texts: In the case of externalities, does the initial allocation of rights affect the final outcome from the perspective of each party?

texts:
I think I understand the main implication of the Coase Theorem—that the outcome will be Pareto efficient regardless of the initial allocation of property rights, provided transaction costs are zero, but I am not sure whether the outcome is the same from the perspective of each party.
As far as I can see the initial allocation of property rights has a major impact on the costs to each party because it determines which party ends up bearing the costs—either of eliminating the cause of the externality or by compensating the victim for it.
I made a decision-tree to illustrate the point based on the historic case of Bryant v. Lefever that Coase described in The Problem of Social Cost (page 11):

Can someone confirm this?  In this sense, the deliberations of the judges in deciding rights are not inconsequential, even if they do not affect the optimum solution from a societal perspective.


texts:
So I understand the derivation of the Kolmogorov Forward and Backward Equations, but I don't quite understand the intuition.  Here is from Stokey, 2008:

"The backward equation involves time $t$ and the initial condition $x$, with
the current state $y$ held fixed. A similar PDE, the Kolmogorov forward
equation (KFE), involves $t$ and $y$, with the initial state $x$ fixed. The forward
equation is useful for characterizing the limiting distribution, if one exists."

In what situations do the two arrise?  For instance, if I know the current state and am interested in a probability distribution over possible initial states, I use the backward equation.  If I know the current state and am interested in the probability distribution over the state in the future, I use the forward equation.  Is this correct?

On a more technical note, how does one define boundary conditions for these PDE's?  Are the boundary conditions a result of the derivation?  Perhaps Stokey is not the best reference on this topic...


texts:
Consider the following principal-agent problem. You are a manager in charge of two workers, indexed with $i=1,2$. Each worker is asked to perform a particular task, and each can either work hard at the task or loaf (i.e., each worker can choose his action $a_i\in\{a_h,a_l\}$).
The value to you of each task will be either $\\\$10$ or $\\\$0$. The value is determined in part by how hard the worker works, but there are also random factors not within the control of the worker:
$\bullet$ If the worker works hard (i.e., $a_i=a_h$), the probability that the value to you of his task is $\\\$10$ is $0.7$. If the worker loafs (i.e., $a_i=a_l$), this probability is $0.3$;
$\bullet$ Moreover, there is a correlation between the outcomes of the two tasks. If both workers work hard, then there is $0.6$ joint probability that each will produce a $\\\$10$ outcome;
$\bullet$ If both loaf, then there is $0.2$ joint probability that each will produce a $\\\$10$ outcome;
$\bullet$ If one loafs and the other works hard, then there is a $0.25$ joint probability that each will produce a $\\\$10$ outcome.
Each worker has a utility function $U(w,a)=\sqrt{w}-a$, where $w$ is the amount of money received, and $a=0$ for loafing and $a=0.8$ for working hard. The two workers have the same utility function, and each has a reservation utility level of $1$ (i.e., the worker's expected utility must be at least $1$ to get the worker to take the job). You are risk-neutral. The problem is as follows:

Suppose that you wish to offer contracts that will induce both to work hard: Each worker must be induced to take the contract; each worker, assuming that his fellow worker is going to work hard, must be induced to work hard. What is the optimal contract to offer?

I'm familiar with the standard principal-agent problem, but I cannot understand the situation of this problem and cannot set up the conditions for individual rationality (IR) and incentive compatibility (IC).
(For reference, this is actually Problem 16.3 in Kreps' textbook "A Course in Microeconomic Theory." Any suggestion or hint would be much appreciated!)


texts: Interpretation of Demand and Cost Curves

texts:
I am currently starting on the topic of monopolies in school and I encountered the following scenario:
A monopolist faces a demand curve given by $Q = \frac {100} p$ and a cost function given by $C = 4Q$. I need to find the price elasticity of demand (PED) as well as the optimal level of output for the monopolist.
I was taught that $MR = P(1 + \frac 1 \epsilon) = MC$, where $\epsilon$ = PED.
I know that any producer produces at the point where $MR = MC$, but before I could even proceed with solving for the PED, I am wondering how, in this case, can $MR = MC$?
If I am not wrong, by my calculations, $MR = 0$ and $MC = 4$. How do I interpret this?
Then, since $MR \neq MC$, how can I proceed with this question?
And any intuitive explanations on how I can calculate the PED and optimal level of output will be greatly appreciated :)


texts: Does economic growth always implies investments in infrastructure?

texts:
For my course I'm analysing the problem of empty retail stores. I need to analyse how my alternatives to solve the problem would change the important factors about the problem in uncertain scenarios.
We chose to analyse how our solutions(investment in training, knowledge platforms and strategic growth) would affect the factors(investment in IT, average revenue and the amount of empty m2) in the doom scenarios with positive and negative economic growth and positive and negative investment in infrastructure.
One of my teachers that saw the presentation about the analysis said that he couldn't see economic growth happening without investment in infrastructure. Don't mind him if he's wrong because he actually teaches us how to give presentations.
But the following question arose: Does economic growth always implies that there will be significant investments in infrastructure, or can I see both factors as enough decoupled to analyse them separately?


texts: Significance of Y-axis in Aggregate Supply curve (AD-AS model)

texts:
This question is considering an AD-AS model, with Price on the Y-axis and Real GDP on the X axis. The AS is composed of the Keynesian (horizontal), intermediate (upward sloping) and classical (vertical range.

I read that one explanation for the upward slope of the intermediate range is that as price level increases, output prices may increase beyond input price (due to rigidity). Hence, real value of inputs/costs falls, and it becomes more profitable to produce the good, and hence output increases.

Regarding this uneven increase in the nominal value of outputs and inputs, are they both reflected in the y-axis? Meaning, does the y-axis's aggregation of price contain both intermediate as well as final goods, or is it merely an estimation of final goods. I would think that in the former case, the rise in GPL on the graph (inducing increase in real GDP) contains both increases in output and input. In the latter case, the rise in GPL contains only output price increases, but the increase in input prices which lags behind is reflected off the graph.

I would think that in both cases, whether the increase in input prices is reflected on the y axis or not, the shape of the intermediate range still holds. Hence, is may not be significant. Is it simply a choice of what metric (CPI, etc.) I use to estimate price on my y axis?


texts: Real world evidence that voluntary exchange is mutually beneficial?

texts:
The other day I was having a debate with a supporter of high taxes.  I decided to argue against this by explaining the concept of the deadweight loss of taxation.  In order to do so, I started with the following example, to explain the deadweight gain of trade:

Bob and Sam live next door. Bob can mow his lawn in 4 hours, and clean his gutters in 2 hours.  Sam is the other way around:  He can mow his lawn in 2 hours and clean his gutters in 4.  If Bob cleans Sams gutters in exchange for Sam mowing his lawn, they both save 2 hours.

My friend replied: "I understand the mathematics, and don't dispute that in your example both people would be better off.  But is there any evidence that this works in the real world?  Perhaps there is some unforeseen factor that causes voluntary exchange to not be mutually beneficial."

This question left me momentarily stumped, because I had always found the concept self evident and did not have any obvious examples at hand.

Improvising, I tried using the example of China and the USA both benefiting from trading with each other (my thinking was that this was a more contemporary form of Ricardo's original wheat example).  However this caused my friend to object on grounds of geopolitical issues.  So I am hoping to find a better example, that does not raise other issues.

Therefore I wanted to ask:  Can anyone suggest some unambiguous, real world (ie non-hypothetical) evidence of the mutual benefits of voluntary exchange?  If this could relate to exchange between individuals rather than countries I believe this would make the case more clearly.


texts: How can I find state-level data on the unemployment rate of youth for 2014 and 2015?

texts:
I have found state-level, monthly unemployment data for 2014/2015, and I have found national monthly youth unemployment data for 2014/2015. However, I need all four together; State-level, monthly youth unemployment data for 2014 and 2015. In addition to scouring their website, I have called the Bureau of Labor Statistics and they were not helpful, unfortunately.
Alternatively, state-level monthly unemployment data on low-wage earners for 2014/2015 would work as well.
Basically, I want to find the effects of the state-level minimum wage changes occurring on January 2015, and these affect primarily youth and other low-wage earners.
Actually, if I could find this data at the yearly level for 2014 and 2015 instead of the monthly level, that wouldn't be too bad. It wouldn't be quite as useful as monthly, but I could still run the regression and get some results. The other elements are pretty crucial though.
Thanks!!


texts: Questions regarding foreign exchange online trading

texts:
I am currently studying economics in college and taking course Macroeconomics and International Finance which covers foreign exchange market topic. The class is very crowded since there are more than 500 students taking this course and I find myself as the youngest in the class so psychologically it's not easy for me to ask a question when I don't understand certain topics. Here are my complete questions regarding this topic:

How does 'taking sell position' in foreign exchange trading work? How come a trader takes sell position despite not owning currency pairs?
How come when a trader takes sell position his transaction is immediately executed without waiting? Does it mean when he takes that position there is another trader who takes buy position at the same price?
Is  it possible there is imbalance transaction between buy and sell  position? I mean there are more traders who taking sell position (in  term of volume transaction/ lots) than those who taking buy position or  vice versa?
Is one person’s profit meaning another person’s loss?

Those questions are not my homework but they arise due to lack of my understanding in this topic and my fear of asking those questions in my class. I apologize in advance for asking too many questions. Any help would be greatly appreciated. Thanks.


texts: How to treat different frequencies of a time series data?

texts: I have annual GDP, annual CPI, monthly exchange rate, and monthly export data. I would like to go for estimation being monthly stock return as the dependent variable. What are the methods to treat the annual figures in to monthly and/or the monthly in to annual? Please, I need your recommendations or books to read?


texts:
What's the fastest way (or formulae) of manually calculating Gini Coefficient of equal-sized bin income data?

Example:
No of individuals in group: 4 4 4 4 4
Income of each group:       1 2 3 4 5
respectively.


texts: How to tell the difference between consumer and capital goods

texts:
As a first year macroeconomics student I'm unable to understand if in rudimentary macroeconomic analysis that categorizes goods either as consumer or capital goods, with the latter being defined as "high-value , durable-use producer goods that undergo depreciation with employment in production process", the assets that a company posseses for use by its employees (like staff fridge) should be considered as a capital good or consumer good.

As in, should the comfort that these facilities extend to labour force be seen as an indirect contribution to the production process or not.

Any help would be greatly appreciated!

(Apologies if it's a basic question but I just couldn't find an answer elsewhere and exams are approaching.)


texts: Data: Trade imbalance at the County level in the US

texts:
I am looking for some source of data on trade imbalance at a county level in the US, preferably for years 1990-2007. Does anyone know if such data can be publicly available? Or any paper that have been using data like this?

UPD: to break this down, I am looking for:

international import/export statistics by US county,
intra-state trade statistics, meaning shipments between counties within the US.

