texts: Long run trade off between inflation and output

texts:
In "The incredible Volcker Disinflation" by Goodfriend and King (2005) we are presented with the NK Pricing equation

$\pi_t = E_t\pi_{t+1} + h(y_t-y_t^*)$

the author then mentions that there is no "long run trade-off" in the equation since "output is at capacity when current and expected future inflation are equal".

Can anybody elucidate the meaning of "long run trade-off" and the following sentence?


texts: Time-dependent market-clearing equilibrium price

texts:
I'm working my way through Chiang and Wainwright's Fundamental Methods of Mathematical Economics (4th ed) while holed up at home. On p. 532, in exercise 16.4 2. (b), the authors ask you to find the intertemporal equilibrium price and the market-clearing equilibrium price in the following model:

$$\begin{align}
Q_d & = \alpha - \beta P + m P' + n P'' \\
Q_s & = -\gamma + \delta P \\
P' & = j(Q_d - Q_s)
\end{align}$$

where $\alpha, \beta, \gamma, \delta > 0$, and $n \ne 0$. Reducing this to a single second-order differential equation yields

$$P'' + \frac{ mj - 1 }{ n } P' - \frac{ \beta + \delta }{ n } P = -\frac{ \alpha + \gamma }{ n }$$

from which the intertemporal equilibrium price

$$\bar P = \frac{ \alpha + \gamma }{ \beta + \delta }$$

can immediately be inferred. Now, for the market-clearing equilibrium price, my approach was to set $Q_s = Q_d$ and solve for $P$, observing that for $Q_s = Q_d$, $P' = 0$ by the third model equation; this yields

$$P^*(t) = \frac{ \alpha + \gamma + n P''(t) }{ \beta + \delta }$$

However, looking at the solution for this exercise, I'm finding that the market-clearing equilibrium price is also supposed to be

$$P^* = \frac{ \alpha + \gamma }{ \beta + \delta }$$

according to the authors. This would seem to require that $P''(t) = 0$ when the market is cleared, and I cannot see how this must necessarily follow from the model equations.

Plugging my solution into the model equations indicates that at the price $P^*(t)$, the market is indeed cleared, though if $P''(t) \ne 0$, this is merely a coincidence. That said, surely the authors are correct, and the error is on my part.

Unfortunately I cannot see where I went wrong. I'd appreciate any help, pointers or tips. Thank you, and stay safe!


texts: Is the American economy on the same path when it had a massive crash in 2007? Is there another bubble coming

texts:
I guess I should not be asking for technical answers, because I've learned economists are not to predict things like this.  Yet from current data, and this article that reviewed said data: http://www.ronpaullibertyreport.com/archives/this-new-bubble-is-even-bigger-than-the-subprime-fiasco

It seems we are on the verge of a second bubble burst and financial crisis.  President Trump and his cabinet have only done bad things for the lower classes of America.  Defunding public education, making a mess of healthcare, taking is out of the TTP which gives China power in the global economy, and now with the STUDENT LOAN DEBT BUBBLE...it seems in a few years or less, we are going to hit the crash again.  Our economy has not recovered from the last.  I saw the film,"The Big Short" and the world nearly ended in an economic sense in 2007.  If we hit it again, things aren't looking good.  What do you think, from current trends and data?


texts: How much interest rate would make his earnings the same

texts:
A rural landowner can deposit his savings in a commercial bank and receive an annual interest rate of 8%. Alternatively he can lend to
villagers who need credit. If all loans are of the same size and only sixty per
cent of them are repaid, the how much interest rate would make his earnings the same as from depositing his savings in a bank?

I took the case that suppose landowner has 100 dollars and he is landing to one villager for one year, then if he deposits in bank for a year he gets 108 after one year, but if he gives it to villager, he gets 60 dollars back as given and to compensate he must have charged 48%, so that total is 108 dollars. But answer given for this question is 80%? Why is that?


texts: Replicate Romer and Romer (2004) results

texts:
I am trying to replicate figure 2 from Romer and Romer's (2004) paper on monetary shocks (http://eml.berkeley.edu/~dromer/papers/AER_September04.pdf). Essentially, having generated a series for monetary shocks, they run the following ADL regression:

$\Delta y_t=a_0+\sum_{k=1}^{11}a_kD_{kt}+\sum_{i=1}^{24}b_i \Delta y_{t-1}+\sum_{j=1}^{36}c_jS_{t-j}+e_t$

where $y$ is the log of industrial production, $S$ are monetary shocks and the $D_k$'s are monthly dummies. The say that the "estimated response of log output after one month is $c_1$, the coefficient on the first lag of $S$; the estimated response of log output after two months is $c_1+(c_2+b_1c_1)$; and so on."

My question is: how do I iterate this forward to produce figure 2, i.e., what is the formula for the response after three months etc?


texts: On the interpretation of the coefficients in a log-log model as an average

texts:
In the linear regression model $E(y|X)=x'\beta$, and so we're capable of interpreting a $\beta_i$ as $\Delta E(y|\text{all fixed except } x_i)=\beta_i \Delta x_i$. I'm thinking in discrete changes.
Hence, we're able to interpret the estimator of $\beta_i$ as an estimation of what happens on average.

I was wondering if this interpretation of the coefficients' estimators is also preserved when we have a log-log model... $ E(\%\Delta y|\text{all fixed except } x_i)\approx \beta_i \%\Delta x_i$

Any help would be appreciated.


texts: Should a sub-game perfect Nash Equilibrium always be a part of the Nash Equilibrium of a game?

texts:
I'm solving a 3 person game and the Subgame Perfect Nash Equilibrium I get is not a part of the Nash Equilibrium. Isn't a SPNE supposed to be a refinement over the Nash? I've seen some Nash Equilibria not being a part of the SPNE (i.e., some NE being redundant), but I wonder if a SPNE is supposed to just cut down the NE into one SPNE or if it can be something completely different.
The SPNE has a mixed strategy for 2 players and a pure strategy for one player.
Here is the game for anyone interested.


texts: AR(p) with white noise error term -- always covariance stationary?

texts: Is it always true that an AR(p) process with a white noise error will be covariance stationary?


texts: Are monotonic and continuous preferences necessarily rational?

texts:
Let $\succsim$ be a strictly monotonic and continuous preference relation, and let $X=\mathbb{R}^{n}$ be the consumption set.

Is rationality of $\succsim$ implied by these conditions?

I think transitivity is implied by continuity. However, completeness is troubling, as there are elements $x,y \in X$ that cannot be ordered with respect to $\leq$ or $\geq$, and so we cannot use monotonicity to show that $\succsim$ is complete.

I have thought of constructing a sequence $x_{n}$ with $x_{1}=x$ such that $x_{n} \to y$ and either $x_{n}\succsim x_{n+1}$ or $x_{n+1} \succsim x_{n}$. Then by transitivity and continuity we could show that $x$ and $y$ can be ordered with respect to $\succsim$, but I do not think it is possible to construct such a sequence.

Any help would be appreciated, but please give hints and not full solutions.


texts: How do I compute the relative risk aversion of Epstein-Zin preferences?

texts:
$$
\newcommand{\E}{\mathbb{E}}
$$
Preface
This question is related to this one about the elasticity of intertemporal substitution and this one about the definition of absolute risk aversion. (It's related to the second one insofar as the definition of relative risk aversion can be motivated by the quantity that solves
$$
U(C(1-RRA/2)) = \E[U(C(1-\epsilon))\mid C].
$$
Question
In this question, I want to know how to compute the relative risk aversion
of Epstein-Zin preferences.
Let a consumption
sequence be given $C=(C_0, C_1,...)$ and let
$C_t^+ = (C_t, C_{t+1}, ...)$.
Now, suppose I have Epstein-Zin preferences,
\begin{align*}
U_t(C_t^+) &= f(C_t, q(U_{t+1}(C_{t+1}^+))) \\
U_t  &= \left \{(1-\beta) C_t^{1-\rho}
+ \beta \left(\E_t[U_{t+1}^{1-\gamma}]\right)^{\frac{1-\rho}{1-\gamma}}
\right\}^{\frac{1}{1-\rho}},
\end{align*}
where $f$ is the time aggregator and $q$ is the conditional certainty
equivalent operator. That is,
$$
f(c,q) = ((1-\beta) c^{1-\rho} + \beta q^{1-\rho})^{\frac{1}{1-\rho}}
$$
and
$$
q_t = q(U_{t+1}) = \left(\E_t[U_{t+1}^{1-\gamma}]\right)^{\frac{1}{1-\gamma}}.
$$
How do I show that the coefficient of relative risk aversion is
$\gamma$?
Notes
Applying the usual definition of relative risk aversion appears to require care. If we were to calculate $RRA = -c u''(c)/u'(c)$, we would need to be careful
about the time subscripts on $c$. Calculating these derivatives with respect to $C_t$ would not give us the correct answer. It should probably be
$$
RRA = - C_{t+1} \left . \frac{\partial^2 U_t}{\partial C_{t+1}^2} \middle / \frac{\partial U_t}{\partial C_{t+1}} \right. .
$$


texts:
I am currently working on a problem set in a book that asks me to compute the annualized average return for a portfolio, benchmark, and then the relative return from the annual returns reported. I have been using the equation
    $$Return = (\prod_{t=1}^{T} (1+r_t))^\frac{12}{T}-1$$

The numbers are as follows in %:

Year 1
Port Return: 26.97
Benchmark Return: 24.94
Relative Return: 2.02

Year 2
Port: 16.04%
Bench: 14.03
Relat: 2.01

Year 3
Port: -41.98
Bench: -39.98
Relat: -2

However my book, Trading and Money Management, states if a strategy has a monthly return of $r_t$ in month $t$ within a period of $T$ months, where $T>12$, the annualized average return is the equation above.

My issue arises because it wants monthly returns, not annual returns. Secondly, it states, "Note that the annualized average 3-year relative return is negative even though portfolio beat the benchmark by more than 2% in first two years and only lagged in last year. Explain"

I have tried assuming the returns as monthly and let $T=36$ and got $-5.09, -5.08, and 0.66%$ respectively. I am pretty sure something is wrong, but I cannot figure out what it is.


texts: How to integrate a piece-wise function and what are semicolons in function notation?

texts:
I'm trying to get the cdf from a pdf, which, according to this MIT open courseware video, is as simple as getting integral from -$\infty$ to $\infty$. Like this:

$$
F_z(z) = \int_{-\infty}^\infty f_z(z)dz\, = 1
$$

And that works for functions like this: $f_x(X)$

But what about a function like this $f(X;\beta)$?

