texts: Why should I get a bond with negative interest instead of having a bank deposit account either zero interest or positive interest

texts:
I don't get why central banks apply negative interest rates. They say that buy our bond and at the maturity, it will worth less than today. What is the policy outcome of such decision?
Why an investor still accepts this or is it just a mechanism to indirectly discourage bond sellings?


texts: If Americans drive more and consume more oil, why are cars less efficient?

texts:
According to this figure from the Center for Climate and Energy Solutions, US, Canada, or Australia car fuel efficiencies are considerably lower than those for Europe or Japan:

At the same time, cities in US, Canada, and Australia, are far more spread out than in Europe or Japan.  There is more car dependency and people drive more and longer distances in North America.

Then why are fuel efficiencies so much lower?  I would think that it makes sense to market the most fuel efficient cars in the market where people drive the largest distances.  And as the automobile market is quite globalised, even if it's European regulations requiring manufacturers to develop cars with higher fuel efficiencies than North American regulations, it would make economic sense to sell the same cars in North America.

What is the economic reason for the observed pattern?


texts: Representing preference orderings over a finite set of outcomes by two payoffs

texts:
I have read the following statement and I am having difficulty understanding the second part:

  Any set of preference orderings over a finite set of outcomes can be represented either by deterministic payoffs, one for each ordinal rank, or by only two payoffs, if the latter are stochastic.

I get how it can be represented by deterministic payoffs but I do not see how it can be represented by two payoffs if they are stochastic.

In hoping that someone here gets it, thanks in advance!


texts: Who regulates the balancing of the books for commercial banks? How? Is it public information?

texts:
I've just read Money Creation in the Modern Economy, an article published by the Bank of England. This article brings about a lot of questions in my mind. This article talks about money being created through commercial bank loans, and that central banks only have the authority to set interest rates or to employ quantitative easing in order to stimulate the economy. Loans being repaid should theoretically destroy the money that was created and balance the books, but inflation grows in that economy as banks earn interest (and in this case, the interest is actually the money that never existed, assuming that they destroy the rest of the money paid back). So my questions are:

How is this all regulated? Who regulates the balancing of the books?

This must require a lot of regulation in order to be feasible, because there are many commercial banks, but few central banks, and because central banks lack power. E.g. central banks can only set interest rates thus defining the theoretical inflation rate, or buy assets through quantitative easing.

What's stopping a commercial bank from making a deposit into someone's bank account that isn't on the books or what's stopping them from not destroying the money they get paid back from loans?
Can I find out more about this stuff for each bank? In other words, is this public information or not?


texts: How much real value has the stock market lost since Feb. 2020?

texts:
In this question I'm using the Vanguard Total Stock Market Index Fund(VTSMIF), which for my purposes I find to be a sufficient indicator of the US market as a whole. (Please explain why this isn't an accurate indicator is that's the case.) I'm also using strictly the M1 money supply, as it most closely correlates to the stock market(and another source), and also because the increases in M2, M3, and MZM have been comparable over the time frame referenced.
In February, 2020 the VTSMIF was at $\\\$164.96$. At that time the M1 money supply was roughly $\\\$4,003,000,000,000.$ As of June 2020 the M1 money supply had been increased to $\\\$5,209,900,000,000.$ That's a roughly 30% increase in the money supply. At the same time, the VTSMIF had only recovered to $\\\$154.75$, or a ~6% decrease.
So we're looking at a 30% increase in money supply that, typically, directly ties to stock prices. I also don't think population increase in the time frame is a material factor, but please correct me if I'm wrong. Even if we assume no further increase in M1 money supply since June, and use today's VTSMIF value of (currently) %\$171.21$, we're looking at a ~4% increase in value, when historically we'd expect an increase in value closer to the increase in money supply.
I know there are myriad factors in play, these are unprecedented economic times, etc etc. But is it incorrect to say that despite slight upwards movement in USD value since February 2020, the stock market has actually lost a significant amount of real value, due to the drastic increases in money supply over the time frame? Assuming it's correct to state that, how would one calculate the actual loss of value?


texts: Absolute Value of Total Factor Productivity in an Aggregate Cobb-Douglas Production Function

texts:
A standard formulation of the Cobb-Douglas production function (e.g. here) is:
$$Y=AK^{\alpha}L^{\beta}$$
Have there been estimates, at aggregate level for any large economy, of the absolute value of total factor productivity $A$ (at a defined date, and for defined units of measurement of output $Y$, capital $K$ and labour $L$?).  Even a rough order of magnitude would be of interest.

From searching the web, there have been many studies that estimate changes in total factor productivity over time, but I could not find any that focused on its absolute magnitude.


texts: Lemma 2 in Tirole and Maskin's Dynamic Oligpoly I (1988)

texts:
The full paper can be found here: http://www.dklevine.com/archive/refs4397.pdf. I refer here to the Lemma 2 in page 557.

My doubt is regarding the first statement of the proof: "Because reaction functions are nonincreasing and $0$ is a realization of $R^1(q)$, firm 1 must react to any quantity above $q$ by setting $0$ with probability $1$". Why is that so? If $0$ is a possible realization of $R^1(q)$ (if I understood correctly what the authors mean by realization -- since the reaction functions can be understood as random variables --, and maybe that is where I am troubled), what guarantees the fact that any small quantity above $q$ will make firm 1 set its reaction function equal $0$?


texts: Does there exist a mathematical formalization of Hayek's ideas about information and the price system?

texts:
Hayek's idea, roughly, is that individuals in aggregate have distributed knowledge about their own utility functions and about specific supply-conditions, that no single individual can oversee, and that markets can aggregate this information efficiently, while planning bureau's cannot.

Does there exist a mathematical formalization of Hayek's ideas about this?


texts: Strange screening game were FS contracts equals optimal contracts

texts:
Consider the setting where a principal hires an agent to do a project. Payoff from project is $\pi = \beta e$, where $\beta \in \{1,2\}$ is the degree of the agent's talent and $e \in [0, +\infty]$ is the agent's effort level. The Agent has a cost of effort equal to $e^2$, and agent's utility is given by $w - e^2$ where $w$ is wage. The principal's utility is given by $\pi - w$ where $\pi = \beta e$. Probability of agent being high type ($\beta = 2$) is $0.5$. The principal moves first and makes a take it or leave it offer. The Agent privately knows $\beta$ at the time of contracting.
Here is what I (think) I know:
When principal observe agent's type
In the first-best contracts the principal will not leave any rents to the agent (i.e. $w=e$), so substituting principal's objective function, taking the derivative w.r.t to $e$ and setting equal to zero gives the desired answer (when $\beta = 1$ the agent elicit $0.5$ units of effort, for $\beta = 2$ the agent elicit $1$ unit of effort). Principal will offer $w=1$ when agent is high type and $w=0.25$ when agent is low type.
When principal does not observe agent's type
If the principal still offers the first-best contracts, the high talent agent has incentives to choose the highest payment scheme (i.e. the first-best contracts with the highest wage) but minimize his effort (i.e. less than the 1 unit of effort the principal expect when she has full information.)
What I don't understand:
In the environment where the principal does not observe the type of agent, I'm struggling to derive the individual rationality condition (I think it's $w_1 - e_1^2 \ge 0$) and incentive compatibility condition (substituting with IRC yields $ w_2 - e_2^2 \ge w_1 - e_1^2 \to w_2 = e_2^2$).
Because the agent's utility is not dependent on the type parameter, I get that the optimal set of contracts simply is the same as the first-best contracts? I feel there is something I'm missing.


texts: Optimal price when elasticity of demand is positive?

texts:
I’m performing some exercises in order to get the optimal price of some product such a potato chips, biscuits, drinks, etc. But I’ve found that some of them have positive elasticities. This can makes sense for me, as if some biscuits brand is not so successful (in sales), price can decrease in order to be more attractive. But under this scenario, how can I establish an optimal price? I’m using a log-log model to obtain elasticities.
Also, at this scenario can I take into account cross-elasticities? By example, how can biscuits influence (cannibalise) chips’ sales?


texts: Is the development of "developing countries" evidence against the idea that former colonial powers owe their headway to exploitation?

texts:
There is a recurring narrative (especially but not exclusively in left-leaning circles) that today's "developed nations", particularly Western former colonial powers, owe much of their wealth and progress to the exploitation of their former colonies. This is frequently used to counter the idea that the "First World's" headway is due to any inherent superiority, either in culture or social organization (such as capitalism, market liberalism or democracy). The implication, apart from the call for reparations that often follows, is that today's "developing nations" are unlikely to ever catch up, replacing the idea of global progress with one of eternal injustice (barring a revolution, which of course is what many proponents of this narrative are aiming for).
However, to my untrained eye, the current development of many "developing countries" seems to falsify this idea. Is that so? I assume some work has been done on this -- can anyone here point me in the right direction? That would be greatly appreciated.


texts: Given a standard Cobb-Douglas production function, how to estimate the output elasticity of labour and capital by country?

texts:
Given a standard Cobb-Douglas production function:
$$Y_t=(A_t L_t)^{\alpha} K_t^{1-\alpha}$$
Moreover, the production function has constant returns to scale:
$$\alpha + (1-\alpha)=1$$

How to estimate the output elasticity of labour ($\alpha$) and the output elasticity of capital $(1-\alpha)$?

I would like to estimate the output elasticity of labour and capital for a specific group of countries (US, Germany, Korea, Japan) for my RBC model.


texts: Marginal buyer/seller as determinant of price

texts:
In competitive markets without frictions, the marginal buyer/seller determine the price. To what extent is this argument true in markets where a fraction of the sellers are constrained?

Think about the labor market. Some workers are optimally supplying labor given their marginal rate of substitution and the wage rate. Some workers are borrowing-constrained such that they have to supply their full labor endowment.

Assume perfect competition on the labor demand side. Under which conditions can we determine the wage rate using first-order condition of the firms and the first type of workers?


texts: What models exist that explain which people emigrate to another country?

texts:
I'm looking for papers about this, or if there's a pretty standard model across many papers, then maybe just a rundown of the model. I'd like to use the model in an econometric analysis.

For example, is there a model that explains whether a more educated person is likely to look for a job abroad versus a less educated person? Or instead of education, a person in a country at war versus a person in a country at peace?

I made an assumption there that the immigrant was seeking a job. Maybe they're looking for other things. I don't care if the model uses that assumption.

