texts: steady point for impulse response function

texts:
I read several papers talking about the so called dust settling period for a impulse response function (IRF) derived from VAR.

e.g., Nijs, Vincent R., et al. "The category-demand effects of price promotions." Marketing science 20.1 (2001): 1-22.

Basically, the dust settling period refers to the time interval before convergence of IRF is obtained. The key is to find the point at which IRF becomes stable or reaches convergence level. But the papers do not provide detailed description about how to find such point. Can any one help or refer to some useful reading material? I googled but was unable to find useful stuff.


texts: Which OLS assumptions should I test for given a log-log functional form?

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For a log-log functional form ( e.g. most simply: ln(y) = β1 + β2ln(x) ), which OLS assumptions should I test for (that is, test if they've been violated)? For example, I'm assuming that I wouldn't need to test for non-linearity (as the log transformation generates the desired linearity in parameters). However, I also assume that I won't need to carry out a test for every single assumption. So at this stage, I'm thinking that I only need to carry out tests for i) heteroskedasticity, ii) endogeneity and iii) multicollinearity? So I'm also assuming (maybe wrongly) that I don't need to test for the other assumptions like autocorrelation (because it's not a time series regression) or normality.

To be clear, I'm cautious about testing everything because we were told:

  Do not estimate models or conduct tests unless you are sure that they help you to carry out the tasks required by the assignment

And we have 2,500 words, so I'm thinking its not necessary to test for all OLS assumptions. Am I correct in assuming this?


texts: Economic consequences of a lingua franca

texts:
Although I'm specifically interested in the likely economic consequences of implementation of an official world auxiliary language, since this is only theoretical, I'd like to know what have been some economic consequences, whether positive or negative, for those nations that endorsed a lingua franca and thereby opened themselves up to segments of the rest of the world (or conversely, I'd be interested in the long-term economic consequences for a country which, perhaps for anti-colonial reasons, rejected a more internationally spoken language in favor of a local one).

For this question, I'm less interested in lingua francas whose effect was primarily domestic. For example, with Modern Hebrew being chosen in Israel, or perhaps Mandarin Chinese in China to a lesser extent, the ability to speak a new official and universally taught common language did not open up the country precipitously to opportunities for communication with other countries.

Note that I'm not asking here about the economic costs of implementing such a language change.

No doubt, and as with free trade, all things being equal, a lingua franca would increase economic opportunities, whether in collaboration possibilities, education opportunities, etc., but, also as with free trade, a lingua franca might precipitously expose a country to competition in certain (intellectual) fields and thereby create resentment within certain industries which in turn led to protectionism. What experiences have been documented on this topic?

(Note: I can't create a "language" tag for this post, due to my being new here, so "free-trade" was the closest tag I could think of.)

(And just for interest's sake, I've asked re: political consequences at https://politics.stackexchange.com/questions/7732/external-political-consequences-of-a-lingua-franca )


texts: Using the sample mean to test hypotheses

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Suppose that we have some data-points $x_1, ..., x_n$ and want to test a model that specifies a stochastic process which supposedly generated the data points. For example, we might want to test the hypothesis that every $x_i$ was generated by a normal distribution with some mean and variance. In such cases, textbooks tell us to

Derive the distribution of the sample mean under the assumption that the probabilistic model is correct.
Compute the probability of observing the observed sample mean or one that is 'more extreme'.

This process gives us a p-value which we can use to evaluate the probabilistic model. Calculating p-values for different probabilistic models allows us to compare the models.

My question is simple: when calculating p-values, why do we consider the distribution of the sample mean (i.e. why is the sample mean our 'test statistic')? Why not use the median, mode, lower quartile, or any other function of the data? For that matter, why not do the natural thing and just compute the joint density $f(x_1, ..., x_n)$?

To be clear, I understand why we might focus on the sample mean if one's hypothesis does not specify a probabilistic process that generated the data. The reason is that, regardless of the distribution that generated the data, one might hope that the sample mean is distributed approximately normally (the central limit theorem). However, often one's hypothesis directly specifies the probabilistic process that generated one's data. I am asking whether there is any good reason to focus on the sample mean in this instance.

Edit: since an example has been requested, I will explain the particular problem that motivated the question. I am testing the predictions of Nash Equilibrium using some experimental data. In this case, the unique BNE is in mixed strategies, so the model I seek to test is probabilistic. I am wondering how to proceed when assessing the model's 'fit' (and comparing its fit to that of other theoretical models).


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Sometimes, when a public company allegedly does something wrong/illegal/etc, the investors of the company organise a class action suit against the company, such as the Commonwealth Bank of Australia (CBA) currently.

  The Commonwealth Bank faces a potential investor class action over its
  disclosure of more than 53,000 alleged breaches of anti-money
  laundering laws, following a sharp fall in its share price when the
  scandal emerged earlier this month.

This confuses me, as (to my understanding). The people who own the CBA are suing the CBA.

If they win the case, money gets given from the CBA to the owners of the CBA, presumably in proportion to how much stock they own. This appears to be identical to a dividend, except of course for who decides how much should be distributed. A class action also transfers some of that money to lawyers and courts.

So, I would appreciate if someone can either answer the below questions, or point out some flaw in my assumptions/understanding that makes all of the questions irrelevant.

1) Does the money in a successful class action indeed go from the company, to the people who own the company, in proportion to their share in the company?

2) In the long term, is someone who takes part in and wins a class action suit any richer than if the class action doesn't go ahead?

3) If 2) is yes, is there some other entity that is poorer?

4) If 3) is yes, who?

5) Does a company's stock usually drop when a class action is announced, because the company will have a new expense? Does it usually rise, because investors want to receive the class action payout? Or does it do neither, because these two effects cancel?

6) Is there anything to stop the company simply recouping the class action payout by dropping their dividend?

7) If 6 is yes, does this happen commonly?

8) Depending on the answer to all of the above, why would people organise a class action suit? As opposed to taking some action against those that they perceive to be at fault (calling for the resignation/reduced salary for the executives considered responsible)


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first and foremost, I'm not an economist, probably a scientist though.
In my country the most popular way to buy and appartment or a house is by first-price-auctions (the highest bid takes it all).
Rules are simple : bids ends up at a specific time, you can only bid online, and each bid has generally a 30min validity (meaning if no one bids higher than you in these 30min, and if you are the highest, you get it.)
We also don't know who's bidding, if there's 2,3,4,x people bidding on the same good.

Each appartment has a "showing price", and from my experience, bids starts at -10%. Nevertheless the market is pretty down these last weeks/months, and only very good value appartments are sold, often higher than the showing price.

My question is simple : I tried to look in scientific reviews, what are the strategies to bid better as a buyer (i.e. lowering the final price as much as you can), but still it is hard for me to get into general applicable strategies.

For instance, is bidding systematically the minimum bid over another offer a good strategy to limit final price? (if I bid +100 USD each time to another bid, will it statistically at the end make me win with a lower price?)
Or, if I wait until the last minute to bid, is it a better strategy than bidding asap ?
Do the trick with uneven number work to lower the final price? (offer of 12458$ for instance, instead of 12500USD)

I have been looking into bibliography for a while, but I haven't found any solid argument.

Maybe you guys know a bit more than I do? :)

Cheers !


texts: What is the equation $\mathbb{E}[mR]=1$?

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I have just joined this Stack Exchange site and I was reading the following question: What are the foundational equations of Economics?. I have seen a couple of times the following equation in that post:

$$\mathbb{E}[mR]=1$$

I have a certain idea of what it might mean, but could someone explain its meaning (or at least what do $m$ and $R$ stand for? It is difficult to Google it if I don't know what these 2 quantities are).

Also, is the expectation $\mathbb{E}[\cdot]$ taken w.r.t to any particular probability measure, or simply with respect to the real world measure?

PS: I apologize if the tags are not well-suited to the question, I have tried to guess what this equation might be related to.


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Inflation in the advanced economies since the financial crisis has been surprisingly low. Yet at the same time we’re told that the US economy is losing its dynamism in recent decades. This is reflected in often massive firm concentration and rising markups.

Are the two – persistently low inflation and oligopoly structures – not in contradiction with one another?


texts: Why is the percentage of Australian businesses that don't have any employees so high?

texts:
I'm trying to understand this Australian Bureau of Statistics release, which says:

  In June 2014, 61% of actively trading businesses in Australia had no
  employees, 27% had 1-4, 10% had 5-19, 2% had 20-199, and less than 1%
  had 200 or more.

I didn't realise so many businesses didn't have employees. Why is this percentage so high?


texts: If a fluctuating cryptocurrency becomes the new world coin, would it stop fluctuating?

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An often mentioned criterium for money is that it should be a unit of account. It could be argued that cryptocurrencies don't satisfy this requirement.

The argument is that businesses like bakers would adjust their prices all the time, which is not acceptable. I.e. it fails to be a unit of account.

Suppose that suddenly a cryptocurrency would be the only coin that's accepted in this world.

Would this mean that it stops fluctuating, as there's nothing else to exchange the coin into, and thus becomes a unit of account?


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An agent lives for 2 periods, consumes $c$ and saves $s$ at interest rate $r$ in the first period of life from income $y$. In the second period the agent consumes for any savings. We introduce a percentage tax $T^c$ on consumption in both periods where $0 < T^c < 1$. Assuming initially that $T^c_1 = T^c_2$. What is the consumer's lifetime budget constraint?

Answer: $$c_t (1+T^c_1)+ c_{t+1} \frac{1+T^c_2}{1+r} =y_t$$

I don't understand how we can calculate the budget constraint, can anyone help?


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Ok so I was arguing with my teacher about this one question: Based on the price elasticity of demand coefficient determine whether the price should be increased or decreased for revenue to increase.
PED coefficient: -1.2, 0.8, 2.4, -0.3.
He said that for -1.2 they should decrease price and for -0.3 increase. I agreed with him but then he said that 2.4 should be decreased price to increase revenue because it is elastic. However I said that its 2.4 and not -2.4 so even if its elastic as from PED formula price and quantity demanded would have to both increase or decrease to get it as a positive number therefore we can't really determine whether revenue would increase/decrease. I think he made the question himself so maybe he made a mistake of putting positive coefficient. I have researched that some products have positive like caviar (dunno if true). So my question who was right?


texts: What's the Cause of Mexico's Poverty Rate?