Yeah, this is a homework problem, so I don't expect an exact answer, but hopefully some general principles. I have a hard time googling to learn how to do this because I don't know what to call this kind of function $f(X;\beta)$, and I don't know how to type a $\beta$ into google.

The pdf I have is:

$$
f(X;\beta)=
    \begin{cases}
      \frac {e^{-X/\beta}}{\beta}, & \ X\geq0 \\
      0, & \text{otherwise}
    \end{cases}
$$

and the cdf it comes out to is:
$$
f(X;\theta)=1-e^{-X/\beta}
$$

Part of my question is also, why did the $f(X;\beta)$ become $f(X;\theta)$?


texts: Given fractional banking and the multiplier effect, for every dollar in circulation, how many dollars in spendable money exist?

texts:
The fractional banking system, in a nutshell, allows banks to invest the money deposited in them, and then for whoever ends up with that invested money to deposit the money back into the bank, which can then reinvest it and so on. For example, let's say Mike puts \$1000 into a bank. The bank might invest \$800 of those dollars into a factory, which then pays the \$800 to its workers that themselves deposit their \$800 into the bank. So while Mike's bank account balance still reads \$1000, the workers' bank accounts include \$800 of those same dollars that have been paid out on loan from the bank, meaning the bank has effectively turned Mike's \$1000 into \$1800, and can loan out that same \$800 to triple dip, quadruple dip, and so on ad infinitum.

In practice, in the world and the United States, how many spendable dollars are created for each actual dollar in circulation, M0 to M1?


texts: Why should the statistical value of life exist?

texts:
In areas such as insurance pricing and government policy analysis, it is often necessary to assign human life a monetary amount in order to compare it with other monetary amounts.  So economists have a measure called the statistical value of life, which in some sense quantifies how much a person values his own life.  It's usually calculated to be about 10 million dollars for most people.  Now this isn't literally the dollar amount a person puts on his life, because that amount is usually infinity; it's possible that no amount of money would convince the average person to give up his own life, and the average person would be willing to spend any amount of money to save his own life.  So the technical definition is trickier: the statistical value of a person's life is the dollar amount $X$ such that for all probabilities $p$, or at least all values of $p$ relatively close to 0 the person would be indifferent between a situation where their chance of dying is $p$, and a situation where their chance of losing $X$ dollars is $p$.  (An equivalent definition can be given in terms of reducing your chance of death and gaining money.)

My question is not about why this concept is useful; I understand its utility.  (No pun intended.)  My question is, why should the statistical value of life exist at all?  That is to say, why should there exist a single value of $X$ that satisfies this definition for all values of $p$, or even all values of $p$ that are sufficiently close to $0$?

Let's discuss this more formally.  Let $A$ is the set of possible preferences, and let $G(A)$ be the set of "gambles" or "lotteries" over $A$.  Then the von Neumann-Morgenstern theorem states that if a person's preference ordering over $G(A)$ satisfies certain rationality axioms, then the person's preferences can be represented by a utility function $u: A → ℝ$. That means that the value that a person puts on any lottery $L$ is the expected value of$u$ under the probability distribution of $L$.

So I would not be surprised at all if a person was indifferent between a 1 percent chance of getting 10 dollars and a 1 percent chance of getting a chocolate sundae, and was also indifferent between a 2 percent chance of getting 10 dollars and a 2 percent chance of getting a chocolate sundae; that would just indicate to me that the person's preferences satisfy the von Neumann-Morgenstern rationality axioms.  But I don't understand why, if a person was indifferent between a 1 percent chance of losing 10 million dollars and a 1 percent chance of dying, they would necessarily also be indifferent between a 2% chance of losing 10 million dollars and a 2% chance of dying.  That's because living and dying do not comport with von Neumann Morgenstern axioms; the average places the utility of survival at infinity, and yet they assign finite values to small risks of dying.  So I see no reason why lotteries involving risks of living and dying should obey the von Neumann-Morgenstern axioms.

And yet empirically, it seems that studies have found that the statistical value of life is a well-defined and measurable quantity, at least for sufficiently small values of $p$.  So what is the reason for this?  What is the reason that lotteries involving small risks of dying obey the von Neumann-Morgenstern axioms, when living and dying themselves do not?


texts: Why does a lack of pipelines cause Canadian crude oil to trade at a discount compared to US crude oil?

texts:
There is an ongoing political battle in Canada about the proposed expansion of the Kinder Morgan Trans Mountain pipeline.

One argument in favour of the expansion that is repeated by just about every news article on the topic (example) is that the lack of pipeline capacity to get Canadian oil to market is causing Canadian oil to sell at a discount compared to US oil.

I'd like to understand this connection between pipeline capacity and oil price.

Naively, I would think that if pipeline capacity is scarce and the oil has to be transported by more expensive means like rail, its price would be higher to reflect the increased cost.


texts: Reference for truthful Nash on cartesian domain implies strategy-proofness

texts:
Consider a mechanism $M: \mathcal{R} \rightarrow X$, where

$\mathcal{R}$ is a domain of preference profiles $R = (R_1,\dots, R_n)$, and
$X$ is a set of outcomes.

I believe that the following is a folk theorem

  If the domain $\mathcal{R}$ is a cartesian domain, i.e., $\mathcal{R} = \times_{i\in \{1,\dots,n\}} \mathcal{R}_i$, for some collection of individual domains $(\mathcal{R}_1,\dots, \mathcal{R}_n)$ and the game $(M,R)$ has a truthful Nash equilibrium for every profile $R \in \mathcal{R}$, then for every profile $R\in \mathcal{R}$, every player has a truthful dominant strategy in the game $(M,R)$.

This is not hard to prove and follows almost directly by definition, but I'd rather include a reference than a proof. I think I remember seeing this result proven somewhere (in a paper by Morris et al.?), but I cannot find that paper anymore.

Do you know any reference of a paper where that result (or a similar result) would be proven?


texts: Stochastic Frontier Analysis (SFA) in Stata: Technical Efficiency Estimates

texts:
I am prepared to look quite the fool, but hopefully you can help me.
I am trying to perform Stochastic Frontier Analysis on a balanced panel dataset by estimating the following model:

I think the translog specification is quite clear. The beta(r) term denotes a vector of dummy variables corresponding to the cross-sectional units i. The most important part of this model are the two error terms at the very end. These are specified following the Battese and Coelli (1992) model. To those unfamiliar with their idea, they specify the error terms as follows:

Where the eta is the inefficiency term and T is the largest year. This is also known as a time-decay model. My question is, where do I go wrong when trying to estimate this model is Stata? I was reading the manuals and found that either of the commands should estimate my desired model:
xtfrontier lnY $xvar, tvd
or
sfpanel lnY $xvar, model(bc92)
In this case the term $xvar denotes the independent variables. Now supposing that these commands are initial correct. I should then be able to proceed to estimating technical inefficiency. I have found that this should be done using the following command:
predict te, jlms
My problem is that the technical efficiency estimates that are obtained are wildly wrong. That is, although they should be between 0 and 1, the estimates are always around 0.999, and hardly vary at all. My guess is that I have made a mistake somewhere. I would appreciate any suggestions of where this might be. I know that it is unlikely to be a data problem since I have used similar data to others. This means that I might not used the right procedure in Stata. Sorry if I have made a really stupid error. Any suggestions will be appreciated no matter how vague.
Thank again!


texts: Utility Function Implies Consumption of Not All Goods

texts:
Suppose we have a utility function with three inputs, $j, k,$ and $s$ described by $$u(j,k,s) = A\ln(k^\alpha + \beta j^\alpha) + B\ln(s).$$ The price of $j, k,s$ are $p_j, p_k, p_s$, respectively, and we cannot spend more than amount $Y.$

We are asked to find conditions where the optimized result is to consume only two out of the three inputs. In other words, we wish to find conditions where one input is not consumed at all.

Is there a systematic way to approach this type of problem? I tried taking the marginal utilities with respect to each good, and finding a case where exactly one of the goods was negative for all $j, k, s \geq 0$, but I don't think that's the right way to go.


texts: Provide a mathematical proof for the general result that, given a linear average curve, the corresponding marginal curve must have the same vertical intercept but will be twice as steep as the average curve


texts:
I think in real endowment model, if there's trade cost as 't', then the MRS should be really small or large to make a consumer trade his endowment goods. Is there any model include this trade cost or market tax?

If it's true I think we can examine how much 't' can make a consumer not to use market and that can bring decrease in market exchange. So government can focus on decreasing 't' to the level of free trade(technological or even the number of markets).


texts: Mathematical question in macroeconomic task

texts:
I am currently working on a project where I want to explore how changes in a couple of currencies affects the income for my countrys exported fish. My country (Norway) sells it fish in 4 different currencies (USD, EUR, GBP and YEN), so I have made a price index involving this four currencies. For an example, a norwegian company will earn more if USD/NOK = 10 compared to if USD/NOK = 8.
My goal at the end is to compare our total income with the price index to see how changes in the currencies affects our income (in R).
I have a lot of data for many years available, including:

Montly Price index
Monthly income of exported fish
Monthly quantity of exported fish

My problem is that the monthly income of the exported fish is seasonal. For an example, the income is always lower in april then in october. The reason for this, can for an example be that we sell the fish more expensive in october then april because the market is always better in october.
Because some of the changes in our income is seasonal, it will give me fake results. Does anybody know how I can fix this problem? Will the value of income/quantity fix the problem?
Thanks


texts: A term for utility functions based on the max operator

texts:
What is a standard term for utility functions of the type:

$$ u(x_1,\dots,x_m) = \max(\frac{x_1}{w_1},\dots,\frac{x_m}{w_m}) $$

where $x_i$ is the amount of commodity type $i$, and $w_i$ is a constant weight?

This is similar to Leontief utilities, only with max instead of min.

What term describes the type of goods with such a utility function? Initially I thought they were called "perfect substitutes", but now I see that this term is used for linear utility functions.


texts: Is the forex market a form of bartering?

texts: I had this showerthought that the forex market is pretty much currency bartering. The forex market seems to be different from commodity or stock markets in that you exchange one currency for another. How does the forex market resemble and differ from bartering?


texts: How should I calculate bulk selling price for a small business?

texts:
Some friends of mine run a small business, in a small garage-like space, with a few employees, making and selling "plumbuses". The typical customer orders about 5 plumbuses at a time. When I heard that they have received inquiries for large orders of plumbuses (500, for bulk discount) and have consistently declined, I was confused. I strongly believe that they have the capacity to satisfy both small and large orders, in terms of production. Their reason for declining large orders was something along the lines of "...but each plumbus could be sold for more when we do the smaller orders". "Well, yes, but then you can make more plumbuses", is my response. Their thinking may apply to limited production items, whereas there are plenty of plumbus ingredients (dinglebops, schleem, etc) on the market where their small business will have no impact on the supply of the ingredients.