I'm doing some research on immigration about the skills immigrants to the US tend to bring and the industries they tend to work in. It would be nice to know if there were a model that showed how factors at home push certain people to certain countries depending on their skills or something.


texts:
I have a question regarding weighing observations by importance.

Suppose I am running the following regression:$$log(y_{it}/y_{it-1})=\alpha+\sum_{i=1}^{N}\gamma_{i}Country_{i}+u_{i}$$ where basically my LHS is GDP growth of country $i$ at time $t$ that I regress on a full set of country dummies (-1).
I want to weigh the observations by the GDP of the country.
If I am doing this on stata, what weights are appropriate? Frequency weights or probability weights? My intuition is that I have to basically run a weighted least squares regression of the form: $$ \hat{\beta}=(x'Wx)^{-1}(x'Wy)$$

where $W$ is a diagonal matrix with the weights (GDP) on the diagonal. I am at a loss regarding how to implement this on Stata. Thanks!


texts: Even at the break-even inflation rate, isn't the YTM of a TIPS greater than that of a normal treasury bond?

texts: At a the break-even rate of inflation, the semi-annual interest payments from a TIPS and a normal government bond would be roughly equivalent. However, the principal amount originally invested in the TIPS continues to be compounded by the inflation rate while the principal amount invested in a normal government bond is nominally constant. Thus, assuming a positive break-even inflation rate throughout the holding period up till maturity (which includes both the semi-annual interest payments and the gains due to compounding of the principal by the annual inflation), the yield to maturity for a TIPS should be larger. Is my analysis correct?


texts: Economies of scale: when is it disadvantageous?

texts:
So, I watched a video on economies of scale. It makes sense to me but I'm wondering, is there a point where say doubling the production rate makes the product even more expensive? How can I figure out the equilibrium point and thus maximum useful rate for producing a product assuming certain restrictions on availability of product, maximum distance to customer, value of ingredients, and other factors? I imagine it would be something like this:

Exponential decay in price until certain point is reached

Stops decreasing right at relative price = 0

Exponential growth after the equilibrium point as relative price goes in the positive direction.


texts: What is the no ponzi condition for this representative consumer problem? Tags: Initial condition, no-ponzi game

texts:
This question is following Farhi et.al. 2014's consumer budget constraint modified to add a government bond and removing money. A simplified version is given below which is pertinent to the question.
$$ \sum_{j\in J_{t}} Q_{t}^{j} B_{t+1}^{j} + B_{gt+1} + P_{t}C_{t} = (1+i_{t})B_{Gt} + \sum_{j\in J_{t-1}} (Q_{t}^{j}+ D_{t}^{j}) B_{t+1}^{j} + Y_{t}$$
where $B_{Gt}$ is a one period government bond which in only traded in the home country and pays a certain nominal rate of interest $i_{t}$ and $\{B_{t}^{j}\}_{j\in J_{t}}$ is an internationally traded bond  where $j\in J_{t}$ is a subset of assets available at time $t$ to each consumer. The pricing kernel $Q_{t}^{j}$ is such that we obtain complete markets.
The problem:

What is the no-ponzi condition for the two assets?
My solution is to treat $Y_{t} + (1+i_{t})B_{Gt} - P_{t}C_{t} - B_{gt+1}  = \tilde{Y_{t}}$ and obtain a no ponzi for the international assets as $$ \lim_{s\rightarrow \infty}\frac{\sum_{j\in J_{t}} Q_{t}^{j} B_{t+1}^{j}}{P_{qt} \prod_{s=-\infty}^{0} (1+\tilde{i}_{t-s})} = 0,$$
where $P_{qt}$ is just an index of pricing kernel $Q_{t}^{j}$ so traded and $\tilde{i}_{t}$ is an index of nominal return for all the assets that were traded.
But this solution does not have any restrictions on the consumer's side for the government bonds. It just says that consumer cannot accumulate internationally traded bonds more than what he can pay off in his lifetime. (Consumer could be she).

What would be the initial condition for the internationally traded securities if I assume that my country could start with some positive debt level?
My solution: I have used backward induction on the budget constraint to obtain an initial condition for the internationally traded security on the basis of which I get the following:
$$ B_{-1} = - \sum_{s = -\infty}^{0} \frac{\tilde{Y}_{t-s}}{P_{qt-s} ( 1+\tilde{i}_{t-s})}$$

Any help would be appreciated. I have referred a few macro textbooks, but I am not clear on this issue myself. The cleanest I could get to understanding was using Acemoglou's growth textbook.


texts: What can we know for sure among ambiguous impulse responses in RBC?

texts:
I'm trying to understand the section on responses to productivity disturbances in Understanding Real Business Cycles by Plossor.
It seems to me ambiguity of representative agent's response in consumption, saving and leisure rooted in two reasons:

Wealth effect is ambiguous. As far as I know, wealth effect means a temporary shock or a permanent change make the choice set determined by production techonology and budget bigger or smaller. The curvature of indifference curve is to some degree arbitrary, so the reallocation of consumption, saving, working, leisure could be arbitrary.
The relative strength of wealth effect against substitution effect is also arbitrary.

Here's my attempt: Suppose that, a higher value of (unexpected) temporary technological shock hits the economy at time $t$.
$$\sigma_{high}F(K_t, N_t)=C_t+(K_{t+1}-(1-\delta)K_t)$$
Substition effect indicates more labour at $t$, but wealth effect makes this indetermined. $\{K_{t+1+i}\}_{i\in \mathbb N}$ is higher in each period for sure. But it's unclear for $\{C_{t+i}\}_{i\in \mathbb N}$ and $\{N_{t+i}\}_{i\in \mathbb N}$. It could be the case both wind up with higher value for all $i$, or only one of them wind up with higher value for all $i$.
It seems to me the qualitive result for a permanent increase of productivity is the same.


texts: Forward Guidance - What happens when the FED unloads its balance sheet

texts:
Please Excuse my ignorance.

The US Federal Reserve has issued forward guidance telling the world that it is going to start to sell its (well a little less) 4.5 trillion dollars worth of securities that it purchased in 2008.

When the fed purchased bonds from the market this was considered open market operations. When the fed spent dollars to purchase securities it expanded the money supply. Correct?

So now that they are going to unload the securities.

When the fed sells bonds to the market this is also considered open market operations. This type of open market operation contracts the money supply as the fed will sell securities to the market and accept dollars for them. Correct?

As there is such a large amount of securities on their balance sheet, these open market operations are going to have global effects. What could some of the effects be? ( I realize they will do it slowly )

( Effect on Non-US real estate ( the bubbles around the world ))
( US Dollar value ( US Dollar Index ))
( China )
( Other Central Banks )


texts:
For my thesis, I'm working with a panel dataset that tracks individuals within households. To allow for merging, the dataset provides the household ID in the previous round for each individual. What I'm wondering is how to decide based on this information that a household is "the same" in two different rounds of data collection.
As I'm looking at the socio-economic outcomes of various farming practices, my concern is that there are unobservable household characteristics that influence the farmer's returns to farming but then also correlate with various household outcomes, such as education, assets, etc. To control for this, I'd like to use household fixed effects.
However, I'm wondering which features of a household would justify me saying "this is the same household and these effects are fixed over time". For instance, I don't want to use the household head because if the head changes and every other aspect of the household is identical, the impacts on farming outcomes shouldn't be too large. My question hence is whether there are commonly accepted characteristics for identifying households over time?
For reference, the data I'm using is the Living Standards Measurement Survey - Integrated Surveys on Agriculture, by the World Bank.


texts: What does a stock market index stand for?

texts: I know that a stock market index (like S&P, NIKKEI, etc.) is computed from the prices of selected stocks, but I was wondering why the name of the currency is almost never expressed. For example, if the S&P price is 2927 points I assume those are dollars, but how about NIKKEI? Is its price is expressed in yen? Is DAX expressed in euro? Is there a standard in financial community?


texts: Is money received from my mother every month an income?

texts:
If my mother sends me some money every month, is that considered an income?

I usually fill in a sheet to track my expenses and display my savings for every month. For the past few months, I've been living on my mother's generosity to sustain myself while I'm studying.
I was categorising this as an income but felt it wasn't right.

The question is, What do you call the money you receive from a relative every month for a fixed period of time in exchange for basically nothing but your well being, education etc.?

I intend to share this sheet with students who might be receiving some sort of financial assistance from their relatives. The need for me to come up with a term that rightly describes this transfer of cash is to avoid any sort of confusion while using this sheet.


texts: Sanders' Plan to tie health care spending as a percentage of income

texts:
So Bernie Sanders' plan considers healthcare as:

  Bernie’s plan will cover the entire continuum of health care, from
  inpatient to outpatient care; preventive to emergency care; primary
  care to specialty care, including long-term and palliative care;
  vision, hearing and oral health care; mental health and substance
  abuse services; as well as prescription medications, medical
  equipment, supplies, diagnostics and treatments.

And the main way to raise revenue to pay for it will be:

  A 6.2 percent income-based health care premium paid by employers. A
  2.2 percent income-based premium paid by households. Increasing Progressive income tax rates on certain brackets. Changing
  qualifications for capital gains, dividends, and deductions.
  Increasing the estate tax on certain brackets.

Now I am assuming the cost the healthcare products and services will fluctuate just like all other products and services do in one way or another. My question is, under such a plan, in a given year, what happens when the costs of the products and services is less than revenue (do taxpayers get the difference back) and what happens when the costs of the products and services is more than revenue (will taxpayers see an increase to percentages taxed of their income).


texts: Conjecture Steady State from limit properties

texts:
The question is related to this thread. I'd like to derive a unique steady state for an optimal control problem.

