro bond market, that's not so reassuring for the future of the asset class.
Question
What evidence is available to suggest that the Euro bond is on a more widespread adoption trajectory in terms of being a safe-haven asset class (and not just a fluke of massive fiscal stimulus from the occasional black swan)?


texts: "manufacturing sector" vs. "manufacturing industries"

texts:
From a tutorial

  The main sectors of the economy are: Primary sector, Secondary / manufacturing sector, Service / ‘tertiary’ sector, Quaternary sector

which uses the word "sector", so does Wikipedia.

While some other posts, e.g. the Cambridge Dictionary, and hq.nasa use another word "industry". Which one is the professional term?


texts: How do the Government, Firms and the Foreign sector pay their debts in this circular flow of income?

texts:
Here is a circular flow of income that I took from Krugman's macroenomics textbook.
Please notice, in this diagram households just give their savings to banks (which are part of the financial sector) and everybody else seem to just take these money, not returning them. For an example, Government transfers to households are just good old welfare, not payment for money that the government borrowed from households. Besides, the financial market gives access not only to savings of national households, but also to savings of foreign households. So there should be a separate outward flow from the Government and Firms specifically to the finanical market and specifically for paying their debts. As for the Foreign sector, it needs to add "payment for debts" to its out outward flow to the financial market. But even without the Foreign sector normally debts are paid to banks, rather than directly to people who keep their money in banks.

Do I read the diagram wrong? If yes, how do then Government, Firms and the Foreign sector return money that they borrowed from households according to this diagram? If no, then why does this scheme NOT include any flows for returning borrowed money? I understand that it's all simplification of real life, but presenting borrowing in way that is indistinguishable from charity seems like an OVERsimplification, I don't see reasons why to present borrowing like this. Please enlighten me if you understand why borrowing was presented like this, like a charity.


texts: Efficient revealed preference check of whether two preferences over lotteries are the same?

texts:
I want to find conditions under which two utility functions can be known to be linear transformations of each other.

Consider a (possibly finite) arbitrary set of outcomes $X$ (Not necessarily interpreted as commodities), and a specific utility function $u^*:X\to \mathbb R$. We want to find out whether an agent's utility function is a linear transformation of $u^*$ or not. Consider a set of lotteries $\mathcal L$ on $X$. Now suppose we give an agent choices between subsets $C\subseteq \mathcal L$. What I want is: What choices do we need to give to the agent to know that his utility function is a linear transformation of some utility function $u^*$?
Note: we don't need to check whether the agent has rational preferences. We assume from the outset that he has a vnM utility funciton.

This is simply revealed preference, but I don't recall reading about anything about this specifically.


texts: Why should Greece destroy their cash euros?

texts:
Leading economists in my country (Sweden) recommend and predict that (in the case of default) the Greek government will destroy all the euro bills in the country. Making holes in them and stamp them to become drachmer which are maybe 80% or 90% less valuable than they were. There seems to be about €80 billion (M0) in euro bills in Greece, about a third of one year's GDP.

What would the upside be with destroying this fortune? Wouldn't it be better to for example use those €80 bn to pay the debts? Do any prominent non-Swedish speaking economists give the same advice?

In Sweden former heads of the central bank, the highest government officials, economists at several financial firms and the publicly profiled academic economists (including professors in the committee which chooses so called Nobel prize winners in economics) all talk about destroying the cash euros as if it was some kind of solution. Have they all gone raving mad, or what am i missing? How could it even be done? How force people to destroy their own cash? And I think they have to cut away more than 1/3 of the bill to maculate it, or else they can be exchanged for new euro bills.


texts: Evidence that open source production processes increase efficiency and/or consumer surplus?

texts:
Is there peer reviewed evidence that open source production processes increase efficiency and/or consumer surplus? It seems that the first theorem of welfare economics requires complete markets which requires that all actors have perfect information. Yet, producers zealously seek to keep their own production processes secret rather than public.

For example, Soda Co. has an unpatented secret recipe at time $t_0$ that sells in the market. Are there economists who argue that if Soda Co. must patent and publicly reveal the secret recipe at time $t_x$, efficiency and/or consumer surplus would increase in comparison to current economy?