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According to various sources (source listed in parentheses):

Mexico's unemployment rate is 3.3% (Trading Economics)
Mexico's literacy rate is 94.5% (Statistica)
Mexico's upper secondary graduation rate is 49% (OECD estimate)

Yet, when I look at the poverty rate for Mexico, the poverty rate is 46.2%, according to Reuters.  Mexico has low unemployment and a high rate of education, yet almost half of its population is in poverty.  What's the cause of this?


texts: Expansionary monetary policy in case of Pigou effect

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Suppose consumption is a function of income as well as real money balance(Pigou Effect) and we have other equations as the standard Keynesian model.

I derived diagrammatically as well as logically that the Shape of the aggregate demand in case of Pigou effect will be flatter than in the normal case.

Now, I have to look at the case which causes the large effect in increasing the output when nominal money supply increases?

I looked at diagrammatically at this so it came out to be the monetary policy is relatively ineffective in case of Pigou effect but logically Aggregate demand increases due to increase in consumption caused by the rise in real money balances
and also due to rising in investment expenditure caused by fall in rate of interest so output increase more in case of Pigou effect rather than in normal/standard case so it comes out to be relatively more effective.

Where am I wrong?


texts: Is there a widely accepted definition of "asset [price] inflation"?

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A bit of googling found some conflicting ones...

Capel and Houben (BIS)

  Asset inflation occurs when the prices of financial assets are rising even though they are already above their intrinsic or underlying value. Hence, to establish asset inflation, the intrinsic value of equities and houses must be first determined.

The latter problem is obviously rather hard.

Another, more terse definition seem to roughly in the same vein:

Becker (Deutche Bank)

  asset prices to levels not supported by economic
  fundamentals (“asset price inflation”).

So this more or less the same thing as a "bubble", I think (and also as vague).

Dalziel (post-Keynesian)

  there have been several episodes
  around the world in which property prices or the value of sharemarket
  equities have risen significantly, even while consumer prices and workers'
  wages remained relatively stable. Such asset price inflations [...]

This seems an easier thing to measure in practice, but it's clearly not positing a deviation from an absolute/intrinsic value, at least in this snippet.

Filardo (Kansas Fed)

  Overall asset price inflation equals the (implicitly weighted) sum of the fundamental
  component of asset price inflation and the bubble component of asset price inflation. [...] The fundamental component of asset price inflation is assumed to be a function of lagged
  inflation, output growth, and an error term that captures unexpected changes in the fundamental component of asset price inflation. [...] The asset price bubble component is modeled as being exogenous. This specification is
  somewhat arbitrary because economists do not have good empirical models of asset price
  bubbles.

But clearly in this view asset inflation is not the same as just a bubble...

Shigemi (BOJ)

  not only Japan but also many countries [...] experienced big changes in asset prices, or so-called "asset price inflation" and "asset price deflation"

Probably the most trivial definition, i.e. (nominal or real?) increase in asset prices. Later in the paper he graphs for instance "real aggregate asset price indices" but also "nominal residential housing prices", so I'm not sure if his definition of asset inflation is in real or nominal terms.

So does any of these definitions have significant adoption in the literature? Are there more meanings for the term? Does any other definition of the term have substantial following?


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I've recently encountered the term "loss leader" for items. The definition is pricing an item at a discount for the purpose of increasing overall revenues.

One example is Sony selling the PS4 at a loss in order to take more market share, which gain more profits via game sales.

Another example is grocery stores selling items on sale so that customers have a reason to visit the store, and then hopefully buy other items.

My question is: can this definition be extended to businesses that deal with data? For example, selling an online service at a discount to customers for the purpose of collecting data, and then selling that data to marketing firms for a profit.

Is that also an example of a loss-leader item? Or is there a more accurate example?


texts:
Question still unanswered

Ads in the boring business magazine are read by 300 lawyers and 1,000 M.B.A.s. Ads in the consumer publication are read by 250 lawyers and 300 M.B.A.s. If Harry had \$4,200 to spend on advertising, if the price of ads in the boring business magazine were \$700, and if the price of ads in the consumer magazine were \$350, then the combinations of recent M.B.A.s and lawyers with hot tubs whom he could reach with his advertising budget would be represented by the integer values along a line segment that runs between the two points

a.
(3, 600, 0) and (0, 7, 200).

b.
(3, 000, 3, 600) and (1, 800, 6, 000).

c.
(0, 3, 600) and (1, 800, 0).

d.
(3, 600, 4, 200) and (1, 800, 7, 200).

e.
(2, 400, 0) and (0, 6, 000).

My attempt was to find a budget line which is $700b+350c=4200$, where b stand for business magazines and c for consumer ones. But i do not know how this would translate into the answers that are given.


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Here's the image of a money market with two different money supply and demand curves:

Here are some questions regarding money market reactions. I'll always write my proposed reasoning underneath each questions, with a summed up answer at the end of the paragraph, and I need you to check if it's correct.

  1) There's a GDP increase and no monetary policy was implemented. Is a
  movement from point $A$ to $C$ or $D$ to $B$ a logical reaction?

The LM curve formula is $L(Y,i) = Money Demand/Price Level$
If the government has set the money supply to $M_B^S$ and we're in point $A$, then the reaction $A$ to $C$ is correct, because we're shifting the $M_B^D$ curve because of an increase in money demand ($Y$ has a positive influence on the $LM$-equation). Same applies to point $D$, except there we have a higher money supply, so we're moving to point $B$. Answer: Yes.

  2) Are the opportunity costs of money saving higher in point $B$ or $D$?

There's a higher nominal interest rate in point $B$, so saving money in $B$ is more profitable than in $D$, thus the decision not to save money in $B$ is associated with higher opportunity costs. Answer: Point $B$.

  3) Is the money demand in Point $B$ higher than in $C$, because of
  the transaction motive?

Both points lie on the curve $M_A^D$, and any point on that curve has the same amount of money demand, only the nominal interest rate and the money supply are different. Answer: Point $B$ and $C$ have the same money demand. Answer: no.

  4) Can an increase of money supply be interpreted as a movement from
  point $A$ to $C$?

The movement from $A$ to $C$ implies a shift/increase of money demand not money supply. The correct movement is from $A$ to $D$. Answer: No, A to D is correct.

  5) We're in Point $A$ and the households suddenly want to keep less
  money in their savings accounts. Can this be construed as a shift of
  the $M_B^D$ curve to the right?

Consumers now have a higher demand for liquid money, because they don't want to save it but spend it instead. The money demand curve must shift to the right. This leads us from point $A$ to $C$. Answer: Yes, the demand for liquid money is increased.

  6) We're in point $D$ and the nominal interest rate starts to increase.
  What's the money market's reaction?

I'm not sure about this one... the nominal interest rate has a negative effect on the LM curve, thus a higher nominal interest rate will lead to decreased money demand (or a higher price level). But wouldn't that imply a demand curve shift to the left? From the diagram, it's an impossible reaction, as the increase of nominal interest rate is associated with a lower money supply or an increase in demand, no?


texts:
I'm trying to solve this pure-strategy Nash equilibria of this game below:

I highlighted the best pay off for player 1 and 2. But I don't get it when it comes to player 3. The correct answer is (A)

I tried to solve it as a gaming tree. But still I don't get it.

How shall I think?


texts: Soft question: How do you create/draw/plot economic graphs digitally?

texts:
Obviously I'm talking about a theoretical graph not one where you can just plot the data. The only two options I can think of are just using shapes in word/powerpoint or using TikZ in Latex which is very time consuming.
I would be interested to know what your preferred methods are for drawing good looking digital graphs.


texts:
I have been looking at quantile regression (since it is a much better method when trying to quantify welfare effects), and I am struggling with the following, standard model:

$\textbf{Model:}$

$y=x'\beta(u)$ where $u|x\text{~}Uniform\,[0,1]$ and for any $x,\, x'\beta(\tau)$ is a strictly increasing function in $\tau$.

For simplicity, assume $x=(1,x_1)$ meaning that we have one regressor and an intercept

$\textbf{Question:}$

What is $Var(y|x)$?


texts: Economic Effects of Presidential Candidate Proposal: Pay the same % in taxes no matter what you gain

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There's a presidential candidate in USA that promises to change IRS laws in order that everybody pays the same % in taxes, i.e., the rich will pay the same percentage as the poor. This would seem to generate more income inequality in the long run.  Another effect would seem to bleed the Government treasury . I do not how much it accounts for, but I don't think it's at all negligible...

What type of impacts can we expect if this measure is implemented. I'm not interested in politics, just economics.

Any help would be appreciated.


texts: Identification of switching costs from price shocks

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What, if anything, can we learn about customer switching costs by looking at price, revenue, profit, and quantity responses of producers to cost shocks?

For example, we can define the profit equation as:

$\Pi = \sum^\infty_{t=0} [ -\alpha S + \beta^t(P - C(q))] \cdot  q(P,C,S)$

Where $q(P,C,S)$ is demand as as function of prices, costs, and switching costs respectively, $C(q)$ is total cost as a function of quantity produced, and $\beta$ is the discount rate of the firm, and $\alpha$ is the fraction of the switching cost refunded to the purchaser. Are there published or just worked out examples of choices of $q(P,C,S)$ and $C(q)$  that allow identification of S from $\partial\pi/\partial C$, $\partial P^*/\partial C$, and $\partial q^*/\partial C$?

Consider the cost shock as an exogenous shock, but I have in mind a setting that allows a structural identification.
By switching costs, I mean that if a customer wants to first buy from firm A and later switch to firm B he pays $P_B+S$, in the period of the switch then $P_B,P_B\ldots$ in subsequent periods instead of $P_A, P_A, \ldots$.
The $-\alpha S$ term is a refund to only the purchasers in the period of initial purchase while $S$ is paid in the final period of doing business with a firm. An example of $-\alpha S$ could be getting a special deal on your Verizon cellphone because you can't use that phone with any other network or a free toaster when you open a bank account. I fixed it in the profit equation so that $S$ was multiplied by $q$ to indicate that $S$ is is the switching costs per unit of $q$. I had in mind that customers purchase either $0$ or $1$ unit of the service and $q$ aggregates their individual decisions. But I'm not wedded that refund, if it gets me somewhere I'm happy to assume that $\alpha =0$


texts: Walrasian Equilibrium under Leontief Preferences

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There are two people in the economy, A and B.  Both have the utility function: U=min{x,y}.  A has an initial endowment of (x,y)=(50,100) and B has (x,y)=(100,50).