Consider the following programm
\begin{align}
&V(x_0) := \max_u \int^\infty_0 e^{-\rho t}F(x(t),u(t))dt\\
s.t.~&\dot x(t)=f(x(t),u(t))\\
&x(0) = x_0
\end{align}
where $\rho > 0$ denotes time preference, $V(\cdot)$ is the value and $F(\cdot)$ an objective function. $x\in X$ is the state variable and $u\in U=[0,1]$ the control. The state is governed by $f(\cdot)$. The Hamilton-Jacobi-Bellman equation reads
\begin{align}
\rho V(x)=\max_u [F(x,u) + V'(x)f(x,u)],\quad \forall t\in[0,\infty)
\end{align}

Now presume that the feedback control is given by
\begin{align}
u(x) = \frac{1}{1+V'(x)} = \arg\max_u [F(x,u) + V'(x)f(x,u)],\quad \forall x\in X.
\end{align}

Suppose there is a fixed point at $x = \tilde x$ and we can derive an alternative representation for the optimal control in the fixed point with
\begin{align}
u(\tilde x) = \frac{\rho + u'(\tilde x)}{\rho + u'(\tilde x) + 1}.
\end{align}

Suppose additionaly the HJB in the fixed point is given by
\begin{align}
\rho V(x)=\ln\left(\frac{1}{1+V'(x)}\right) + 1 - \frac{1}{1+V'(x)}.
\end{align}

If $\rho\to 0$ approches zero we must have $V'(\tilde x) = 0 \Rightarrow u(\tilde x) = 1 \Rightarrow u'(\tilde x) = \infty$. On the other hand if  $\rho\to\infty$ approches infinity we must have $V(\tilde x) = 0$ by the definition of the value function and thus again $V'(\tilde x) = 0 \Rightarrow u(\tilde x) = 1$. Summarizing we have the following properties in equilibrium
\begin{align}
\lim_{\rho\to 0} u(\tilde x)=\lim_{\rho\to\infty} u(\tilde x) = 1.
\end{align}

Well, that's at odds with
 \begin{align}
\frac{\partial u(\tilde x)}{\partial \rho}=\frac{1}{(\rho + u'(\tilde x) + 1)^2} > 0
\end{align}

being a strictly monoton increasing function, contradicting our previous result. Note, however, that we may resolve the issue by observing
\begin{align}
\lim_{u'(\tilde x)\to\infty}\frac{\partial u(\tilde x)}{\partial \rho}= 0
\end{align}

So, can we finally conjecture that we must have in the fixed point $u'(\tilde x) = \infty \Rightarrow u(\tilde x) = 1$ such that
\begin{align}
\rho V(\tilde x)=\ln(1) + 1 - 1 \Leftrightarrow V(\tilde x) = 0.
\end{align}


texts: When in surplus or shortage, in order to achieve equilibrium price must change. I understand that. But what if when in surplus, suppliers choose to instead sell less, but for the same price? Vice versa for shortage.


texts: How come websites such as Khan Academy and Anatomy Zone do not charge for their services?

texts:
I've noticed that most educational websites do not charge for their services, even if they are maintained by only one or very few people.

Some of these websites are so comprehensive that they require almost a full time job to maintain.

Why do these websites not charge for their services? (I doubt they make enough money from youtube to make it profitable).


texts: Would a Weather and Climate Change class be helpful to peruse a career in environmental economics

texts: I’m an undergraduate student and want to become an environmental economist. Would it be beneficial to take a class on weather and climate change or should I stick with economics courses geared towards the environment?


texts: Positive productivity shock with a fall in output

texts:
I am modeling a two-country world. Within each country there exists a representative infinitely-lived agent, a representative final good producer, a continuum of domestic monopolistic competitive firms (owned by consumers), and a continuum of local retailers that import goods. The representative agent supplies labor and capital to the production process. Domestic firms use labor and capital as inputs to produce intermediate goods; local retailers import differentiated goods. Domestic producers sell to the home and foreign final good producers. Each representative final good producer is a competitive firm that bundles home and foreign intermediate goods into a non-tradable final good, which is consumed and used for investment by the domestic agent. Preferences and technologies are symmetric across both countries.

Domestic producers follow this:

\begin{gather}
Z_{H,t} + Z^*_{H,t} = Y_t = A_t K_t^\alpha L^{1-\alpha}_t
\end{gather}

so for the Foreign country, the production process is given by:

\begin{gather}
Z^*_{F,t} + Z_{F,t} = Y^*_t = A^*_t K^{* \alpha}_t L^{* 1-\alpha}_t
\end{gather}

where $Z^*_{F,}t$ is the intermediate good to produce final good $Z^*_t$ for Foreign country and $Z_{F,t}$ is the intermediate good that will be exported to the Home country.

When shocking the economy with a positive temporary productivity shock, I find that overall $Y^*_t$ decreases, while $Z^*_{F,t}$ decreases but $Z_{F,t}$ increases. However, $L^*_t$ increases, but $K^*_t$ decreases.

I understand that $Z_{F,t}$ increases as a response to the positive shock by the Home country, because there is an increase in the demand of goods. My question is, what would be the economic intuition in knowing that $Y^*_t$ decreases, but $L^*_t$ increases and $K^*_t$ decreases? I was thinking that a possible answer would be that, this occurs given that the Foreign country needs to produce more $Z_{F,t}$ to export to the Home country, and given that the share of labor needed in the production process is greater than the share of capital, in order to achieve the higher production of $Z_{F,t}$, only labor is needed as it is "relatively" more important than capital in the production process (I am assuming that capital share $\alpha = 1/3$).

Thank you,

Alejandro


texts:
In Hayashi's Econometrics, page 529, he states one of the assumptions we need for the FIML estimator.

My doubt is in the third line of point 1). He says that the vector $(y_{t1},...,y_{tM},\mathbf{z}_{t1},...,\mathbf{z}_{t1})$ are elements of $(\mathbf{y}_t,\mathbf{x}_t) $. How is that possible? If $\mathbf{y}_t=(y_{t1},...,y_{tM})'$, then it means that $\mathbf{x}_t=(\mathbf{z}_{t1},...,\mathbf{z}_{t1})$.

I don't think I'm understanding the 'english' here.

Any help would be appreciated.


texts:
I know that a profit function is defined by $\pi(p;w)=\max_{x\in\mathbb{R}}pf(x)-w\cdot x$ and $\pi$ is a convex function (i.e. $\pi$ is convex in $(p, w)$. My concern is how we can find the max value of the profit function when the profit function itself is convex.

From my previous knowledge on convex function, I also know that a convex function has a global minimum on its domain (correct me if I was wrong), but how can we find the maximum?

Can anyone please explain this for me? I am so confused. Thanks in advanced!


texts: Uniqueness of equilibria in first-price auction with discrete valuations

texts:
Assume we have a first-price auction with discrete and independent private values and identical distributions of all bidders. It is known that there exists a Bayes-Nash equilibrium where bidders bid on disjunct bid intervals. For example, we have valuations 0,1,2. Then a bidder with valuation 0 bids zero, a bidder with valuation 1 plays a mixed strategy on some interval $[0,\overline{b}_1]$ and a bidder with valuation 2 plays a mixed strategy on some interval $[\overline{b}_1,\overline{b}_2]$.

Is it true that this Bayes-Nash equilibrium is unique? If this is true, how one can show that overlapping bidding intervals are impossible? Or is it possible to show at least that this is the unique symmetric equilibrium, i.e. an equilibrium where all bidders employ the same strategy?

I tried to find the answer in the literature but I only found papers which derive the symmetric Bayes-Nash equilibrium with disjunct bidding intervals without discussing other possible equilibria. Thank you!


texts:
Suppose a monopolist faces the following inverse demand function :
$p = exp(-Q)$
The monopolist can produce any positive level of output with zero variable cost. Its fixed cost is $F$. Find the profit-maximising output for two cases (i) when $F = 0.1$ and (ii) when $F= 0.5$.
I tried solving it using, $MR=MC$, the latter in this case is zero, so in both the cases I am getting 1 as the answer, and I am not sure if it is correct!


texts: When people talk about “Companies Hiding Money Overseas” to avoid taxes, what does this really mean?

texts:
Presuming the consequence is holding cash somewhere else: I'm really interested in the objective effect of this from a global value creation perspective. I'm less interested in the money itself and more interested in how it impacts the profile and efficiency of creating value.

Capitalistically speaking, does it have the effect of making our economy less efficient?

Does it add value or efficiency anywhere else e.g. the countries who act as host for the cash?

Is the holding of cash a negative effect on value creation?


texts: When action and strategy differ in game theory

texts:
It looks like in a static, simultaneous move game, action is used interchangeably with strategy.

But when do they differ, say in a more complicated game structure? I am trying to understand the difference between the two and try to keep in mind that I should, in general, NOT equate these two.

Even when I think about the normal form game, prisoners' dilemma, it is not all clear why in this case, action is equivalent to strategy and many authors choose to use two terms interchangeably.

When criminal is called upon to act, she can either cooperate or defect. But the strategy set is

$S=S_1$x$S_2=\{(U,U),(U,D),(D,U),(D,D)\}$

Here, how do I see that criminal 1's strategy is equal to her action which is $S_1\{U,D\}$?

And when do these two notions depart from each other?


texts: How is the banknote denomination designed?

texts:
Recently India demonetized their 500 and 1000 rupee notes. As a replacement a new 2000 rupee note was introduced. This has resulted in some chaos in the commercial markets due to decreased availability of banknotes. I was wondering about the root-causes of this.

I'm not a trained economist. One reason, that I think, adding to the chaos is the unscientific design of the denominations. Currently the banknotes in India have the following denominations:
5, 10, 20, 50, 100, 2000.

In the current price structure in India, there are lot of goods currently sold in the range 100-2000 and this means that for a given sale of a good in this range the money exchange process becomes very complicated due to the absence of some intermediate denominations in this large range.

For e.g: If somebody buys an item of 800 rupees, now she has to carry at least 8 different notes. On the other hand, if she decides to carry only a single note of 2000 rupee, then the shop owner has to give her 12 different notes back. So, either way now there is a large burden on the central bank to increase the number of notes in the supply.

So, I was wondering on what is the most efficient design of banknote denominations.
efficient => The most optimizing in terms of the number of notes to carry/keep for the payer and the receiver and most optimizing for the central bank to issue in terms of cost and distribution logistics.

My intuition says that a denomination structure based on the powers of 2 would be the most 'efficient' mechanism. Another option would be the Fibonacci series. I would assume that most of the central banks across the world design their banknotes in a series close to the Fibonacci series. I tried to google around about how this is designed in general and surprisingly my searches didn't reveal anything in this direction.

My question is : Is my intuition right?
Also it would be helpful if somebody points me to some literature discussing this topic.


texts:
When does an economic theory become true?