If not, are there good economic reasons why economic regulation does not require all suppliers to publicly reveal secret recipes, i.e., all information about the production process that would allow other producers to compete in production of the identical product (whether that be Soda Co.'s management techniques, scheduling practices, shipping arrangements, leasing terms, model number of vats, speed of conveyor belts, actual secret recipe for a beverage, etc.)? That is to say, are there good economic reasons that secrets anywhere in the entire production process are not simply barriers to entry?

Maybe Drink Co. can produce and sell Soda Co.'s recipe for 0.01 less than Soda Co. after they clone Soda Co.'s land, labor, capital, entrepreneurship, and recipe due to one tweak? Maybe consumers will only pay 0.10 less after they possess perfect information on how Soda Co. produces the beverage?


texts: Do there exist 'comparative statics' for fixed points?

texts:
I have a basic question about comparative statics. In Wikipedia, it is mentioned that:

    As a study of statics it compares two different equilibrium states...

What exactly is an equilibrium? I have a fixed point in my model. This does not arise from a strategic utility maximisation. I start from an initial point, iterate repeatedly in a bounded space, and I can prove I converge to a given point. Now I would like to see how sensitive my final fixed point is to my initial starting point, which was exogenous.

Does this classify under comparative statics? Or is it just a sensitivity analysis? I am confused because the usual machinery of comparative statics, that is, the implicit function theorem, does not hold in my setting.


texts: What is the difference between solving for utility maximization separately or aggregately?

texts:
I derived the Walrasian equilibrium for an economy of two consumers with their respective utility functions (u1, u2) and initial endowments but later on I am asked to maximize (u1+u2).

Does anyone know how this changes the problem ? Like, what is the difference in both approaches when it comes to the optimal allocations ?


texts: Oligopolistic producers and retail price wars

texts:
Consider an industry with few producers selling differentiated products. The products must be sold through retailers of whom also there are a few and who therefore possess some degree of market power. Each retailer sells the products of all producers.

  What might be the reasons for the producers to dislike a price war
  among the retailers?

With just one producer my guess would have been that the producer would always like a retail price war since a more competitive retail sector would reduce the double-marginalization problem and hence allow the producer to capture more profits. Is this intuition right? And how does moving from monopoly to oligopoly in production change things?

This question comes from a real-world observation. This Diwali (which is to Indian retailers what Christmas is to western ones) there was an intense price war among online retailers in India. In response to this price war, many producers of consumer durables like TVs and cameras made public statements against this price war and actively discouraged consumers from buying from these online retailers by measures such as offering longer warranties for products bought from brick-and-mortar stores.

A simple explanation for this behavior is that this was just to appease the brick-and-mortar stores which still dominate Indian retail.

But could there be a deeper explanation?

One story I could think of was as follows: suppose that the price charged by producers to retailers is not directly observed. Then a retailer price war can make it harder to detect a cut in the producer-to-retailer price. This can cause any implicit price collusion between the producers to break down, something which none of the producers would like to happen.

But I'm sure this is not the only possible explanation.


texts: Why does lowering the value of yuan against the USD disadvantage the US and benefit China

texts:
In this article : https://www.epi.org/blog/trumps-china-tariff-confusion-it-wont-solve-chronic-trade-deficits/ they claim that depreciating the value of the yuan to the USD bolstered China’s economy. The key excerpt is:

For a long time, the fundamental cause of this growing trade chasm
with China was Beijing’s deliberate currency undervaluation. Between
2000 and 2013, China invested more than $4 trillion—nearly 40 percent
of its current GDP—in foreign currency assets, primarily U.S. Treasury
securities.
And it paid off, since it drove down the value of the Chinese yuan
relative to the U.S. dollar. This served as a massive subsidy for
Chinese exports and a tax on U.S. products shipped to China.