I know how to draw the Edgeworth box and establish the contract curve, but how do I determine the Walrasian equilibrium ratio of Px/Py?  I'm confused by the fact that I can't differentiate U, nor is there money exchanged to establish a budget constraint.


texts: Why is money used in transactions when it is dominated as a store of value?

texts:
In Lectures on Macroeconomics by O.Blanchard and S.Fisher (1993) stated that (the emphasize is mine):

  Building a model that formally explains why money is used in transactions
  when it is dominated as a store of value has proved to be a difficult task.
  Consequently, most of the research has taken a shortcut and started with
  the assumption that money must be used in some transactions; this
  constraint is known as the Clower, or cash-in-advance, constraint.

But Macroeconomics by G.Mankiw (2012) mentions neither this difficulty nor  Clower constraint.

So has this difficult task been solved and the model that formally explains why money is used in transactions when it is dominated as a store of value has been created?


texts: Reading list for physics undergrad who'd like to cover the economics related to the hedge fund/ private equity field

texts:
I have had  relatively little exposure to economics( nothing more than EC101) and would greatly appreciate help in answering the following questions:

Which sections of economics are more or less very relevant related to the hedge fund/ private equity fields?
Which books would one recommend that would help one get a solid grasp(almost to the level of an economics undergraduate) of the sections in 1. ?

Thanks


texts: Calculate Gross Private Product from standard metrics

texts: Is it possible to calculate GPP given commonly available data like GDP and government expenditure? The example in this Wikipedia article seems to suggest those two alone are enough. Would nominal GDP minus federal spending equal GPP? Do I have to account for state spending too and is there any source for that?


texts: SIR Model and Information/ Innovation Economics

texts:
The SIR Model from epidemiology is being discussed a lot recently due to the COVID19 scenario. I recently read this article about the Corona virus and what economics can offer-
 https://afinetheorem.wordpress.com/2020/03/13/the-simple-economics-of-social-distancing-and-the-coronavirus/

In the beginning itself, it mentions that "the most straightforward epidemiological model of infection – the SIR model dating back to the 1920s – is actually quite commonly used in economic models of innovation or information diffusion, so it is one we are often quite familiar with."

Which economic model or which class of economic models is likely referred to in this line? Where can I read more and learn about these models of information and innovation?


texts:
I need to find the list of companies with their respective market caps and their sectors of activities.

For now I have found these two links:
• https://goo.gl/E8WJzu
• http://goo.gl/vuHDuF

But I need to find more.


texts: What would happen if China called in its debt?

texts:
I was talking with a friend of mine the other day about Trump putting the 35% tax on all overseas manufacturing. Couldn't this hurt those countries that have plants where US manufacturing comes from? I think, and correct me if I'm wrong, the tax is to encourage businesses to bring their manufacturing back to the US?

I'm not sure how accurate this site is but here is the Top 10 of countries the USA owes money to:

China, Mainland, $1244.0 billion dollars
Japan, $1133.2 billion dollars
All Other, $416.0 billion dollars
Cayman Islands, $260.2 billion dollars
Ireland, $259.8 billion dollars
Brazil, $249.5 billion dollars
Switzerland, $228.7 billion dollars
Luxembourg, $221.8 billion dollars
United Kingdom, $216.5 billion dollars
Hong Kong, $192.7 billion dollars

Looking over this link (which is a little old but I couldn't find anything newer), looks like most of oversea manufacturing by US companies is done in China.

What if China said it wants its money back? Is that possible?


texts: Real wages fluctuation as per classical economics

texts:
I have just started studying Macroeconomics and have noticed that as per the Classical economics, the real wage level will always remain same because any change in price level in the market is subsidized by an equivalent increase in the wage level in the market. However a look at the USA's hourly real wages over years (https://en.wikipedia.org/wiki/Real_wages) shows that the wages are anything but constant.
Can classical economics explain the variation in the real wages or is this one of the shortcomings of the classical economics?


texts: Are there Utility Monsters in Economics?

texts:
Economics, especially in the modern school is broadly influenced by the utilitarian concept of utility. More so since the labor theory of value has been broadly replaced by the theory of marginal utility.
Additionally, perverse incentives are commonly understood and well documented, and seem to be small scale imitations of Nozick's classical "utility monster".
Are there any observations of larger "utility monsters" (wherein consumption by an individual increases aggregate utility for a group while individual utility is reduced for all but the "monster" of the group)?
Does a theory of declining marginal utility necessarily prevent such a thing if utility is said to remain non-negative? (i.e. simply having the ability to ignore excess goods). Obviously it prevents it if utility can become negative, unless the number of units of the good in question are fixed at less than the number required to reach negative total utility.
For a simplistic toy example, imagine a closed system consisting of myself, my five-year-old daughter, and two cars (full-sized). Allocating a car to her produces little marginal utility since she can't drive (or even reach the pedals), though presumably it's a non-zero amount. Consequently taking a car from her and giving it to me produces a net gain for the "economy", despite producing a presumable reduction in utility for her (assuming I'm not going to drive her around because I'm a terrible father in this example). Further, even assuming if she owned both cars, taking them both from her and giving them to me would produce an aggregate gain, as I could exploit the one car better than she could the two, and the second (or even third, etc), would not be an inconvenience, and in fact still offer me greater marginal utility as backup vehicles.
The question is, do such scenarios arise in practical economic settings where one group or individual is simply so much better able to make use of a good than another as to justify (in the sense of aggregate utility) taking it from the less able?
I understand this could be a contentious question, but I'm asking not from a moral standpoint but strict aggregate utility.
Updates
The constraints regarding the system I'm modeling are (and looking for a general solution to):

Marginal Utility for every unit of a good must be positive (or zero), finite, and declining (though never to below zero).
Finite Goods:

The available quantities of all goods must be finite, though they can be arbitrarily large.
There can be an arbitrarily large, though finite number of other goods in the system.

Aggregate Utility must increase for all, while individual utility must decrease for all except one (the "monster") when a good of a certain class (let's say "cars") is transferred from any member of the group to the "monster".
Condition 3 should be met for all transfers of "cars" from "innocents" (people not the monster) to the "monster", to the exhaustion of "cars" from the system.

Again, this is not a question about "Can mutually beneficial trade exist under any circumstances?" We've known that since before Ricardo. This is a question about the requirements for Aggregate Utility increase at the expense of most individuals when talking abut individual preference.
Inspiration for the question:


texts:
Suppose the Net Domestic Product in a certain sector (e.g. agriculture) is 10 billion. Who enjoys this 10 billion?

Initially, I thought that this 10 billion is the gross income of the farmers. So some of it is paid as taxes while the rest remains with the farmers as net income.

But, I did the math with some real-life data, and found out that the net income of the farmers is much smaller.

So, where does the difference go to?

My conjecture is that the NDP include the income of other workers related to agriculture, e.g. truck drivers, traders and sellers in farmer markets. Is this correct? Or are they counted in a different sector?


texts: The Shapiro-Stiglitz model. Why under full employment do unemployed workers find jobs instantly?

texts:
Under the Shapiro-Stiglitz model the No-Shirking Condition is:
$$w=\bar{e}+\left( \rho +\frac{\bar{L}}{\bar{L}-NL}b \right)\frac{\bar{e}}{q}$$
Where:
$\bar{e}=$ exerted effort by employees
$\rho=$ discount rate
$\bar{L}=$ total number of workers
$N\bar{L}=$ number of employed workers
$b=$ job separation rate
$q=$ shirking detection rate
(From Romer's Advanced Macroeconomics 3rd edition, pg. 453)

[The no-shirking condition shows] the wage that firms must pay to induce workers to exert effort. When more workers are employed there are fewer unemployed workers and and more workers leaving their jobs; it is easier for unemployed workers to find employment. [...] At full employment, unemployed workers find work instantly, and so there is no cost to being fired and thus no wage can deter shirking

My Question
The definition of full employment is:
(Source from Investopeida)

Full employment is an economic situation in which all available labor resources are being used in the most efficient way possible. Full employment embodies the highest amount of skilled and unskilled labor that can be employed within an economy at any given time. Any remaining unemployment is considered to be frictional, structural or voluntary

Based on this definition is appears that even under full employment workers do not find work instantly under the Shapiro Stiglitz model. What exactly am I missing?


texts: Obtain the OLS estimators of the simple model from the multiple model

texts:
I'm looking for the answer to this question:
In the context of the simple regression model (two variables) we know that the estimators of OLS are given from:
$\hat{\beta}_{1}=\frac{Cov(x_i.y_i)}{Var(x_i} \quad and \quad \hat{\beta_0}=\bar{y_i}-\hat{\beta}_{1}\bar{x_i}$
Use the correct matrix $X$ so that from the OLS estimator of a multiple regression $\hat{\beta}=(X´X)^{-1} X´y$, obtain the estimators of the simple regression model.


texts: Sensitivity/continuity of optimal solution

texts: Suppose for every $y$, $f(x,y)$ is strictly convex in $x$. $f(x,y)$ is continuous in $y$ and let $\mathcal X$ be compact (in my problem, $\mathcal X$ is an interval). Can anyone suggest any theorems or references for the problem of whether $x^*(y) = \text{argmin}_{x \in \mathcal X} f(x,y)$ is continuous in $y$?


texts:
I'm not sure if this is a silly question or overly semantic but I think the term "Crisis" is misunderstood (or at least misunderstood by myself). There are a number of ways the term is used, namely:

A Financial Crisis.
Sovereign Debt Crisis.
World Health Crisis.

These are all different scenarios but all have the word "crisis" attached to them.

Is there a unifying definition of what constitutes a economic crisis?


texts: Why don't shipping businesses own their own shipping containers?

texts:
About two or three years ago I attended a talk by a consulting statistician, one of whose clients was a company in the business of leasing out intermodal shipping containers.  He said those who are in the business of using those containers to transport goods typically do not own the containers, but pay a company such as his client for their use.  They pay rent periodically forever and don't normally ever return the containers to the permanent owner.

My question is: Why is it done that way?  Why not buy the containers if you're going to use them for as long as you're in business?