Surely there is an equation that they can use to satisfy their desired profits and fulfill these bulk orders. With my limited economics experience (some high school and college courses), I would imagine something like the following:

a(x) = price of producing, packing, shipping x plumbuses

b(x) = desired profit from selling x plumbuses at once

f(x) = a(x) + b(x)

...where the price of making x plumbuses falls on some curve, since making (and mostly packing/shipping) many at once is cheaper than processing one at a time, and the desired profit from an order of x plumbuses falls on another curve where each additional plumbus contributes some marginal profit.

I would like to express my ideas to my friends to help them succeed as a small business. The friend who is actually most opposed to fulfilling the bulk orders has a degree in Economics, so I would like to have some legitimacy in my pitch, backing up my position with real terms, equations, sources, and eventually, real numbers.

What are the terms and equations that I am thinking of but cannot put a name to, and what resources can be recommended so that I can more informed of this topic?


texts:
I want to create a DSGE model in Python. I want to build it myself to help me understand it (not just use a library)
Can someone direct me to a very simple model which would be straightforward to understand, and quick to implement?
(I hear there are some 3- or 4-equation models, but I'm wondering if there's a quick summary of the actual equations so I can get straight to coding)
Thanks!


texts:
I could solve Question 25 (simultaneous location game between 2 firms), but I'm confused between options b) and d) for Question 26 (sequential game involving a third firm). I have attached both questions since Question 25 provides context to Question 26.
Basically, I got my answer as d) for Question 26, using the method of backward induction since it's a sequential game. While the answer key for this question says b) is the correct option.
My method: Assuming that firm 3 locates at 1/2, firm 1 and 2's location described in option d) gives them both the maximum share than in any other option. Equilibrium should be such that firms 1 & 2 are at an advantage since they are first movers in the game.

Could anyone please confirm as to which should be the correct option for Question 26? Any solution and views are welcome.


texts: Form of security with a potentially infinite amount of equity for a continous payout for game?

texts:
I'm trying to create a game that's a bit like monopoly. The objective of the game is to earn money by investing money. The game has a limited amount of players and an increasing amount of money each game. That is done through regular stocks with a fixed supply but also through a system that involves buying shares of a revenue stream whose intensity changes through the course of the game.
For the game, its very important that users can buy into that stream at any given time with any given amount of money. It should not be possible to limit access to that revenue stream by simply buying up all shares and then refusing to sell them at any price.
I don't want to get into to much detail about how the game would work, its just important that this revenue stream remains open to all players at any given time for any lump sum.
But that does not mean its always a good idea to invest in it, but it should still be profitable for the players to correctly predict incoming revenue.
The "shares" can be bought directly from the "bank" and traded amongst players (but it would not be a problem if buying directly from the bank would be a better option in every case).
A share in the revenue stream would grant the player a portion of it. The revenue stream should always be divided amongst players as the money comes in (it should never flow to the bank). Also shares cannot be sold back to the bank.
Now since the "bank" would be an autmated system and not an active player in the game, it needs a system to automatically determine the price of the shares. And this is where I am stuck. How can I incentivize players to buy into a portion of something that is reduced over time? One idea that I had was to set the price of shares equal to the amount of shares. That way the shares should always arrive at the ideal equilibrium and people getting in early are rewarded. The problem with this is, that if the revenue stream is expected to go down, almost nobody will buy new shares, essentially cutting them off from buying it.
So can somebody help me create a system like this? A system that

rewards getting early
is always open to new investors
reduces equity as more people buy in


texts: Modifying Hotelling's lemma: Is this valid?

texts:
Hotelling's lemma is stated as:

$$\frac{\partial \pi}{\partial p}=y$$

knowing however that on the more basic level, output $y$ is determined by the input(s) $x(p,w)$,let the profit function be defined as:

$$\pi=py(x(p,w))-wx(p,w)$$

taking the derivative with respect to $p$

$$\frac{\partial\pi}{\partial p}=y(x(p,w))+p\frac{\partial y(x(p,w))}{\partial x(p,w)}\frac{\partial x(p,w)}{\partial p}-w \frac{\partial x(p,w)}{\partial p}$$

Wouldn't this be a more accurate definition of hotelling's lemma?

I'm speculating considering some of the critsisim I read on hotelling's lemma in applied work. Namely: Duality, Optimization, and Microeconomic Theory: Pitfalls for the Applied Researcher


texts:
I have the following quasi-linear utility function given: $u_0 = f(x_1) + x_2$ (with $f'>0$,$f''<0$).

I know that the indifference curves are vertically parallel, which means that the slope is independent of the consumption of $x_2$. I suppose that there is no income effect, but how can i show this?

Cheers


texts: Do we have some evidence of overshooting?

texts: I was going through overshooting of exchange rates (which I probably haven't seen since undergrad) and it seemed to me that the story is a bit of a stretch. I wonder if there is some empirical test that would convince me otherwise.


texts: Maximize utility given an arbitrary number of goods and the condition that exactly X number of items must be bought

texts:
How does one maximize the utility given some budget restriction, an arbitrary number of different goods (with varying utility and prices) and the added condition that exactly X number of items must be bought?

I guess this must be done algorithmically, but I have no idea how.


texts: Can anybody provide a reliable source that gives data on retail markups? My end goal is to make a fairly high-level statement along the lines of "a typical retail markup (across all industries) is X%", or "the average markup in industry Y is X%", so fairly aggregated data would be fine.


texts: Why does global suspension of economic activity result in catastrophic loss/debt?

texts:
Covid-19 has forced a suspension of at least 50% of financial transactions and business activities.

Materially, not much has been lost: consumables have been spared, equipment is dormant, maintenance is mostly inexpensive. Why is the health crisis expected to bankrupt many businesses? Is most of the loss speculative?

Propery tax + land rental = 20-25% of yearly rent, so a landlord can waive rent for 6 months and still make profit! enough to pay 2 years of tax and maintenance.

I naively imagine that using government moratoriums on bank-debt-interest rates and fees, It is possible for companies to organize a state of dormancy and maintenance for an extended period, without incurring significant loss.

Can you give a summary of why it is not so simple, and why the losses are a lot worse than a financial and material dormancy?


texts: What are some famous examples of infant industries that failed?

texts:
The Japanese and Korean car and steel industries are often touted as examples of successful infant industries.

I'm trying to find some famous examples of failed infant industries. (They don't seem to show up easily on a quick Google search, so it would perhaps seem like there are not many such examples?)


texts: What aspects of macroeconomics should I address for convincing an investor to invest in a certain country?

texts: I have a task at my internship which is to write 2 pages about the economic conditions in my country. My question is what I could include in my research. Surely, I'll address inflation, currency fluctuations since they are very unstabe. What else can I add? Where can I get reports on a certain country, in this case is Egypt.


texts: Name of this $u\left(x_{1}, x_{2}\right)=x_{1}+\alpha x_{2}+\beta \sqrt{x_{1} x_{2}}$ utility function?

texts:
I have seen this $u\left(x_{1}, x_{2}\right)=x_{1}+\alpha x_{2}+\beta \sqrt{x_{1} x_{2}}$ a numbers of time now. I wonder whether it is somehow special and therefore has it's own name?

Kind regards,


texts: Uncertainty and Pareto efficient policies

texts:
There are two economic agents $i\in \{1,2\}$ with state dependent utility $u_{is}=-(x-b_{is})^2$ where $x\in R$ and $b_{is}\in R$ is bliss point of $i$ in state $s\in\{1,2\}$. Assume $b_{1s}\lt b_{2s}$ for $\forall s\in\{1,2\}$. State $s\in\{1,2\}$ occurs with probability $\pi_{s}$. We denote $U_i(x_1,x_2)=\pi_1u_{i1}(x_1)+\pi_2u_{i2}(x_2)$.
Ex-post Pareto efficient policies in state 1 and 2, $x_1^*$ and $x_2^*$ respectively, I found them to be as follows:
Any policy in $[b_{11},b_{21}]$ is ex- post Pareto efficient in state 1 and any policy not in $[b_{11},b_{21}]$ is ex-post Pareto inefficient in state 1. Hence $x_1^* = z$, where $z$ is any $z\in [b_{11}, b_{21}].$ By similar arguments $x_2^* = z$, where $z$ is any $z\in[b_{12}, b_{22}].$
But how would we characterize ex-ante Pareto efficient policy pairs, ${x_1^*,x_2^*}?$


texts: Finitely repeated prisoner's dilemma without sub-game perfection

texts: Suppose that two individuals play the prisoner's dilemma (PD) a finite number of times; and assume that they both discount the future at a constant rate. Can cooperation be sustained by a Nash equilibrium? Notice that I am not restricting attention to sub-game perfect Nash equilibria (obviously, there are no SPNE which sustain cooperation).


texts: How does buying more of a foreign currency devalue a nation's currency?

texts:
If a country wants to devalue their countries, why does buying more of a foreign countries currency devalue their currency?

I was reading the top answer from this question How does a country devalue its currency? and it states that buying more of a foreign currency will increase the supply of the yuan. Why and how is that?


texts:
Recently I heard from Richard Koo's video, that central banks have injected so much money to the banking system. There is enough reserves in the U.S. banking system to increase money supply 16 times. In other words, according to Richard Koo, the inflation should have been around 1600% over the last 10 years. However, as per the inflation reported by the federal reserve, it is still under 2%.

I understand that the asset prices have gone up in the last 10 years in terms of stock prices and housing prices. But why is inflation still low?


texts: In Economics, how likely is a R&R paper be finally accepted in a top field journal or top 5 journal?

texts:
Based on reliable data (if there is any), how likely is a R&R be finally accepted approximately?

Here is some numbers I found:

According to an anonymous comment, the post RR acceptance rate for a "top journal" is about 25%.

According to an anonymous "editor", P(Acceptance|R&R and ranked below top 40 journal) is about 75%

One anonymous comment claims that the post RR acceptance rate of JFE is 85%, possibly based on the EJMR self-reported statistics on journal submissions.

A few comments claim that all of their RR are accepted, except once or twice.

A comment from the same link claims that the post RR acceptance rate is 75% but for top 5 is about 50%

A comment from the same link claims that the post RR acceptance rate is 90% but for top 5 is guessed to be 75%.