When does it satisfy requirements for true knowledge, e.g. similar to those in empirical sciences?


texts: Is it enough to prove that $x \not \succsim^* y$?

texts:
I'm trying to negate that: $\exists B \in \mathcal{B}$ such that $x,y \in B$ and $x \in C(B)$.
Looks that the negation is equivalent to: $\forall B \in \mathcal{B}(x,y \in B \implies x \not \in C(B))$. Is it right?


texts: How to test for invertibility in ARCH family models?

texts:
I hope everyone is doing well.
Citing Enders (2014) in the book Applied Econometric Time Series: "the Box–Jenkins approach also necessitates that the model be invertible" while discussing necessary conditions for AR, MA and ARMA models. Both in algebra and in code (R), this is relatively simple to verify for smaller models.
How should one proceed when dealing with models of the ARCH family (ARCH, GARCH, GARCH-M)? Given one has two equations (that one describing the behavior of the mean and that one describing the behavior of the variance), must invertibility be verified for both, or must one only verify it for the mean equation?
Thank you!


texts: Binary-continuous choice model in empirical consumer choices

texts:
There are quite a lot empirical research based on discrete choice models, in which the consumer selects one of J alternative goods to maximize her indirect utility. The key assumption of these models is that there is an idiosyncratic utility component that follows the extreme value distribution.
The problem I am facing is different. I can observe a large number of individuals' consumption of a single good. The values of these choices are continuous quantities, with a long right tail, and roughly 80% of these values are zero. Even if I can discretize the quantity, I don't think I can assume an indepdent utility term for each discretized choice. So a different modelling approach is needed.
I conjecture the choice problem to consist of two steps. In the first step, the consumer decides whether to consume the good. If yes, the consumer then chooses how much to consume. In the empirical IO literature, is there any established model that is used for such "binary-continuous" choices?


texts: How much revenue could an 100% land value tax be able to generate for the Indian government?

texts:
So as a Georgist (follower of Henry George), I believe most form of taxation is immoral and economically inefficient except the land value tax (not to be confused with property taxes) and other pigovian taxes. However, I'm also a pragmatic person and therefore, it may not be possible to fund an entire government through these taxes alone as most Georgists believe.
That is why I want to ask how much revenue would an 100% land value tax be able to generate for the Indian government, assuming no changes in the current levels of the government.
I do realise such a tax would be difficult to practically implement due to poor land records in India but nevertheless, I'm interested to know if it is feasible in theory.


texts: How does an increase in the minimum reserve requirement affect the monetary base?

texts:
Monetary base is defined as currency+currency held by banks+deposits of banks at central bank. We assume that the current reserve is below the minimum reserve requirement. Which component of monetary base is affected?
Please note the distinction between money supply and monetary base.


texts:
I'm looking for as many empirical "stylized facts" about price dispersion (in products markets) in the idea of Burdett and Judd (1983) as possible.

For example,

how high is the variance of price dispersion over different markets?
Is there a time trend in price dispersion?
How does price dispersion vary over the business cycle?

For the last question, I only found Cornia et al (2011), who show that it is very pro-cyclical for airlines - probably not the most generalizable result.


texts:
We are given that $C$ is a function of $Y_D$ and $Y_D=Y-Y\tau$. What would be the total differential of $Y=C(Y_D)$?

So far I have the following:
$$ dY=C_{Y_D}(1-\tau)dY+C_{Y_D}(-Y)d\tau$$

However I am not sure how to write this expression in terms of $C_Y$ and $C_{\tau}$. Where do I go from here? Is leaving the expression in terms of $C_{Y_D}$ appropriate?


texts: Estimating elasticity of substitution in nested CES functions

texts:
I have aggregate data on $L_t, K_t$ and $X_t$, and want to estimate elasticity of substitution parameters, $\gamma$ and $\sigma$ for these factors. Assuming the production function takes the following form: $$Y_t=(A_lL^{\gamma}+[A_kK_t^{\sigma} +A_xX_t^{\sigma}]^\frac{\gamma}{\sigma})^{\frac{1}{\gamma}}  $$

Technology parameters, $A$s are not observable and hence need to be controlled for in an econometric specification. I am thinking of first estimating the parameter, $\sigma$, on the inner CES function combining $K$ and $X$. Then I should be able to estimate the outer CES parameter, $\gamma$. In a way, the two parameters are not jointly estimated. Would this method be valid, I mean, in statistical sense? Will I get consistent and unbiased estimates?
I've read papers on non-linear regression methods, but was wondering if this simple approach is feasible.
Thanks.


texts: Asset pricing vs Empirical asset pricing

texts:
I get confused on what is the difference between asset pricing vs empirical asset pricing? Could you clarify your answer? Also, is asset pricing just assessing the current value of an asset?

Thanks,


texts:
I have some issues understanding the intuition in Fixed Effects models,
and the sources of variation they imply. For a concrete example, consider
the following regression specification:

$$r_{ist}=\gamma_{i}+\delta_{st}+\epsilon_{ist}$$

The LHS in the above equation is to be interpreted as the rating
that a worker $i$ receives at time period $t$ in sector $s.$ The
RHS is composed of three terms. The first term represents a worker
fixed effect- think of this as a dummy variable that takes a value
of 1 for worker $i$ and 0 for all $j\neq i$. In this sense, the
design matrix would consist of dummy variables for all workers (no
constant term), and the variable for worker $i$ would take on the
value $1$ when considered in this matrix. The second term represents
$\delta_{st}$, or a sector-year fixed effect. This is basically a
coefficient on a dummy variable for a particular sector-year cell. How is one to interpret this?
There are a total of $st$ of such dummy variables. The third is an
error term. My first question is, how does on interpret the value
of a particular $\hat{\gamma}_{i}?$ Also, how does this relate to removing
the variation at the worker level and the sector year level. What
variation are we removing? What does it intuitively mean to remove
variation? Finally, think of adding a set of covariates as:
$$
r_{ist}=x_{ist}'\beta+\gamma_{i}+\delta_{st}+\epsilon_{ist}
$$
 Now, how is $\beta$ being identified? If we take into account individual
and sector fixed effects, how is $x$ varying? Would one not interpret
that $\beta$ is identified by holding constant $i$ and holding constant
$st$ , we vary $x_{ist}$. But if we are holding both $i$ and $st$
constant, there is no variation in $x.$

I apologize for the multiple questions asked here, but I think the questions are quite inter-related.


texts: Why if the economy will produces too much there will be an increase of prices in nearly all goods and services?

texts:
I am taking an online Economics course and not understanding why if the economy will produces too much there will be an increase of prices in nearly all goods and services?
If for example there will be produced twice as much hats then needed, the price per hat will fall?

An economy that produces too little will suffer from high
unemployment, since the low rate of employment opportunities will be
inversely proportional to the high number of able-bodied workers. An
economy that produces too much will see widespread increases in the
prices of nearly all goods and services as the demand for them
outpaces production capabilities. This general increase in prices is
known as inflation.

From Teaches Economics & Society (MASTERCLASS) by PAUL KRUGMAN


texts: Do mainstream economic models use the blank-slate view of humans?

texts: Human capital is an important part of GDP forecasting. Do the models in use today view humans as "blank slate", meaning they can be educated to the same level, or do they take into account heritability of human abilities?


texts:
Source.

Why did the Turkish economy plunge after 2013?
Why didn't it recover ever since?


texts: Can A/B be a better variable than separate A, B in linear regression?

texts:
While learning Econometrics, I got curious to know whether A/B can make a better variable than separate A and B, when constructing a linear regression model.

Variables are often changed to more appropriate form in linear regression like making it log(x) or changing its scale for better interpretation. So I thought, why not try taking a ratio of two variables and get rid of the original two? (To avoid multicollinearity of course.)

For an example, let's say I'm interested in stock price and make a linear regression on it. Would it be better to include original book value and market value as two separate variables in my model or make them into one variable like book value/market value? or would it depend on the situation/purpose?


texts: Is it valid to compare cryptocurrencies by using their smallest divisible unit?

texts:
I'd like to compare the relative value (in USD) of three cryptocurrencies: Bitcoin, Ethereum, and IOTA. (See spreadsheet below.) Specifically, I'm comparing the price of each currency's smallest unit of division. And I'm taking that a step further to compare the "unit price" and the "smallest unit price" over the current circulating supply.

(Note, although these currencies have big differences with respect to their feature sets and target markets, and I don't want to consider that for the purposes of this question.)

The Problem: Currency Differences

Unit Subdivision

These three cryptocurrencies vary dramatically by the amount a single unit can be subdivided. A single bitcoin (BTC) can be divided by 1/10^8. That is the smallest unit that can be recorded on the blockchain and is sometimes called a Satoshi. A single Ethereum unit is called an ether. It can be divided by 1/10^18 and this smallest unit is called a Wei. A single IOTA cannot be subdivided, unlike the BTC and Ether units, which were chosen to give sub-unit precision rather than large whole numbers.

Circulating Supply

Also, the current circulating supply of each currency is dramatically different. At the time of this writing there are 16,451,325 BTC in circulation, 93,329,609 Ether in circulation, and approximately 2.8E+15 IOTA in circulation (which unlike BTC and Ether, is fixed and will never increase.)

Solution Premises

Use Smallest Unit of Currency for Price Comparison

The first premise of my question, which may be incorrect, is that we can get closer to an apples-to-apples comparison of price by calculating the price of the small unit of currency. For example, I don't think it would be accurate to compare the price of BTC ($1,918.41 at the time of this writing) and the circulating supply of 16,451,325 BTC against the price of an IOTA (0.17) and it's circulating supply of  2,779,530,283,000,000.

Use Price over Supply to Show Value

The second premise, which may be also be incorrect, is that after we have a price-per-smallest-unit for each currency, we can further estimate value by dividing that number by the existing circulating supply.

For example, if a baker slices a single pie into 4 slices and sells each for two dollars apiece, and a second baker slices a pie into three slices and also sells for each for two dollars apiece, I can see that I can more "value," for my money by dividing the cost of a single slice by the number of total slices. In the case, a value of .5 for the quarter slices and a value of .67 for the pie sliced in thirds.

I'm considering the available supply in this case to be fixed, which is true with IOTA. The circulation of Bitcoin and Ethereum will increase to give a slow inflationary rate, but I don't think I want to consider that in the context of this question.

Summary

This is a screenshot of a spreadsheet where I've done the above calculations (click to enlarge):

In the last three columns we see very different results. In column G, the price of the smallest unit for the currency, the Ethereum unit "Wei" is cheapest by far.
However, in column I--which takes the price of the smallest unit of currency divided by the circulating supply of that smallest unit--the IOTA (larger numbers are better here) seems to be a better value.
And finally, in column H, we abandon the idea that using the smallest possible unit is important and simply divide the unit price by its circulating supply. That result suggest that bitcoin is a better value.