(The occasion for the speaker's experience of this phenomenon was that Congress passed a bill granting tax deductions to companies whose containers are used in U.S. commerce rather than being used only, for example, to carry things back and forth between South Africa and Australia, etc.  Companies could not claim the tax deduction unless they had records indicating how many of their containers were used in U.S. commerce, and they had no records at all of where their containers had been because they hadn't expected Congress to pass such a measure.  Trying to get the information about where each container had been was far more expensive than what they'd save in taxes, and in many, maybe most, cases, the shipping companies didn't have the information at all.  So the consulting statistician and a colleague came up with a theory: For tax purposes, intermodal shipping containers are fungible.  They didn't need to know which containers had been where, but only how many with the company's logo had entered and left the U.S.  It turned out that information could be acquired inexpensively from port authorities. The company argued that that would underestimate the number of the company's containers used in U.S. commerce, since, for example, ships that transport wool from Australia to China to be made into sweaters to be sold in the U.S. were engaged in U.S. commerce when the retailer in the U.S. paid for the transportation.  The IRS accepted the fungibility theory and allowed the deduction.)


texts: Argue that no further mixed Nash Equilibria can exists

texts:
I'm looking at the following Normal-Form Game:

         B
   |  1  |  2  |  3
---+-----------------
  1| 1,-1|-1, 1|-1, 1
A 2|-1, 1| 2,-2|-1, 1
  3|-1, 1|-1, 1| 3,-3

It's easy to see that there are no Nash-Equilibria in pure strategies. In mixed strategies I found, that $(\sigma_A, \sigma_B)$ is a Nash-Equilibrium with:

$$\sigma_A(1) = \sigma_B(1) = \frac{6}{13}$$
$$\sigma_A(2) = \sigma_B(2) = \frac{4}{13}$$
$$\sigma_A(3) = \sigma_B(3) = \frac{3}{13}$$

The problem sheet now asks to argue with an example why no further mixed Nash equilibrium can exist. I'm not sure how to argue here.


texts:
So I was solving a question which says find the range in which MRTS is diminishing
$f(k,l) = 600k^2l^2-k^3l^3$ is the production function
I got the MRTS = $ -(1200kl^2-3k^2l^3) \over 1200k^2l-3k^3l^2$

Now, i'm getting $\frac{\partial f'(k,l)}{\partial k} = \frac{l}{k^2}$ then range is $l <0 $ which doesn't seem to make sense.
Is my answer correct or is there some mistake??


texts:
I am now studying the Spence's job market model using both signaling and screening.

It turns out that, when a worker's reservation value = 0 (she can get 0 if she does not get employed), then both pooling and separating equilibria always exist in signaling. However, in screening, pooling equilibrium does not exist, and the range for separating is also narrower than in signaling.

Why is that so? Does it have anything to do with the refinements such as intuition criterion?

Is it true that screening will always be stricter than signaling?

(Sorry for being verbose - still quite new to this area and do not know how to describe the problem easily.)

(Reference: The question is discussed in the 13th chapter of MWG's textbook.)


texts: Approximating common knowledge with common beliefs (Monderer and Samet, 1989)

texts:
I'm trying to understand Monderer and Samet's 1989 paper on approximate common knowledge.

I'm stuck in the last part of the proof of the "agreeing to disagree" Theorem A, where the upper bound of the posterior is established. The lower bound seems clear but I just cannot understand how one of the terms is written as (1-p). Am pasting a picture below of the part where I'm lost:

The last line which establishes the upper bound of r_i is unclear to me. Any help would be greatly appreciated. The link of the paper is :

https://ie.technion.ac.il/~dov/cpb_monderer_samet.pdf

(Theorem A is in page 180-181)


texts: Inflation , Housing Prices, Is there some form of the CPI that can include Home Prices?

texts:
I understand why we don't include real estate in the CPI. It makes sense, when it is explained to me. I also understand Rent is included in the CPI.

However? I live in Canada . Our Populations Household Debt to Disposable income has been rapidly rising. Our real estate prices in urban centers have also been going up in value very quickly. We have very low interest rates. I also know this same effect is happening in Australia, and I believe Hong Kong.

To me this shows there is a correlation between household debt and rising home prices.

To me this extreme of rising house prices clearly is an example of too much cash chasing too few goods ( houses ).

https://tradingeconomics.com/canada/housing-index

https://tradingeconomics.com/canada/households-debt-to-income

Is there a better calculation that may include some form of rising/falling real estate prices into a consumer price index to show inflation? <-- this is my question

I've also noticed that if you take the median total household income in the Province of BC and you use it in a Canadian Bank mortgage calculator, there is no way a person could afford any home in the Vancouver Region, and the majority of the population lives in Vancouver. So clearly there is a disconnect.


texts: How does price fixing work if it requires an almost universal agreement?

texts:
From what I gather, price fixing works by getting all the relevant actors in a certain economic sector to agree to fix the price of the goods they sell at a certain, higher-than-normal price, so that the consumer is forced to buy overpriced goods.

My question is: how does this even work in real life? If the goods are overpriced, what stops a new seller from offering his/her goods at the real (lower) price, rendering the price fixers unable to profit from their scheme?


texts: What are some good books and articles about the principal-agent problem? I'm looking for introductory academic books/articles or "popular-science" kind of ones.


texts: I cannot understand Sobel & Crawford 1982 (cheap talk)

texts: I am a master student, currently reading this paper for fun during the break. I got lost during the part $U^S(\bar y, \bar m, b) = \max_{y \in Y} U^S(y,\bar m, b)$ on page 5. I dont understand why they wrote this without any explanation. Then I got lost again during proof of lemma 1. Should I read other paper first before approaching this?${{}}$


texts: Are these preferences consistent with rationality?

texts:
Suppose there are three kinds of commodities, X Y and Z. We ask an agent about his preferences and receive the following answers:

"I prefer Z to Y and Y to X".

"For every $n$, I prefer one unit of Z and $n-1$ units of X to $n$ units of Y".

Are these preferences consistent with rational preferences, according to the "rationality" axioms of von-Neumann and Morgenstern?
Initially, I thought that "obviously yes". von-Neumann and Morgenstern only talk about preferences on lotteries, but here, the agent's preferences are only given on sure sequences, so obviously there should be some rational preference relation on lotteries that is consistent with them.
However, one of the rationality axioms is "continuity". It says that there exists a probability $p\in(0,1)$ such that:
$$ p Z + (1-p) X \sim Y $$
The preference relation can be represented by a function $u$ such that: $u(X)=0, u(Y)=p, u(Z)=1$.
But then, if we take $n>1/p$, if the agent receives $n$ units of Y, his utility is more than 1, so the agent should prefer this over receiving one unit of Z and $n-1$ units of X...
What is wrong with these preferences?


texts: Oliver Hart said that financing deficits by printing money can lead to hyperinflation "once the economy is close to full capacity". What does he mean?

texts:
In response to a poll on Modern Monetary Theory, Nobel Laureate Oliver Hart said that Governments financing deficits by printing more money "can quickly lead to inflation or even hyperinflation once the economy is close to full capacity".
What does he mean by the economy being close to full capacity?


texts: Maximum-support Nash equilibria in zero-sum games

texts:
Context: I would like to know how likely a player is to pick a specific action, provided that he plays optimally and the action is optimal. Phrased like this, the question is ill-defined. But is there some way around the problem?

Details: I have a zero-sum symmetric matrix game. Is there some good notion of a Nash equilibrium with a maximum support [edit: maximum among the NE strategies]? Like something along the lines of "take the center of the simplex of NE strategies"?

The question: Is there some canonical solution to the vague question above? Possibly something already written down in a textbook or a paper. (It would feel silly to reinvent the wheel.)


texts:
Consider that good X and good Y are complements and good X is a Giffen good. If I increase the price of good X, what affect does this have on the price and quantity demanded of good Y?

My reasoning was as follows. An increase in the price of good X will increase the quantity demanded of good X (as it is a Giffen Good). Increasing the quantity demanded of good X decreases the price of good Y (as they are complements). A decrease in price of good Y will increase the quantity demanded of good Y (Law of Demand).

This is wrong. The correct answer according to my textbook is that both the price and quantity demanded of good Y will increase.

How can this be?


texts: How Does Keynesian Theory Address Supply Shocks, Like the California Drought?

texts:
From what I understand about Keynesian theory, when we're facing deflation, lowering interest rates or increasing government spending/lending (when consumers are cutting back) helps stimulate economic growth through consumption (GDP = C + I + G + NE).  While a few loud voices (Schiff, the ZH guy, Martin Armstrong, etc) have been screaming about hyperinflation, Krugman has been right that we haven't seen it, even with the Federal Reserve's QEs.  It does seem like QE has helped move the economy along, even though I know this depends on a person's point of view; ie: Austrian economists won't agree.

What happens in the case of a major drought causing food prices to rise, as in double, triple or quadruple (See this post by Bill McBride. and now this post)?  Is the Keynesian solution here to raise interest rates => wouldn't that be a double whammy on the poor in that it would be more difficult to get a job and food prices would be rising?  What is the Keynesian solution to supply shock problems, like a major drought, impacting basic necessities, such as food prices?

To be more specific because of the comment, I am looking for the Keynesian solution to a supply shock, or major crises that involve a supply shock - such as a drought that causes food prices to rise?


texts: Does it make sense to calculate price elasticity in respect to some percentage?

texts:
I was trying to calculate how much the price of a product impacts some company I'm analysing. At college, we learn that the price elasticity of demand is the percentage change in demand divided by the percentage chance in price. However, I'm having some trouble adapting this to the model of some companies.
For instance, let's say I want to know how the price alters the sale of a product. I wanted to know how increasing 1% in the price alters the amount of products not being sold. At first, we could make percentage change in products being sold divided by the percentage change in price. However, when the price is increased, the company also increases the number of products not being sold. So we will have more products not being sold, but we will also have more products being sold. This wouldn't be a fair comparison.
Let's say we had 100 products being sold by 10 dollars. 80 were sold and 20 weren't sold. Then, we increase the price. Then, the company is selling 150 products. 20 were sold, 130 weren't sold. As you can see, it's not fair to calculate the elasticity using the % Change in the number of products not sold divided by the % change in price.
I was thinking about getting the change in the percentage of the products not being sold. So first we had 20%, after the increase we had 13%. The elasticity would be:
((0,13-0,2)/0,2))/((15-10)/10)
This calculation is a bit awkward for me, since the result is 0,7. What would be the interpretation? Even further, does this calculation make sense? If not, why and what's the alternative?


texts:
Does the general price level show the aggregate of all goods & services demanded or supplied at a certain price or does it show something else entirely?

My knowledge of economics is still very much in its infancy, so only plain language in answers please!


texts: Would a sudden increase in population, increase inflation?

texts:
Let's say, for the sake of the argument, that the US population grows from 320 millions people to 420 millions overnight, wouldn't that increase inflation?

What if in reaction to this, the monetary mass is left untouched?