Thanks in advance!


texts: Augmented Filtrations and Martingales in the Martingale Representation Theorem

texts:
Note: This question is related to the following question about complete markets in continuous time. In the linked question, the answer mentions that complete markets in this setting is a result of the Martingale Representation theorem.

I'm trying to understand the statement of the theorem as given in its Wikipedia article:

  Let $B_t$ be a Brownian motion on a standard filtered probability space $(\Omega, \mathcal F, \mathcal F_t, P)$, and let $\mathcal G_t$ be the augmentation of the filtration generated by $B$.
  If $X$ is a square integrable random variable measurable with respect to $\mathcal G_\infty$ then there exists a predictable process $C$ which is adapted with respect to $\mathcal G_t$, such that
  $$
X = E[X] + \int_0^\infty C_s dB_s.
$$
  Consequently,
  $$
E[X \mid G_t] = E[X] + \int_0^t C_s dB_s.
$$

In this definition, where is the relationship to Martingales? I see that it is assumed that $X$ is square integrable with respect to $\mathcal G_\infty$ and I assume that it has something to do with the fact that $\mathcal G_t$ is an "augmentation of the filtration generated by $b$." Also, what is an "augmentation of a filtration?"


texts: How would the risk premium and a simplified taylor rule change the MP curve?

texts:
Ok so we're given a monetary policy rule where

$$R^{CB}_t-\bar r = \bar n \tilde Y \space  where \space \bar n>0  $$

and
$$R_t = R^{CB}_t+\bar p $$

Where $\bar p $ is risk premium $\bar n$ is a parameter and $R^{CB}_t$ is short run interest rate.

The IS curve is of course $ \tilde Y = \bar a - b (R_t - \bar r)$

is $\bar p = 0$ is assume the IS-MP looks the same graphically except the MP curve is now determined by $R_t = R^{CB}_t+\bar p $ so rather than just being the target interest rate of the central bank it's a sum of the target rate and risk premium so if $\bar p > 0$ it would distort monetary policy. As it would require higher targets to get the desire interest rate or inflation.

Also i thought by rearranging that $R_t - \bar r=\bar m (\pi_t - \bar \pi) =\bar n \tilde Y + \bar p  $

Which mean IS curve is  $\tilde Y = \bar a - b(\bar n \tilde Y + \bar p )$
With mp curve

I'm a bit confused

I know that the whole point of taylor rule is to counteract shock in the economy with with fiscal stimulus hence $\bar n \tilde Y $ the risk premium is solely a distortion of the MP curve so maybe i should have $\bar p $ in the is curve?

Oh yeah i haven't consider the fishing equation which i presume calculates the MP curve
$$i_t = R_t + \pi_t = r+\pi_t +m(\pi_t - \bar \pi) $$

Then if $R_t = R^{CB}_t+\bar p  $
$$i_t =R^{CB}_t+\bar p + \pi_t = r+\pi_t +m(\pi_t - \bar \pi) $$

But i want to make it look like this
$$i_t =R^{CB}_t+\bar p + \pi_t + \bar n \tilde Y \space \text{With an upward sloping demand curve} $$

I'M quite confused

Edit: So i got something like this but i'm not so sure i don't like that i have a $-\bar n \tilde Y$  it should be positive


texts: Why could interest rates go up if Brexit happens?

texts:
I was reading this article, George Osborne says Brexit would drive up mortgage rates:

  George Osborne has issued a stark warning that mortgage rates will
  rise if Britain leaves the European Union.

  The chancellor said he thought it was likely interest rates, and
  therefore the cost of home loans, would rise if Britons vote to leave
  the EU in the referendum on 23 June. But Brexit campaigners accused
  Osborne of panicking and resorting to intimidating voters.

  Asked if he thought the cost of mortgages would increase on a British
  exit from the 28-nation bloc, Osborne said: “The short answer is yes.
  I think that is likely, but I’m not in charge of interest rates.”

I was wondering what is the transmission mechanism for explaining why interest rates would have to go up if Brexit happens? Moreover, is there any historical example and precedent for this happening?


texts: Replicate average risk-free rate in Wachter 2005, "Solving models with external habit"

texts:
I might be making a really simple mistake somewhere, but I thought I'd ask anyway. I'm trying to replicate the results in Wachter 2005, "Solving models with external habit". (You can also find the prepublication version here for free.) However, I'm getting a slightly different result for some quantities and I'm wondering if I'm interpreting the parameters correctly. In particular, when I input the parameters listed in Table 1, I get a different average risk-free rate in both the "CC value" case and the "Wachter value" case.

From Tables 2 and 3, we see that the "CC value" case should give an average risk-free rate, $E[r^f]$, of $0.94\%$ and the
"Wachter value" case should give $1.47\%$.
The value of the average risk-free rate can be derived analytically, and is given in equation (11):
$$
E[r^f_t] = - \log \delta + \gamma g - \frac{\gamma (1-\phi) - b}{2}. \tag{11a}
$$
When I substitute in the parameter values from Table 1, I get
$0.47\%$ for the CC parameterization and
$2.47\%$ for the Wachter parameterization.
I wonder if I am annualizing correctly? I'm somewhat confident that I'm inputting the parameters correctly, because the paper does show that for the Campbell Cochrane calibration (CC values), a derived parameter called $S_{\text{max}}$ should be equal to $0.0939$,
where
\begin{align}
\bar S &= \sigma_\nu \sqrt{\frac{\gamma}{1-\phi - b/\gamma}} \tag{5}\\
s_{\text{max}} &= \bar s + \frac 12 (1 - \bar S^2), \tag{6}
\end{align}
Lower case letters denote the natural log of the capitalized variable. When I substitute in the "CC values", I get $S_{\text{max}} = 0.09384$. So, this seems correct. The paper implicitely reports this parameter in a footnote:

Any thoughts as to why I'm getting different values for the average risk-free rate?
I've included Python code below to show what I'm doing.
# Campbell Cochrane parameters
ann_fact = 12 #annualization factor. Monthly
g = 1.89 / ann_fact / 100
sigma_v = 1.50 / np.sqrt(ann_fact) /100
gamma = 2.00
b = 0.00
phi = (0.87)**(1/ann_fact)
delta = (0.90)**(1/ann_fact)

# ## Wachter 2005 Parameters
# ann_fact = 4 #annualization factor. Quarterly
# parameterization_name = 'Wachter (2005)'
# ann_fact = ann_fact
# g = 2.20 / ann_fact / 100
# sigma_v = 0.86 / np.sqrt(ann_fact) / 100
# gamma = 2.00
# b = 0.011
# phi = (0.89)**(1/ann_fact)
# delta = (0.93)**(1/ann_fact)

bar_S = sigma_v * np.sqrt(gamma/(1 - phi - b/gamma))
bar_s = np.log(bar_S)
s_max = bar_s + 1/2 * (1 - bar_S**2)
Smax = np.exp(s_max)
print("Smax ", Smax) # CC1999 should be 0.0939
r_f = (-np.log(delta) + gamma * g - 1/2 * (gamma * (1-phi) - b))
print("Average risk-free rate", r_f * ann_fact * 100)
# CC1999 should be 0.94 %
# Wachter 2005 should be 1.47 %


texts: Criticism of "Modern Political Economics" by Varoufakis, Halevi, Theocarakis

texts:
The book "Modern Political Economics" is quite critical about "neoclassical economics", the basic claim being, if I understand correctly, that the models which "neoclassical economics" (armed with mathematical insights starting from John F. Nash Jr, Gerard Debreu and Kenneth Arrow) investigate, are not simplifications of some realistic models, but that they (the models) are just wrong (because of what the authors call "Inherent Error").

Is there a serious criticism of the views such as the ones exposed in this book?

added after a comment asking for citations:

maybe not a successful choice, but nevertheless (the following two citations are short descriptions of chapter 3 and chapter 8 of the book):

"Chapter 3 The odd couple: The struggle to square a theory of value with
a theory of growth

The odd couple of the title are value and growth. From the very start, political economics found it difficult to square the two; to create models or accounts of how the exchange value of things was determined in a growing economy. The chapter begins at the beginning, with the French Physiocrats, before moving to Adam Smith and David Ricardo’s attempts to tackle this conundrum. The Inherent Error makes its first fonnal appearance in these works, before it returns again and again in the following chapters. The essence of the Inherent Error is the impossibility of telling a credible story about how values and prices are formed in complex (multi-sector) economies that grow through time."

"Chapter 8 A fatal triumph: 2008’s ancestry in the stirrings of the Cold War

During the Second World War, economic policy was in the hands of the New Dealers, who ran the economy on a trial and error basis and in the light of the accumulated experience of trying, not with great success, to kick-start the ailing US economy during the traumatic 1930s. Meanwhile, a group of scientists (mostly of Central European origin) were manning the agencies, laboratories and divisions of the civilian and military authorities whose job it was to solve practical problems (e.g. logistics, planning of transportation systems, price setting) by means of advanced mathematical methods. However, after the war ended, and the Cold War began to take hold, both the New Dealers and the Scientists lost out in the struggle for the hearts and minds of academic economics. The winners of that ‘game’ were a small group of Formalists, with John F. Nash, Jr, Gerard Debreu and Kenneth Arrow at the helm. The chapter tells the story of that triumph, which gave neoclassical economics a whole new
push, by focusing on the person that the book portrays as the era’s most tragic figure: John von Neumann. His ‘fate’, the chapter argues, was an omen for the type of economics that would prove instrumental in the run up to the Crash o f2008."

and yet another citation:

"The rest, as they say, is history. Debreu and Arrow emerged from Nash’s seminar and in a few short months applied what they had heard to hammer out their own existence proof in the context of a multiple-sector model economy: one that effectively brought back from the dead Walras’ (fully neoclassical) idea of a General Equilibrium complete with determinate prices for everything, including labour input and capital goods (recall Chapter 6). This they accomplished by procuring General Equilibrium’s ultimate mathematical proof; an existence proof that showed under which conditions a set of relative prices exists such that all
markets (including that for labour) are in equilibrium.
This existence proof was to mark a new neoclassical turn in political economics; a turn that altered the discipline’s course and returned neoclassical obscurantism to the throne from which it had been removed by the combined forces of the fall of 1929, the analysis of John Maynard Keynes, the engineering brilliance of von Neumann and, last but not least, the experiences of economic policy during the New Deal and the Second World War."


texts: Question on shifts in Supply and Demand Curves

texts:
I have a super basic question on the shift in supply and demand curves ( I haven't seen this stuff since high school). More generally, this is about solving systems of simultaneous equations.