My questions are:
(1) How does investing in US assets drive down the value of the yuan?
(2) If the value of the yuan to the USD diminishes, doesn’t that increase the purchasing power of US entities* for products in China e.g. A US citizen can purchase a house in China for less USD. So why is this deleterious for the US and beneficial for China?
*not sure if that’s the correct word to use here. Please feel free to reword q


texts: Negative growth rate with positive job growth

texts: As per CARE RATINGS for India, in FY18 half of the formal sector firms are showing negative sales/growth but positive job growth? Explain please.


texts: How will the Brexit affect the Euro and the Pound?

texts:
The question is the title: How will the brexit affect the euro and the pound?

It looks like GBP is facing a tough situation. It is at its lowest value since 1985. Has GBP dropped permanently(or for a really long time)?

But, what will this mean for the EUR? IMO the EUR will also fall heavily, because a big country from the EU has called quits. This can potentially destroy needy countries(read: Greece).

What do you think about it? Will the Pound and/or the Euro rise or fall(compared to the USD)?


texts: How does one interpret the usda wholesale market price reports?

texts:
For example: http://www.ams.usda.gov/mnreports/nx_fv010.txt

The data for mangos is :
MANGOES:  MARKET STEADY.  flats 1 layer HT Francis (Francine) 9s 11.00 10s
12.00 12s 10.00-12.00 MX Keitt 7s 5.00-6.00 few 6.50 8s 5.00-6.00 few 6.50-7.00
9s 5.00-6.00 few 6.50 10s 5.00-6.00 few 6.50 12s 5.00 occas higher Kent 6s
6.00-7.00 fr appear 4.50 7s 5.00-6.00 8s 5.00-6.00 9s 5.00-6.00 10s 5.00-5.50
few 4.00 12s 5.00 Ataulfo 18s 12.00 25 lb cartons DR Banilejos 36.00

What exactly do these numbers mean?


texts: How does the Fed measure the shadow banking sector in the US?

texts:
It's apparently popular to say on TV [at 2:20 in that clip] that the Fed has no idea what's going on in shadow banking sector. To what extent is that true? (I could ask this on Skeptics as well given format/claim, but I suspect I'll get better answers here).

Or, polemics aside, how does the Fed measure the shadow banking sector in the US?


texts:
I am trying to put forth a theory for endogenous supply chain formation. A set of $K$ complementary tasks need to be performed to manufacture a good $G$. If manufactured, there exists a demand function $d(p_G,q_G)$ that governs the price of the good in the market. Of the $K$ tasks involved in making the good, some are sequential and some are parallel (two complementary products combined to make one). In other words, there is a network (tree) structure that describes the ordering of the tasks.

Now let us assume there are $N>K$ firms in the market. If a firm decides to take up a task, it incurs some fixed cost for the plant, and some variable cost, depending on the number of units produced. However if altogether only a subset of the $K$ tasks are alone accomplished by the firms, then there is no good produced. Thus each firm's decision to produce is contingent on its wealth, its expected profit and the decisions of other firms.

My question: is there a similar theory for supply chain formation? I have read the following papers which come close to describing such formation but I find they are sufficiently different from what I have in mind.

Ostrovsky, Michael. "Stability in supply chain networks." The American Economic Review (2008): 897-923.
Corbett, Charles J., and Uday S. Karmarkar. "Competition and structure in serial supply chains with deterministic demand." Management Science 47.7 (2001): 966-978.
Goyal, Sanjeev, and Fernando Vega-Redondo. "Structural holes in social networks." Journal of Economic Theory 137.1 (2007): 460-492.


texts: Buy a company with credit or bonds. Does this happen?

texts:
I have a question. A company is worth 1 million dollars, in terms of present value of revenues, discounted at rate R. Can I borrow 1 million dollars from a bank and buy the company? If the bank charges me R, I am indifferent?

Or, can I issue a bond for 1 million, with coupon R? Am I indifferent too?