Thanks


texts: Why is money in circulation a liability of the central bank?

texts:
We know that the money today is fiat currency, that it is money because the government says it's so. So when new money is printed or loaned out to the commercial banks by buying treasury bonds, government does not technically "owe" any thing. The only thing that is stopping it from creating new money every time need arises is the possibility of inflation.

Given all of that why is still money in circulation listed as a liability of the central bank? Am I missing something here?


texts:
The US had a national bank during the first few decades after its birth before it was abolished.  Today, we have the Federal Reserve.
What are the differences between the Federal Reserve and a National Bank (specifically, with regard to their intervention policies and powers for acting within the economy)?


texts: Why there is no supply on monopoly markets?

texts:
We learned in the class that monopoly markets do not have supply curve. Our textbook (Microeconomics and Behavior, page 388 from, R. Frank) says:

A monopolist has no supply curve

and it explains it by saying:

The reason is that the monopolist is not a price taker, which means there is no unique correspondence between price and marginal revenue when the market demand curve shifts. Thus, a given marginal revenue value for one demand curve can correspond to one price, while the same value of marginal revenue for second demand curve corresponds to a different price. As a result, it is possible to observe the monopolist producing $Q_1^*$ and selling at $P^*$ in one period, and then selling $Q_2^*$ at $P^*$ in another period.

I don't get this. We learned that in competitive markets demand can change from period to period even if the price stays the same (like when supply is just horizontal line). Also, why can't we just pick one point in time look at possible combinations between P and Q on monopoly market, and call those combinations supply? The book has some examples but they don't explain this clearly.


texts: Does the linear probability model require the regressand to be zero/one-valued?

texts:
Typically, the dependent variable in a linear probability model (LPM) is a 0/1-valued binary variable. What if the dependent variable $y_i$ is still binary but take on general values $a$ and $b$ rather than 0 and 1? Technically, the resulting predictor still retains its nice properties, e.g., it is the minimum mean squared error (MMSE) linear predictor. Again, we may also transform $y_i$ into a 0/1 variable; but sometimes we want to keep the original values, say, for interpretation.

My question is: Can we still call the estimator the LPM estimator? If not, what should we call it?


texts: Is there any explanation regarding the strange movement of total asset turnover and its components?

texts:
I am doing an empirical study using a Difference-in-Difference method. After the event, the total assets turnover of the treatment country increase.
In the same setting, I found all fixed asset turnover, inventory turnover, and receivable turnover decrease while account payable turnover increase for the treatment sample. Is there any reasonable explanation for that?
In another word, the law has a negative impact on total assets turnover, fixed asset turnover, inventory turnover, and receivable turnover while it has a negative impact on payable turnover. It seems to be strange because fixed assets, inventory, and receivable are in the same side of the balance sheet.


texts: Is there a 'fairer' alternative/variant of the White Elephant Gift Exchange?

texts:
The White Elephant Gift Exchange is a gift exchanging game that typically has the following rules:

Each participant enters one anonymous (ie. wrapped) gift to the pile. There may be rules on what the gift may be, eg minimum and/or maximum price. In my family we have a 'must be second hand, hand made, or locally made' rule.

A participant is chosen at random, and they can either:

Choose a present from the pile, and unwrap it.
'Steal' an existing gift from another person already holding an unwrapped gift.

If gift is stolen, then it is now the person who was stolen from's turn. They can in  turn steal from someone, or take from the pile.

If a gift is taken from the pile, then a participant who doesn't already have a gift is drawn randomly, and they can steal or take from the pile.

There are usually restrictions on stealing. Typically:

You can't steal a gift back from the person who just stole from you.
A gift can only be stolen a limited number of times, typically three. After that, it is 'locked' and belongs to the person holding it.

Additionally, we've found it helpful to add the rule that:

Partners/spouses can't steal from each other. This prevents a circumvention of the 'You can't steal from the person who stole from you' rule.

Now thing is, in these kinds of exchanges, even with value limits, some people are going to give good, sought after gifts, and some people are going to give crappy gifts.
The gift exchange provides some amount of mechanism for not just being assigned a random crappy gift, however, it is largely luck.
The optimal strategy for maximising gift value tends to be:

If you can, never take from the pile. This is because it's almost entirely luck based.
Instead, you should aim to steal the highest value possible gift currently unwrapped, even if it's not something you want. That is - you're actively measuring how in demand a gift is according to other participants. That way, your gift is likely to be stolen from you, and you get to make a second choice.
If there is a gift that you want, you shouldn't be second stealer of it. This is because if someone steals it from you, then it is locked.

So typically, the way the game will typically play out, is that there will be some gifts that obviously sought after, and others that are clearly white elephants.
The 'fair' system of distribution would have people who had contributed these high value gifts, also having a greater chance of receiving one of these high value gifts.
No doubt, some kind of ranking system and algorithm could be devised, however in the context of a party game, the rules need to be simple.
Are there any such variants on the game, or similar game that allows for this fairer distribution?


texts: Impactful fixed-effect identification with open data

texts:
For a replication project, I am looking for impactful (and ideally somewhat recent) papers that use fixed-effects as their main identification strategy and make their data publicly available.

By publicly available, I mean:

Ideally directly available together with the paper, either on the journal's website, or on the author's website.
Papers based on publically available data could also be useful but as a second-best only (this is for a replication project, so any steps such as having to reconstruct the data from public sources which could introduce differences with the original analysis is not ideal),
I am not interested at this stage in papers that require emailing the author to obtain the data.

This is not really (at all) my area of research, so any help in identifying the best candidates would be highly appreciated.


texts: Why is a monotone increasing but nonlinear transformation of a utility function not represent the same preferences if the preference is complete?

texts:
According to a textbook, in the context of uncertainty (e.g. in lottery), if the preference is complete, a monotone increasing but nonlinear transformation of a utility function would not represent the same preferences. Why is it so?

An example of such preference would be appreciated.


texts: Search and matching model: effect of hiring cost on wage curve

texts:
What effect does the hiring cost have on the wage bargaining outcome (wage curve)?

In Cahuc, Carcillo, and Zylberberg: Labor Economics, they derive the following wage curve:
$$w = z + (y-z) \frac{\gamma[r+q+\theta m(\theta)]}{r+q+\gamma \theta m(\theta)}$$

where $z$ = unemployment benefit, $y$ = marginal product of labor, $\gamma$ = bargaining power of the worker, $r$ = interest rate, $q$ = rate of exogenous job destruction, $\theta$ = labor market tightness, $m(\theta)$ rate of job filling.

On the other hand, following Pissarides (2000) we get the following wage curve:
$$w = (1-\gamma)z + \theta \gamma c + \gamma y$$
where $c$ = hiring cost.

The first wage curve (from Cahuc et al.) would suggest that $c$ does not affect the wage curve while the second one (from Pissarides) would suggest that it does.

My thoughts so far are:
1. The wage curve tells us the outcome of bargaining but $c$ does not affect bargaining because $c$ is only directly relevant for $\Pi_V$ (the employer's outside option) but $\Pi_V$ is always zero in equilibrium. Therefore, the employer's outside option is not any worse if $c$ is higher. 2. In deriving the wage curve, Pissarides substitutes labor demand into the wage curve. So, $c$ enters the Pissarides' wage curve only through labor demand and not in any other way, suggesting, again, that bargaining itself is unaffected by $c$.

So, what is the effect of a change in $c$ on the wage curve? Does an increase in $c$ shift the wage curve?


texts: What are the economic arguments against (a) variolation (analogue) as a solution for Covid-19?

texts:
It has been suggested in some parts of the (usually right-wing) press that a solution to Covid-19, especially in economics terms, is to expose the young to the virus sooner, e.g.:

Perednia [...] argued for infecting young people with the virus via a “controlled voluntary infection program.” (The infecting would be followed by quarantine until immunity could be confirmed.) [...]
Perednia quickly got to the crux of the matter, as he sees it. “Either self-isolate and do what we’re doing now—which will bankrupt the next generation,” he said, or, “there is a program that the government operates, which, if you decide it’s appropriate for you, you can become infected voluntarily with the disease.” [...]
Perednia was convinced that the way to adapt his idea to this reality was to make sure that the infecting was done with “the lowest possible dose” of the virus—a concept known as variolation—which, he thought, would cut the death rate among those who chose to take part. “Even without the addition of variolation,” he said in an e-mail, “the whole idea of CVI now appears to be ten times less risky than originally appeared to be the case.” Meanwhile, the C.D.C. continues to recommend social distancing, wearing masks, and washing hands often.

Note that the main argument for CVI/variolation of the young approach to Covid-19 is an economic one, namely that the alternative supposedly is to "bankrupt the next generation". So, how have economists reacted to this type of CVI/variolation proposal?


texts: How to evaluate whether the synthetic control is good enough

texts:
I'm using the synthetic control method to evaluate a state-level policy (using synth package in Stata). I've read the seminal ADH papers on CA tobacco & Germany reunification, but I still don't know exactly how to decide if the constructed synthetic state is a good fit. What we do at the moment is looking at the graph - to see if there's overlap between the synthetic and the real state. However, I feel this is not a very "robust" way...

Is there any measure that we can use or test on?

Edit:

After reading through reply (and papers mentioned again), I have another related (but maybe a bit nuanced) question on what to expect at the time of (or immediate after) intervention.

As shown in the two following figures from ADH (2010) and ADH (2015), there is a small effect in the same year of the intervention for CA tobacco Propostion 99, while in the Germany reunification study, the gap only becomes noticeable 2 years later. In some other papers using SC, there is an immediate effect (such as Cavallo et al. (2013)). I suppose as long as there is a consistent story to support the results, the short-term effect size of the intervention will not invalidate the fitness of synthetic control?


texts:
I have started studying the Pareto efficiency notion in Game theory. The definition I am familiar with is this:

Strategy profile $\mathbf{s}$ Pareto dominates strategy $\mathbf{s}'$ if for all $i\in\mathcal{N}$, $u_i(\mathbf{s})\geq u_i(\mathbf{s}')$, and there exists some $j\in\mathcal{N}$ for which $u_j(\mathbf{s})>u_j(\mathbf{s}')$. Strategy profile $\mathbf{s}$ is Pareto optimal, or strictly Pareto efficient, if there does not exist another strategy profile $\mathbf{s}'\in S$ that Pareto dominates $\mathbf{s}$.

I am interested in finite normal form games, for example, the $n$-player Prisoner's dilemma. Clearly, for $n=2$ we have three Pareto outcomes and it's not too difficult to derive them.

But my concern is with a large number of players and non-constant utilities, how do we check the Pareto efficiency outcomes?