We have two curves, an IS curve and an LM curve. We know from theory
that the IS curve is downward sloping in $i-y$ space and the LM
curve is upward sloping in $i-y$ space. Let's take a basic example.
The IS curve is represented by
$$
i=-y
$$
and the $LM$ curve is represented by
$$
i=y
$$
 Equilibrium would imply values of $y$ and $i$ that solve these
equations simultaneously, or $i=y=0.$ Now suppose government activity
increased, shifting the $IS$ curve to the right. In this framework,
this would result in a horizontal translation of $2$ units of the
$IS$ curve.
$$
i=-y+2
$$
 while the $LM$ curve remains unchanged. The new equilibrium is given
by $y=1$ and $1.$ Notice that the initial increase of $2$ in the
IS curve resutlts in equilibrium increasing by only $1.$ Intuitively,
this is because as $y$ increases, so does $i$ according to $LM$
relation. And, as $i$ increases, $y$ decreases according to $IS$
relation. As both these relations have to be satisfied, some of the
initial increase is moderated. My question is: what ensures that $y$
in fact doesn't decrease? If the $LM$ curve determines interest rates
that are super sensitive to increases in $y,$ can it not be that
$i$ increases sufficiently that $y$ in equilibrium decreases? Graphically,
this is not possible- in the extreme case, the $LM$ curve is vertical,
$y$ does not change. But, what condition ensures that $y$ does not decrease?


texts: The appeal of low-dividend stocks when trading with government debt

texts:
Background: In the 1710s, the British government borrowed heavily to finance wars. To reduce the interest on this debt, the government converted this debt into stock from a private company. The private company would only be paid a fee by the government equal to half the interest the government was paying on its debt. The company uses these fees to pay dividend on the stock it issues, which it uses to buy outstanding government debt.

Question: Why would an investor sell 1000 British pounds of debt that might pay 4% interest in return for 1000 pounds of stock in the company that paid only 2% dividends?


texts:
In my introductory econometrics course, we have been discussing the GM-assumptions and homoskedasticity. Unfortunately, I have some confusions and interlinked questions, so I am wondering if somebody could help me with my understanding please?

model: $y_i = \beta_0 + \beta_1 x_i + u_i  $

What is the difference between $E[u] = 0$ and $E[u|x] = 0$? Does the first imply the latter?

I understand that the latter marks that the conditional mean, ie that the expected value of $u$ is $\sigma^2$ irrespective of $x$, but isn't this implied by the unconditional mean? Is one of them a stronger assumption?

Do the above imply $cov(u,x) = 0$ and how? What is the difference between $cov(y,x)$ and $cov(u_i,x_i)$?

We have stated that the homoskedasticity assumption implies zero covariance between $u$ and $x$, but how does it come? And why is it labelled a "weaker assumption" (at least by Woolridge)? What really confuses me is that we often use the notation $cov(u_i,x_i)$ instead of $cov(u,x)$ - is there any difference? If the first one relates to a specific $i$, does it really have a meaning at all?

Apologies if these questions are rather trivial. And thank you very much for your help!


texts:
Following off the back of this question on debt-to-GDP vs. debt held by public-to-GDP - Difference between "Debt Held by the Public" and "Total Public Debt Outstanding"?:

So in principle, the difference is that with debt held by public-to-GDP, treasuries that are owned by government agencies are not included in the statistic, but could somebody please provide some more detail on this?

What sort of government agencies are we talking about?
Is the debt that they hold financed by the agencies allocation from the government budget?
Or is the debt that these agencies hold financed by more debt?
Which of the two statistics are generally considered to be more important?
What is the point in government agencies lending the government money?
What is the point in government agencies receiving interest payments from the government?

Some of these questions are probably quite broad, but hopefully someone can shed some more detail on this topic.


texts: How to calculate the average wage increase?

texts:
What is the average wage increase and how does one calculate it? Gottfries (2013, p. 166) refers to the following formula as the "average wage increase:"

$$\frac{\Delta W_t}{W_{t-1}}$$

If the above formula is meaningful, then my question is more a clarification about terminology and notation.

As to terminology, what is a more popular way to refer to this equation other than the average wage increase?

As to notation, Gottfries refers to $W$ as the "average wage level," but what do the other symbols mean? Is it safe to assume the expressions $W_t$ and $W_{t-1}$ refer, respectively, to the average wage levels at times $t$ and $t-1$? What then does $\Delta W_t$ represent? Is $\Delta W_t$ the difference in average wage levels at times $t$ and $t-1$ (i.e., $\Delta W_t = W_t - W_{t-1}$)?

I think this question is worth asking since 1) there has to be a more popular way to refer to this equation (Gottfries book was all that came up when I Googled "average wage increase") and 2) I don't want to assume, as far as notation goes, more than I have to (Gottfries doesn't define these symbols).


texts: Statistical distribution of wages and wealth

texts: How are wages distributed globally? Wages do not follow a normal distribution, do they? Is wealth distributed in the same way or differently?


texts: Why would oil suppliers choose a lower priced contract?

texts:
The West Texas Intermediate (WTI) futures contract has ranged from \$6 to \$20 in the last 48 hours. The May Shanghai International futures contract is 205 Yuan (CNY).  At 7 CNY per USD, that comes out to about \$29 per barrel, which is higher than the WTI futures contract.

In this case, why would a supplier choose a USD-denominated contract over a CNY-denominated contract (assuming they would)?


texts: Does inflation/expected inflation in a given country devalue its currency or increase its value?

texts:
I've seen both arguments. From my understanding an increase in the rate of inflation should decrease the value of the currency since it's by definition a depreciation in its purchasing power. But I've heard people argue that an increase in inflation actually increases the value of a currency since that country's Central Bank is expected to hike its rates which makes that country's financial assets more attractive and thus increases that country's currency value through an increase in the demand for that currency.

Which of these two views make more sense theoretically and which is more supported empirically?


texts: What are some applications of Real Analysis in Graduate Economics?

texts:
I am interested as to what areas of masters/PhD coursework that learning the fundamentals of Real Analysis would be beneficial for?

I am aware of its applications in Econometrics proofs and analysis, but what of mathematical economics, microeconomics, and macroeconomics that one would run into during either graduate degree?

Resources to consult or links to relevant papers would be appreciated!


texts: Government expenditure multiplier in the new-Keynesian model?

texts: Does a temporary increase in government expenditure increase output in the standard new-Keynesian DSGE model? Is it possible to draw any intuitive parallels between the impact of government expenditure in these model and in the IS-LM model?y


texts: How does printing money cause inflation?

texts:
I've had this doubt for a long time and I still can't find a proper answer to it. Most answers I get just partially explain the phenomenon of a general increase in price level. I want to understand WHY and HOW monetary issue causes inflation.
I'm always told that if a country A has a total amount of output of $100 and this amount is represented by 100 coins of gold, then each coin of gold stands for one unit of output. If one day I stumble upon a gold mine and produce 100 further coins of gold, then I'll have 200 coins, so each coin now represents 0.5 units of output. It's is completely obvious that now each monetary unit has a lower purchasing power, but how do suppliers notice this? How does the economy as a whole detect this increase in money? If the answer is an increase in the demand for goods, then why do suppliers raise their prices? Why don't they just keep prices on a the same level if they know inflation is going to destroy us all?


texts: I am trying to show that 2 groups of individuals are intrinsically the same. I have various characteristics to measure for both group A and group B, such as height, weight, age, etc. I have taken the averages of both groups, and by inference I can see that they are similar - is there a more robust way of doing this?


texts: Consumption function with negative intercept?

texts: I am doing an assignment where I calculate the consumption function of a certain country from empirical data and I am getting a negative intercept. How can this be interpreted because usually, isn't the intercept always positive?


texts:
I am currently reading the book "Microeconomics: Principles and Analysis" by Cowell on my own. I'm reading the externalities chapter, and i found an interesting example:

There are just two firms: firm 1 is a polluter and firm 2 the victim. Firm 2 (the victim) makes an offer of a side-payment or bribe to firm 1. The bribe is an amount that is made conditional upon the amount of output that firm 1 generates: the greater the pollution, the smaller is the bribe; so we model the bribe as a decreasing function β(⋅).

The optimization problem is

My question is how did they arrive at those FOC's?

UPDATE:The second part of this optimization is to look at the problem from firm 1 perspective, it follows like this:
Now look at the problem from the point of view of firm 1. Once the victim
firm makes its offer of a conditional bribe, firm 1 should take account of it. So
its profits must look like this

This is from F.A.Cowell - Microeconomics - Principles and Analysis p.444-445


texts:
Are coupons all semi-annual?
How do coupons get priced in together?


texts: Where can I find charts with the amount of treasuries in existence?

texts:
Is there a place where I can see a chart with the amount of treasuries in existence organized by treasury type?

Ideally it would be a resource that has multiple charts (for bills, notes, bonds etc...)

I cannot find anything on the fred.stlouisfed.org site


texts: Why'd a company issue unpaid shares, to acquire or merge companies?

texts:
Under the heading Why would a company issue unpaid shares? by Johnathan Korchak

Although unpaid and partly paid shares are far less common than fully paid shares, there are a number of reasons why a company might choose to issue them:
[...]
[second-last bullet] In line with a strategy to implement an acquisition or merger of companies.

Under the heading Why would I issue unpaid shares?

Companies may choose to issue partly-paid or unpaid shares for a variety of reasons, including:
[...]
[last bullet] As part of a strategy to implement a merger or acquisition.


texts: When estimating a basic macroeconomics model, why is goodness of fit with labor data not often dealt with?

texts:
So when dealing with not-too-complex RBC models or New Keynesian models, we often arrive with a few final reduced-form equations, and as far as I know, we use these equations to estimate the model. For Gali's simple New Keynesian model we have consumption Euler equation, New Keynesian Phillips Curve and some form of Taylor rule.

But it seems that when estimating them, labor data (for example, labor $N_t$ in production function $Y_t = A_tN_t^{1-\alpha}$) seems to be dropped and not compared with model's prediction that can be inferred from coefficients and how reduced-form equations got derived.

Why is this comparison not often done? This seems to be an important indicator for a model..


texts: Expectations in Gali's classical monetary model

texts:
In Gali chapter 2 we have the following constraint to the classical monetary model

$P_t C_t + Q_t B_t \leq B_{t-1} + W_t N_t-T_t$.

Then it seems that this is treated as an equality. Therefore my question is: are we assumig that $\partial U/\partial B_t >0$? So households would achieve the optimun at the equality.

Another question is, in general if I have the problem

$Max E_0 \sum_{t=0}^{\infty}\beta^t U(C_t,N_t)$

Should I solve the OP

$Max \sum_{t=0}^{\infty}\beta^t U(C_t,N_t)$

And then take expectation to the relations I obtain by optimizing?. For example if we add the constraint

$P_t C_t + Q_t B_t \leq B_{t-1} + W_t N_t-T_t$ to the OPs, in the problem without expectation I get $Q_t=\beta \frac{\partial U/\partial C_{t+1}}{\partial U/\partial C_{t}} \frac{P_t}{P_{t+1}}$ and taking $E_t$ I obtain Euler's equation. Is the procedure of solving the problem without expectation and then take expectation correct?

EDIT:
If it is incorrect to forget the expectation and optimize, then I am confused about this: How to relate real rate of return on capital to bond interest rate: Lagrangian
. As there the procedure to solve the problem seems to forget the expectation.