Do these things happen? Do businesses ask for credit or issue bonds in order to buy companies?


texts: Which measure of total loans is more relevant to Financial Stability?

texts: I am writing a paper on the financial stability of the banking sector. One factor im looking at is the amount of new loans or credit issued (credit growth). I have two different total loan measures. One measures the total loans by their utilisation while the other measures them by the credit lines spoken. Which measure would be more appropriate when regarding the financial stability of the banking sector? Im tending towards using the total credit lines which have been spoken.


texts: Why does everything get more expensive as cities grow in density/size?

texts:
I have long wondered why groceries, rent, and especially cially taxes increase as cities get larger since the cost per capita goes down, at least according to everything I've read including a summary of Scale:
https://www.wsj.com/articles/how-nature-scales-up-1498239216

I could see the real estate gets priced up due to supply and demand, it's also more efficiently utilized, as denser cities are used 24h per day, and all areas see. To be used as work AND home with restaurants that service business customers during the day  residential at  night and both in morning.

And that doesnt explain higher tax Rates, which see, anecdotally at least to be higher.


texts: Does a strong US Dollar hurt American Manufacturing?

texts:
I am reading this article about the strengthening of the US Dollar when I came across this paragraph:

"But there are reasons to be cautious. A strong dollar will squeeze American manufacturers, which have otherwise benefited from falling energy prices and rising wages in China. That will weigh on growth in the United States and further suppress inflation, which is already well below the Fed’s target."

Am I understanding it correctly that because the Dollar is getting stronger that it will hurt American Manufacturers?

Source article: http://www.msn.com/en-us/money/markets/the-dollar-keeps-rising-for-good-or-evil/ar-BBoJUq2?li=BBnb7Kz&ocid=iehp


texts: Is there a way to identify two goods as complement or substitute simple by calculating their MRS?

texts: Suppose, given the utility function $U(x_{1},x_{2})$ with known budget $m$ and price vector $p$. If I calculate MRS from this function, can I get information about whether these two goods are complement or substitute? Seems like when I apply Cobb-Douglas utility function I end up with a function containing both $x_{1}$ and $x_{2}$.


texts: How can I adjust the base year of this price index?

texts:
I am given the following data for GDP deflator:

1997: 100.0

1998: 100.8

1999: 102.5

2000: 109.9

2001: 112.5

2002: 115.9

2003: 119.7

2004: 122.1

2005: 126.5

...and so on.

Currently, 1997 is the base year. However, I would like to rescale this index so that 2002 is the base year. Could I do this simply by solving 115.9-x=100 (x=15.9) and then subtracting 15.9 from each annual value? That is, would the following index be equivalent:

1997: 84.1

1998: 84.9

1999: 86.6

2000: 94.0

2001: 96.6

2002: 100.0

2003: 103.8

...and so on.


texts: "Buy a country", expression or possibility?

texts:
I keep hearing the term, "enough money to buy a country". My question is: Is it realy possible to buy a country or is this just an expression? and if so how would this work since there is no 1 person you could pay for it?

So "Bill Gates has enough money to buy a country." Is this another way of saying he has a lot of money or does this mean he could actualy buy a country if he wished for it. And if its the later then say he did want to do it. How would this work?

Thanks


texts: Calculating mean variance portfolio with risk aversion parameter

texts:
I want to calculate the classic mean variance portfolio (Markowitz) with a risk aversion parameter $\gamma$.
I have the following problem where I want to maximize:

  $max(x_t) \ \ x_t^T\mu_t - \frac{\gamma}{2}x_t^T\Sigma_tx_t$

Where $\mu$ = mean

$x_t$ = portfolio at time $t$

$\Sigma$ = sample covariance matrix

w(t) is the vector of relative weights in the portfolio, calculated as follows:

$w_t=\frac{x_t}{1_N^Tx_t}$

1_N is a vector of ones (N elements)

My concern is that in the literature I have seen only solution for the above maximization problem where the risk aversion parameter drops out:

$w_t=\frac{\Sigma_t^{-1}\mu_t}{1_N\Sigma_t^{-1}\mu_t}$

I'm wondering at which point do we account for the risk aversion parameter during the optimization?


texts:
I have a data set (about 60 observations for each variable) for monthly operating income for a Japanese company denoted in EUR, USD, and JPY, and their respective currencies. I believe there is linear relationship between the currencies and the respective operating income denoted in the currencies. However, the first differences in operating income and currencies are random.