Is there a better, more efficient way to compute the efficiency of different outcomes of a game? Maybe the price of anarchy? I am not sure.

I'd appreciate any help or hint. Thank you


texts: What is the Thomson Reuters tool that is used in universities?

texts: I'm not an economics major but when I go to the library of the economics department I see that computers have access to something that is related to Thomson Reuters. given that I'm interested in finance, can somebody explain what is that tool, what can be done with it? and just give some info to somebody like me who doesn't know much. thank you so very much in advance


texts: History of Macroeconomic Measurements before GDP

texts:
What is the earliest mention of any type of macroeconomic measure?

I know proto-economist William Petty coined the Term GDP but was there any other measurement used before then to determine the welfare of an economy?


texts: Risk neutrality in single-agent choice problem under uncertainity

texts:
Consider the following static single-agent choice problem under uncertainty.

Let $V$ be the state of the world with support $\mathcal{V}$ and probability distribution $P_V\in \Delta(\mathcal{V})$. First, let nature draw a realisation $v$ of $V$ from $P_V$.
Then, let the decision maker (DM) choose an action $y\in \mathcal{Y}$, with $\mathcal{Y}$ finite, without observing $v$. Upon the decision has been made, the DM gets a payoff $u(y,v)$.

An optimal strategy of the decision problem above is $P_Y\in \Delta(\mathcal{Y})$ such that, $\forall y\in \mathcal{Y}$ such that $P_Y(y)>0$ and $\forall \tilde{y}\neq y$,
we have that
$$
\sum_{v\in \mathcal{V}} u_i(y,v)P_V(v)\geq \sum_{v\in \mathcal{V}} u_i(\tilde{y},v)P_V(v)
$$

Additionally, one can imagine that the DM can process some information structure $S$ to update her prior before choosing an action. In such case, we can use the notion of one-player BCE in Bergemann and Morris (2013,2016) to characterise the set of probability distributions of $(Y,V)$ that are predicted by the model while remaining agnostic about $S$.

Question:

Does the narrative above (and, hence, also the Bergemann and Morris framework) assume that the DM is risk neutral? Can it be reformulated also for the case in which the DM is risk averse?


texts: What kind of economic freeware exists for economics students?

texts: Can anyone recommend some free software for students studying economics for use in senior projects, theses, or dissertations?


texts:
How can I derive Hicksian demand, when from the FOC I only get $\frac{p_x}{p_y} = \frac13$ without the usual x & y. So they cannot be derived directly from FOC, but if I plug the price relation into the budget constraint $I =p_x \cdot x + p_y \cdot y$ I get the income in the demand function, so this is Marshallian demand. Plugging the relation in expenditure function, obtained from the indirect utility function also doesn't lead to the Hicksian demand (that I obtained via Shephard's lemma and equals $h_x = U + x + 3y$).

The problem is to minimize

$$p_x \cdot x + p_y \cdot y \qquad\text{s.t.}\qquad x + 3y ≥ U$$


texts: Budget Constraint in Utility Maximisation Problem with Lagrange Multipliers

texts:
Lets say we have a utility function $U: \mathbb{R}^{2} \to \mathbb{R}$ given by $U(x,y)$ and a binding budget constraint $p_{x} x + p_{y} y = m$, where $p_{x}, p_{y}$ are prices of goods $x,y$ and $m$ is income. We can maximize this function subject to our constraint by simply maximizing this the following function in the unconstrained sense:
$$
\mathcal{L}(x,y, \lambda) = U(x,y) + \lambda(m -p_{x}x - p_{y}{x})
$$
where $\lambda$ is usually called the Lagrange Multiplier.

My question: The reason we're able to add the second term on the RHS of the expression above is because our budget constraint binds, i.e. $m - p_{x}x - p_{y}y = 0$, so we're essentially adding zero. But, why is the conventional expression inside the parantheses after $\lambda$ given by $m - p_{x}x - p_{y}y$ and not $p_{x}x + p_{y}y - m$? Shouldn't both expressions give us a zero term? My guess is that this has something to do with the sign of $\lambda$ (which we want to be positive because it can be interpreted as the marginal utility of $m$), but I'm not sure how exactly this works, mathematically. Would appreciate a clarification explained mathematically.


texts: What can we infer when a commodity has a high stock-to-flow ratio?

texts:
If one commodity has a higher stock-to-flow ratio than another, what does this market signal tell us about that commodity?

If it makes a difference, I'm talking about when this is a long-term phenomenon, rather than a short-term situation.


texts: Q-model of investment in investment macroeconomic theory

texts:
I am taking macro course this semester, and part on investment theory is not very clear. In the q-model of investment, if we assume that TVC holds, i.e. limt→∞[λtKt] = 0, how can it be proven that q0 = ∫∞0e-rt[AFK + (I/K)2 φ' (I/K)]dt
What will be the proper economic interpretation of this formula?


texts:
In their pathbreaking paper, Rothschild and Stiglitz define the RS Equilibrium as a set of contracts such that,
i) each firm breaks even
ii) there exists no other contracts making non-negative profits when offered.

And they show that no pooling equilibrium exists and there may only be a separating equilibrium.

In this separating equilibrium, high risks get full coverage but low risks only partial coverage with premia equal to loss probabilities respectively.

What would you think about another separating contract bundle, in which high risks are cross-subsidised by low risks, as shown in the graph with red insurance lines and green indifference curves (G, H)?

When the new bundle is offered, high risks would prefer it to E and low risks to F (see the indifference curves). And high risks are indifferent between G and H, as in the usual separating equilibrium. Of course, this new bundle wouldn’t make an equilibrium as the yellow shaded area attracts low risks only and it might be the case similar to pooling.

However, wouldn’t the possibility of such bundles lead the usual separating contract to an instability? The new bundle making a non-negative profit seems to violate the second condition of Rothschild-Stiglitz equilibrium.

Numerical Example

Utility function: natural log
Initial wealth=100
Loss in case of accident=90
Loss probability of low risks=0.1
Loss probability of high risks=0.9

1) Incentive Compatibility Constraint for Original RS Eq.

log(100-0.9*90)=0.9*log(100-0.1*x-90+x)+0.1*log(100-0.1*x)

where x is the partial coverage amount that low risks receive in original RS eq.
Matlab calculates;

x=6.455383900159773
Utility(Low risks)= 4.424718438632044

2) Low risks subsidising high risks

Add 0.08 to the premium of low risks and subtract the same amount from high risks. (P.S: This is just an example, I also have the number maximising the utility)

new coverage=15.424194558495868
new utility(low risks)=4.452073664660258
utility of high risks=3.265759410767051 (same for full coverage at higher premium and partial coverage at lower premium)

P.S: There is no need for computing the utility of high risks because they obviously reach to a higher utility level by still receiving a full coverage with a cheaper premium.

Finally, we see that new bundle beats the original RS bundle, doesn't it?

Below are the Matlab codes I made use of:

y=0.08 %subsidy amount
ICC = @(x) log(100-(0.9-y)*90) - 0.9*log(100-90-(0.1+y)*x+x) - 0.1*log(100-(0.1+y)*x); %Incentive Compatibility Constraint
z = fzero(ICC,50); %coverage amount of low risks WRT ICC
z
u=0.1*log(100-90-z*y+z)+0.9*log(100-z*y) %utility of low risks

Edit: I also might have a general algebraic proof, but I need to verify it and will share it here afterwards.


texts: The Fed may increase the rates. But will that make the government debt unsustainable?

texts: The US Fed is increasing its interest rate targets. These rates will eventually affect most other interest rates in the US economy. In particular, interest rates on US government bonds will also increase, which should increase the US government debt servicing costs. Moreover, the government has over 10 trillion dollars in debt, so, the effect on its costs could even force it to increase tax rates. So, is the interest rate increase by the Fed eventually going to lead to an increase in federal tax rates? Thanks!


texts:
I currently deal with interest rate theories, reading amongst others Paul Samuelson (1958) and Peter Diamond (1965).

In Samuelson the possibility of a naturally occuring negative interest rate is introduced due to consumption smoothing and without some central bank mechanism. Often times I heard (or read) that the interest rate is impossible to decrease below zero as soon as some commodity is introduced that preserves its value over time, like land or some kind of neutral money. What I don't understand is, why? What is the idea behind that and what kind of concept is this neutral money as opposed to "traditional" money?


texts: Acemoglu - Introduction to Economic Growth - Existence of a one-to-one relation between human and physical capital

texts:
In the book the author claims that equation $(1)$
$$
f_x(x(t),y(t)) - f_y(x(t),y(t)) = a - b \hspace{10mm} (1)
$$
where $f_x(\cdot)$ is the partial derivative of $f(\cdot)$ with respect to $x$ and $a,b$ are constants, along with condition $(2)$
$$
f_{xy}(x(t),y(t)) > 0 \hspace{10mm} (2)
$$
implies that there is a one-to-one relationship between $x$ and $y$ of the form
$$
y = \xi(x)
$$
where $\xi(\cdot)$ is uniquely defined, strictly increasing and differentiable.
How would I go about seeing that? I understand that if I replace this generalized version for one using a Cobb-Douglas production function, for instance, I could see it more clearly, but I wanted to understand how it works in general.
Thanks!


texts: Why is Crowding out more effective at full employment?

texts:
Now my professor explained to me that at full employment the increase in G (gov expenditure) shifts the IS curve to the right, but at the same time the price level increase from the rightward shift in AD curve leads to the leftward shift of the LM curve, leading to interest rate increase only and no change in Y. This is how he explained crowding out, but I don’t understand the implications here.

What are the firms actions that are implied in the movement of the LM curve to the left? What does its leftward shift exactly signify? How does it explain the firms crowding out from investment?
And doesn’t the LM curve shift leftward at under full employment as well since P(price level) will always increase with an increase in G (AD curve shift to the right)? Why does LM not shift at under full employment when the IS curve moves to the right, but suddenly move leftward when there is full employment?

I would really appreciate if someone can give me a clear explanation on what the professor meant with this logic.


texts: MRS of Perfect Complements and MRS Equilibrium Condition

texts:
To preface this, I appreciate any help you offer.

In reference to 1.(d) I'm trying to understand the MRS of perfect complements. Given: utility function U(x,y), commodity pair (2,8): y/x is 4 ...> a/b which is 3, so we say the MRS at this point is undefined (Δy/Δx = Δy/0)? Given commodity pair (5,1): y/x is 1/5...< a/b which is 3, so we say the MRS at this point is 0(0/Δx)? I'm not exactly sure why this is or how to best phrase those statements if they're correct, I've looked everywhere and have not really caught any explanation.