I feel that the calculation in column H, where we don't reduce the currency price/circulation to it's smallest possibly unit is wrong, especially if we're considering IOTA in the set. But I'm also unsure, due to my lack of economics knowledge, that the degree to which the currency can be subdivided is important.

In the end, a stock (or cryptocurrency) is just worth what someone is willing to pay for it. And value is more than just price. But are the above calculations a valid way to compare cost of these currencies?


texts: Does aggregate demand increase investments?

texts:
I just read that increase in aggregate demand increases investment for a given interest rate. How is it possible because when aggregate demand increases, this shifts the demand for money to the right leading to higher interest rates. Higher interest rates should reduce investment. Am I correct in with my argument?
And help will be appreciated.


texts:
So when the government prints more money, then it is said the people will have more money in general and as a result the prices of goods and services will also increase. So in the end, we will end up buying the same amount of goods, but by paying more. So its the concept that the more the things is available the less value it has.
I do not understand how this works in real life.
When the government prints more money, how does this extra money end up in the hands of the people, they still are being paid the same amount of salary annually by their employers. The income of people is fixed.
Secondly, why does the price of the goods increase? If rice is worth 1$ per kilo, then just because people are richer why does the cost of rice increase ?

I have recently started studying economics.


texts:
As far as I understand people like them, because they fit the data quite well when compared to VAR's for example while also having an economic interpretation.
They appear to explain observations in a more general way than VAR's.

However for me personally that point falls flat as I can not convince myself to see the assumptions (everything is differentiable instead of discrete, goods don't depend on each other for production, people have no skills, etc.) to be a sensible simplification of reality. So I'm left wondering if DSGE models fit the data despite their assumptions. After all they have quite a number of parameters, which might make them quite flexible.

Or do DSGE models fit the data better than VAR's or other models like neural networks?

Did people investigate the "expressiveness" of DSGE models? With expressiveness I mean the set of functions(DSGE models predict inflation as a function of time for example) you can approximate by choosing the parameters of a given DSGE model.


texts:
an AR(p) process is given by:

$$y_t=\phi_0+\phi_1y_{t-1}+\phi_2y_{t-2}+...+\phi_{t-p}y_{t-p}+u_t$$

In such a model we have endogenous variables. My question is, why is this not an issue when dealing with time series data.


texts: How to determine covariant stationary values?

texts:
I am trying to determine the values for when this ARMA model is covariance stationary.

I have the model: $z_t = a + Bz_{t-1} + u_t + u_{t-1}$

I have written it in terms of the lag operator:

(1 - BL) $z_t= a + (1 + L)u_t$

However I am unsure what to do about the constant?


texts: How does a budget deficit help grow a trade deficit?

texts: What are the mechanism that explains this, and does this help explain the U.S.-China trade deficits?


texts: Can a currency with constraints on the amount a person can posses boost the economy?

texts:
So there was the following proposition: Create a currency with the following contraints:

  Each person may only own x amount of this currency. Gaining more of this currency is not allowed. Using a cryptocurrency, such a system could probably be crafted.

So one could probably achieve a similar system by creating an appropriate tax-system. However, what would be the outcome of such a currency. Could such a currency boost the economy? The main target of such a currency would be to drastically reduce the gini-Coefficient.

Some implications I can think of:

A rich person would have to

Reduce work and hence let someone else work for him (increase employement)
Spend more money so he/she can keep up his/hers income (boost economy)

A poor/unemployed person would (could)

Profit from social security, since increasing cash flow leads to (possibly) higher tax-income.
probably get faster a new job, since profitable companies can only spend more cash on either assets or empolyees


texts: Microeconomics: Calculating and Comparing MRS for Various Utility Functions

texts:
I am having a problem determining "which utility function is not like the rest." The following utility functions are:

$$U_1(x,y)=x^{2/3}y^{1/3}$$

$$U2(x,y)=3x^2*y+2$$

$$U_3(x,y)=\frac{1}{3}\ln (x)+\frac{2}{3}\ln( y)$$

$$U_4(x,y)= 4\ln(x)+2\ln(y)-12$$

So my general thought in approaching this question was to obtain the MRS for each of the functions. After doing this, however, I found U1 and U2 to have an MRS of -2y/x. However, I am having a much bigger problem differentiating U3 and U4. My intuition is that U4 would be equal to U1 and U2 because we value x twice as much as we value y. however, can anyone help out with the math?


texts: How does Arrow's Impossible Theorem show that the only aggregation rule that works is Dictatorship. Couldn't we have a Non-dictatorship with IIA or a Non-Dictatorship with Pareto Efficiency?


texts: Negative correlation conditional variance and return

texts:
I've estimated a GARCH for S&P 500, Nikkei and DAX index.

The model for the return of S&P 500, the results indicate the return of DAX has an negative effect on the S&P 500 conditional variance?

This is not in line with what I expected, given that high volatily must give a higher return.

Can anyone help with this?


texts:
Given that demand for a good X is equal to $q_D=393-2p$ and market supply is $q_S=p/4-12$. Find equilibrium price and quantity, consumer and producer surplus and draw a diagram illustrating the situation. Given that:

a) $T=2q$, every single item sold is taxed.

b) $T=20\% TR$ total revenue is taxed

Obviously i have calculated the equilibrium price and quantity before taxation that is $p=180,q=33$.But i have no idea how to caculate those two values after taxation.


texts: Did Elinor Ostrom (or others) resolve the tragedy of the commons for common-pool resources?

texts:
Ostrom (2015: 19) writes:

Individuals or households who have rights to withdraw resource units
from the CPR must be clearly defined, as must the boundaries of the
CPR itself.

Following her definition of goods (see matrix below) I understand that they effectively describe institutional arrangements for organising access to delimitable commons (= high substractability) within delimitable communities (= high exclusion). Consequently they would describe collective action for private goods.
Did they also discuss institutional arrangements for organising access to commons (= high substractability) between communities in a global society (= low exclusion), i.e. for common-pool resources, such as the climate?

Source: Hess & Ostrom (2007)


texts: What is the tipping point for hyper-inflation?

texts: The recent injection of $2 Trillion into the US economy has prompted me to wonder: At what point does introducing money to a system cause hyper-inflation? (such as Venezuela or other hyper-inflation economies)


texts: Is there a theory of financial regulation?

texts:
I wonder whether there exists (even a young) theory of financial regulation in the sense of "how to regulate a financial institution/system in an optimal manner"? I mean, there is experience about several situations which came across in the past, like bank runs, liquidity shortages, insufficient quality of regulatory capital etc. resulting in a crisis and, thus, representing a deviation from the optimal functioning of the financial system. This is then addressed by a regulatory reform which is designed to avoid exactly the experienced situation again in the future, i.e. it is specific to the current problem at hand. Is there something more general? The current approach focuses on ex-post fixing crucial issues, but does there exist a formal normative model or theory about regulating systems like the financial system?
So far, I didn't found something about that but maybe others have?
If not yet, maybe there exists some theory about other kinds of systems which one could apply in a modified version like Cybernetics for mechanical systems or the like?


texts: What is the loss of productivity of not using the international system of measurments (SI)

texts:
The USA and some other countries are not using the SI-system. Are there any estimates of how much productivity is lost because of having to convert numbers? (non-SI countries, SI-countries)

I imagine that the loss not only affects the non-SI countries, because the SI-countries wanting to export to non-SI countries would also use time for conversions in order to comply with local laws and customer demands.

The costs are probably difficult to measure because they are small amounts that are across every industry. For example car companies having to switch the km/h to mph speedometer; schools that have to spend much more time on explaining the non-SI system; or the the many goods that need double labelling.


texts: Do governments really need to tax us, when they can create money at will?

texts:
I feel a contradiction between Prof. Howard Chernick's answer and Redditor "galivet"'s comment?  Who's correct? Chernick has

B.A., Johns Hopkins University, Economics, 1969
Ph.D., University of Pennsylvania, Economics, 1976

Here's What Would Happen if No One Paid Taxes

ICE: What would happen if no one filed a tax return?**
Howard Chernick: Well, the income tax is probably fifty or sixty-five percent of the federal government's money. Most people pay their income tax in the form of withholdings throughout the year. So the federal government has our money already, and what's happening on the end is just accounting reconciliations. But if no one filed his or her income tax, that would mean a huge increase in tax evasion, and much less money for the federal government, which already runs substantial deficits. So the government would have to borrow a lot more money, and the spending would have to go way down. After that, the US economy would begin to go into the tank. So as painful as it is, if you wind up owing taxes, as Oliver Wendell Holmes said, that's the price of civilization.

ELI5: When the US government uses emergency funding in the billions or even trillions, where is it getting the money from? : explainlikeimfive

The government does not need to fund its operation through revenue (e.g. tax revenue) because it create money at will. Taxes don't pay for government services; that's an illusion. Taxes accomplish two things: maintaining a mechanism whereby the government can uphold the value of the dollar by reducing the supply of dollars, and redistributing wealth. When the government taxes some people more than others while offering services to everyone (and more services to some), it's engaging in a kind of social engineering. The government could pay for all of its services and never tax anyone because it can create all the money it needs; the downside is that the dollar would decline in value over time and $\color{red}{\text{the government would have no way of stopping it (i.e. runaway inflation)}}$. When the government decides to destroy certain types of people's money to a greater extent than others, it's putting the burden of maintaining the value of the dollar on those who pay the greater share of the tax. And it turns out that those who pay more in taxes usually benefit more from the dollar maintaining its value anyway, so it's a reasonably fair deal.)

Is the red text true? Can't the government Quantitative Tightening?


texts: Does Preference have a Hierarchy? A Silly Question

texts:
I have what is probably a very silly question, but I have gone down the rabbit hole and can’t get back out.....

Is there is a hierarchy of preference, and within each level of choice do we reset the rationality clock? i.e. suppose I choose a property investment (my investment preference) as I believe it will maximise my utility over investments X and Y. I am a utility maximising rational econ. However, a layer down, I choose to invest in property B instead of property A, despite property A being a better investment on every financial indicator. I do so, because in this round of choice, property B meets my preference, which is based upon having a new build property, which is closer to home.

I am maximising utility and acting rationally for my new preference, but not in relation to my first preference. In choosing investment B, am I therefor acting rationally or irrationally? Or have I got this all wrong?


texts: Empiric evidence of abundance and post-scarcity either transition to it?

texts:
How much are concepts of post-scarcity and abundance economics just ideological/idealist or do we really observing their beginnings already?