What is the best way to forecast the exposure of the future short-term month's operating income?

I have translated the foreign income to JPY and added them together with their domestic operating income, and then use moving average, weighted moving average and trend line to forecast the next month (into the future).

I have also used the first differences/increments of the operating incomes and their respective currencies to make them stationary, and to find the regression and coefficient. However, I don't know how to use the results to forecast.

Are there any other models that produce better outcomes for this fairly limited sample set?


texts: Where can I find statistics for numbers of 16-20 year olds in the world?

texts:
Where can I find statistics about how many 16-20 years old people do live in the world?

If there is no such statistics, how about people in this age-range in europe+amerika?


texts:
I read something similar to here, http://www.businessinsider.com/onshore-and-offshore-renminbi-2014-2?IR=T, paragraph 6, that demand for renminbi drives down cny bond market?

I can understand how demand for bonds can drive the currency markets (because to buy local denominated bonds mean you have to purchase the currency) but I cannot understand how demand for the currency can drive the bond markets and to what extent this happens.


texts: What would happen if layoffs were made illegal?

texts: I was trying to explain to my friend why I don't think raising the minimum wage will benefit workers. He said "what if we just made layoffs illegal through legislation?". Is this even possible? If so, what would be the economic impact? Thanks.


texts: Does a store suffering increased theft generally cause higher prices?

texts:
If a store suffers an increase in theft, will it generally lead to higher prices at that store?
My answer is that prices should have already been set to maximize the trade off between profit-per-sale and volume sold, so that if the store experiences increased costs of business, they cannot recover the loss by passing it onto consumers.  They HAVE to eat the loss, unless prices were set irrationally to begin with (in which case the theft only prompted the store to fix their mistake).
However, the majority of people and articles seem to take it for granted that a store will pass increased costs, such as theft, onto customers.


texts: Generalizing demand for perfect substitutes utility function

texts:
I have the utility function:
$U(x_1,...,x_n)=a_0+\sum_{i=1}^{n}a_ix_i\;\;\;\;\;\;\;\;\;a_j\in\mathbb{R}_+ \;\;\forall j=\{0,...,n\}$ (maybe $a_0$ could be zero)
$\sum_{i=1}^{n}a_i\in (0,K)\;\;\;$ where $K<\infty$
Where the problem is:
$\max_{x_1,...,x_n}U\;\;\;\;\;\;\;\;c.t.\;\;\sum_{i=1}^{n}p_ix_i=m\;\;\;\;\;$ (With positive prices and income)
Which is the general case for perfect substitutes preferences for finding Walrasian-Marshallian demands. In the particular case $n=2$ the solution could be found geometrically, and the optimum turns out to be one of three cases (where two of them are corner solutions) depending on the relation between prices and parameters $a$. When $p_1/p_2>a_1/a_2$ solution is $(x_1^*=0, x_2^*=m/p_2)$, and the opposite case she spends all income in $x_1$, and the third case is a continuum of feasible points that satisfy the budget constraint.
So, here's the question: Is there a way to obtain a generalized Walrasian-Marshallian demand function (I imagine it would be by parts) for $n$-goods in this case, just like in Cobb-Douglas preferences that it turns out to be $x_i^m=\frac{a_im}{p_i\sum_{i=1}^{n}a_i}$ (please prove).


texts: Is egyptology a pyramid scheme: Self-perpetuating university programs

texts:
My friend got a degree in egyptology, but can’t get a job, So he’s paying more money to get a Phd, so he can work teaching other people egyptology.  In his case college is literally a pyramid scheme.