In reference to 2.(f) Is "the expression" requested maybe MRS = (dUx/dx)/(dU/dy) = Px/Py? I'm confused by this phrase "positive values of consumption"... is this positive x and y values? How do I find this minimal combination? I'm only familiar with the approach to finding a maximal utility producing combination.

Thanks so much if you've read this far.


texts:
Suppose that we have the following inequality:
$u( y- d) - u(y-d') \ge u(y' - d) - u( y' -d')$.
The concavity of $u$ together with $y\le y'$ then implies that $d \le d'$.

I sometimes come across this problem in economic papers, but I don't understand the logic behind this. Can anyone explain this?


texts: who is responsible as international court to solve economic conflicts between countries and is it obligatory?

texts:
you know turkey was one of the 7members of F-35 joint strike fighter program..its engine is being manufactured in turkey.turkish government made all legal obligations to program and paid 35 billion dollars to budget pool so far but american congress decided to end delivery of 200fighters to turkey illegally by trump's decision last week..
so i heard a news on cnn turk this evening that turkey minister of defence is going to moscow to negotiate agreed terms to buy 300 SU-57 stealth fighter from sukoi instead next month..i think this will be important step of turkey's way to waited exit from NATO after S400 agreement of last year..it is called 'bricst-it" in turkey at the moment..it is possible to join to BRICS instead of NATO&EU for turkey..but in continue of news,there will be a government decision of turkey to prosecute united states government worth 1,8 trillion dollars sum plus with all turkey's army lost from F-35 program and legal compensations and interest rate of 20 years..ok here is my question..which international court may look at this case and is decision obligatory?


texts:
So i have this question:

Assume the following data for U&P Company: Debt (D) = $100 million; Equity (E) =$300 million; rD = 6%; rE = 12%; and TC = 30%. Calculate the after-tax weighted average cost of capital (WACC):

I know that the formula is indeed

After tax WACC=(1-TC)rD(D/V) + rE(E/V).

If i correctly replace all the numbers i get that the after tax wacc is 6%. For example, in order to get D/V i do 100/130 since V=E+D=130.

However on the answer sheet it states that :

After tax WACC=  (1/4)(1 - 0.3)(6) + (3/4)(12) = 10.05%.

I do not understand this answer; where is the (1/4) and the (3/4) coming from ? Shouldn't D/V=100/130 and E/V=30/130?

Thanks for the help!


texts:
I'm interested in data that reveals public opinion towards global warming in the US.

It'd be best to have a time dimension to it, but I'm interested in data from around the year 2000. Since it is quite a hot topic, I expect there to be much around this, but I couldn't find anything with scientific standards - say, anything beyond political institution X / news channel Y  asked 1000 and we are not even sure what the phrasing of the question was.

I am especially interested in data that includes an indicator for income/wealth.


texts: Are there internationally published sources of trade sanctions?

texts:
How to implement embargoes with respect to a trading company?

Let's assume i am a small trading agent which assists and guides small exporters and importers while keeping embargoes and light sanctions under considerations. My source of info regarding sanctions are workers of other big players. I usually get help from them in order to declare a trade clear.

I know that United Nations publishes Sanctions Lists of banned Individuals and Companies, I also know that Banks and Exchange companies have software solutions to screen a name against these lists.

These lists are not enough for Trading as an embargo usually includes source, destination and product being traded.

Are there any Internationally published sources of embargoes which can be consulted? Is there an automated software solution (free or cheap) to screening a trade?


texts:
Noticeable works about the impact of inflation on economic growth are dated back to the 90s.

For example, Barro (1995):

  the impact effects from an increase in average inflation by 10 percentage points per year are a reduction of the growth rate of real per capita GDP by 0.2-0.3 percentage points per year and a decrease in the ratio of investment to GDP by 0.4-0.6 percentage points.

He also shows outliers there:

Bruno and Easterly, “Inflation Crises and Long-Run Growth” (1998), reiterate that extreme situations matter for growth:

  growth falls sharply during discrete high inflation crises, then recovers rapidly and strongly after inflation falls.

Since after these papers, no highly cited paper on topic appeared. Though there's Acemoglu et al., “Institutional Causes, Macroeconomic Symptoms” (2003), which is relevant in another sense.

In a recent survey (2012), the Bank of England mentions without a reference that

  The consensus seems to be that
  above a threshold of around 3%–4%, inflation imposes welfare
  costs, while the plausible gains from reducing inflation below
  about 2% are unlikely to outweigh the advantages of a positive
  inflation target.
  There is even less guidance in the literature on the optimal
  level of inflation in developing and emerging countries,
  though Balassa-Samuelson effects imply that optimal
  inflation in these countries should be a little higher than in
  industrialised countries.

Apart from cross-country evidences, rare country studies are available. The IMF on India (2014):

  Our findings suggest that, on average, there is a negative long-run relationship between
  inflation and economic growth in India. We also find statistically-significant inflation-growth threshold effects in the case of states with persistently-elevated inflation rates of above 5.5 percent.

Does the current academic consensus remain with Barro's 1995 paper? Are there any new estimates of the impact of inflation, threshold levels of inflation, and changes in inflation on long-term economic growth?


texts: Why does Walmart (SYMBOL:WMT) have its Q1 2015 end April 30 instead of March 30

texts: The Walmart 10-Q form covers the period for the three months ending April 30th while other companies post their first quarter reports for the three months ending March 30th. Why does Walmart end one month earlier than other companies? How are companies regulated in this regard?


texts:
I am confused about the Short Run Total Cost function of this problem.

If the firm's production function is $F(K,L) = K+\ln(L)$ derive the short run total cost function.

I was able to solve the Short run total cost function, but my TA had 2 cases for her function whereas I only had 1 part of her function.

I got $TC= W*e^{q-K} + r\bar{K}$ for all $q$ but my TA had 2 cases for $q$. Specifically, when $q<\bar{K}$ and $q>\bar{K}$

Thank you.


texts: Does the Lucas (1978) asset pricing model feature complete markets?

texts:
The Lucas (1978) asset pricing model seems to be one of the workhorse models in finance / asset pricing models. It also seems to be the case that the environment, with claims to $n$ (exogenous) productive units traded, features complete markets. I have also seen another version of this model with the agent trading a single stock and a single bond that the instructor told me had complete markets.

To me, this is not obvious at all -- the agent does not have access to Arrow securities for each state, or something of that sort. In fact, in the original paper, the states are continuous, and this makes it even harder for me think about market completeness.

Can anyone tell me why (or perhaps why not) this model features market completeness?

Any help would be greatly appreciated (or pointers to relevant links would work). Thanks!

Edit #1: ----------------------------------------

Just to clarify, while I understand that in equilibrium the net holdings (of all the identical agents) must be zero, my concern was that having access to AD securities vs. not having access may have asset pricing implications. What I mean by this is that although the outcome in terms of asset holdings must (almost by construction) be equal in any case, but perhaps the presence of AD securities may distort the prices of other assets (e.g. equity claims "trees").

Intuitively, perhaps the price of trees must be different in the presence of AD securities to offset the agent's desire to hold the AD securities in equilibrium. My next logical step in determining whether or not this is the case, was to think about whether the markets were complete or not in the first place -- if markets were already complete, then the additional AD securities are "redundant" is some sense, and prices should not change. If markets are incomplete, my initial intuition was that this may possibly have consequences (not in asset positions, but in prices).

To me, this is not obvious at all, and something I would really like to see a proof of.


texts: Calculating implied constants from econometric data

texts:
In A Contribution To The Empirics of Economic Growth found here.  The authors perform an econometric regression on the Solow-Swan model, they also do a restricted regression to find if the null hypothesis that the coefficient on the log of savings $\hat{\gamma}_1$ is equal and opposite to the coefficient of the log of depreciation $\hat{\gamma}_2$, that is:

$$ \hat{\gamma}_1 = - \hat{\gamma}_2 $$

Where in the Solow model this is:

$$ \hat{\gamma}_1 = \frac{\alpha}{1-\alpha} $$

I see how they calculated the implied $\alpha$, $1.43 = \alpha/(1-\alpha) \Rightarrow \alpha = 0.59 $

But why did they use $ln(s) - ln(n+g+\delta)$?  Trying to solve this myself ...

$$  1.43 = ln(s) - ln(n+g+\delta) \simeq \hat{\gamma}_1 - \hat{\gamma}_2 = 0 $$

$$ = \frac{\alpha}{1-\alpha} + \frac{\alpha}{1-\alpha} = 2 \frac{\alpha}{1-\alpha} $$

Which is too large by factor of 2.  Also, and I don't know if I should post this as a separate question is that I have no idea how they calculated the implied $\alpha$ and $\beta$ in the next model which includes schooling as a proxy for measuring human capital.


texts: Production in the long run - calculating wage and rental elasticity of demand

texts:
I have data for a business firm for two periods. The data include: output (Q), capital (K), labor (L), wage (W) and the rental rate of capital (R). Here they are:

    Period    K    L    W    R    Q
    1        30    50   200  100  500
    2        40    55   180  90   510

I need to find wage elasticity of demand, and, assuming "the same mathematical relationship exists for capital" (it is formulated in the task this way), rental elasticity of demand.

I have no idea how to handle this and need some direction, please. I know that wage elasticity of demand should be %change in labor / %change in wage, and rental elasticity of demand should be %change in labor / %change in rental rate of capital.
However, it seems in this case it is not possible to apply these formulas right away.

I believe that it might be reasonable to compare labor L, wage W and rental rate of capital R using the same volume of output (Q). However, the production function is not given, so I have no idea how to arrive to comparable outputs.

I found that for equilibrium cases in the long run MP(L)/MP(K) = W/R. Moreover, W/R is the same in both periods, so it might be used for finding the answer. But I have no clues what to do further. Would be extremely grateful for any advice and direction.


texts: Medium run conclusions from Okun's Law and Expectations-Augmented Philips Curve

texts:
In Blanchard's Macroeconomics, page 211, 5th edition, the author using the following three mathematical equalities

Okun's law : $u_t-u_{t-1}=-\beta(g_{yt}-\bar{g_y})$, where
$\bar{g_y}$ is defined as the output growth rate when the
unemployment rate is constant, $g_{yt}$ output growth rate from year
t-1 to t.
expectations-augmented Philips curve,
and assuming a functional form  for the aggregate demand relation
that allows to deduce  $g_{yt}=g_{mt}-\pi_t$, where $g_{mt}$ is nominal
money growth rate

makes a reasoning on what happens in the medium-run when the central bank maintains a constant growth rate of nominal money, concluding that although changes in the growth rate of nominal money doesn't change unemployment rate, it does change the inflation rate one-for-one. One of the first assumptions of the reasoning is that in the medium run the unemployment rate is constant. But why can we assume this?