For example:

healthcare: gets more and more expensive
food: good organic food does not get cheaper
water: not a problem where it is really abundant since centuries. Some lakes are gone however for example to water an agglomeration like Los Angeles.
good air: not abundant in large urban areas, air pollution has arrived even in Germany, a country which has been looking at this for long time
work: try to get a well paid job without advanced qualification
housing: everywhere scarce with exception of deep, partly abandoned rural areas (3D printing can be a solution, but i.e. in Germany not possible due to unmet requirements regarding energy efficiency standards)
education: either not free or of declining quality (i.e. German schools would need billions of investment to catch up)
family/parenting: women are allowed and expected to make career which creates additional pressure if they target both having kids and high life quality

How to recognise then an empirical evidence that we move to abundance and post-scarcity (sounds like promise of communists in old times actually)?


texts: In the proof of the existence of the Walrasian equilibrium, there is a map defined using the Max map. Why this map is defined in this way?I am reading " Microeconomics; Gravelle, Rees". On page 257 the authors define the mapping in the picture. The reason is that they want to use the Brouwer's Fixed Point Theorem. First, they define a mapping from the set of normalized price vectors to the set of excess demand vectors (Z). Then they have to define another mapping from the set of excess demand vectors to the set of normalized price vectors, and they have defined it as the mapping in the attached image. I wonder how the fixed point of the composition of these two functions is the equilibrium?


texts: Rationale behind teaching History in University

texts:
I wrote an answer to this question regarding how economists evaluate a specific subject in a given curriculum.

Subjects which develop skills that have labour market significance are valuable to a curriculum from an economic perspective. However as an armchair economist I find it difficult to argue a for a reason why to teach a country's history or any world history at all if it has no labour market implications.

However we find that many high schools and universities require students to take electives in history. Why is this the case?

Please provide sources for your reasoning.


texts: What's the ECB share of euro area gov debt?

texts:
Where can I see an evolution of the ECB's share in the market for Euro area governmental debt?

I would like to know if there's something similar happening in Euro area as is happening with Fed's share of USA gov. debt.


texts:
I'm looking for a classification of all simultaneous, complete information, two-person, two-action games.  By classification, I mean a partition of all payoff matrices into a (finite number) of categories.  Sample categories would be prisoner's dilemma and Stag hunt.

I'm willing to accept substitutes, like a classification of a different set of games.  There is no unique answer to this question, and I'm not looking for an answer in the context of a particular class.

A paper reference is fine, although an online source would be better.

Legal Disclaimer: I apologize in advance for violating any social conventions for this site.


texts: Has worker productivity decreased since the election of Donald Trump?

texts:
Anecdotally, I know that myself and others have felt distracted, depressed and anxious since the election of Donald Trump.

Are there any studies that have objectively sought to measure worker productivity since the election of Donald Trump?

What was their methodology, and what were the results?

If no such study does exist, can you describe any similar studies and what the methodology is?


texts: Perfect Bayesian Equilibrium in a two stage game with incomplete information

texts:
I would like to solve a game where firms have private information about their own type, but only know the distribution of the other firm's type. They interact in two stages, where the strategies depend on each other. The first period is an optimization problem, and in the second period Nash Equilibria have to be identified.
Example:
Consider two firms, $A,B$ who are trying to sell their product to one customer.
The customer just needs one indivisible unit of the product, which has value V for the customer, and will buy the product from the firm that offers the lowest price.
Both firms initially are able to produce the product at cost $C$, but each firm $i \in \{A,B\}$ may decrease it productions costs by $c_i$ in private by investing $d_i (c_i)^2$.
Each firm $i$ has private knowledge about its own $d_i$, but only knows the distribution of $d_j$. (If the solution needs a specific distribution just pick one which fits your needs.)
The sequence of game stages is:

The two firms simultaneously privately invest into cost reductions $c_A,c_B$.
The firms set prices $p_A,p_B$ for the product.

Straightforward backward induction does not work in my trials, due to the asymmetry of cost reduction investments.
Question: Is there a good textbook or paper where sth. similar is done or do you have any technical knack which I have missed?


texts:
Why is the marginal cost curve not the same as the supply curve?

My personal explanation is that since the marginal cost curve is cost of producing each new product, the supply curve just represents the break even point of selling a certain number of these products. The seller can sell some at a profit, and some at a loss, and as long as the loss and profit cancel out, he's on the supply curve. Thus the supply of producing x goods is just the average of the marginal cost curve from 0 to x.

This explanation seems logical to me, but I have been given an alternative explanation - the supply curve is that of the market, whereas the marginal cost curve is intrinsic to the firm. However, I am unsure as to why the market supply would be related to the marginal cost curve as the average of its integral.


texts: CES: Production function: Elasticity of substitution $\sigma = 1/(1 + \rho)$

texts:
I have to prove that $\sigma = 1/(1 + \rho)$ for the CES production function:

\begin{align}
q = (l^\rho + k^\rho)^\frac{1}{\rho}
\end{align}

I found out that I need to solve the following equation:
\begin{align}
\sigma = \frac{\frac{d(k/l)}{k/l}}{\frac{dRTS}{RTS}} = \frac{d(k/l)}{dRTS}\frac{RTS}{k/l} = \frac{d(k/l)}{d((k/l)^{1-\rho})}\frac{(k/l)^{1-\rho}}{k/l}
\end{align}

But i just don't know how to rewrite this expression to $\sigma = 1/(1 + \rho)$


texts: China's balance of payment and balance of trade - relation to inflation

texts:
I am struggling with understanding how China's balance of payments (negative, deficit) and balance of trade (positive, profit around 0.5 trln USD) affect it's inflation rate. Obviously, balance of trade profit means that China produce too much for own consuptions, so China sells goods abroad. But why it receives less money that it sends abroad (see payment balance)?

to balance of trade (positive, profit around 0.5 trln $) and balance of payments (negative, deficit), does it mean that factually China perform some kind of artificial credit support of it's economy? Assuming credit multiplier x8 and 0.5 trln USD of balance of trade profit, we obtain in 4 trln USD, which is 25% of it's GDP. Did I get it right?
Then I spot an explanation why actual inflation in China is relatively low - because their (credit) money emission, resulting in higher than optimal money supply, is converted into dollars. If it is true, such convertation should increase USD/CNY rate, because of demand for dollars. Thus, China chose to depreciate its currency in USD terms, keeping excess of CNY in US dollars, resulting in low inflation inside China. Correct?

I am completely lost after a conversation with my senior colleague, who tried to explain this mechanism. I understand every separate term but dont get the whole picture. Could you please point out if I got any logical mistakes in above description? Should I check any definitions? Thank you in advance.


texts: Is worsening wealth inequality intrinsic to Capitalism?

texts:
I am but a humble lay person, but I have a question.

I've been thinking about wealth inequality and the structure of capitalism. It seems to me that the pay rate for workers accumulates in a linear way. That is, during year 1 you make X, at the end of year 2 you've made 2X, at year 3 you've accumulated 3X and so on. You may get raises (although probably not so much in our current economic conditions of a labor oversupply) or switch jobs, but if you stayed at the same firm, and conditions didn't change much, then your savings accumulate in a linear way.

But for the business who hires you, they start out with some money, then they use that money to buy raw materials and pay you to convert them into a product, then they take your finished product and sell it for more money than they started with. Let's say they start off with Y, then at the end of a year they have 2Y. But this is an exponential growth: they then start over the process using their 2Y, and can hire twice as many people and buy twice as much raw materials and sell twice as much, to end up with 4Y at the end.

So while worker worth goes up in a linear way, 1X, 2X, 3X, 4X...the employer's worth goes up in an exponential way, 1Y, 2Y, 4Y, 8Y...So in that case, isn't wealth inequality fundamentally built right into capitalism, and therefore we should expect it to pretty much always get worse as time goes on, unless measures are taken to combat or reverse it after the fact? Am I wrong in my analysis here?


texts:
In the core of cooperative games, the total cost of forming a coalition is shared by all members in a coalition (efficiency). However for my problem I only require that all members are individually rational in the coalition - that is, if the utility of at least one member of the coalition is less than the utility he would gain by being alone, then he will break away from the coalition.

In other words, what is the solution concept that only requires stability and does not carry the notion of efficiency?


texts: How to formulate that a factor may influence a variable or the changes in that variable?

texts:
I wonder how to formulate how that multiple factors (for instance an announcement of Central Bank A, B and C) may influence a variable. For example, consider the following formula:

$$\Delta I^n_t = f (A_t, B_t, C_t)$$ where $I^n_t$ refers to the interest rate of a security with maturity $n$ at time $t$ and $A_t, B_t, C_t$ refer to announcements of central bank A, B and C on time $t$ respectively.

The above formula indicates that changes in variable $I$ are a function of the announcements of the central banks'. However, how can one introduce this equation? Let me show what my concerns are by the following sentences:

  Changes in $I$ may be due to announcements of Central bank A. However,
  announcements of central bank B and C may also influence $I$

My concern is the last part of the sentence, "influence $I$". Should this indeed be: "influence $I$" or should it be "influence $\Delta I$"? I doubt about this because when the announcements influence $I$ then this should automatically lead to a change in $I$ right?. On the other hand, it is not in line with my equation above. Furthermore, isn't it the case that when some factor influences the changes in some variable, that this variable actually influences the speed of changes in this variable (like a second derivative)?


texts: Monopsonistic & competitive labour market, which one is better for the labour buyers?

texts:
Since the marginal cost of hiring workers will rise when the producers hire more and more workers, what is the advantage of having monopsony power (while in a competitive market, labour buyers can hire workers at a fixed wage rate)?

Furthermore, what are the disadvantages to have monopsony power?


texts: Example which violates weak pareto and non dictatorship

texts: Can you give an example of a social choice rule and a social welfare function that violates the conditions of Weak Pareto criterian and non dictatorship simultaneously?


texts:
A bivariate regression is fitted to 20 sample observations on y and X. I know the following:
$X'X=\begin{pmatrix}
                             20 & 10\\
                             10 & 30 \\
                             \end{pmatrix}$,
$X'y=\begin{pmatrix}
                             30\\
                             40 \\
                             \end{pmatrix}$,
$y'y=75$.

I received that $\beta=\begin{pmatrix}
                             1.4\\
                             1.3\\
                             \end{pmatrix}$.