Copied from here, but I have seen the joke elsewhere as well.
My personal experience is that neither the university nor most university professors care to evaluate whether their curriculum has a lot of applicability/use. (Some professors claim this is not a goal or cannot be measured in any way; while many universities claim their programs are also very practical, but if you read the actual claim it is very much PR with little scientific measurement.)
Has there been any academic research into which fields satisfy the following criteria:

Most of the people who complete the university program do not find placement in the field.
There is some (perhaps not conclusive) statistical evidence that the program gives no benefits in the actual field (not the field the program was in) where these people eventually start to work in. E.g. it can be useful to study theoretical math even if you end up programming, as your logic may improve. Perhaps this could be measured with a control group of people who had similar backrounds to those who got into the math program but did not apply to get in; how different is their success in the same field?

P.s.: Does egyptology really fulfill these criteria?

Edit: Added the word perhaps.


texts: In what way specifically are US CEO's able to engage in rent-seeking and exploit corporate governance to increase compensation?

texts:
I've seen videos where Prof. Stiglitz mentions CEO compensation associated with rent-seeking:

https://youtu.be/b7wIw1VNjSk?t=29m58s
https://youtu.be/heOVJM2JZxI?t=41m28s

I looked on the web and saw a story about how government subsidies meant for workers are absorbed by the executives and that the company's lobbyists are seeking these rents. However, I don't understand how exactly that's done. What are some examples?

I also remember seeing an interview with either him or Prof. Krugman where they mentioned that CEO's are able to exploit the structure of corporate governance (using the board of directors) to artificially increase their compensation. How exactly is this done if it does occur?


texts: Hamilton-Jacobi-Bellman with heterogeneous discount rates

texts:
Let $i=1,2$ denote the players, $x$ the state and $u_i$ the control of player $i$. The state equation reads $\dot x = f(x,u_1,u_2)$ and the objective function is given by $F_i(x,u_1,u_2)$. Now I'd like to solve the following optimal control problem of joint maximization (cooperative solution)
\begin{align}
V(x(0)) := \max_{u_1,u_2}\int^\infty_0{(e^{-r_1t}F_1(x,u_1,u_2) + e^{-r_2t}F_2(x,u_1,u_2))dt}
\end{align}

where $r_i > 0$ is the time preference rate. I was wondering how to apply the Hamilton-Jacobi-Bellman in this case. Is something like the following possible?
\begin{align}
\frac{r_1+r_2}{2}V(x) = \max_{u_1,u_2}\{F_1(x,u_1,u_2) + F_2(x,u_1,u_2) + V'(x)f(x,u_1,u_2)\}
\end{align}


texts:
The Partial least square structural equation modeling (PLS-PM, PLS-SEM) method to structural equation modeling allows estimating complex cause-effect relationship models with latent variables. This method seems quite popular in accounting, marketing, and management.

Do you know any good application in economics? Is this method reliable to get causal estimates?


texts: Relationship between the Lagrangian and consumption euler equation?

texts:
I think that the best way for me to ask my question would be to start with an example.

Suppose that consumers have a two-period horizon and their instantaneous utility is:
$\:$

$U(C_{t})=ln \: C_{t}$

$\:$

Where $C_{t}>0$$\:$ denotes consumption. Assume that agents supply a fixed amount of labour $L$ and have no initial bonds $B$ or capital $K$. Agents discount utility of the second period with the discount factor $1>\beta>0$.
$\:$

The budget constraint is:
$\:$

$C_{1}+\frac{C_{2}}{1+r_{1}}$ =$\:$ $(w/P)_{1}$$L$ $\:$ + $\frac{(w/P)_{2}L}{1+r_{1}}$
$\:$

The Lagrangian is:
$\:$

$\mathcal L = \ln C_1 + \beta \ln C_2 - \mu \left[ C_1 + \frac{C_2}{1+r_1} -(w / P)_{1} L - \frac{(w/P)_{2}L}{1+r_{1}} \right]$

I now have two questions:

Assuming that I compute the correct FOCs, how do I go about deriving the consumption euler equation?
$\:$
Could you guys please help me with the formatting of my lagrangian?
I want to make the square parentheses large enough to encapsulate everything.
$\:$

Thanks.


texts: How huge is the multiplicator of social welfare in current societies?

texts: If you give somebody with a high consummate some extra money, most likely it will be spent. Having this spent for e.g. groceries this will make sales man, farmer, ... employed so they pay taxes are buy groceries for their own. How huge is the multiplicator on this for modern services oriented societies?