In previous chapters, we had assumed that output would change one-for-one with employment, and that the labour force was constant. Then, when the expected price level were equal to the actual price level, the economy would be in natural output level, and that would imply from previous two assumptions that unemployment rate would also be the natural one. However, in this chapter, when the author was deriving the Okun's law, we explicitly assumed that labour force was no longer constant, and that employment would respond less than one-for-one to output, and that changes in employment are not negatively reflected one-for-one in the unemployment.
Also, in same page 211, it's the author's conclusion that the unemployment rate in the medium-run is the natural unemployment rate. So, we cannot assume what we're trying to conclude...

Therefore, why can we assume that the unemployment rate must be constant in the medium run?

Any help would be appreciated.


texts: Double counting because of gross mixed income

texts:
I was learning the income method of calculating GDP when I stumbled upon this doubt.

As per the definition given in the book

GDP = GDI (Gross Domestic Income) = Compensation of employees + Gross Operating Surplus + Gross Mixed Income + Taxes less subsidies on production + Taxes less subsidies on products and imports.

My doubt here is as follows:

Gross mixed income encompasses incomes of incorporated businesses (for instance sole proprietorship). However, if we consider one scenario that Mr. X is an employee of XYZ corporation. He gets his compensation as $ \$100.$ He pays $\$50$ for his fever treatment to Dr. Y. Now, as per the above definition, Dr. Y's $ \$50 $ will be added with Mr. X's $ \$100$ leading to double counting of the country's income.

How do we deal with such situations? Any help will be appreciated.


texts: What are the specific assumptions of MRS?

texts: I know MRS is independent of prices and compares the ratio of goods which the consumer will exchange one good for the other good. But is the marginal rate of substitution affected by the consumption of those goods or not? It seems trivial but can't get my head around it.


texts: Interpretation of the World Bank's definition of Portfolio equity inflows

texts:
The following is the definition from World Bank:

Does it imply that apart from FDI, portfolio equity includes net inflows from equity securities including shares, stocks, depository receipts and direct purchases in local stock markets by foreign investors?


texts: Marginal Cost of Labour Under Monopsony - is the real world like this?

texts:
How common is a Perfectly Discriminating Monopsonist in respect to labour rates?
Or anything close to it?
Standard explanations show a normal supply curve for labour, and the marginal cost of that that setting the quantity of labour demanded. But surely the reality is that you don't generally have to increase wages to all employees? You can often invent a different part of the pay structure, or change the job in some very minor way. Eg you divide Burger Flippers into Junior and Senior Flippers, and pay them different rates.
From which my question: are there studies that look at this? Is my scenario one for which there is any evidence (either way, obviously).


texts:
In Wooldridge's book (Page 452), it says

  When linear absolute deviation (LAD) methods are applied alongside OLS, thre are often reasons to think a priori that OLS and LAD will not produce similar slope estimates. (in fact, it is unlikely that the conditional mean and conditional median are both linear in $x_i$).

I understand that LAD estimates and OLS estimates are generally different, but the words in parentheses confuse me. Why they cannot be both linear? Could anyone give me an example?


texts: Relevance of change in Inventory in calculation of Free Cash Flow

texts:
Free cash flow (FCF) can be obtained by
$$
\text{FCF}=(\text{Revenues}-\text{Cost}-\text{Depreciation})(1-\tau)+\text{Depreciation}-\text{Capital Expenditures}-\Delta(\text{Net Working Capital})
$$
where $\tau$ is the corporate tax rate and
$$
\Delta(\text{Net Working Capital})=\Delta(\text{Cash}+\text{Inventory}+\text{Receivables}-\text{Payables})
$$
is the increase in net working capital over the period of interest. Besides inventory, all of these items appear to be monetary, except for depreciation which only affects the FCF through taxation, and so that contribution is also monetary.

But what about inventory? A change in inventory does not generate any monetary gains or losses, or does it? If it does not, how come a change in inventory is included in the calculation of the FCF?


texts: Is net neutrality not important in a competitive market of internet providers?

texts:
In my understanding, allowing ISP to throttle sites that use a lot of traffic is just price discrimination. The ISP will charge sites like Netflix, which will then pass the cost to Netflix consumers. So basically people who use a lot of data will get charged more--seems perfectly fine to me.

I understand the argument that in practice, the ISP won't build new infrastructure but simply put up roadblock to slow down the current speed. However, this seems like a problem only in the oligopolistic market of US internet providers. In a competitive market, putting up roadblock will cause an exodus to competitors.

So, am I correct in thinking that preserving Net Neutrality is not important in a competitive telecom market? Instead of fighting to preserve Net Neutrality, may be the correct fight is to encourage more ISP to enter the market.


texts: Looking for an universal utility function

texts:
I'm trying to build a computer simulation of an economy which separate simulation for each household and I'm trying to figure out what utility function should I use to model the households behavior. I want to model goods as falling into categories (e.g. food category consisting of vegetables and fruits)
My criterias for ideal utility function (in order of importance):

Cause total consumption of goods in certain "basic" groups to be non-zero (here Cobb-Douglas is enough: $U=ln(food)+ln(cloths)$)
Encourage diversity within group (e.g. $U=ln(\sqrt{fruits}+\sqrt{vegetables})+ln(clothes)$)
Allows consumption in certain groups to be zero (e.g. $U=ln(\sqrt{fruits}+\sqrt{vegetables})+ln(clothes)+\sqrt{tourism}$)
Has a (readable and convenient) closed form optimization solution for budget constraint $\sum{price_i*good_i=budget}$
Allows certain goods or categories of goods to be complementary (honestly have no idea how to incorporate this)

I understand that no objective answer is possible here, but I'd like to learn if there are some utilities functions that satisfy some of criterias above and/or learn what multi-goods universal utility functions are used in practice (I was taught only two-good task specific utility functions in university).


texts: Modern descendants of Frank Ramsey's paper "A Mathematical Theory of Saving"?

texts: I haven't studied economics, but I'm interested in applied ethics, and I came across Frank Ramsey's paper "A Mathematical Theory of Saving". I thought his application of calculus to a normative economic question was very interesting ("How much of its income should a nation save?"), and I was wondering whether this approach is still pursued in the field, and whether anyone could recommend some modern papers which attempt/accomplish something similar.


texts: OLS bias in demand estimation: the bias always underestimate the demand's elasticity?

texts:
Some papers argue that OLS can produce less bias than IV estimation depending on the quality of your instruments. Suppose we consider a demand estimation equation.

Suppose the demand elasticity is negative in OLS. By my intuition weak instruments should produce biased estimates towards OLS, but no less negative. Can you guys produce an example? I cannot really grasp how it could lead to a more biased estimation with IV estimation.


texts: Quantitative easing and interest rate parity

texts: Suppose a country initiates quantitative easing by printing money and buying government debt. This will put a downward pressure on interest rates. Will this action tend to depreciate the country's currency against USD because money supply has increased decreasing the value of money? Suppose, further, that the final interest rate after quantitative easing is less than the USD interest rate. From interest rate parity, I believe it would follow that the currency would appreciate against the dollar. If yes, there are two opposing influences on the currency. Which one will prevail?


texts:
Prove that the profits of the firm weakly decreases with input prices. More formally, suppose that
the firm has a production function f, so that its profit function is
π(p, w) = max(x≥0) $pf(x) − w · x$,
where p denotes the output price and w denotes the input price vector. Then show that if $w$ and $w'$ are two input price vectors such that $w'_j$ = $w_j$ for all $j \neq i$ and $w'_i$ > $w_i$
, then $π(p, w') ≤ π(p, w)$
I know that as input prices decrease, the toal costs for the firm decrease as well. Due to the decrease in TC, the firm then produces more output at the same cost. However, due to the increase in supply, the price of the output falls to a new equilibrium, causing profits to fall as well unless the increase in q is proportionate to the decrease in price that would prevent profits from dropping.
However, I am unsure on how to start the proof using $\pi (p, w)$. Since it is $w$ that is changing, would I hold price of output fixed at $p$?
Then I would assume that $x'$ is profit maximizing at:
$$pf(x) − w'· x ≤ pf(x') − w'· x'$$
and $x$ is profit maximizing at:
$$pf(x) − w · x \geq pf(x') − w· x'$$
Then I would multiply the second equation by -1, getting
$$-pf(x) + w · x \leq -pf(x') + w· x'$$
I would then add that to the first equation getting:
$$ (− w'· x) + (w \cdot x) ≤ (− w'· x') + (w \cdot x')$$
which simplifies to:
$$ (w - w') (x - x') \leq 0 $$
Since all components of $w'− w$ are 0 except the ith
$$ (w_i - w_i') (x_i - x_i') \leq 0 $$
We are left with:
$$(x_i - x_i') \leq 0 $$
$$ x_i \leq x_i' $$
Leaving us with the fact that factor input demands at $x' \geq x$ therefore we assume that the demand for output is greater, causing prices to fall.
However, I have no idea how to prove that $π(p, w') ≤ π(p, w)$ if $w'_j$ = $w_j$ for all $j \neq i$ and $w'_i$ > $w_i$.
I understand that the idea is based on the fact that $w'_j$ = $w_j$ and $w'_i$ > $w_i$, $w' > w $, that means that the $w' \cdot x$ in the profit function is greater than $w \cdot x$. Since the cost is greater in $\pi (p, w')$, that means that $π(p, w') ≤ π(p, w)$. However, I am confused as to how I can approach this proposition using the given profit function.


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texts: When I do the basic calculations for mixed probability, I get that the Column player always plays B. However, I am getting a negative probability for the row. Any help is appreciated.


texts: Price level and purchasing power of currency(PPP)

texts:
This could be a silly question, but I'm a bit confused with this concept.
Don't we say usually the purchasing power(or value) of currency(or money) is low when the price level is high in one country(i.e. negative relationship)?
However, in international economics, it looks like a country's price level has postive relation to purchasing power of it's own currency.
For example, the prices of United States are higher than that of Korea and at the same time, the purchasing power of dollar is higher than Korean won.
How can I understand this kind of contradiction?