Two anonymous comments claim that the post RR acceptance rate is 50% for tops. 80% for mid-range.

All of my friends and professors says that R&R lead to acceptance with high probability unless it is top-5 journals.

According to JoF editorial reports, the post RR acceptance rate is 58.8 in 2009, 45.9% in 2010, and 90% in 2019. This is a very reliable data for Finance. I am looking for similar data in one of the economics journals.


texts: How to theoretically explain an exponential income distribution?

texts:
I have been working on income distributions for a while, and I've been asked to do a theoretical justification for the idea that income distribution follows an exponential function for low incomes. There's a lot of literature about Pareto distributions in the upper tail of the distribution, but I haven't been able to find literature for the lower tail and the exponential.

There's empirical work on this topic, mainly done by physicists: https://arxiv.org/pdf/cond-mat/0008305.pdf

One of those physicists asked me to find economic theories that support the exponential hypothesis, but, as I've said, I haven't found any.

Could you point some pieces of economic literature to get me on the right way? Thank you.


texts: Why does US Treasury Bond Futures Chart show two separate curves?

texts: I was surprised to see following on Yahoo Finance. Why did the chart branch into the green and orange functions? Does the chart show 2  separate prices on the chart?


texts:
What is the definition of "demand for money". The definition given by Wikipedia appears gibberish to me. And just to double check - what are the units of demand for money? Is it measured in "dollars"? or perhaps "dollars per unit time"? Or a ratio between two things?

If I understand it correctly, the level of demand for any produce (other than money) is the rate of flow of money that is currently being used to purchase that produce. So for example, if there is 1 million dollars per day being spent on VW cars, then you can say, "the demand for VW cars is $1m per day". Clearly the meaning of the word "demand" in the expression "demand for money" can't be the same thing - can it?

EDIT: Some definitions sound an awful lot as though a person's demand for money is exactly equal to the amount of money they currently have (and its units would therefore simply be "dollars"). Please include in your answer, an indication of whether or not your definition is identical to a person's current holding of money.

EDIT: Looking at the suggested answers and doing some more reading, I get the feeling that the word "demand" in economics is actually not a single number, but a set of numbers, or a curve. In the case of normal goods (call them Widgets), then the x axis will be price and on the y axis will be "Widgets sold per unit time" (the unit of time could be days, years etc). Please advise if you think I have this bit wrong.


texts: In a context of globalisation and high wage inequality, why should governments help unskilled workers?

texts:
With globalisation, wage inequality continues to be a strong issue for many developed nations.

What I seek to find out here is, why should we even do anything to help the unskilled workers?

From what I understand, having minimum wage laws and various skills training policies are put in place to help the unskilled. However, we should know that unskilled workers generally do not know economics. The main issue they are having is that they know the "poor is getting poorer, while the rich is getting richer." Given that, they do not understand that unskilled workers are gaining less from trade in comparison to skilled workers, and therefore are not helping themselves to "upgrade" and join the skilled force labour.

I know that there are countless manual, unskilled labour required and if the whole labour force is skilled, some would have to be forced into unskilled labour jobs. However when our society can reach that point in time, I assume the the wages of the unskilled labour would have also increased to a point where the wage gap is insignificant enough to draw some of the labour force towards unskilled jobs. But this is only possible if the country is closed off to foreign labour.

As a developed country, most of the labour force are already skilled workers. The reason why wages of the unskilled labour have not increased, in my opinion, is due to foreign labour. Labour from emerging markets i.e. China/Myanmar/Phillipines etc. are suppressing the wage growth of the unskilled labour force.

So as long as there are countries with large labour force that are "under-developed", wouldn't that mean no matter how much you try to help the unskilled workers, the influx of unskilled labour from emerging market eventually wipes those efforts away.

On the other hand, if we do nothing to help, the growth of an emerging market eventually catches up to that of a developed nation as growth plateaus progressively. We eventually reach a point in time where there are no longer any "undeveloped" countries. The unskilled foreign labour would much rather work in their respective countries then and the resultant would be more unskilled workers becoming skilled which increases wages for unskilled jobs, pulling wage inequality together.

What am I misunderstanding here?


texts: What are the prerequisites to study Mathematical Economics?

texts: I am a high school student with keen interest in mathematics and economics. I wish to study mathematical economics, but most of the books I have encountered begin with quite advanced mathematics. In particular, Mathematical Economics by Akira Takayama begins with Nonlinear Programming [Concave Programming, Differentiation and Unconstrained Maximum Problem and Quasi Saddle Point Charecterization]. Frankly, I find myself at sea while trying to understand this content. Could someone please recommend what prerequisites one must have in order to fully understand books of such caliber.


texts: What does the Fed do with their profits?

texts: As far as I understand the system the Fed prints money which it then uses to buy bonds. Bonds are basically statements of debt meaning that the Fed receives interest from the parties it has bought the Bonds from, because of the nature of debt overall if the debt is repaid the Fed has not only recouped the money they have printed that also have made a profit. What do they do with that profit? To they buy more bonds? Give it to the treasury? Where does the printed money end up?


texts: Rigorous proof needed: Acemoglu (Intro Growth) Corollary $2.1.2$

texts:
I am reading Acemoglu's intro to modern economic growth. But I am having trouble understanding his proof to a theorem related with stability. Here is the theorem:

And here are some related definitions and theorems:

My question lies in his proof of corollary $2.1$. How did he show that the sequence $x(t)$ is monotone and bounded above by $x^*$? I think it is not enough to use that the derivative is less than $1$ and the distance to $x^*$ is shrinking to say $x(t)$ is monotone. Can someone give me some more details to understand the proof?

Thanks!


texts: On trade, What justificaion does the USA have to accuse China of 'selling too much not buying enough from USA'

texts:
There's a trade war (dispute) going on between USA and China, and it boils down to the USA accusing China of not buying enough American products, relative to what they sell to America.

Putting aside other accusations such as currency manipulation, cyber security hacking, etc. If we just focus on this central accusation of 'You are not buying enough of my stuff, while selling too much stuff here!"

I don't understand how that can be a valid 'accusation'. Buying and selling are willing actions taken by market participants, made as a result of their own economic situation. China has total freedom to decide what and how much to buy (import) from any country, as does the USA. If China decides not to buy certain products it probably means either it thinks those products are too expensive, too low quality, or maybe China doesn't need them. Same with USA - it decides to buy certain products from China at certain amount because it has decided it is the right product at the right price and amount. My point is, USA can decide to buy however much from China and vice versa. These are willing market participants.

If so, how can any country 'accuse' of another of not buying enough or selling too much? Whatever China sells is agreed to be bought by USA, it's not like China forces USA buy its stuff. And whatever China buys from USA is its own decision.


texts: Mathematical Micro/Macro Economics Textbook Recommendation

texts:
I was formerly an economics major and now also majoring in mathematics.
I want a textbook that is rigorously based on mathematics; not just using mathematics whenever the author wants, but in a more unified way to explain a concept.
I've learned enough mathematics in undergraduate level so mathematics will hardly be a problem.
I've searched for information, but I really wanted textbooks that satisfy this specific condition; explaining concepts with sound mathematics in a unified way.

Any help is welcome.


texts: How can valuable retail real-estate stay vacant for an extended period of time?

texts:
Anecdotally, the story often goes like this:

A land owner leases his commercial retail space at an expensive price. The place stays vacant for months or years at a time. Eventually someone decides to lease the place. The rents are very expensive and eventually the leaser goes out of business.

This article goes someway to describing the phenomenon I am looking to explain
This article has the Leichhardt mayor signal an attempt to address the problem.

There are many other families like the Wakils, who are content leaving their property vacant. This example is largely relating to Australia but it does happen elsewhere.

Why would they do that? Surely any rent earned would be better than no rent.

My thoughts are:

There could be some sort of tax concession in place. If a landowner tries to lease for \$5k a month, the tax write-off could make the owner better off than if they actually leased it for \$4k a month. The below suggests this happens to at least some degree.

  Leichhardt mayor is calling for a range of legislative changes to allow rates to be increased and tax concessions reduced for landlords who leave their shop fronts empty unnecessarily... there is currently no allowance to reduce rates for those property owners who keep their properties tenanted or to increase rates for landlords who are using their properties as a tax write-off.

The returns to land-price speculation make leasing a secondary priority.
Structural change in how valuable retail space is. With the increase in grocery deliveries and other forms of online shopping, maybe people don't have as much need to shop. This, coupled with possible stickiness in rental prices will result in a significant drop in quantity demanded.
Some people just don't care. (I find this particularly unsatisfying considering the magnitude of the values involved)

To me, it is clear there is at least some form of regulatory failure present here. If these places were rezoned into residential, they would get filled very quickly as this phenomenon seems primarily restricted to commercial real-estate. The council (and probably the community) would prefer to have this area remain commercial but residential is surely better than vacant.


texts: A question about savings and investments

texts:
Hey all I am new to macroeconomics and I'm studying right now. I see in my notes that savings $=$ investments, $S=I$.
I've searched a lot online to see why this is true and I've found a lot of answer but all of them include concepts that I don't yet know, or complicated mathematics.

Is there an intuitive explanation you can give me, maybe with an example, that doesn't involve mathematics or complicated examples about interest rates etc?

The way I see it is, the total amount of money that can be invested in a country can't be more than the savings of a country. If me and someone else were the only 2 people living in country $X$ then if I saved $500$ dollars today, then $500$ dollars is the total amount of money that can be invested tomorrow for example. But I don't know if this a right way to see it.

Thank you in advance.


texts: Can real wages increase (practically) without inflation?

texts:
It has been suggested that a strong economy will raise wages for all.  However, I suspect that this can occur in only a few ways.

First, assume that the wealth distribution in the U.S. is such that a few people have much of the wealth.  For the middle class to become wealthier (i.e. they have more disposable income compared to their expenses)

Wealthy must purchase goods / services such that their wealth diminishes and the money exchanged goes to the middle class (e.g. shine my shoes and you'll get my money)
Wealthy must be taxed and income redistributed to the middle class by tax credits / offsets / reductions in income taxes
Money supply must be increased (e.g. prime rate goes down) and the middle class takes out the loans at a lower interest rate and therefore the money is supplied to the middle class
Inflation occurs such that the wages of the middle class grows faster than the prices of goods / services consumed by the middle class
The middle class sells goods / services to other countries such that the middle class receives money from outside the country

A few things do not seem to increase wages of the middle class

Changing jobs types without a change in wages.  For example, if people change jobs from retail sales to accounting and do not change their salary, then there is no gain in wealth.
Efficiency changes in the economy with a net zero change in the average wage.  For example, there is an increase in efficiency in healthcare so the number of workers decreases, but those people just change jobs to become human resources workers with the same wages.
Increase in wages of the middle class with a commensurate increase in inflation.