Second,
if I do $\frac{\partial }{\partial C_t}E[U]=E\left[\frac{\partial U}{\partial C_t}\right]$. I obtain $Q_t=\beta\frac{ E_0\left[\partial U/\partial C_{t+1} \right]}{E_0\left[\partial U/\partial C_{t} \right]}\frac{P_t}{P_{t+1}}$ because I can not get rid off $E_0$. Nevertheless this would be equivalent to $Q_t=\beta E_0 \left[\frac{\partial U/\partial C_{t+1} }{\partial U/\partial C_{t} }\right]\frac{P_t}{P_{t+1}}$ if $E_0 \left[ \frac{\partial U/\partial C_{t+1} }{\partial U/\partial C_{t} }\right]=\frac{ E_0\left[\partial U/\partial C_{t+1} \right]}{E_0\left[\partial U/\partial C_{t} \right]}$. Is this because $C_t$ is independent of $C_{t+1}$?.

Third, I realized that if I solve $Max \sum_{t=0}^{\infty}\beta^t E_tU(C_t,N_t)$ s.t the constraint as before and proceed with $\frac{\partial }{\partial C_t}E[U]=E\left[\frac{\partial U}{\partial C_t}\right]$ I obtain the correct Euler's equation. Is this the correct problem to optimize? but what about Gali's propose?


texts: Empirical estimates of CRRA and CARA utility

texts:
I am working on macroeconomic model and I need to calibrate it.
I am looking primarily for a statistically-founded estimate for the
coefficient of relative risk aversion in the CRRA utility
function based on macroeconomic US data (but also for the coefficient of absolute risk aversion for the case of a CARA utility function). Cannot seem to find it anywhere.
Can anybody help?


texts: Asymptotic variance under heteroskedasticity

texts:
I want to find an expression for the asymptotic variance of the OLS estimator given that the errors are heteroskedastic.

I have understood the derivation using CLT for the homoskedastic case. I.e.,

$\sqrt N (\hat{\beta} - \beta) \stackrel{a}{\sim}N(0,Q_{xx}^{-1}BQ_{xx}^{-1}) $

Where $Q_{xx} = E(x'x)$ and
$B = E(u^2 x'x)$.

So under homoskedasticity I can use the law of iterated expectation to simplify $B$ as $E(E(u^2|x)x'x) = \sigma^2E(x'x)$. Where $E(u^2|x) = \sigma^2$.

So the asymptotic variance becomes $Avar(\hat{\beta}) = Q_{xx}^{-1}\sigma^2$

Now consider the case of heteroskedastic errors. E.g., $E(u^2|x) = f(x) = \theta x^2$.

Under this specification, the previous asymptotic distribution still holds:

$\sqrt N (\hat{\beta} - \beta) \stackrel{a}{\sim}N(0,Q_{xx}^{-1}BQ_{xx}^{-1}) $

But what I am having trouble with is how to simplify $B$. I see no reason why I can't use LIE again to express $B$ the same way as before $E(E(u^2|x)x'x) = E(u^2|x)E(x'x) = \theta x^2 E(x'x)$.

If I can make this substitution the rest of the derivation should just be some algebra. The reason I am confused is because in Wooldridge he says

  A $\textbf{homoskedasticity}$ assumption simplifies the
  form of OLS asymptotic variance: $E(u^2x'x) = \sigma^2 E(x'x)$


texts: Does price cap in emergency situation (COVID-19) reduce the availability of a good? Does unregulated market increase it instead?

texts:
I was discussing with one of my friend about Italy price cap on surgical mask to control speculation. He says price cap does not allow industries to invest more to increase the production that would then naturally lower the price in accordance with the "demand and offer rule". I say that, because most of the speculation happens at the retail level (pharmacies and shops) surgical masks factories are not affected by price caps and so the quantity of production is not affected.
Am I right? Can some data or real life example backup this?


texts:
I was reading about inventory valuation and of course there is first-in - first-out, last-in - first-out and weighted average. I realized at some point that LIFO would cause the highest Cost Of Goods Sold and therefore the lowest profit, in situations where the cost of purchased inventory was rising, so I figured that was a stupid method. But the book I was reading said that LIFO is commonly used in the US as part of Generally Accepted Accounting Practices (bingo!) and not allowed by international standards (IFRS).

So I wondered why a company would want to under-report profit? Well, because it lowers taxes. Is that really such a powerful reason? Wouldn't the increased profit be higher than the increased taxation in normal cases? Is this just an attempt to spite the government or something?

Also, I read that occasionally, the old inventory that has been "on the books" for a long time at a very undervalued cost can be "sold off" and generate a profit spike (just in case you did want to earn some money). These kind of machinations are unintuitive, to me.

My question is, why was this crazy method allowed at all? Historical reasons? Because it took a while for government to wise up? Why has it not been killed off because it is manipulating tax revenue and corporate reporting?


texts: A Cake Eating Problem in Continuous Time: Hamiltonian or HJB?

texts:
Your standard continuous time cake eating problem is defined as follows:
$$\max_{c(t)}\int_0^\infty e^{-rt} \ln (c(t)) dt$$
subject to
$$f(k(t))=k(t)$$
$$\dot{k}(t)=-c(t)$$
Approaching this problem by using the Hamilton Jacobi Bellman Equation (the continuous time analogue of the discrete time bellman) with the appropriate drop of time parametrization we have:
$$rv(k)=ln(c)+v'(k)\dot{k}$$
However in the context of using the (present valued) Hamiltonian proper we have:
$$\mathcal{H}=e^{-rt} \ln(c(t))+\lambda(t)\dot{k}(t)$$
My question is, under what circumstances would one use the Hamiltonian over the HJB?
Note for more detail on this question see:
https://math.stackexchange.com/questions/3293825/transversality-condition-with-unbounded-value-function


texts:
Consider a world of complete information with two agents X and Y and two time periods 1 and 2.

Person X only lives in second period.

Person Y lives in 1st and 2nd periods both.

X and Y are each endowed with and exogenous income I which can be allocated between consumption in both periods.

$s_Y$ = Y’s saving and  $0\le s_Y \le I$

$c_{1Y} $ and $c_{2Y} $ are the agent Y’s first and second period consumptions respectively.

The A gent X’s preferences are altruistic for Y. After observing the saving of Y, $sY$,X determine how much his endowment $tX$ to transfer to Y for $t_x\in [0,I]$

$c_{2X}$ the agent X’s consumption in period 2.

Utility functions Y and X are respectively

$$V_Y= ln(C_{1Y}) + bln(C_{2Y})$$

$$V_X=ln(C_{2X})+a *V_Y$$

where a is positive and $a*b\ge 1$ and $b\in (0,1)$

What is the su game perfect equilibrium levels for $t_X$ and $s_Y$?


texts: Perfect complement outputs with each output being composed of substitutable inputs

texts:
How does one solve the following maximization problem?

$\underset{K_1, K_2, L_1, L_2}{\text{maximize  }} min\{K_1 + L_1,K_2 + L_2\}$

subject to $c(K_1 + \mu K_2) + \beta c(L_1 + \mu L_2)$

where $c(.)$ is a cost function that is increasing and convex in its argument, and $\mu$ and $\beta$ are exogenous parameters.


texts:
I am solving a bargaining problem in which I have two players $player_1 $ and $ player_2 $.  Both of them have a service (represented as $ z_1 ,z_2 $)  that they can provide . Moreover they will charge some price(cost) ($ \lambda_1, \lambda_2 $ ) for providing that service.

The utility function are based on benefit-cost function.

Player 1 provide a service to the player 2 and charges some price for it.

The utility of $player_2$ can be represented as :
$U_{player_2} =f(z_2)- \lambda_2z_2$

Player 2 provide a service to the player 1 and charges some price for it.
$U_{player_1} =f(z_1)- \lambda_1z_1$.

$z_2$ is the decision variable of player 1 and $z_1$ is the decision variable of player 2 .

How can I model it using a bargaining game , can I use any other cooperative game approach.

I have tried some thing like this :

$log(f(z_2)- \lambda_2z_2+\lambda_1z_1)+(log(f(z_1)+\lambda_2z_2-\lambda_1z_1 )$

Is this correct?


texts: Does Medicaid or Medicare represent a higher risk to the Federal Government Solvency and Debt going forward?

texts: I'm trying to understand not only which program is expected to be larger in terms of costs, but which one has the least capacity to adjust (reduce benefits if revenues for the program fall).


texts: What is the logic behind this sentence in Keynes's General Theory?

texts:
It seems hard for me to understand the underlying logic of this sentence in Chapter 2 of this book:

  They do not seem to have realised that, unless the supply of labour is a function of real wages alone,
  their supply curve for labor will shift bodily with every movement of prices.

Keynes is talking about the demands of labor is more likely to be a minimum of money wage rather than real wage. Why the supply curve for labor will shift bodily with different prices(prices of wage-goods?) if the supply of labor is a function with other variables(what else variables in this function?)?

I imagine the supply & demand curve intersects on a sector with the x axis being the amount of employment y axis wages, but I'm not sure if this wage should be money wage or real wage or something else.


texts: Which are the principal economic barriers to a circular economy?

texts:
The discussion usually revolves around issues such as product design, cultural awareness, etc. I wonder what the fundamental economic barriers are.
I see a fundamental issue e.g. in transaction costs and economies of scale: reusing each single good requires an individual assessment of its qualities to confirm that it's fit for purpose, including for liability and insurance reasons. New goods on the other hand are produced in standardised processes which can be optimised, controlled, certified, etc. The efficiencies involved in producing new goods are higher than the cost (mining, taxes) of introducing new resources to the system.
I wonder where I can read more about this fundamental (generic) economic analysis of the barriers to a circular economy?


texts:
Let us assume that there is a labor who lives in discrete time universe and discounts future payoffs with the discount factor $b\in (0,1)$.

And we assume that this labor is at period $t=0$ at first.

Wages are assumed to have a discrete support defined as $W=\{4,16\}$. That’s, any wage offered by any company is either 4 or 16.

This labor has a job currently and the current wage is $w_t\in W$. If she wants to search for another job at period $t$, she has to incur a fixed search cost $k\in (0,4)$ per period.

If the labor wants to search for a job, either the labor takes the same wage as an offer from another company with prbability of $1/2$ or he takes the other wage level as an offer with probability of 1/2.

We Suppose that the labor consumes all of her wage income (I.e. net of the search cost) at any time $t$, and let the period utility from consumption is linear.

My question are

(1)Firstly, after defining the state, control variables and bellman equation, I would like to do an intuition that simply gives that the labor does not do job search
in period $t$ if $w_t = 16$ and then I want to calculate the value of this ”no search” policy.

(2) Secondly, I would like to show whether the following policy is optimal. “Search in period $t$ when $w_t=4$ and do not search in period $t$ when $w_t=16$. How can I explain why is this?

——

My solution attempt is

The labor wants to maximize $E_0\{ \sum_{t=0}^{\infty}b^t c_t\}$

And if the labor does not want to search for a job, then $c_t=w$ but if the labor want to search for a job, then $c_t=w-k$

Let $F(w)$ is i.i.d. distribution.