Then a new observation was obtained: $X=2$, $Y=4$.
I should perform a Chow test of parameter constancy.
In fact I know the formula for the test: $F=\frac{(RSS_{pooled}-RSS_{1}-RSS_{2})/(k+1)}{(RSS_{1}-RSS_{2})/(n-2k-2)}$. Unfortunately, I have no idea how to calculate the RSS for any of these regressions. Help is needed.


texts: Help Finding Information on "Power Trends" or "Polynomial Trends"

texts:
I need to prove some facts about the asymptotic OLS estimator, $\hat{\delta}$ in model:
   $ y_t = \alpha_t + \delta \cdot t^b + \epsilon_t $
where $\epsilon_t \sim iid(0,\sigma^2)$.

I've looked at the example where $b=1$ in Hamilton, and have tried to generalize the $Y_t$ matrix he uses:

[$T^{-1/2}$,0;0,$T^{-3/2}$]

to

[$T^{-1/2}$,0;0,$T^{-(b+2)/2}$]

but am not getting convergence.

Finding anything online or a paper where people talk about this type of trend would be helpful. Thanks!


texts: Why does the aggregate consumer spending decrease due to to lower expected future disposable income instead of MPC?

texts:
This illustration is from Krugman's macroeconomics textbook, it's supposed to illustrate following situation (assuming that it happened for many people):

  Conversely, suppose you have a good job but learn that the company is planning to downsize your division, raising the possibility that you may lose your job and have to take a lower-paying one somewhere else. Even though your disposable income hasn’t gone down yet, you might well cut back on spending even while still employed, to save for a rainy day.

In other words, the shift allegedly happened due to bad news about expected future disposable income.

By the way, here is the aggregate consumption function on which the plot above is based ("A" stands for the aggregate autonomous spendings by consumers, "YD" stands for aggregate disposable income of households):

But I don't believe that the plot will shift like this in response to such bad news, it seems to contradict what I learned about microeconomic autonomous spending (I believe that the same must be true for aggregate autonomous spending). It's spending that you just WON'T reduce, they are too critical. You will tap into your savings, you will borrow or ask for charity, you will break the law, - but you absolutely WON'T reduce your autonomous spendings. You don't save money by decreasing your autonomous spending when you hear bad news, you just won't, it's your bare minimum that MUST be spent.

What I imagine will happen instead is that the marginal propensity to consume will decrease, increasing savings of people before the storm arrives, consequently changing the slope of the (aggregate) consumption function.

I understand that it's a textbook, so my reasoning must be wrong and the textbook must be right, but I fail to see mistakes in my reasoning.


texts: "The econony needs x workers of profession y". What does it mean and how is it derived?

texts:
I keep hearing that there is not enough of some specialists in economy which is followed by some number. Here's an example:

http://www.computerweekly.com/news/2240205466/Economy-needs-300000-digital-workers-by-2020-to-reach-full-potential

  Economy needs 300,000 digital workers by 2020 to reach full potential

How is this derived? Is it reasonable?

Job market is regulated by supply and demand. To follow the example of "digital worker" - I believe that many, for example, engineers could change their job profile to become "digital workers", but in that case engineers would be suddenly in higher demand as well.

We can say that janitor contributes x to GDP and database administrator contributes y and because y > x, we need more db administrators than janitors, but in reality we need exactly the current number of janitors given their market price and we need exactly the current number of database administrators given their market price.

Also I can think of a question "How many digital workers do we need to inject into economy by 2020 so that the number of digital workers on the market in 2021 will be the same as in 2020?" and the answer could be 300 000. But how to calculate it without being simplistic?

To reiterate: what does it mean that we need x new professionals and how to calculate it?


texts: Why are marginal rates of substitution are identical at equilibrium consumption levels?

texts:
According to wikipedia, "At equilibrium consumption levels (assuming no externalities), marginal rates of substitution are identical". Why is it so?

What does "equilibrium consumption levels" here mean? I thought that equilibrium means that demand equal to supply. How is it applicable for marginal rates of substitution?


texts: What's the difference between Gregory Mankiw's "Macroeconomics" 4th ed. and 10th ed.?

texts:
I am planning to use Gregory Mankiw's Macroeconomics (not to be confused with his Principles of Economics) for self-studying macroeconomics, along with David Weil's Economic Growth. As you can see, Greg Mankiw's macroeconomics textbook is currently in its tenth edition. However, the only copy I have is of the fourth edition.
What are the differences between the two editions? Specifically, are there new topics that have been added (if so, how important are they for a first introduction to economics?), major additions to existing topics, or topics that have been removed entirely?
My background is that I am currently reading Hal A. Varian's Intermediate Microeconomics: A Modern Approach and working through his Workouts in Intermediate Microeconomics.


texts: Is there any nation which doesn't have any external debt?

texts: China and the US alone have a staggering 15 trillion dollars in debt. Is there any country which has no external debt and if so, then when did they pay back their debt?


texts: How to find (document) the actual costs of a specific US government social program?

texts:
I had an interesting discussion today while volunteering at a food bank program. The individual I spoke with was a retired math professor who stated his research makes him believe that significant money could be saved in regards to the foodstamp program.

Apparently the situation is that after the initial application for foodstamps, recipients on the program are required to file monthly or quarterly reports that document the minutia of their income (even things like a \$5 gift card from grandma) and if anything is deemed improperly documented the recipient is forced to file more paperwork or lose their food. The program is administered in county offices with waiting lines lasting 4-6 HOURS on average. All for approximately \$6 per day (\$185/month) through a special debit card that can only be used at authorized merchants.

The professor's contention was that money is being wasted and people are being dehumanized by the constant demand for proof-of-need documentation. He proposes that if we eliminated the monthly paperwork bureaucracy and just "gave" everybody who validly applied \$200 per month we would actually save money, even if the roster of recipients tripled. The only ways to get kicked off the program would be (A) dying - just like social security benefits, (B) requesting exit from the program, or (C) being convicted in a courtroom of committing fraud against the program (such as submitting fake applications for non-existent dependents) which would ban you for life.

On the surface is sounds practical: eliminate (actually repurpose - other agencies will find uses for these folks you can be sure) tens of thousands of high-pay civil service jobs) in exchange for just making an unquestioned monthly deposit. Note that the professor did support keeping the initial application screening process and also once a year requiring a simple "I still need help" affidavit. Mountains of paperwork monthly vs 1 sheet per year.

So my economic question is how can this "proposal" be validated? Where does one get the numbers for what is currently being spent on the program, broken down by both recipient costs and paperwork costs? Does such a source of data exist and is it available to average Joes like me for review?

PS: The professor also suggested putting a cap on the food card accounts of 90 days worth of benefits. If you don't use your benefits (say you are in the hospital for a few months) the card would not accept new deposits until there was "room" for more.


texts: Does the price level in a competitive market have to be at the intersection of the Average Cost curve and the Marginal Cost curve?

texts:
I could see that if the price level is say lower than the intersection point , then firms won't be able to operate , but what is wrong with the price level being above the intersection point of the AVC and the MC .

IN that case firms would earn positive profit , although I know that this not happen in a competitive market , but I fail to grasp what stops this from happening ?

That is why won't the competitive market function well enough if the price level would be higher than the intersection point ?

I thought then the positive profits would make the other firms come in , however I could;t quite make the whole connection as to how would it drive the price level down !


texts: Understanding minimums in the calculation of Human Development Index

texts:
In the calculation of HDI, three indices are involved. One of them is the GNI index. In calculating this index, there's some scaling done. Quoting from the UNDP Technical notes

  The low minimum value for gross national income (GNI) per capita, $100, is justified by the considerable amount of unmeasured subsistence and nonmarket production in economies close to the minimum, which is not captured in the official data.

I don't understand what this justification means. Isn't \$100 too low? The index goes on to put an upper cap at $75000 which makes sense - because beyond that income there's not much impact on the standard of living.

The calculation of this index is fairly straightforward:

$Dimension\ index = \frac{actual\ value – minimum\ value}{maximum\ value – minimum\ value}$


texts: General Equilibrium with Linear Production

texts:
I don't think I understand how optimization problems with a linear function work as of now. If you have a production economy with two agents, two goods and Cobb-Douglas utility representation, and you introduce a firm with a linear production function and fixed costs that basically acts as a transfer from one good (say x), to the other good (say y), as far as I can see, the solution to the firm's maximization is to shut down.

This is what I am talking about specifically:

$$
u_1(x,y)=\alpha\ ln(x)+(1-\alpha)ln(y)
$$
$$
u_2(x,y)=\beta\ ln(x)+(1-\beta)ln(y)
$$
$e_1=(0,1), e_2=(1,0)$
with a linear production function for firm $f(x)=x$ where they use x as an input and produce y, and there is a fixed cost FC>0 only if they produce. My problem lies in how do I solve the firm's maximization problem? It's linear, so I don't think I can use the FOC like you can with the utility maximization problem. Intuitively, I "feel" like it's going to be a corner solution, but I don't know how to systematically solve optimization problems with a linear function.


texts: Log linearization of the technology dynamic

texts:
I am still dealing with DSGE models and with log-linearization of characteristic equations of the model. The one that creates me more doubts is the technology shock, that is usually modeled as an AR(1).

Usually, we are given technology processes like
\begin{gather}
\ln(z_t)=(1-\rho) \ln(\bar z)+\rho \ln(z_{t-1})+\epsilon_t
\end{gather}
so that it is already linear and we can re-write it in deviations from the steady state just moving $\ln(\bar z)$ on both sides of equation, obtaining
\begin{gather}
\hat z_t=\rho \hat z_{t-1}+\epsilon_t
\end{gather}
where hat variables are log deviations from the steady state.

But when the process is something like
\begin{gather}
\ln(z_t)=(1-\rho) (\bar z)+\rho \ln(z_{t-1})+\epsilon_t
\end{gather}
how should I proceed?
What I cannot understand is how the log linearization should be used, taking into account that $\epsilon_t$ is a white noise process. I mean applying logs and differentiating gives me something I do not understand.


texts: What percentage pass-through effect do VAT taxes have?

texts:
From what I can find on Google Scholar it looks like there is a pass-through effect of approximately 1/3 the amount of a Value Added Tax - with the exception of food production, which trends higher - going to the consumer. In other words, instituting a VAT results in about 1/3 of that VAT showing up as extra costs to the consumer.

Please assess the accuracy of the above estimate with sources you have found.