A few more assumptions:
 - Federal economic policy is to always avoid deflation, then static wages can never result in an increase in wealth.
 - Mild inflation is perceived as good in the U.S. economy
 - The U.S. is a consumer based economy, so there is an incentive to purchase goods / services as opposed to saving money

Therefore, is there any way for the overall middle class to increase its wealth without wages increasing at a rate faster than inflation?

As a corollary, isn't it impossible for wealth in the middle class to increase based solely based upon economic efficiency?  Isn't it true that increasing the efficiency of goods / services will not increase wealth because the overall price of goods / services (total combined food / fuel / housing / healthcare / services) cannot go down in the U.S. economy en masse because federal monetary policy discourages deflation?


texts:
Weierstrass Theorem states that any bounded sequence has a convergent subsequence.

I did that in my maths course and understood it completely. But when I was learning optimization techniques in economics, the definition by the book Sundaram was tweaked slightly to make it fit into the understanding of optimization. It goes like this - (see Figure 1)

If you read it, it is saying just what original theorem said. The only difference is that, instead of starting off with a bounded sequence and reaching the conclusion that it will have convergent subsequence, it started off with a convergent subsequence (by assuming Compact set) and reached the conclusion that it should be bounded. It makes sense right? It did to me too until I found a result on compact set, stated on the same book. (See figure 2)

This redefining of the theorem made it a circular definition - if a set can only be compact if n only if it is bounded then by assuming Compactness in redefinition we implicitly assumed boundedness.

So, my question is please tell me where am I going wrong. Have I understood the redefinition incorrectly or missed so point?


texts: Are Credit Card Points, Airline Miles, and Store Credit representations of M2 money supply?

texts:
I found a curated shop that heavily relies on store credit (or more accurately stated, a network of stores who rely on this credit)

Is it accurate to call this system mostly M2 money?
Does the depth and reach of the products and services change the classification? (e.g. Amazon points vs a small retailer also with points)

When looking at this from an economic perspective, this seems similar to Credit Card points, Airline Miles, and XBox points.

Question

Is there any authoritative source that explicitly states that store credit is M2 money? (or elaborates on it in a way this question can relate to)

Research

5 years ago I did find such a source, but now I'm at a loss in locating it. Investopedia, Wikipedia, and I've likely looked at many other -pedias and *.stackexchange.com and came up empty handed for my purposes.

Googling "M2 Credit Card points" resulted in me getting 20 advertisements, and will likely haunt me as I surf the net with advertisements for a Capital One card.  <-- if you intend to help, learn from this experience and use an incognito browser ;)


texts: Using aggregate marginal revenue as a way to estimate demand

texts:
We also know that for a competitive market, the supply curve is the sum of the marginal cost curves.

Can one make an extension of this idea to having the demand curve being equal to the sum of marginal revenue curves with its slope coefficient doubled?


texts: A few clarifications on Utility equations and indifference curves?

texts:
I have the utility equation $U(a,b) = a^{2}b^{3}$

How can I tell if the indifference curves are convex?
I was under the impression that if:

$U_{a} > 0$  and $U_{b} < 0$

then the curve would be convex. In this case, those conditions don't hold, but when I try graphing the equation, the curve appears convex. What am I missing?

Also are these conditions true:

if $U_{a} > 0$ , there is not diminishing marginal utility.
if < 0 , there is diminishing marginal utility,
and if = 0 , constant.

Are these conditions the same for good $b$ ?

I've been given lots of conflicting info and am now just confused.


texts: What are some non-von-Neumann-Morgenstern preferences used in economics?

texts:
Von-Neumann Morgenstern preferences are preferences over lotteries that can be represented as the expectation of a "deterministic" utility function over outcomes.

"non-von-Neumann-Morgenstern" preferences are therefore preferences that cannot be described this way, so that we cannot apply expected utility maximization.

I know of at least one non-von-Neumann Morgenstern preference relation, namely so called "EZ preferences".

What are some other non-von-Neumann-Morgenstern preferences that are actually used in economics (or some other field)?


texts: How much UK income tax is collected from each income tax band?

texts: How much of the 208 billion Income Tax receipts in this 2020 budget policy paper is coming from each of the three (Basic rate, Higher rate & Additional rate) tax bands?


texts: Interpretation of market condition given by relation between elasticities

texts:
The total market demand is given by the sum of the two destinations ($e$ and $f$) given to the product.
Given these conditions:

Demand: $d(p) = e(p) + f(p)$ where:

$d(p) > 0$, $d'(p) \leq 0$;
$e(p) > 0$, $e'(p) \leq 0$;
$f(p) > 0$, $f'(p) \leq 0$;

Supply: $s(p)$ where $s(p) > 0$ and $s'(p) \geq 0$;

Equilibrium: $d(p) = s(p)$;

How can the condition below be interpreted?

$\frac{f'(p)}{f(p)}-\frac{d'(p)}{d(p)}> \frac{e(p)}{f(p)}\frac{s'(p)}{s(p)}$

It may be helpfull to see that's possible to multiply by $p$ and get some elasticities:
$p*\big(\frac{f'(p)}{f(p)}-\frac{d'(p)}{d(p)}> \frac{e(p)}{f(p)}\frac{s'(p)}{s(p)}\big) \Rightarrow$
$\varepsilon_{f}-\varepsilon_{d} > \frac{e(p)}{f(p)}\varepsilon_{s}$
This is a simplification of the whole situation from the The Ethanol-subsidy Multiplier  example (or notebook file).


texts:
I was listening to this debate on India vs China. Professor Dr. Kishore Mahbubani posed this question (watch from 17:21).
Let us see the following graph:

India has a population comparable to China. But, the size of its GDP is much lower. Also, India's wealth gap is horrible.
Why couldn't India grow its economy as fast as China did?
Note: I am interested in 1978 and onward as Deng Xiao Ping's economic reform came around this time.


texts: Regression approximation for the rate of change in occupancy rate of residential market with respect to price

texts:
I have historical data on occupancy rates for a given neighborhood, along with characteristics and other local economic variables.
I am looking to estimate the regression equation with occupancy rates as dependent variable and price, level of supply, characteristics and economic vars as independent variables.
D(p) = Rent + Median Income + Supply + # of HH

Median Income is time fixed effect.

My questions are:

How do you interpret the equilibrium price from the regression output? i.e price at which Occupancy rate is 100%. or price elasticity of demand.
Interaction term. Given that supply follows rental prices, add supply * rent as interaction term.
What other regression methods would make sense for this problem?


texts: What are the most recent devopments with applying fractals to economics?

texts:
I was researching fractals for my senior mathematics presentation and discovered that one of the most recent pioneers in that section of the field was able to apply fractal mathematics to the field of economics.  One of his first discoveries was finding a fractal pattern to fluctuations in cotton prices.
What are some other applications of fractals to economics?  (Obviously they may be too many or too few -but an answer collecting references and pointers to some of them is worthwhile, nevertheless).


texts:
In Chapter 24 of Richard Thaler's book Misbehaving, he writes:

  An important property of rational forecasts---as a stock price is supposed to be---is that the predictions cannot vary more than the thing being forecast.

He then goes on to explain this using an example of weather forecast. If the temperature in a region typically varies between 85°F and 95°F, then it would be wrong to predict 50°F one day and 115°F the next day (although this would be approximately right on average).

What exactly is underlying mathematical principle for when he says "the predictions can't vary more than the thing being forecast"? Do forecasts have to get both the mean and the variance right to qualify as rational?


texts: GDP Identity:Why does $\text{C+S+T = C+I+G+(X-M)}$?

texts:
$$\text{C+S+T = Y = C+I+G+(X-M)}$$
  where:
  $\text{Y}$ is GDP
  $\text{C}$ is Private consumption
  $\text{S}$ is Private savings
  $\text{T}$ is net taxes
  $\text{I}$ is investment
  $\text{G}$ is Government's expenditure on final goods.

How does $\text{C+S+T= C+I+G+(X-M)}$?
What do they form? Which one's aggregate demand and which one's distribution of income and why are the called so?


texts:
I believe everyone has experienced something like the following once in her or his life :

There is a cake on the table and three people to share it.
The three people each eat a quarter of the cake.
They wait.
After some time, brave miss 1 eats another eighth.
After some more time, bold mister 2 cuts another 16th and eats it.
Then miss 3 cuts another 32th and eats it.
etc.

Is this kind of behavior where people do not want to grab the last part of the pie (i.e., social endowment) documented in experimental economics?


texts: What does the economic collapse of a country mean and what are its consequences?

texts:
I live in Iran, a country that has been under sanctions since 1979. After the US sanctions on Iranian oil, everything got worse and the price of everything increased four times in just three months. These days I hear that the economic collapse  will happen. I want to know what it means and what consequences it can have for Iran, its economy and society.
Wikipedia talks about Great Depression as an example but I want an example, close to Iran's situation, if there is such example.
It seems that the inflation continues and with more sanctions the economy will get even worse.
I don't know a lot about economics. Please answer with simple words and give examples if you know similar cases in other countries — what were the consequences?
I should add that the government publishes wrong news about the rate of inflation, the value of rial, etc. Hence, the governmental statistics are totally unreliable.


texts: Capital stock depreciation rate, how to calculate?

texts:
I am trying to work out the depreciation rate using the following information, it is an extract from a longer data set on capital stock:

Just wanted to find out what the rate of depreciation is for 2000. I used $K_t=K_{t-1}+I-\delta K_{t-1}$ to calculate the rate of depreciation $\delta$ but I am not satisfied with the result. Any help is appreciated! Note, this is not a homework.


texts: Examples of Applied Micro Paper with R (!) Code and Data in Public Repository

texts:
Can anyone suggest examples of relatively simple applied micro papers (e.g. an RCT or straightforward regression model) of possible interest to a general audience, that have their data and code, written in R, as opposed to Stata or anything else, in a public Internet repository?