The bellman equation for searching for a job and don’t search for a job are given by

$W(w)=w+bW(w)$

$U= (w-k)+b\int_0^{\infty} \max \{U, W(w)\}dF(w)$

where $W(w)$ is payoff from accepting a wage $w$ and $U$ is payoff from searching a wage offer, earning $w-k$ and sampling again next period.

Then when I calculate the equations,I obtain that $W(w)=w/(1-b)$ which is strictly increasing in $w$. So, the reservation wage $w_R$ such that $W(w_R)=U=w_R/(1-b)$. Then the labor sohund accept if $w\ge w_R$ and doesn’t accept if $w<w_R$.

And I obtain that $w_R=(1-b)(w-k) b\int_0^{\infty} max\{w_R, w\}dF(w)$

I cannot proceed after that point. Please help me to do this question. Thanks a lot.


texts: McCloskey's example of fungibility in basketball

texts:
To illustrate the concept of fungibility, Deirdre McCloskey (1985, p. 7, PDF) gives an example from basketball.

She claims that the last two points scored are no more important than any two points scored earlier:

  The University of Iowa beats the University of Michigan for the Big
  Ten basketball championship by two points in double overtime, 70 to
  68. Whose two points won the game? One's first thought is to look to the last points made. But points are fungible. Any two points can be
  viewed as the crucial points that make the difference between a score
  of 68 to 68 and 70 to 68. The shot that Weisskoff made in the first 5
  minutes of play counts as much as the last. For the purpose of making
  the score what it is, there is effectively no last, no crucial, point.

Is this analysis correct? And if not, in what sense are the last two points more important than any two points scored earlier?

Two examples to illustrate the connection here to economics:

Example 1. Two politicians A and B are running for village mayor. The electoral process in this village is unusual — the two politicians have 12 hours to take turns going door-to-door soliciting votes. The end result is that politician A beats politician B by 35 votes to 34.

Question: Is the first vote scooped up by politician A just as important as the last vote?

Example 2. Two Girl Scouts C and D go door-to-door trying to sell boxes of Girl Scout cookies. The Girl Scout who sells the most wins Girl Scout of the Month. The final score is 35 to 34, with Girl Scout C winning by one box.

Question: Is the first box sold by Girl Scout C just as important as the last box sold?


texts: Why would a government bail out private banks?

texts:
If the private banks never learn from history and keep giving credits to it's clients for overpriced acquisitions, and then they enter default why would the government give them free money or buy those banks?

If I buy overpriced apples to sell them in my fruit shop and I fail to sell them, the government will not bail me out and pay my debts.

Just as my company running the fruit shop should go bankrupt, those banks should go bankrupt, other private investors should buy their assets and start doing better banking business, removing that incompetent staff who buy (or give credits for buying) overpriced things (in this case: houses).

On a first thought, that's my conclusion. And also on a second and third thought.

The whole point of default and bankruptcy should be to allow those competent businesses to survive and those incompetent to leave the sector and do something else. And that looks like a fundamental piece of a working capitalist system that encourages the players to be competitive. Therefore the bailout of private banks looks like a bonus for incompetence. Sponsoring incompetents doesn't look like a good option for making the banking sector work well and totally not suitable for restoring confidence of customers in such banks.

Example: If Compaq is selling bad computers and Gateway is selling good computers, then Compaq should go bankrupt instead of getting government subsidies in order to keep being incompetent. Their owners can try to do something else, like for example Barbie toys, maybe they can do it better than making computers. Gateway will buy their assets and they will survive and grow because they are competent.

I would like to know the arguments used by the governments for bailing out the banks, like for example in Spain where they gave 100 billion Euro for the private banks.


texts: During deflation, is there any risk on 'printing' money?

texts:
Take a specific example: Japan.

In the last several years, the central bank of Japan has eased monetary supply for many trillions of dollars, but the CPI decreased in 2016.

My question: is there any negative effect for Japan to ease so much money?

My logic: 'printing' money have an inflationary effect, so if you print too much money, the CPI will rise high and that is simply bad. However, since the CPI is decreasing even though Japan eased so much money, I wonder there should be no problem for 'printing' even more so long as the CPI does not rise?

But the result of my logic sounds ridiculous. I believe the productivity determines the wealth of a country, but from my logic, if you can 'print' money without inflation, you will be rich too.


texts: Why Is the West providing technology to India?

texts:
Previously, we have seen that Europeans and Americans provided various technologies (high-speed rail[1], aerospace[2][3], microprocessor[4], etc.) to China to earn instantaneous money. Later what happened was, China did its own research on those techs, improved them and became a giant vendor.

Apparently, the same is being repeated in case of India. The USA and EU is giving India missile tech[5], nuclear tech[6], aircraft carrier tech[7], fighter jet tech[8], and so on. India is also making 100% sure that they obtain those techs by enforcing a so-called policy named: "Make in India"[9].

My question is, Why Is the West providing technology to India even though there is an imminent danger to the West of India becoming a 2nd giant vendor?

References

https://en.wikipedia.org/wiki/High-speed_rail_in_China#Acquisition_of_foreign_technology
https://www.ainonline.com/aviation-news/defense/2017-06-20/new-chinese-fighters-tap-russian-us-technology
https://www.cnbc.com/2017/09/18/rolls-royce-chairman-ian-davis-on-chinese-jet-engines-singapore-summit.html
https://en.wikipedia.org/wiki/Loongson#MIPS_patent_issues
http://uk.reuters.com/article/uk-l-t-mbda-idUKKBN15S0XG
http://www.firstpost.com/india/india-us-nuclear-deal-all-you-need-to-know-about-the-landmark-agreement-3596209.html
http://www.news18.com/news/world/us-to-provide-emals-technology-to-india-for-aircraft-carriers-1550359.html
https://economictimes.indiatimes.com/news/defence/us-updates-jet-engine-technology-transfer-policy-with-india/articleshow/50131574.cms
https://en.wikipedia.org/wiki/Make_in_India


texts: Interpretation: Elasticitity of Substitution

texts:
I have this production function:

$$P(x_1,x_2)=x_1+x_1*x_2$$

I am trying to find the elasticity of substitution, and I found this:

$$\sigma = -\frac{d \ln (\frac{x_2}{x_1})}{d \ln(\frac{x_1}{1+x_2})}$$

Then I have these conditions:

$x_1 >0$ and $x_2=0$

When putting this numbers in, I have ln (0) which is not possible, what is the interpretation of this elasticity of substitution?

Will the elasticity be zero or infinity?


texts: How can cpi 3.41 and Wpi 3.54 be interpreted? I know that cpi gives the inflation rate but what is it that we understand from these figures?


texts: How does US (its economy, banks, industry) profit from dollar being the "standard currency"?

texts: How does US (its economy, banks, industry, "finance industry") profit from dollar being the "standard currency"? I am not seeking "ideological" explanations, but explanations of the mechanisms involved, of the kind of "how things work", better backed by actual numbers. Could one recommend some honest, preferably not ideologically coloured, accessible reference which discusses such mechanisms?


texts: Examples of bounded, positive, inverse demand curves

texts:
The three most common examples of demand curves I am aware of are
\begin{align}
Q&= b - aP,\\
Q&= bP^a,\\
Q&= b e^{-aP}\\
\end{align}
The first being our classic linear demand curve, the second being the one corresponding to a constant, fixed, elasticity, $a$, and lastly the slightly less common but still useful exponential demand curve. But all of these curves, to me, leave a peculiar feature of their inverses
\begin{align}
P&= b/a - Q/a,\\
P&= (Q/b)^{1/a},\\
P&= -\frac{1}{a}\log{\left(\frac{Q}{b}\right)}\\
\end{align}
For the linear demand curve, price goes negative, as the Quantity produced becomes high. This is conceivable for some products, where it might be costly to store excess, but it is easy to imagine products where negative prices are impossible. The fixed elasticity demand curve solves this, but it has another undesirable property, in my opinion. The price goes to infinity as the quantity produced goes to zero [and, at least in some cases, infinite prices are not plausible in the real-world as we are constrained by finite resources]. The last option, the exponential demand curve, suffers from both issues!
If I want price to be bounded and positive over the domain of all positive quantities, I could start by defining, the inverse demand functions
\begin{align}
P&= \frac{b}{1+aQ},\\
P&= be^{-aQ},\\
\end{align}
In this parameterization, $b$ is the maximum price anyone would be willing to pay for the product no matter how rare it is, and $a$ governs the rate the price declines as the quantity becomes less rare. These price curves would lead to demand curves of the form
\begin{align}
Q&= \left(\frac{b}{P}-1\right)\frac{1}{a},\\
Q&= -\frac{1}{a}\log{\left(\frac{P}{b}\right)},\\
\end{align}
Is anyone aware of demand curves used in the literature like this. I'd assume there must be someone, for some purpose, that might have required a demand curve with such properties. I'm thinking of cases where, due to an externality, quantities can suddenly be taken to zero or very large values. What demand curves do people use in these cases? Does anyone use either of the two above?


texts: Diminishing Nature of Utility Function From Convexity of Preference $\succsim$?

texts:
Is diminishing nature of utility function in consumer theory stemming from the assumption of convexity on the preference relation $\succsim$?

My understanding is:

  $\succsim$ is convex. Then, $u(.)$ is quasiconcave. By the definition of quasiconcavity, the indifference sets are convex. Also, by another definition of quasiconcavity, the cross-section of the utility function versus a commodity shows a concave function indicating the diminishing nature of utility in any good $x$.


texts:
A consumer's utility function is $U(x,y)=\sqrt x + y$. Assuming we have an interior solution, I need to show that the demand for $x$ does not depend on income.

I know that the consumer consumes where the marginal utilities per dollar of $x$ and $y$ are equal, so I have found the following two equations:

$\frac 1 {2P_x\sqrt x}$ = $\frac 1 {P_y}$
${P_x}x + {P_y}y = I$

Then, I am stuck. I do not see how I can get rid of both $y$ and $I$ in this case? And how does knowing that we have an interior solution help?


texts: Why don't we draw National Income Curve(45 deg. line) simultaneously with graph for Saving Function?

texts:
When we talk about Consumption Function , we draw the 45 degree line of Income or Aggregate supply curve simultaneously.

But while graphing saving function , we don't show Income curve (45 deg. line) on same graph .

Why is it so ?


texts: Sign of substitution and income effect of a price change

texts:
I just want to confirm with my understanding.