texts: Is the Ramsey model one with non negative investment?

texts: I have a very fundamental question. I am currently searching for an economic growth model with non negative investment. Can someone tell me if the Ramsey model is one with non negative investment and if so - why? Thank you very much


texts: Human Capital and Investment into Children

texts:
Famous labor economist James Heckman made the argument that given money for investing into educating people, we should invest into young children, and pretty much only that age group, because they have the most periods of time to compound human capital over time, and arguably get the most benefit from it.

http://jenni.uchicago.edu/papers/Heckman_Masterov_RAE_2007_v29_n3.pdf

Obviously it's a pretty strong argument, and I was wondering what sort of research in the literature you might find important that takes the stance against this sort of idea. My intuition tells me that we'd want to smooth investment into all sorts of age groups of people for some sort of externality reason.


texts: Allowing the reserve requirements drop to zero

texts: On 15 March 2020, the Federal Reserves announced that it would cut its benchmark rate to near zero and that it would also reduce the reserve requirements ratio to zero percent. This is part of its efforts to bolster the economy amidst this downturn. The reserve requirements ratio was put in place to prevent bank runs, which would be damaging to financial institutions as well as households. Why would the Fed deem that it is now safe to put the reserve requirements ratio to zero? Is it no longer afraid that bank runs may occur?


texts: What is the difference between Common Goods and Common Pool Resources?

texts: All this time I was thinking that common-pool resources are common goods, until I read this excerpt from a book.


texts:
I am trying to understand which corporate governance model Millennium BCP, which is a Portuguese bank, uses in its Management model. I read that there are three systems: the monist/one tier, the Anglo-Saxon and the dualist. On the Millennium website, it says it is a monist/one tier, but to me it seems more Anglo-Saxon and it seems that there are sites that contradict the Millennium site and also say that it is Anglo-Saxon. What is the difference between each of the Management models (monist/one tier, Anglo-Saxon and dualist) and the advantages and disadvantages of each one? What is the Management model that applies to Millennium BCP?
The hierarchy of Millennium BCP is shown in the following image:


texts:
I am confused about the following statement from Wikipedia:

"A mixed strategy is an assignment of a probability to each pure strategy. This allows for a player to randomly select a pure strategy. Since probabilities are continuous, there are infinitely many mixed strategies available to a player."

How do we check the Nash equilibrium inequality then?

For example, in Bayesian games with player set $N=\{1,2,\ldots,n\}$, the equilibrium is defined as the strategy profile $s=(s_i,s_{-i})$ such that, we have $$EU_i(s_i,s_{-i})\geq EU_i(s_i',s_{-i}),$$ for all $s_i'\in S_i$, for all $i\in N$ and $s_i'\neq s_i$.

In many texts, $S_i$ is defined as the function $S_i:\Theta_i\to\Pi(A_i)$, where $\Theta_i$ is the type set and $\Pi(A_i)$ is the probability distribution over the actions.

How is it possible to have infinitely many mixed strategies? What is $S_i$ exactly, a set or a function?


texts: I am thinking through the parallels between military and business strategy but am stuck on a foundational aspect. Most of business strategy results from some kind of competition in order to gain market share, which can be measured by revenue, profit, or the amount of benefit/utility a consumer gains from the product or service. However I am struggling with creating an analogy for the measure or benefits from military competition. Is there a similar way to describe "security" or policy attainment as a result of a military competition (battle/war)? I have reviewed the game theory ideas around military conflicts, and don't believe this is the correct approach, but will be glad to consider a different perspective. Thank you


texts: Cournot model with piecewise inverse demand

texts:
Do you know if there exist results for Cournot oligopoly (or duopoly) when the inverse demand is a piecewise continuous?
Something of this type

$P(Q) = \alpha-\beta Q$ (if $0\leq Q<Q'$)
$P(Q) = \gamma-\delta Q$ (if $Q' \leq Q \leq Q_{max}$)


texts: MWG_3D4_C, why the solution seems in reverse?