That's a lot of conditions, but I'm hoping for examples that meet all of them. AER, AEJ: Applied, REStud and REStat all have nice public repositories. With the exception of REStat, which uses Dataverse, the repositories aren't searchable, so it's a pain to look through each set of files to see whether they use R or Stata. Most everyone, myself included, uses Stata, but I'd like to find some papers using R.


texts: What does it mean to say that deficits are financed by debt issue?

texts:
Let $B_t$ be real net government debt, let $G_t$ be public spending, let $T$ be net tax revenue (i.e, tax income minus transfers), and ignore everything else. One can show, $$B_{t+1} = (1+r)B_t + G - T$$

If I say that deficits are financed by debt issuance, what does this mean? How would I represent that in the formula?


texts: Is there an equation for compounding interest while adding to the principle amount

texts:
supposed I invested \$5000 at 10 % per annum , but at the beginning of each year I add another \$5000. So I will have (\$5000 + \$500) + \$5000 = \$10500 at the beginning of the 2nd year and compound that at 10% and so on.
So in short suppose I invest \$5000 at 10 % per annum and add \$5000 at the beginning of each year , how much would I have after 30 years. Is there a simple equation to work that out?
P.S. I already solved it using excel but was wondering if there was a simpler formula


texts: What's the equation of currency fluctuation?

texts:
Preamble:

Today the rate of EUR is 82.09 in BDT ( Bangladeshi Currency) and two hours later it's 82.50 ( I hope, it's increasing). But why does this fluctuation just keeps happening? Looks like the rate changes every seconds..

Question:

What's the equation to calcualte currency fluctuation?
How can someone forecast the fluctuation and direction of fluctuation (upward or downward)

Please consider to have mercy before you lash me out for asking silly qoestion. I'm a newbie :)


texts: Productive Allocative Efficiency (Competitive Equilibrium)

texts:
I am doing an Intermediate Microeconomics class... in a 2*2*2*2 economy, I know that MRS (marginal rate of substitution) is supposed to be equal to MRTS (marginal rate of technical substitution) in order for it to be a competitive equilibrium. Why is this? I understand that supply is supposed to be equal to demand...
Thank you!


texts: How does depreciation affect the cash flow in a tax-paying company?

texts:
I came across a question in first year's finance book.The question is:

For a tax-paying firm, an increase in ______will cause the cash flow from assets to increase.

A. Change in net working capital
B. Production costs
C. Depreciation
D. Taxes
E. Net capital spending

C is the right answer, however I am not clear why depreciation increase the cash flow. Thanks for your help.


texts: Preference relations defined by $x_1^n + x_2^n$ converge to $\max\{x_1, x_2\}$

texts:
In the problem set 2 of Rubinsteins Microeconomics (btw is there a comparably nice written book on macroeconomics?) there is the following question:
Let $\succ_n$ be the preference relations defined on $\mathbb{R}^2_+$ by the utility $x_1^n + x_2^n$. Let the preference relations $\succ$ be defined by the utility $\max\{x_1, x_2\}$. Show that $\succ_n$ converge to $\succ$.

Preference relations are said to converge if for $a \succ b$ we have that $a \succ_m b$ for sufficiently large $m$. I am indeed able to prove that.

Now w.l.o.g. $x_1 = \max\{x_1, x_2\}$ and $y_1 = \max\{y_1, y_2\}$. Assuming that $x_1 = y_1$ we have $x \sim y$. But the only case when $x \sim_m y$ is when also $x_2 = y_2$. In other cases we would have either $x \succ_m y$ or $y \succ_m x$ for all $m$ (depending on $x_2$ and $y_2$, the "smaller component". These are actually lexicographic preferences!)

Is there a reason that the convergence of preference relations is done in this way to ignore such subtilities? In my opinion we should have that $\succeq = \lim_{n \to \infty} \succeq_n$ iff $a \succeq b = \lim_{n \to \infty} a \succeq_n b$.


texts: How dominant assurance contract fix free rider problem?

texts:
Dominant assurance contract is a proposed solution to free rider problem in crowdfunding. It pays more money to payers (for example 105%) in case of failure of campaign. Is it make paying a dominant strategy? I think not.

Suppose a city need a road that make 100\$ benefit for each person. It costs 8000\$ and entrepreneur offers 5\$ in case of failure for every 80\$.

normal strategy (paying 80\$):

in case of failure: 5\$ benefit
in case of success: 20\$ benefit

free rider strategy:

in case of failure: 0\$ benefit
in case of success: 100\$ benefit

That shows a free rider can risk on the success probability (that helping does not affect it so much) and make a higher profit. Where I am wrong? Is there any additional hypothesis that dominant assurance need to work?


texts: How do domestic stimulus packages affect other nations?

texts:
Suppose a country decided to implement a new stimulus package as a way to energize the economy. Wikipedia defines two types of stimulus:

  Fiscal stimulus refers to increasing government consumption or
  transfers or lowering taxes. Effectively this means increasing the
  rate of growth of public debt, except that particularly Keynesians
  often assume that the stimulus will cause sufficient economic growth
  to fill that gap partially or completely. See multiplier (economics).
  Monetary stimulus refers to lowering interest rates, quantitative
  easing, or other ways of increasing the amount of money or credit.

What effect would each of these stimulus types generally have on nations other than the country that tries the stimulus? Will the main trading partners be affected the most? Who benefits more, exporters or importers? Does it depend on the particular details of the stimulus package? Does it cause the other nations to start their own stimulus program?

I am looking for theoretical (analytical) responses, not necessarily something that is backed by empirical evidence.


texts: Modelling GDP growth rates with an AR(1) process

texts:
I am trying to model the growth rates of real output per worker. I read that GDP growth rates are often assumed to be stationary and are modelled using an AR(1) process, so I took logs and then took first difference. Then I estimated the following AR(1) model using OLS with robust standard errors. I use Stata.
$$
\Delta \ln y_t = \beta_0 + \beta_1*\Delta \ln y_{t-1} + \epsilon_t
$$
where $\epsilon_t$ is the error term.
From the regression output, however, $\beta_1$ is approximately 0.9, and the 95% confidence interval contains 1? Does this mean the process is non-stationary? I conducted some quick unit root tests (DF-GLS and KPSS), and the log of GDP per worker is non-stationary in levels, but stationary in first difference, as expected.
So why is $\beta_1$ close to 1? What should I do?
Many thanks!


texts: Why does instrument exogeneity imply conditional mean zero?

texts:
In the following slide
ECON4150 - Introductory Econometrics Lecture 16: Instrumental variables, Monique de Haan

it says that "instrument exogeneity implies $E[u_i \mid Z_i]=0$" where instrument exogeneity is defined on slide 13 as $cov(Z_i, u_i) =0$. Here $Z_i$ is the instrument and $u_i$ is the error term in the structural model with a single endogenous variable.

Can someone prove to me why this is true? I thought the implication only held the other way, i.e., $E[u_i \mid Z_i] = 0$ implies $cov(Z_i, u_i)=0$ but the slides suggests that $cov(Z_i, u_i)=0$ implies $E[u_i \mid Z_i] = 0$, which isn't true in general?


texts: Difference between economics and finance?

texts: What are the differences and similarities between economics and finance theory formally and causally on their name of topics respectively?


texts: Are heterogenous expectations models still determinate, closed models?

texts:
Cars Hommes proposed many models based on agents having heterogeneous expectations. Agents switch between a fixed set of prediction rules depending on their forecast error history. However, it seems that the predictions of these models can differ but qualitatively and quantitatively (convergence might happen, economy might also keep oscillating or not, with declining amplitudes, or not, ...) because of path dependence en dependence on initial conditions.

So, do these models still have equilibria? Are they determinate? Are they still usefull for prediction?

Hommes, C. (2013). Behavioral Rationality and Heterogeneous Expectations in Complex Economic Systems. In Behavioral Rationality and Heterogeneous Expectations in Complex Economic Systems. https://doi.org/10.1017/cbo9781139094276


texts:
How do people calculate Tobin'q empirically?

Does anyone use it to make investment decisions? In particular, the version I learnt has no company debt involved with only capital under consideration, will this affect empirical research?


texts: Does SARP imply WARP? and GARP imply SARP?

texts:
It’s obvious that WARP does not imply SARP, since WARP does not rule out cyclic choices, whereas SARP does.

The term “Strong” axiom suggests that it encompasses the “weak” axiom. But this is not obvious to me from the definition.

Does any choice structure that satisfies SARP also satisfy WARP?

Similarly, the "generalized" axiom of revealed preference (GARP) seems to encompass SARP, but again, I can't see this from the definition.

  WARP: If $x,y\in B$, and $x\in C(B)$, then we cannot find a $B_2$ such that $x,y\in B_2$ and $y\in C(B_2)$ but not $x\in C(B_2)$.

  SARP: Assume for all $B$ the choice $c(B)$ is only one element. If $x_i,x_{i+1}\in B_i$, and $x_i = c(B_i)$, for all $i\in \{1,N-1\}$, then $x_1=c(B_1)\notin B_N$.

  GARP: if $p_i\cdot x_{i+1}\leq p_i\cdot x_i$ for $i\in \{1, N-1\}$ and $p_N\cdot x_{1}\leq p_N\cdot x_N$, then those inequalities must be equalities.

(GARP specifically assumes $p$ are price vectors and $x$ are consumption bundles, whereas the other two axioms apply to any type of choice structure.)


texts: The effects of a slew of bad rating of a certain app on brand value and sales

texts:
I think most of you have heard about the recent unrest in Israel/Palestinian territory. Arabs have accused Facebook of being biased in the issue, favoring Israeli posts and their POV. Therefore, they have started flooding the PlayStore and AppStore with one-star ratings,which caused the rating of Facebook App to plummet from almost 4.6 to 2 or so.
Now, my question is: how is that going to affect the brand value and sales of Facebook?


texts: Constructing a Production Possibility Curve (PPC)

texts:
I am trying to create a PPC, in which there are two goods (e.g. apples and oranges).

  My question is, does it matter which goods are plotted on the x or y-axes? The opportunity cost per good remains the same, but I was wondering what the convention is.


texts: Are all market demands residual demands to some extent?

texts:
I’ve been thinking about how the introduction of a new product, say a new substitute, impacts market demand. Intuitively I know that it would decrease demand and increase elasticity. I am curious about the equations.
When thinking about demand shifters and related goods we usually only consider their price in the demand equation because they already exist.
For example - before new entry - we g as the good in question, rg1 related good 1:
(1) Q = $100 - 2p_{g} + 2p_{rg1}$
After new entry, would the equation be something like:
(2) Q = $90 - 3p_{g} + 2p_{rg1} + p_{rg2}$
So, the constant falls and the own slope increases in magnitude. My questions are as follows: (1) For equation (1), can we think of the 100 as the amount consumed given what you consume of the related food? (2) Can we think of a given market demand as a sort of residual demand given the existing products in the market? This is similar to how we think of things with monopolistic competition. I was just wondering if it was implicitly the same for the market as a whole. Thanks.


texts:
Below are three different demand curves (i) - (iii), which depend on advertising (A).
(i) Q(P,A) = A $\times$ ($\alpha$ - $\beta$P), where $\alpha$, $\beta$ > 0
(ii) Q(P, A) = $\alpha$ + A - $\beta$P
(iii) Q(P,A) = $\alpha$ - $\beta$(B - A)P
For each of the cases, what happens to the optimal price as advertising increases? How does your answer depend on the behavior of the cost function C(Q)?