Estimation Sources:

  "My findings suggest that taxes levied on food are completely shifted to consumer prices, while there is little spill-over effects to most other goods."

https://academic.oup.com/ej/article-abstract/129/618/853/5289453

  "Since the effect on prices was limited, we conclude that the burden of the VAT tax was indeed shared between producers and consumers."

"The Price and Welfare Effects of The Value-Added Tax: Evidence from Mexico", p27: Conclusions

General reading from:
"Estimating VAT Pass Through" By Ms. Dora Benedek, Ruud A. de Mooij, Mr. Philippe Wingender


texts: Second Price Auction - adjusting PDF for reservation price

texts:
The situation:

There is a second price auction with 2 players. Consider a second-price auction with 2 players.  Their valuations of the object at auction
are and are independently and identically distributed with pdf $f$ and cdf $F$.
over $[0,\hat v]$. Assume $f$ is continuous and positive over $[0,\hat v]$.

Now here comes the question: a reservation bid $r$ is now implemented - the winner pays the second of the highest bids including the reservation price, or if both bid lower no-one wins. I want to find the pdf that both bids are above $r$ and above some $x$, and add this to an equation calculating expected revenue for the auctioneer.

I have already found the pdf for both bids being above some value of $x$: $2f(x)(1-F(x))$. The pdf for both being above $r$ is $(1-F(r))^2$.

I've had a look at an answer for the problem, and it suggests that the combined pdf is $\frac{2f(x)(1-F(x))}{(1-F(r))^2}$. Could someone explain to me how this is so?

Then, when calculating expected revenue for the auctioneer, we have for the case where both bids are above $r$: $(1-F(r))^2\int_r^\hat v{\frac{2f(x)(1-F(x))}{(1-F(r))^2}}dx$. I'm also quite confused why we multiply by $(1-F(r))^2$.


texts: Does the Federal Reserve have bank accounts for banks?

texts:
Banks are constantly transferring electronic dollars to each other. There must be an entity that tracks how many digital dollars each bank has.

Does the Federal Reserve have "accounts" for banks? In general, do national banks have accounts for banks that use their currency?


texts: Is there a resource showing the average amount of money an individual with a 60K + annual income spends within a one mile radius of their residence?


texts: What would be the economic impact of the "fair tax" plan?

texts:
So I read about an interesting proposal about completely replacing income tax with a heavy national sales tax of about 30% (23% inclusive to compare to income tax).

I was thinking about what the impact of this would be. On one end, income goes up both because people would want to work more and they get to keep everything they earn.

On the other end, prices go up because of the sales tax. I was also learning that spending is crucial for short term economic growth, so that may hurt. But does the laffer curve apply to sales tax as well? People may buy more frequently if it went down, increasing tax revenue. I know the laffer curve is unreliable, but it was just a thought.

Is this thinking process correct, or would the fair tax be a complete disaster? I apologize I just got interested in economics so I don't know much.


texts: Is 'Market Socialism' & 'Libertarian Socialism' functionally identical? What are the basic differences?


texts: How to find price elasticity in the following demand system?

texts:
We assume that the logarithmic function of $p_i$ equals the coefficients of the demand equation $w_i$. I have the following demand system:

$$ w_{a}=-0.03-0.01 \ \ nk +0.02 \ lcons $$
$$ w_{b}=-0.26-0.004 \ nk +0.08 \ lcons $$
$$ w_{c}= \ \ \ 0.96+0.03 \ \ nk -0.14 \ lcons $$
$$ w_{d}= \ \ \ 0.30+0.001 \ nk -0.05 \ lcons $$
$$ w_{e}= \ \ \ 0.07-0.005 \ nk +0.04 \ lcons $$
$$ w_{f}=-0.05-0.01 \ \ nk +0.04 \ lcons $$

Variable $w_i$ denotes the proportion of good $i$ of the total consumption (cons) of a family, and $nk$ (number of kids) is a dummy variable. $lcons$ is the logarithm of the total consumption. Plus, I know the income of the families.

I will appreciate your help with this situation.


texts: What would be the economic impact of regulating advertising?

texts:
What I mean by that putting a regulation on businesses that says they can't spend more on advertising than expanding their business.

I know something like this would be very hard to regulate, but I'm just asking what would happen hypothetically.


texts: I'm looking for a good recent survey of threshold panel models and their applications. Anyone seen anything useful? Thanks.


texts: What would happen if corporations can only make a maximum profit of 10% per product

texts:
I have learned in accounting that companies can add any amount of profit on their products as they want. That can be 10 - over 500 %.

I also think that international corporations like Coca Cola, Nestlé definitely make more than 200 % profit for each of their products (does anybody know how much).

I don't know much about what is done with that profit, as every cost the company has is already included in the price. That is not the question here.

My question is: What would happen if by law EVERY company on this planet can only make a maximum profit of 10 % for each product. When answering please ignore potential legal loopholes or anything similar.

Prices would definitely decrease but what about wages for workers. They would stay the same, because the profit doesn't affect them. Only the wage for managers and CEOs would decrease. But what about international economics. Would it remain stable.

And the most important question: Can a law like that (if valid in every country) actually work on long-term? This is a similar question as "Can communism/socialism work?" but It is also a little bit different.


texts: Why real wage equals marginal product of labor when return to scale is constant?

texts:
I can understand that real wage will equal MPL(marginal product of labor) when MPL is diminishing, because firms will employ more labor until MPL falls to real wage.

While, if MPL is constant, implied by constant return to scale, MPL will be predetermined as well as real wage, which won't be affected by firms' behaviors. How can we affirm that MPL equals real wage when they are irrelevant? Not to mention the conclusion of zero economic profit.


texts: Why is GDP equal to the sum of revenues?

texts:
National Income can be expressed in two ways :

In can be derived from the GDP, as, roughly, a sum of "money spent" : GDP is equal to C + G + I + NX, where C, G, I and NX are houshold consumption, government expenditures, investment, and net exports. National Income is then obtained by adding net income from abroad and removing consumption of fixed capital.
It can be calculated as the sum of incomes (details here) : mainly pre-tax employee compensation, pre-tax corporate profits, and taxes on production and imports.

The fact that the two ways give the same results (let alone the "statistical discrepancy") is usually taken for granted.

Of course the principle makes sense, but I am looking for a rigorous approach / mathematical proof.

One could say that whatever agents earn, they spend. But what if they spare some money ?
One could say that whatever is spent, is earned by some agent. But I tried this and couldn't get rid of the 'I' in the first formula.

Could somebody enlighten me ?


texts: The classic literature refers to the problem where information asymmetry exists between an informed and an uninformed counterpart as the adverse selection problem, but how can we verify what kind of such a game is? Namely, how can we know that such a game is a screening game or a signaling one?


texts: Reverse of broken window fallacy for file sharing/piracy

texts:
Adult Swim roughly brings forward the following argument in the video 'film piracy feeds babies':

  While jobs may be lost in the movie or music industry, they might be created in another. Money that a pirate doesn’t spend on movies and songs is almost certain to be spent elsewhere. Let’s say it gets spent on skateboards — the same dollar lost by Sony Pictures may be gained by Alien Workshop, a company that makes skateboards. - Source

Is this the opposite of the broken window fallacy?

If so, is it correct or still a fallacy (much like survivorship bias and its reverse)?
If not...is it right or wrong? (I guess its relationship to the broken window fallacy doesn't affect my second question)

I discovered such from answer in related question.


texts: Efficient market hypothesis and different performances between countries

texts:
When comparing historical gains (I used the "adjusted close" data on yahoo) of major indices in different countries it is clear that the US outperformed most of these by quite a bit (see for example also https://www.visualcapitalist.com/worlds-major-stock-markets-same-scale-1990-2019/). From US based sources you often read that the expected average yearly return on investments is around 10%. This figure is based on historical data of for example the Dow Jones Index. However, other major indices had much lower performances (on the extreme end: the Nikkei 225 had basically no gain in the last 30 years).
Is this just a matter of the US having been the (unpredictable) "winner" over the last 100 years (or decade or most time intervals in between)? Just like having picked Apple around 2005 would have been very lucky. If so any prediction on the new average return on investments should clearly not be based just on this "winner" from previous years right? Would it not be more accurate to base the estimate for the average expected return on more (all) markets?
Or does the US predictably outperform other markets for some reason? That would beg the question why all markets are not emptying out and pouring their money into american stocks.
Is there some tax, regulatory, currency or inflation related reason that a consistent predictable gap in the average gain between US markets and other markets would not close?


texts:
Assume that the player I select $x_i \ge 0$ at constant cost level $c>0$

The payoff function for player i is

$$v(x_i,t)-cx_i$$

where $t$ is technology parameter.

The function v(.)is twice continuously differentiable increasing and strictly concave in $x_i$.

$v(0,t)=0$

$\partial v(0,t)/\partial _i>c$

$\partial v(x_i,t)/\partial _i<c$

I want to maximize this payoff with respect to $x_i$. But the question strictly emphasize to use Kuhn Tucker method and to state and discuss the slackness conditions.

And I need to find the solution of this problem, say $x^*$

My solution:

$$ L= v(x_i,t)-cx_i +\mu [x_i-0]$$

First order condition

$$(\partial v(x_i,t)/\partial _i)-c+\mu=0$$

Kuhn Tucker condition

$$\mu [x_i-0]=0$$ for $\mu \ge 0$

Case 1: $\mu \ge 0$

Then, $x_i=0$

Case 2: $\mu = 0$

Then,  $x_i=0$
$$(\partial v(x_i,t)/\partial _i)-c=0$$

However, the question gives that $$(\partial v(x_i,t)/\partial _i)-c<0$$

This is a contradiction I think. Therefore, I don’t think my solution is true. And I cannot write the $L$ function with two constraints but I know that Kuhn Tucker method requires at least two constraints.

Please share your ideas with me. Thanks a lot.


texts: Does Singapore's computation of the Gini coefficient exclude low-paid foreign workers?

texts:
The Economist (2015-07-16):

But Singapore measures its coefficient rather differently, excluding shorter-term foreign workers and non-working families.

More generally, how is Singapore's Gini coefficient computed? To what extent is it comparable (or not comparable) to those reported by other countries?
In June 2020, there were 940,200 Work Permit holders, of which 252,600 were "Work Permit (FDW)" holders (i.e. maids) and 351,800 were "Work Permit (CMP sectors)" holders ("Construction, Marine Shipyard and Processes).
In mid-2019, Singapore's total population was 5.7M.