texts:
I'm doing exercises of Chapter3 of MWG, there's a problem that I don't understand (I didn't figure out the solution manual either...).
It is about exercise 3.D.4, the full statement of the exercise is as follows:
Let $(−∞,∞)×R^{(L−1)}_+$ denote the consumption set, and assume that preferences are strictly convex and quasilinear. Normalize $p_1=1$.
(a) Show that the Walrasian demand functions for goods $2,...,L$ are independent of wealth. What does this imply about the wealth effect of demand for good 1?
(b) Argue that the indirect utility function can be written in the form $v(p,w)=w+\phi(p)$ for some function $\phi(⋅)$.
(c) Suppose, for simplicity, that $L=2$, and write the consumer's utility function as $u(x_1,x_2)=x_1+η(x_2)$. Now, however, let the consumption set be $R^2_+$, so that there is a nonnegative constraint on the consumption of the numeraire $x_1$. Fix prices $p$, and examine how the consumer's Walrasian demand changes as wealth w vary. When is the nonnegativity constraint on the numeraire irrelevant?
Question In the solution in part c we reach to the conclusion that the consumer spends all the wealth on $x_2$ and spend what's left on $x_1$. Shouldn't this be in reverse?
p.s. I'm thinking about the graph that maximum utility is achieved when we spend all the money on good 1 on nothing on good 2.


texts: Where did Robert Lucas say "market is always in equilibrium"?

texts: Does have anyone link to the reference where Robert Lucas said "market is always in equilibrium"?


texts: Revealed preferance: elementary question

texts:
When the market prices are Rs 5 per apple and Rs 6 per orange a person
  buys 16 apples and 28 oranges. When the prices are Rs 4.4 per apple
  and Rs 6.4 per orange ,the person buys 20 apples and 25
  oranges.Assuming that utility is derived only from apples and
  oranges,in which situation is the person better off?

My answer: it can't be said because in the first case the second bundle is not affordable and in the second case the first one is not affordable. Therefore, none is revealed preferred to the other?

Is this correct? Please help. I'm trying to understand this concept. Thanks so much in advance.


texts: How to calculate Debt to GDP ratio quarterly?

texts:
I know the formula Debt to GDP ratio = Debt : GDP
I have debt quarterly data and GDP (yearly and quarterly).
The one that make me confuse is, when i use Debt Q1 2014, for example it wont match with GDP (since GDP is only for 3 months January-March).
What type or Which GDP date should i use as denominator, GDP Q4 2013, or GDP Q4 2014?


texts:
Consider a sequential game with two players who use the following procedure to share two desirable, identical and indivisible objects. Player 1 proposes an allocation in stage 1 which player 2 either accepts or rejects. In the event of rejection, neither player receives either of the objects and in the event of acceptance the objects are allocated according to the proposal of player 1.

The subgame perfect Nash equilibrium of the game is where player 1 allocates both the objects to himself and player 2 receives nothing. Is there any Nash equilibrium of this game other this?


texts: What is the difference between a bank's Treasury department and ALCO?

texts:
I know that the treasury manages and controls the bank's capital. While the Asset-Liability Committee deals with the assets and liabilities in order to stay solvent, right?
What are the similarities and differences between the two?


texts: A study plan to understand game theory papers

texts: This may not be an appropriate question for this platform, but I couldn't think of any place that it fits. My concern is understanding about game theory papers. Whenever I read classical papers of Harsanyi, Aumann etc. I start to feel lost with unknown math. This happens a lot. I studied many of these classical concepts on a textbook level and I had no problem at all, but when it comes to the original paper I can easily lost the track because of mathematical sophistication. I know a little bit of real analysis (Baby Rudin first $4$ chapters), I have studied a little bit of topology (Munkres) I have also some background in set theory, statistics etc. So I am not a complete beginner. What I want is to understand, at least on a reasonable level, a technical game theory paper such as Harsanyi (1973a) and  Harsanyi (1973b). Can anyone suggest me a study plan with books and such? It can start from zero level I have time and patience. Any advice will be greatly appreciated!