Assuming constant marginal cost of $c$ and that the firm is a monopoly:
$$\max (\pi(\text{A}, \text{P})) = (\text{P} - c)\text{Q} - \text{A}$$
WRT (i),
$$\max (\pi(\text{A}, \text{P})) = \text{A}\alpha\text{P} - \text{A}\beta\text{P}^2 - \text{A}\alpha c - \text{A}\beta\text{P}c - \text{A}$$
For that, we calculate
$$\frac{d\pi}{d\text{P}} = \text{A}\alpha - 2\text{A}\beta\text{P} - \text{A}\beta c = 0$$
and
$$\frac{d\pi}{d\text{A}} = \alpha\text{P} - \beta\text{P}^2 - \alpha c - \beta \text{P}c - 1 = 0$$
We get to
$$\frac{e\text{A}}{-e\text{P}} = \frac{\alpha\text{P} - \beta\text{P}^2 - \alpha c - \beta\text{P}c - 1}{-\text{A}\alpha + 2\text{A}\beta\text{P} + \text{A}\beta c}$$
Any continued guidance would be greatly appreciated


texts: Averaging data over 5 years with Stata or Excel

texts: I need Stata commands or Excel function to calculate the average over 5 years groups of the values in a panel dataset. In particular, this procedure as to take into account the presence of possible missing values (empty cells in Excel) and thus adjust the computation accordingly to the actual number of non-missing in the period.


texts: Demand and marginal revenue evolution from Monopoly to Perfect Competition as new competitors enter the market (Graphs)

texts:
I want to ask if anyone know how the curves of Marginal Revenue and Demand "evolve" from Monopoly to Perfect competition on a graph of a firm as new competitors enter the market. I would like to know if the curves begin to shift, maybe to rotate, etc. Thanks in advance!
Initial situation:

Final situation:


texts: Understanding what's in the frequently reported and discussed high demand in IT specialists in Germany - is the IT Fachkräftemangel real?

texts:
So far, I can observe the following contradictory evidences what I perceive from the media.

Statement group #1. In the press, there are repeated reports from different sources about missing specialists in magnitude like many ten thousands - keyword here is the IT Fachkräftemangel. They write about growing numbers of open positions etc.

Statement group #2. In social media, like comments to such articles, especially on heise.de, they say it would be kind of employer propaganda to attract more people to the market (through studying and immigration) to be able to pay less. So, actually, the demand is much more for cheap workforce to save money.

Evidence #1. If I check salary statistics from surveys and also hour rates in Gulp, and what I know from my HR contacts in many companies, payment indeed grows a little bit but high salaries are featured for almost unrealistic profiles, which in my opinion would mostly likely map to two-three people both by skills and responsibilities range (but do not correspond to a two- or threefold salary of course).

So I from the above I could judge like the following. From what I know about the market laws and demand/offer correlation, actually growing real demand in workforce should lead to exploding salaries and hourly rates or at least growth comparable to growth of market leaders , shouldn't it? Which renders the statements group #2 to be closer to the real situation?

Are the above evidences enough to judge like proposed, or have I missed something?


texts: how to test endogeneity in a cross section data?

texts:
Maybe it is a silly question but I really do not know much about econometrics. I am trying to look at the relationship between environmental quality and final consumption expenditure. For this, I look only at the cross-section data for Environmental Performance Index (EPI) for environmental quality and final consumption expenditure data from World Bank Database for 2010. I write down an equation of that kind :

$$log(C)=\alpha+\beta_{1}log(S)+\beta_{2}(log(S))^{2}+\epsilon$$

where $C$ and $S$ hold for the consumption and environmental quality.

I wonder how I can analyze for the endogeneity issues between consumption and environmental quality. Is it possible to talk about the endogeneity on cross-section data?


texts:
I am hoping to get a good explanation regarding what is meant by an identifying assumption.
In many articles, under empirical strategy, authors state that:

we exploit firm level variation to identify the effect
we exploit industry level variation to identify the effect

Examples:

The paper examines the effect of bank runs on lending. We exploit variation in the structure of banks' liabilities to identify banks that were more vulnerable to the run.

We exploit the variation across geographically distinct commercial real estate markets to establish conclusively that loan supply shocks emanating from Japan had real effects on economic activity in the United States.


texts: Transforming an indirect utility function into an expenditure function

texts:
in preparation for our upcoming exam, our tutor has uploaded sample questions. One of them is the following:

This is my solution:

Which differs from the solution, which gives the ordinary square root of the same parameters, not the 4th-one. I can't find my mistake, does anyone have any ideas?


texts:
I thought about this question during the height of the Greek economic crisis several years ago. The media was saying that Greece had run out of money, having used funds that had been set aside for a natural disaster, and they really badly needed a loan.

Suppose that during this period, an alien spaceship crash-landed in Greece and the aliens proceeded to invade the country. Since Greece has no money (= cannot buy weapons, ammunition, pay their soldiers, etc), and it cannot borrow (since nobody being willing to lend Greece money was the cause of economic crisis) does it mean Greece will be easily conquered? If the answer is no, where will Greece get the money to defend itself from?

I'm asking this as an economics question, so I'm not thinking of stuff such as whether NATO intervenes or what the technological capabilities of the aliens are.


texts:
Suppose we want to estimate
\begin{equation} y = \alpha_0 + x_1 \beta + c'\gamma + \varepsilon
\end{equation}
where $\beta$ is the variable of interest and $c$ is a vector of controls. We suspect $E[x\varepsilon]\neq0$ but we have an instrument $z$ such that $E[z\varepsilon]=0.$ My question is - as long as IV is valid - should we care that there could be an endogenous control $c_1$ such that $E[c_1\varepsilon]\neq0$? Why or why not?

My hunch is that it doesn't because as long as IV is valid (it satisfies inclusion-exclusion principle) the correlation between controls and unobservables should not lead to the inconsistency of the estimate of $\beta$.


texts: Need help identifying this cognitive bias or fallacy pointed out by Kahneman in Thinking Fast and Slow

texts:
This was in Thinking Fast and Slow by Kahneman.
He described a situation where someone might prefer A to B, and B to C, but then might prefer C to A (when A and C are directly compared to each other).
I can't seem to remember the name of this bias or fallacy, and I looked in the book but wasn't able to find the passage.
Anybody remember what it was?
(The last time I posted a behavioral economics question on here, some people protested that it didn't belong here. For your information, Kahneman has a Nobel in Economics, so please take your objections to the Nobel Committee. Thank you and good day.)

Update: the term is: "Preference Reversal"


texts: Any function of jointly iid pair is iid (WLLN)?

texts: In Hansen (2019) p.221, I don't understand "Specifically, the fact that $(y_i, x_i)$ are mutually independent and identically distributed implies that any function of $(y_i, x_i)$ is iid, including $x_i$ $x_i'$ and $x_i y_i"$. Is there any theorem related to this? Thank you in advance!


texts: Hypothetical question: Percentage change in Federal income tax revenue in United States if Gini Index = 0?

texts:
Gini index = 0 refers to an economy where gross income has been redistributed so that all income earners in the United States received the same income, equal to the most current measure of the mean (not median) personal income in the United States. That is, the aggregate personal income will remain unchanged.

We'll assume the Federal income tax brackets remain the same as in 2015.

Given the above assumptions, will Federal tax revenue increase or decrease compared with the present day income distribution, and by how much?

Bonus question: Is there an optimal distribution of gross incomes in the United States working population that maximizes Federal income taxes?


texts: Two-year difference-in-difference model design

texts: Is there some literature about two-year difference-in-difference (DiD) models? Suppose a policy was implemented in 1982, but not strictly enforced among all people. Can I still estimate a DiD model using the data only from 2012 to 2016?


texts: Learning Suggestion to better understanding on Advanced Microeconometrics (Master Degree Level)

texts:
I am studying master in Economics and currently taking the compulsory course of Econometrics in which I have problem in understanding the materials. It is a must for me to pass this course in current semester, but I have little confidence to succeed it with my knowledge at this time. The book used in the course is "Econometric Analysis of Cross Section and Panel Data" by Jeffrey Wooldridge.

I don't have the proper basic understanding of first three chapters in the book consisted of The Stochastic Setting and Asymptotic Analysis, Conditional Expectations and Related Concepts in Econometrics, and  Basic Asymptotic Theory. Therefore, it would be tougher to understand the following chapters.

So what is your suggestion for me to figure out this? Perhaps the beginner-friendly books of Statistics or Econometrics? Or other tips and trics?

Maybe some of you have experienced the same situation in the past, then you can share how you figured out and have done with this problem.

I appreciate for your help. Thanks in advance!


texts: Textbooks claim that the difference between GDP and GNP (or GNI) is about geography vs citizenship--is this correct?

texts:
Many textbooks claim that the difference between GDP and GNP is about geography vs citizenship. For example, Colander:

GDP is output produced within a country’s borders; GNP is output produced by a country’s citizens.

So, according to the above, if for all of 2017 through 2020, Hans the German citizen lived in the US and worked for Walmart, then his 2020 wages would count towards 2020 US GDP and German GNP (but not US GNP or German GDP).
But from my reading of the UN System of National Accounts (2008), this seems to be incorrect:

An institutional unit is said to be resident within the economic territory of a country when it maintains a centre of predominant economic interest in that territory, that is, when it engages, or intends to engage, in economic activities or transactions on a significant scale either indefinitely or over a long period of time, usually interpreted as one year.

So, by my reading, Hans should be counted as a US resident in 2020 and his 2020 Walmart wages should instead count towards US GDP.
Am I correct and are the textbooks wrong? (Or have I perhaps misinterpreted them?)

More examples of textbooks making the above claim.
Baumol and Blinder:

There is another concept, called gross national product, which counts the goods and services produced by all Americans, regardless of where they work. For consistency, the outputs produced by foreigners working in the United States are not included in GNP.

Cowen and Tabarrok:

Gross national product (GNP) is very similar to GDP but GNP measures what is produced by the labor and property supplied by U.S. permanent residents wherever in the world that labor or capital is located, rather than what is produced within the U.S. border.