It is correct to say that no matter price increase or price decrease, the substitution effect is always negative for both inferior goods and normal goods. Then for income effect, it is positive for inferior goods and negative for normal goods no matter price increase or decrease.


texts: Differentiation of the value function in Burdett Mortensen (1998)

texts: I'm currently making my way through Burdett and Mortensen's classic paper of on the job search. What should be an easy task of finding an expression for the reservation wage is made slightly more complicated by the presence of the max operator.  We are faced with the following Bellman equation for the value of a job paying a wage $w$. The bellman equations are standard. The value of a job paying $w$ consists of the wage $w$ plus the expected gain from searching and finding a better job discounted by the probability a job offer comes along $\lambda_1$ plus the loss of due to becoming unemployed when the job is destroyed at rate $\delta$. The value of unemployment $V_0$ consists of unemployment benefit $b$ plus the expected gain from becoming employed discounted by the probability an offer comes along $\lambda_0$. Note the probability an offer is made is different depending on whether someone is already employed or unemployed. The distribution of offers is given by $F$ \begin{equation} rV_1(w)=w+\lambda_1\bigg[\int \max\{V_1(w),V_1(\tilde{x})\}-V_1(w)\bigg]\;dF(\tilde{x})+\delta [V_0-V_1(w)]   \end{equation} \begin{equation}rV_0=b+\lambda_0 \bigg[\int \max\{V_0,V_1(\tilde{x})\}\;dF(\tilde{x})-V_0\bigg]\end{equation} Since $V_1(w)$ is increasing in $w$ and $V_0$ is independent of it we know a reservation wage exists such that if $w>R\implies V_1(w)>V_0$, $w<R\implies V_1(w)<V_0$ and $V_1(R)=V_0$. Standard arguments (integration by parts) shows that \begin{equation} R-b=(\lambda_0-\lambda_1)\int_R^\infty V_1'(\tilde{x})[1-F(\tilde{x})]\;d\tilde{x} \end{equation} from here I would like to take the derivative of the first equation and solve for $V_1'(w)$. However If I use Leibniz integration rule I need the integrand to be differentiable. The max of two continuous functions is usually not differentiable where they are equal so I have a problem. If I assume that I integrate over all $\tilde{x}\geq w$ then $V_1(\tilde{x})\geq V_1(w)$ (wage offers that will be induce a worker to switch jobs) and the result follows by Leibniz rule. But there are wages in the distribution that won't be accepted and this derivative wont hold. The derivative is \begin{equation} V'(\tilde{x})=\frac{1}{r+\delta+\lambda_1(1-F(\tilde{x}))} \end{equation} I imagine I'm missing something but I'm not sure what. If anyone could give me any advice I would really appreciate it.


texts:
An economics book has the following example:

In the USA, a Big Mac sells for 1 USD, while in Germany it sells for 3 EUR.

The "fair" FX relation would therefore be 1 USD = 3 EUR. At the FX market, however, the FX relation is 1 USD = 2 EUR.

The author now concludes that the EUR is undervalued. But I think that's wrong, the EUR is overvalued here, isn't it?


texts: One trivia on Miller Modigliani Theorem regarding the No arbitrage Argument

texts:
Suppose there are a levered firm with firm value $V_L=D_L+E_L$ and an unlevered firm $V_U = E_U$ both yielding an income of $X$ at time 1. One direction of the no arbitrage argument goes like this: someone with $s$ shares of a levered firm equity can replicate her payoff by longing $s$ shares of unlevered firm and borrow $s D_L$ amount of debt. At time $1$, both positions will yield $s * \text{max}\{0, X-(1+r)D_L\}$, so value of the two positions should have the same value at time 0, giving $s E_L = s (V_L - D_L) = s(V_U-D_L)$, therefore $V_U = V_L$.

My confusion is with regard to the replicating position payoff. Shouldn't borrowing makes the replicating position unlimited liable? In particular, shouldn't the payoff of the replicating position be $s * \text{max}\{0, X\}-(1+r)D_L$? So if X ends up lower than $(1+r)D_L$, she is liable to still pay the difference for borrowing. While if she is holding an equity position in levered firm, her payoff is 0.


texts: When/Why would a country want to create its own currency?

texts:
A while ago I asked how countries make a currency and give it value, specifically pointing out that I wasn't concerned about when/why such a thing would be done.

Well, now I'm asking the exact opposite. Ignoring how a country would do so, when/why would a country implement a new currency? What are the pros and cons of doing it? And are there differences between large economies and small economies when it comes to this?


texts: How should I adjust data for both inflation and foreign exchange rate?

texts: I’m not sure if this is typically done, but suppose my data point is in 2013 JPY and I want to express in 2016 USD. Do I apply CPI to express data in 2016 JPY, and then apply exchange rate to 2016 USD? Or do I apply exchange rate to obtain 2013 USD first, then apply CPI to bring forward to 2016 USD? Or is this all redundant?


texts: How to find a firm's cost function based on its production function

texts:
The question
A firm’s production function is given by
$$q=F(L,K)=L^{1\over{4}}K^{1\over{4}}$$
find the firm's cost function $C(w,r,q)$,
What I know so far
I'm aware that the Technical rate of subsitution (TRS) is:
$${MP_L\over{MP_K}}={{\partial{F}\over{\partial{L}}}\over{\partial{F}\over{\partial{K}}}}={K\over{L}}$$
but I'm not sure how this can help me find the cost function


texts: How to perform unbalanced panel data regression in R?

texts:
I am attempting to perform an unbalanced panel data regression in R.  My code is as follows:

pdata <- plm.data(b2, index = c("ticker", "year"))
try1 <- plm(formula = logDipLoanTotal ~ PrimeFiling  +
logLiabBefore + logSalesBefore + EmplBefore + DebttoAssetRatio +
squareDebttoAssetRatio + FSCashShortTermInvestments + Percent +
NUM_OF_EMPLOYEES, data = pdata, model = "within", effect = "time")
summary(try1)

I run into the following error:

duplicate couples (id-time) in resulting pdata.frame
to find out which, use e.g. table(index(your_pdataframe), useNA = "ifany")
duplicate couples (id-time)

This is obvious - I am having issues because my panel data is unbalanced, where the ticker/year combination can be associated with multiple lines of data. This is because multiple "deals" were done in the year associated with the company ticker in the year, or sometimes no deals were run in the ticker/year combination. How do I run this kind of model in RStudio with unbalanced data? Let me know if this doesn't make sense and I can edit the question.


texts: What is the exact difference between Income Effect and Wealth Effect?

texts:
I’m aware that in basic economics class one of the explanations for the downward-sloping Aggregate Demand Curve is the wealth effect or Pigou effect, which means that as price level goes down, your perceived real wealth increases, increasing consumption.

However, I got stuck when I learned that, according to my professor,
“wealth effect was created to explain why people might increase spending when price levels go down, which couldn’t be explained by the Consumption model, which is a function of disposable income only.”

Why can’t “income” explain how people might increase their consumption when prices go down? There is the “income effect” we learn in microeconomics right? It is almost the same concept as the wealth effect - that when the price of a good goes down your real income - your purchase power increases so you increase consumption of that good. Of course if you go down to the minute details income is a ‘flow’ concept and wealth being ‘stock’, so there are subtle differences, but in the end they explain the same thing - consumption increases when prices go down, because your real wealth or real disposable income increases.

So my main question is, why do you need another concept such as the “wealth effect” to explain why people increase spending when price levels go down, when there is already a very similar concept (income effect) that also perfectly explains the same thing? Why can’t you just use “income effect” instead of “wealth effect” to explain the downward-sloping AD curve? I’m wondering why the concept of wealth effect exists at all when there is already a very similar concept explaining the same actions of economic agents....


texts: Testing the long run phillips curve / Contradicting empirical results?

texts:
I've been working with some historical macroeconomic data of the Canadian economy and am having difficulty empirically testing the Phillips curve long run and short run versions.

I got the data from FRED, logged the variables and then plotted them.

The results are unsatisfactory; the scatter plot I have is:

A shape which is looking like a bow, going up right and then back.

I tried using fitting the data using a loess curve again yielding unsatisfactory results.

Im probably not doing something right as the data does not seem to fit with either the short run or long run versions of what the Phillips curve represents.

So to offically crown myself as conspiracy theorist of the day on Economics.SE (which is probably a problem for a mod):

Does this analysis disprove both the long run and short run Phillips curve?

*for Canada?
** what is incorrect in this analysis?


texts: Existence of symmetric trembling hand perfect equilibria

texts:
Consider symmetric and finite game. By Nash (1950), the game must have at least one symmetric equilibrium (proof). Also, it must have at least one trembling hand perfect equilibrium (proof).

  Question: must it have at least one symmetric trembling hand perfect equilibrium?

My thoughts on this:

We demonstrate the existence of a trembling hand perfect equilibrium by looking at a sequence of perturbed games which converge to the original game.
By Nash (1950), each perturbed game has a symmetric equilibrium.
Therefore (?), the original game has a symmetric trembling hand perfect equilibrium.


texts: Should I construct balanced data with only necessary variables or unbalanced data with many potentially usable variables?

texts:
When I construct panel data from large household surveys (say, World Bank's Living Standard Measurement Surveys), I try to construct data set with as many potentially usable variables as possible. This creates a large unbalanced dataset and I don't know how many balanced data left until I run a regression.

I personally have not encountered any problems with this, but I wonder what other people think when they have to use dataset I construct.
I have not worked with others so far, but I wonder how I should construct a good dataset to work on if I need to work with professors.
Should I construct balanced dataset? Or unbalanced dataset with many variables with many missing values?


texts: If we look at the equation for national Savings = S(priv) + S(pub) = [Y-C+Tran-T]  + [T-G-Tran] = Y - C - G . We see that Tax falls out of the equation. Therefore, does that mean changes in taxation policy don't directly affect the Supply of Loanable funds? If this is the case, and we assume consumption isn't constant, then giving individuals massive tax cuts should influence them to consume and/or save more money. This should increase total savings and shift the supply right and interest rates down, allowing for greater investment in capital, leading to growth in economy. Looking at this, why is it that tax cuts are seen as being bad for economic growth?


texts: Monetary Policy adjustments as a result of Brexit

texts:
I would like to know the impact of interest rates within Monetary Policies in view of Brexit.

An increase in the Monetary stock would lead to a decline (at least in the short-term) in nominal interest rates. Conversely, decrease in money stock can lead to short-term increases in interest rates. What I would like to know is whether there might be significant increases in interest rates during Brexit?


texts:
I am currently using Mishkin's textbook "Economics of Money, Banking and Financial Markets." The chapter on financial crises starts with the causes of financial crises.

One reason given is the Unanticipated Decline in the Price Level. I quote "In economies with moderate inflation, which characterize most industrialized countries, many debt contracts with fixed interest rates are typically of fairly long maturity (ten years or more). In this institutional environment, unanticipated declines in the aggregate price level also decrease the net worth of firms. Because debt payments are contractually fixed in nominal terms, an unanticipated decline in the price level raises the value of borrowing firms' liabilities in real terms, but does not raise the real value of firms' assets."

I get that as the value of money is increasing over time (deflation), the real value of the debt is increasing.  What is the reason for asset values to not be rising? If the nominal value of the assets stay the same, then assets will be rising in real value (as money is becoming more valuable). Am I missing something obvious?


texts: how can I find the original work on the bases of which 2016 nobel in economics was given?

texts: I have been google and googling and asking around and I can not find the work(s) on the basis of which the nobel in economics was given yesterday. I really wanted to read them. does anyone know how to find it?


texts: Best strategy for investing and buying out property with many owners(20+)

texts:
First I am not economist, so sory if I am not using economicaly correct language. But this is a real life situation.
I would like to know what are the buy out strategies for investor when he has to deal with multiple collective owners of large real estate that is impossible to be divided amongst them.

Also if someone is a collective owner in such estate and there is a buyer that is buying out the shares. What should be his best strategy to get most money out of this property ? Should he be one of the first to sell his shares or one of the last.

It should be takein into account that the communication level in between the shareholders is terrible due to mutual hatered :D

I am interested in the strategies for both investor to get the best deal but also for the single shareholder how to get the best deal. What behaviour is needed from both sides.


texts:
Consider a simple linear model:

$Y = \beta_1 + \beta_2 MALE + u$

where $MALE$ is a dummy variable. $MALE = 0$ if female, $MALE = 1$ if male.

A model is fitted:

$\hat{Y} = \hat{\beta_1} + \hat{\beta_2} MALE$

$\bar{Y_F}$ and $\bar{Y_M}$ are the sample means of $Y$ for females and males respectively.

Prove that:

$\hat{\beta_1} = \bar{Y_F}$, $\hat{\beta_2} = \bar{Y_M} - \bar{Y_F}$

If the points are plotted in a scatter block, there will be two vertical clusters of points at $MALE = 0$ and $MALE = 1$, as shown:

It seems intuitively obvious that the total residual sum of squares ($RSS$) is minimized by minimizing the $RSS$ separately for the female and male points. This is achieved by fitting a point at the mean of these points, $\bar{Y_F}$ and $\bar{Y_M}$. Fitting a line between these point yields the correct values for $\hat{\beta_1}$ and $\hat{\beta_2}$.

I wish to prove this algebraically.


texts:
I run a large Massively Multiplayer Online (MMO) gaming community and one of the services we’ve try to provide to our members is crafting. One of the challenges of this has been determining the price of crafted items when we sell to our membership.

While a lot of the time the materials that we use to craft items is donated to us; there a plenty of occasions were we run short or need rare materials that make up a bulk of the cost of an item. When this happens, we have to buy them from other players at the market rate in-game.

In a lot of MMOs, the price of the crafting materials can be higher than the crafted item on the market. This happens for several different reasons. Crafting material is necessary to “level” a character’s crafting ability meaning the materials are more valuable than the end result.  Crafting is chance based and some outcomes are less desirable so the non-desirable results are sold to recoup as much cost as possible to fund another chance.

On top of all this, we want to offer our crafted items at a discounted rate than what our membership can get on the open market. Determining a price that keeps our profit margins at least breaking even with our losses have been difficult. In the past, we’ve tried basing the price on the material price with a base discount, but a lot of times this doesn’t adequately cover our costs or beat the prices on the market.

How can we determine a price for an item that takes into account our supply of donated materials and materials we have to purchase? Is there a standard method of tracking costs in this situation?

I'm a gamer and a web developer, not a economist so some help here would be appreciated. Thanks!


texts: In times of low yields and the prospect of rising yields, I asked myself if the european countries can ceteris-paribus cope with rising yields. Is there a way to calculate the effect of rising yields (ignore growth etc. for the time beeing), calculate a break-even yield where the debt burden becomes to much to cope. I thought about calculating the effect via government bond indices and the primary budget. Are there research papers about this?


texts:
I'm reading  a paper from Pindyck (1988) where $$P_t=X_t-\gamma Q_t.$$ $P_t$ is the price,  $X_t$ is the demand state variable, $Q_t$ production and $\gamma\geq0$ is apparently the ''(constant) demand elasticity''. I'm not quite sure how to interpret this number (percentage change of what wrt what?)
According to wikipedia, I could consider
\begin{align*}
\text{Elasticity}&=\frac{\partial X_t}{\partial P_t}\frac{P_t}{X_t}=\frac{X_t-\gamma Q_t}{X_t}=1-\gamma\frac{Q_t}{X_t}\\
\text{Elasticity}&=\frac{\partial P_t}{\partial X_t}\frac{X_t}{P_t}=\frac{X_t}{X_t-\gamma Q_t}\\
\text{Elasticity}&=\frac{\partial Q_t}{\partial P_t}\frac{P_t}{Q_t}=-\frac{1}{\gamma}\frac{X_t-\gamma Q_t}{Q_t}=-\frac{1}{\gamma}\frac{X_t}{Q_t}+1 \\
\text{Elasticity}&=\frac{\partial P_t}{\partial Q_t}\frac{Q_t}{P_t}=\frac{-\gamma Q_t}{X_t-\gamma Q_t}=\frac{X_t}{\gamma Q_t-X_t}+1
\end{align*}
None of these expressions is really constant


texts: This is probably a stupid question as I don't know much about economics, please bear with me. My question is; why can't a country insist on the worth of their currency relative to the dollar. For example, why can't a country like Nigeria insist that 1 naira is equal to 1 dollar and that is accepted worldwide for trading. I guess my real question is, why does the value of a country's currency increase or reduce relative to the dollar or other currencies. Thanks.


texts: How to interpret Mincer equation coefficients

texts:
Consider the Mincer model:
$\log(y)=b_0 + b_1S + b_2E + b_3E^2+u$
where S is schooling, Y is salary (monthly) and E is experience. I want to verify the following statements:

The return for 1 extra year of education is $\hat{b_1}*100$%
If we knew E (experience) for a particular person, his return for 1 extra year of experience is $\hat{b_2}*E+\hat{b_3}*E^2$. This one I doubt more.

Thanks in advance.


texts: Why does falling global bond yields signal coming deflation?

texts:
This article suggests that, "Bond markets are signalling something very nasty coming down the road at us – an all encompassing, worldwide deflation. "

I cannot understand why bond yields falling signals deflation. Is it because falling bond yields indicates a weakening global economy? Or is the transmission mechanism more direct?


texts: Unitary model with cobb-douglas function

texts:
We have these following from the first order conditions:

${U_{LA} \over U_C}  = w_A \to MRS_{C,LA}=w_A$

${U_{LB} \over U_C} = w_B \to MRS_{C, LB}=w_B$

${U_{LA} \over U_{LB}} = {w_A \over w_B} \to MRS_{LB, LA} = {wA \over w_B}$

$C + w_A L_A + w_B L_B = (w_A + w_B)T + v_A + v_B$

where $w_A, w_B$ are wage for person $A$ and $B$ respectively

$L_A, L_B$ are leisure for person $A$ and $B$ respectively

$C= C_A+C_B$ (total consumption)

And then it says that from the first three, we can derive the Marshallian demand functions for consumption and leisure:

$C*=C(w_A, w_B, v)$

$L_A* = L_A (w_A,w_B, v)$

$L_B* = L_B (w_A, w_B, v)$

My first question is, what do these mean exactly? What do these actually mean (being a marshallian demand function, how can I do this?), opened up? ($v$ is non-labor income).

Then there comes the marshallian labor supply, which probably is connected to the demand functions, they are given as:

$h_A * = h_A(w_A,w_B,v) = T - L_A (w_A, w_B, v)$

$h_B * = h_B(w_A,w_B,v) = T - L_B (w_A, w_B, v)$

These I can interpret as I get the answer to what are marshallian demand functions, as $T =$ time available to do work (but if someone has the time, maybe you could give a little info?)

Then there comes a Cobb-Douglas function s.t.

$U=C^\alpha L^\beta_A L^\gamma_B$ with $\alpha + \beta + \gamma = 1$

From these results, can be derived following results for the partial derivatives:

${d h_i \over d w_i} > 0$

${d h_i \over d w_j} < 0$

${d j_i \over d v} < 0$

with $i, j = A, B$ and $ i \neq j$ and $v_A + v_B = v$

I dont even know what I need to derivate, but I'm supposed to proof the signs of the last derivatives. Everything is marked as in my source text. This is probably very easy, I'm just confused.


texts: Worth of collectables - predatory pricing

texts:
If I traveled around the world, to collectors shops, finding a specific Coin (or other collectible object) something that had a standard value as well (such as a gold coin) and broke it (later melted it) in-front of the shop keeper, so it became known that I had destroyed 1 of the copies of this rare coin/object,

Could I measure the increase of the wealth of the coin to determine IF and WHEN such coins would become 'priceless' so that the final sale of one of the last coin/objects would pay for all costs (purchase & travel to acquire)

Edit for less ambiguity: What Economic parameters would be worth researching to determine the viability of such an endevour?

[Not 100% sure this is Economics, feel free to bump it to a different group, but I couldn't find anything more pertinent than economics]


texts: Mythbusters - Determine optimal boarding strategy based on time and satisfaction score

texts:
Most airlines board passengers starting from the back of the plane and then working their way towards the front (after boarding priority classes and passengers).

In an episode of Mythbusters, Adam and Jamie tested the myth that the boarding strategy favoured by most airlines, back to front, is the least efficient.

The myth was confirmed, and these were the results:

The random no seats strategy is the fastest, followed by the WILMA straight strategy. However, random no seats strategy gives the lowest satisfaction scores.

The highest satisfaction score is given by the reverse pyramid strategy even though it is the fourth fastest.

How might one determine the optimal boarding strategy based solely on times and satisfaction scores given (not including advanced stuff like computing expected aisle or seat interferences)?

I can't seem to think of any kind of unit conversion except to convert the time to seconds and then multiply it with satisfaction score so it's like we're trying to maximise the product of time and satisfaction score:

$$f(t,s) = ts$$

What are some of the advantages or disadvantages of doing this?

One disadvantage seems to be that ranking by product of time and satisfaction score gives the same ranking by satisfaction score.

What else could be done? All that seem to come to mind are products so perhaps I might maximise anything like these:

$$f(t,s) = t^2s$$

$$f(t,s) = ts^{1/2} \text{(eliminating random no seats)}$$

$$f(t,s) = t(s-s_{ave})$$

I'm thinking we're going to have to relate time and satisfaction score to some unit such as money. So, one would have to find some relationship (for example, a linear relationship through linear regression) between boarding time and cost and then another between satisfaction score for boarding today and revenue from flight next month?

Does it have to be something like that?

I was suggested z-scores or something so I tried standardising, I think:

Why did the sum of squares of z's turn out to be 6? Did I do something wrong? Is that the fourth moment or something?


texts: Empirical Evidence of Cournot Competition?

texts:
Is there empirical evidence to validate the use of Cournot competition between multiple suppliers and a buyer?