Fischer and Dornbusch:

There is a distinction between GNP and gross domestic product, or GDP. GDP
is the value of final goods produced within the country. What is the difference
between GNP and GDP? Part of GNP is earned abroad. For instance, the
income of an American citizen working in Japan is part of U.S. GNP. But it is
not part of U.S. GDP because it is not earned in the United States.

O'Sullivan and Sheffrin:

The distinction between what they produce within their borders, GDP, and what their citizens earn, GNP, is not that important to most countries.


texts: What are the economic impacts of different professions?

texts:
Every dollar a research worker earns makes the economy \$5 better off and every dollar a finance worker makes costs the economy \$0.60

So Reddit Economics yesterday posited and later retracted the above claim, and I was wondering, in the field of econometrics, are there any guidelines for how professions impact the national economy.

The RIMS II and similar systems all focused on regional economies, and were largely driven by anticipated spending patterns, so consequently focused on the demand side of the equation.

Is there an equivalent concept for GDP based on productivity or supply? Like a worker productivity (which I know is available in aggregate for current and historical US workers) broken down by NAICS/SIC code or other industrial designation?

As a follow on, are there comparative studies I could reference that compare this measure across time and countries? (IE Mexican automanufacturer production post-NAFTA compared to Japanese electronic manufacturer ca ~1980).


texts: Induced technical change vs. directed technical change

texts:
I am trying to get a better grip on the literature on directed technical change and induced technical change. In other words, I am trying to understand if these concepts are the same and used interchangibly in the literature to refer to endogenous technical change.

Also, can anyone please point to a good review of the literature on this topic(s)?


texts: Games with perfect but incomplete information in real life

texts:
It is hard to imagine such a game. Here is an example from wikipedia:

  Suppose you are playing a game of chess against an opponent who will be paid some substantial amount of money if a particular event happens (an arrangement of pieces, for instance), but you do not know what the event is. In this case you have perfect information, since you know what each move of the opponent is. However, since you do not know the payoff function of the other player (which will affect its behavior even if it does not alter your own victory conditions), it is a game of incomplete information.

Do such game situations exist in real life?

What kind of equilibria can we observe?

Is there a dominant strategy that could be adopted in such a game? Is there a way to maximize your gain even though you don't know all the details?

Still in the chess example, you might start forming some beliefs after a few moves, if you notice for instance that the opponent is always sacrificing his pawns for nothing, maybe in his desired position he needs to have a certain amount of pawns... Or if given the opportunity to exchange queens and in a classical game of chess it would have been advantageous, but he doesn't do it, assuming he takes rational decisions, perhaps it is absolutely necessary for him to keep the queen in order to win with the altered rules.

You might assign certain probabilities to the different possible goals of your opponent and update them with every move he makes.


texts:
Is the supply of output for a monopolist less elastic than that of a perfectly competitive firm with the same production function?

On one hand, it seems impossible to calculate the elasticity of supply for a monopolist since it has no supply curve (i.e. no explicit relationship between quantity supplied and prices since it determines both quantity and therefore indirectly, prices by producing where MR = MC). As a result, it would be impossible to calculate the elasticity of supply for a monopolist and the above statement is false.

However, it would seem to make sense that the elasticity of supply is lower for a monopolist because if for example there is an increase in demand, leading to higher prices, the additional output produced by a competitive firm would be higher than a monopolist as the monopolist would tend to restrict output to keep prices higher. Thus, the monopolist's supply is less elastic and responsive to price changes.

Both sets of reasoning seem to be correct to me. What am I missing?


texts:
Say, I am looking to estimate the demand curve for rental of a real estate property. The demand varies depending on time of the year, location, economic and demographic variables.

I'd like to predict the demand for fixed supply with independent variables using ML or time series forecasting methods as they're robust in this case. And, then use the predicted estimates to graph the demand curve against price and quantity.

This would produce a demand curve for each location and quarter of the year. My question is, Is this a sound approach? Any issues with this?


texts: Dot over a variable, Neoclassical growth model?

texts:
Looking at the Neoclassical growth model, I have hard time understanding what dot over a variable mean? I know it is short for taking the derivative with respect to time, I don't understand the meaning behind it.

The second question concerns the Euler equation for consumption. What does it tell us? And is c(t)dot/c(t) the growth rate of consumption?


texts: What have been the main developments in macroeconomics and financial economics since the 2008 financial crisis?

texts:
In the aftermath of 2008 economists were, fairly or not, blamed for a failure to foresee the coming crisis. Ideas such as "The Great Moderation" and market efficiency were openly ridiculed as hubristic.

Now, almost a decade later, seems like a good time to take stock and ask: What have been the main developments in macroeconomics and financial economics research that have emerged in response to the financial crisis?

are there lines of research that have been discredited or essentially abandoned?
are there new topics that have received much more attention?
are the new approaches to modelling (or approaches that have come to be used more than previously)?
have any big new ideas emerged in our understanding of recessions / financial crises?

Or perhaps there is good reason to think that everything was fine before and so nothing has to change.


texts: What does my lecturer mean by "economic calculation"?

texts:
We got this essay question

"It is argued that economic calculation should exclusively be based on individual utility maximization but include an altruistic concern for the common good and for other human individuals. In the perspective of such an ethical correction of economics we think of the economic actor as an individual, who makes an economic calculation which is extended to include the responsibility for other human beings and society integrating economic calculation in well-founded moral norms and ethical customs of society"...Rendtorff (2010)

Discuss the economics of the creation of a separate aesthetic medical industry, borne out of the technological advances in the health sector. Is the economic calculation based on 'well-founded moral norms and ethical customs' of our society? Support your answer with economic reasoning and ethical considerations for various stakeholders.

I'm not so sure what  she meant by economic calculation. Is some kind of economic reasoning such as with indifference curves.


texts: What happens when a subsidiary distributes its shares to its parent company?

texts:
After a subsidiary company spins off from its parent and becomes public, what happens when the subsidiary distributes its shares to the parent firm's shareholders at some later time?

What I'm reading seems to suggest that the price of the subsidiary's stock will converge to that of its parent, but I'm not sure why. Can someone elaborate on this?

For context, I'm reading a paper on limitations of arbitrage that studies events where the market value of a parent company is worth more than that of its subsidiary.


texts: Understanding Classical Rationality at a Basic Level

texts:
I am a high school student in an intro Microeconomics class (note that we have not covered utility functions) and I'm utterly confused about the classical concept of rationality. I certainly understand that that conception does not accurately describe a good chunk of real-world behavior (hence behavioral economics).

Nevertheless, my concern which I ask about here is more basic: Classical rationality as described in my textbook (Krugman/Wells' Economics) doesn't even seem coherent. It's essentially just defined as "people act to make themselves better off," but then the book (and online sources) go on to conclude that, under this definition, it is irrational to, say, honor sunk costs.

But why need this be so? (again, I'm not even talking about behavioral economics, I'm just trying to understand the justification within the traditional paradigm) After all,suppose person A knows they will derive satisfaction from honoring sunk costs. Then doesn't honoring sunk costs make them better off (it fulfills their desire for happiness), and therefore becomes rational for person A?

I feel like there may be some restrictions to the traditional definition of rationality that my book and teacher have glossed over. Because right now I am utterly at a loss for how my book can draw such specific conclusions about what is rational and irrational when the definition of rational behavior given seems malleable enough to make virtually any action rational for at least some people.


texts: Is there collaboration between cyber criminals and banks?

texts:
In disease evolution, one often finds that bacteria and viruses evolve to co-exist with their hosts and become less malevolent. Making an analogy between cybercrime and disease, I am wondering if there can be a symbiotic relationship between banks and cyber criminals?

Here is a more specific example of something I'm wondering about. A cyber criminal with access to a bank's books adds a bunch of car loans in various states of repayment. He then transfers the outstanding amounts of all these loans to himself. Then, at the end of every month, he doctors the bank's books to look like the loan payments have been made. If the bank were to detect such activity, it might be very reluctant to do anything. Doing anything, the result would be default on a large number of authentic looking loans. Doing nothing, the bank would continue to receive for all intents and purposes interest payments on its loans.

To some extent, I have confusion about what is real about any of this money that is changing hands. Can't a cyber criminal increase/decrease a bank's holdings just by changing a number in a computerized ledger book?


texts: Is it the most efficient to allow free transactions in financial markets?

texts:
Most beginner level economics books include explanations why it is most effecient most of the time to allow free trade in the market of goods and services. (e.g. the theory of comparative advantage) However, few of them talks about similar things for financial markets (e.g. stock exchange, forex). The books will tell you how those financial instruments work, but they do not discuss whether it is the most efficient to allow free transactions in financial markets (just like the free trade in goods/services markets). Could anyone tell me if there are any theories on the topic?

What makes me curious is that, despite their huge role in our life, financial instruments are not classed as any factors of production, and seems to create no value economically. For example, fund managers are NOT enterpreneurs.

So should the government intervene to prevent speculation, or should they not intervene? Is there any theory on this?


texts: Elasticity of substitution of goods in canonical New Keynesian Model

texts:
In the context of a New Keynesian Model (NKM) with imperfect competition, the aggregate demand for good can be represented using Dixit-Stiglitz aggregator
$$C_t=\Bigg(\sum^1_0C_t(i)^{\varepsilon-1\over \varepsilon}\;di\Bigg)^{\varepsilon\over\varepsilon-1}$$
where $\varepsilon$ is the substitutability of intermediate goods and which determines the "market power" of monopolistically competitive firms. Theoretically speaking, if $\varepsilon \to \infty$, the price markup in the product market, i.e. $\mathcal{M}={\varepsilon\over \varepsilon-1}$, approaches unity and the market is perfectly competitive while goods are perfect substitutes. From Gali (2008), and other articles on NKM that uses calibration techniques, $\varepsilon$ is usually within range 6 to 10 which translates to an average markup of 1.2 to 1.1 or a 20-10% markup over marginal costs.
However, it is a bit unclear to me as to how the value of $\varepsilon$ is chosen, which leads to my question: what is a "sensible" value of $\varepsilon$ for a highly competitive market? And what about imperfectly competitive market with few major firms?


texts: The central bank of a country is responsible of the printing of new currency notes and coins/ money to the economy of a country. My question is how they introduce this new money into the economy in a 'fair' manner. Giving it to one individual or group would be privileging them against other such groups, right? So, how is it done?


texts: Is it possible to derive indifference curves given marshallian demand function?

texts: In a two good world, will a marshallian demand function the likes of D(p,m) where p is the price of one good and m the income yield a utility function or indifference curve function? If so, how does one go about solving this?