Are there models which extend Cournot competition to different levels in a larger supply chain? Is there evidence to show that firms at the same level in a supply chain, be it at different levels, compete a la Cournot?


texts: Microeconomics: first fundamental theorem of welfare

texts:
Can somebody tell me why part (2) of this proof is of any relevance?
(1) Assume that $x$ is Pareto-dominated by $y$. Since $x_i$ is optimal for consumer $i$:
if $y_i\succ x_i$ then $p\cdot y_i > p\cdot x_i$
(2) Local non-satiation even implies
if $y_i\succeq x_i$ then $p\cdot y_i\geq p\cdot x_i$
(3) Adding up: $p\cdot\sum y_i > p\cdot\sum x_i= p\cdot w$, in violation of feasibility. ($w$= initial endowment)


texts: Does the WTO have a mechanism to accommodate states transitioning trade regimes?

texts:
If the UK were to leave the EU without a Withdrawal Agreement in place it defaults to WTO trading terms.

Does the WTO have a mechanism to accommodate such a transition?


texts: Is there a definitive way to tell if an action causes a movement or shift in a supply-demand graph?

texts:
I am taking AP Macroeconomics, and am about 2/3 of the way through the curriculum. We have learned about various supply-demand graphs, and right now we are working on the market for money. I have noticed that with every model we learn about, there are a set of rules to remember which tell whether something will be a shift in the supply-demand graph. However, it is not ideal to have to remember these rules for every model we have looked at.

Is there any general rule for what events will definitely cause a movement, and what events will definitely cause a shift?

Thanks!


texts: How is it cheaper to take on debt when taking on a project?

texts: They mention that interest is tax deductible, so you pay lower taxes. But the tax is lower because your EBT is lower than your EBT if you didn't take on debt. I understand that taking on debt benefits all investors (more than 100% equity) But I fail to see how it is cheaper. Especially if you have to pay a lot on the long run.


texts: How does the economy "detect" if money is removed from circulation?

texts:
It is well known that there is a strong connection between introducing more money into an economy and inflation, as well as removing money and deflation.

However, how does the economy as a whole "detect" if money is removed from it?

A similar question would be how it detects whether the supply of money is increased, but that I could understand and explain better as printing new money is regulated, so the government and banks know about the increase and act accordingly. (yes, I know, printing money is not the only way to produce it, but I would guess creating new debt is also regulated or measured in some way)

I could also explain extreme cases, where the amount of money created or destroyed makes up a significant portion of the total amount. If suddenly such a large amount of money appeared, people would start to buy more things, and as the supply of things to buy is not enough, people will pay more money for it to be able to get it by out-bidding others, so prices increase, and we have inflation. Or if a significant portion of the money supply is destroyed, there is an abundance of things to buy, but not enough money to buy things, so prices will have to be lowered otherwise nobody would buy anything, so we have deflation.

However, by what mechanisms does it happen that small (but not negligibly small) amounts of change in the money supply cause small amounts of inflation or deflation?

For example, if one very rich person would sell off some property in cash or take cash out of bank accounts, and just burn or bury that cash without telling anyone, how would the economy "know" it and by what mechanisms would it cause deflation? The amount in this example is not enough for people to consciously realize that money is missing from the economy so they could adapt their spending habits accordingly.


texts: Mathematical Proof as to why does the total revenue increase when the prices are increased for an inelastic product?

texts: I was recently reading up on the Price Elasticity of Demand and the section of Inelastic demand mentions that if a firm has inelastic demand for its product and wishes to increase its total revenue then it should raise the price of the product. The author has done one calculation to somehow convince the reader, but I think that anyone can conjure numbers just for the sake of argument. I am looking for a mathematical argument that will be rigorous enough to convince me. Please note that I get the intuition behind why this might happen but my textbook does not provide any mathematical reasoning as to why this must happen. Any insights will be much appreciated.


texts: How exactly does QE affect the value of the USD?

texts:
A lot of people on the Internet refer to quantitative easing (QE) as a form of "legal money printing" when it is actually not. As such, many of these folks would thus erroneously say that QE leads to devaluation of the currency as a result of the increase in the supply of physical money. This is clearly not correct as QE increases electronic credit (in the form of their reserves) in commercial banks (as banks provide treasury bills and mortgage-backed securities in exchange), which they can then lend out to borrowers who require these funds.

QE aims to lower interest rates in the economy. I was wondering if the mechanism by which QE effects a devaluation of the currency is through the lower interest rates? That means to say, does QE cause the USD to depreciate because the lower interest rates disincentivises financial investments in the US. Hence, the demand for the USD falls as a result of less investors seeking for USD to buy US financial assets.


texts: How to optimize this dynamical system? Needing guidelines

texts:
I'm trying to solve a growth model, where the author indicates is a dynamical system.
I want to ask if someone would help me with some guidelines of how to optimize this, I've been trying to solve it throw lagrangian but, as it is a dynamical system is not the right method.
The model is a growth model where individuals choice consumption, number of children $$(n_t)$$ ,quality of them in terms of education $$(e_{t+1})$$ and intergenerational transfers $$(s_{t+1})$$. Also it follows that human capital $$(h_{t+1})$$ follows the function $$h_{t+1}=h(e_{t+1})$$.
The optimization problem is to maximize the utility (3) subject to (5) knowing that $$ h_{t+1}=h(e_{t+1}) $$ This is a project where I'm learning on the way and by myself without any guidance, so I will be very thankfull for any help.
Here I leave the functions. The paper is 'Fertility clubs and economic growth' of Ahituv and Moav (2005) and you could find the model in 'Cheap children and the persistence of poverty' Moav (2001)
It does not specify anything about the time of maximization, I tried to solve it as an OLG too but I did not arrive to any result of showed up.
Also it does not specify about any particular t, so I guess I should get a time path.
Thanks!!


texts: Why doesn't Barnes and Noble just lower its prices?

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For my birthday, I wanted a cookbook. So I went to Barnes and Noble and selected it: $40.

Before I got the register I checked it on Amazon: $20.

I started price matching every single cookbook I was interested in and collectively, i could save 60% on Amazon.

So why doesn't B&N just lower their prices already?

Doesn't it make sense to sell 10 products at 0.50 cents each than to not sell 10 products at 1.00 dollar?

Isn't that how that guy who owns all those Family Dollar stores is able to bank? He makes a nickel to a dime for every product he sells but sells many products that he is now banking it?

USNews stated in an article that B&N themselves stated that their prices are so high because they wanna provide for income for their authors and prevent Amazon from becoming a monopoly. Pardon my French, But that sounds like bologna!

Furthermore, they don't price match. Not even with their own online website.

Is B&N slowly slitting its own wrists? Are these stubborn CEOs who just don't want to face reality?

Or is there some economic strategy here? Like they're waiting out something?


texts: Why do banks and stock exchanges close/have fixed hours?

texts:
Banks and stock exchanges all around the world seem to adhere to quite a strict regime of 9-5, Monday - Friday, in the countries local time.

This can have the effect of where an event that happens overnight, causes the market to open at an immediate dip as happened recently on Wall Street in response to economic data from China.

The question is - in today's always-on, all connected world, why does this system still remain? I would have thought that for industry that is all about making money, they'd be the first to be always on.


texts:
Is there any (theoretical?) work on "gamification" in game theory?
I do not have a proper definition of gamification, but StackExchange would be an example. Contributers like us provide a costly service without monetary compensation, but in exchange for fictional reputation points or badges that do not mean much -- other than it being fun to obtain them. I certainly would not post anything without the "game aspect" implying a certain non-monetary payoff that can be designed.
Moreover, it is different than other non-monetary services like organizing workshops or refereeing, which at least have real-life consequences for my professional reputation.


texts: Understanding Vernon Smith's 1962 "An Experimental Study of Competitive Market Behavior"

texts:
Vernon Smith's 1962 paper "An Experimental Study of Competitive Market Behavior" simulates a market using students (who have piece of paper giving their reservation prices). In one of the experiments, the demand/supply curves look like the graph on the left, with the corresponding market activity on the right:

Since there seems to be nothing special about using students in the experiment (i.e. as far as I can tell, they are just performing simple computations), I decided to code up the experiment in Python. My script is here.
When I run the script (which has the same demand/supply curves as above), the market activity typically looks like this:

The market price does indeed hover around $2.00, but my graph seems noticeably more jagged than the graph in the original paper. I'm trying to figure out what's going on, in particular whether:

I'm understanding the paper incorrectly somehow, or
My Python script has some error in it, or
There's some kind of error or unwritten assumption in the paper.


texts: Could a Cap-and-Trade and a Carbon Tax both work together as a system to reduce carbon emissions?

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For example, the European Union currently has a Carbon Emissions Trading Scheme in progress the ETS which acts to cap the amount of carbon dioxide released by large corporations. However, let us imagine, for example that the UK implements a carbon tax, which taxes fossil fuels as they enter the UK (at well, mine or port of entry) based on the amout of CO2 they will emit (at an escalating cost per ton of CO2).

Could these two systems feasibly act and coexist together, or would it simply be double taxing?


texts: Why is FDI included in GDP computation but not in GNP? Similarly why is FPI included in GNP computation?

texts:
I know the difference between GDP and GNP is that the former is confined to domestic borders and the latter to nationals across the world.
I also know that FPI is shorter duration and more volatile than FDI.
I understand why FPI would be excluded from GDP. But why is FPI included in GNP? And why is FDI excluded from GNP?


texts: Did real incomes drop significantly since the 1950s?

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From what I heard, in 1950s America, you didn't have to go to college to support a large family and a stay-at-home wife. People could buy houses easily, drove giant cars and didn't worry about gas prices.

Did real incomes drop significantly since then? What was the cause?
(My college history professor had this pet theory that America gobbled up almost all the world's gold reserves during WW2, and that was what caused its post-war economic boom. Not sure if that is true, but perhaps this effect went away?)


texts:
Prove that the set $X = \{x \in R^L_+| u(x) \geq \bar u\}$ is closed.

Saw this statement in the textbook but I'm not sure how this is the case when we don't have any restrictions on $u(x)$ such as continuity. I can prove this if it is continuous, but I'm not sure how to do it if  isn't.


texts: How to show that the income elasticity of Marshallian demand is equal to unity?

texts:
Suppose that the expenditure function is multiplicatively separable in $\textbf{p}$ and u so that
$$e(p,u) =k(u)g(\textbf{p}),$$
 where k(·) is some positive monotonic function of a single variable, and g: $\mathbb{R^n_{+}}$ $\rightarrow$ $\mathbb{R}_{+}$.

Thank you in advance.


texts: How do you keep up to date and find the most relevant papers?

texts: What tools or methods you use to keep up with the frontier of the field? I follow some specific papers and  authors. I was wondering what's the best way to keep up to date with relevant things with so much information there's available.


texts: Recently I learnt that Cobb-Douglas production function has elasticity of substitution equal to 1, therefore it has neutral technical progress. Then Leontief production function has zero elasticity of substitution. Does that imply that it cannot have neutral technical progress? On the other hand, factors of production in Leontief cannot be substituted for one another so I thought it can never have labour or capital saving technical progress.


texts: How does the taylor rule make the MP curve upward sloping?

texts: I know it's because $\bar n \tilde Y$  is added in but isn't the MP curve chosen by the government?