texts: Can printing money with simultaneous government intervention to increase supply prevent inflation?

texts: Just as above...If we print money and simultaneously introduce some sort of government intervention in order to increase supply/ production, then supply and demand would be 'balanced' and therefore price wouldn't go up. I must be missing something, can anyone tell me what it is?


texts: Yield curve inversion is often a sign of a looming recession, but is there an explanation of this phenomenon other than the fact that historically we have seen that the two phenomena were indeed associated together.


texts: When a bank lends money to a company, does the bank (typically) demand an interest rate higher or lower than the ROE (Return on Equity)? I have always thought they demand a higher interest rate but I am now doubting it. Many thanks in advance.


texts: In my textbook, the shutdown point is defined as the intersection between the average variable costs curve and the marginal costs curve. Suppose Company A has total costs function $TC(q_A)=\frac{1}{2}q_A^2 + 6q_A + 10$. Then its marginal cost is $q_A + 6$ and its average variable cost is $\frac{1}{2}q_A + 6$. Setting those equal I only get zero, does that mean there is no shutdown point? This is part of a bigger exercise where the author says to pay attention to the shutdown points so I imagine it's not zero. What gives?


texts: What does an interior Pareto-efficient allocation looks like in this set up?

texts:
"Had a question on a mid-term paper yesterday (now submitted). One question stumped me a little bit. In particular the "interior Pareto-efficient allocation" part stumped me (I'll explain how I answered after the question). Here's the question:
$$ U_i(c_i)= \sum_{t=1}^{∞} \beta_{i}^{t-1} u_{i} (c_{it}) $$
where $$ 0 <\beta_{^i} < 1 $$ and $u_{i}$ is twice continuously differentiable  with $u_i^′(z) > 0$ and $u^{′′}_i (z) < 0$ and satisfies $\lim\limits_{z \to 0} u^′_i(z) = \infty$ and $\lim\limits_{z\to \infty}u^′_i(z) = 0$.
Assume that all $\beta_i$'s are distinct.
Consider that 1 unit of the good is available at each period.
Describe what interior Pareto-efficient allocation looks like, and explain why."
So, I think my answer is wrong but I wrote that every period has a Pareto efficient allocation because randomly (we don't know how), one agent receives the good and that means their utility increases and the other n-1 agents utility doesn't decrease. Also, there is no production and no exchange, so Pareto-interior allocation (through the form of marginal rate of utilities being equalised) doesn't come into play?
Those are my thoughts. I was pretty stumped.
(I assumed because they were not in the question that the good is not divisible, exchange is not allowed, and that we do not know how the allocation takes place.)


texts:
It is common to taking logs of variables when perform a regression analysis. But the observations will become negative after logs transformation when it is less than 1. Is this the possible concerns?
(e.g. log(0.5) = -0.6931, but log(5)= 1.6094)


texts:
It is well established that Apple holds $181B in cash overseas. This appears to be to avoid US Taxes.

Apple has been doing significant stock buy-backs.

My question is: Can Apple use its off-shore cash to do Apple stock buy-backs tax free?


texts:
If I would like to say, in a technical way, that the problem of a place is its lazy people, then I could say that its workforce productivity is low. However, "workforce productivity" is composed by these elements:

Physical-organic, location, and technological factors;
Cultural belief-value and individual attitudinal, motivational
and behavioural factors;
International influences – e.g. levels of innovativeness and
efficiency on the part of the owners and managers of inward
investing foreign companies;
Managerial-organizational and wider economic and political-legal
environments;
Levels of flexibility in internal labour markets and the
organization of work activities – e.g. the presence or absence of
traditional craft demarcation lines and barriers to occupational
entry; and
Individual rewards and payment systems, and the effectiveness of
personnel managers and others in recruiting, training, communicating
with, and performance-motivating employees on the basis of pay and
other incentives.

In that sense, saying that the problem of a place is lazyness, some advocates would ask: How do you measure it? The answer would be: With workforce productivity. However, those advocates of lazy people could argue that workforce productivity is low because it is affected by any components from 1 to 6.

Is there any technical term to refer lazyness?


texts: testing the relationship between stock price and macroeconomic variables

texts:
I'm in the midst of preparing data to test the relationship between stock index and macroeconomic variables. The variables include m1, cpi, ipi, interest rate, exchange rate. I have some question below:

Is seasonality adjustment on the data required? If one variable is seasonality adjusted,  is that all variables in the models have to be seasonality adjusted as well? If all are not seasonality adjusted,  will there be a problem?
Would it be alright if all data are not inflation adjusted,  that is nominal data?  And if one variable  are inflation adjusted,  is that all must be so to be consistent?
The base period for CPI and IPI is not the same. Is it a requirement for the base period to be the same in the model ?


texts: Resources to learn about banking and financial services industry

texts: Can you recommend resources to learn about how the banks and modern financial system work?


texts: Cobb Douglas relation with uncompensated law of demand

texts: Does a Cobb Douglas or homothetic function satisfy the uncompensated law of demand?


texts: Cartel profit maximizing quantity question (Cournot game)

texts:
Find the Nash equilibrium of Cournot’s game when there are two firms, the inverse demand function is P(Q) = α – Q when α ≥ Q and 0 otherwise, and the cost function of each firm I is Ci(qi) = qi2. If the firms collude in this situation to create a cartel to maximize their profits, how much would each firm produce?

I'm able to find the Nash equilibrium quantities when there is no collusion - however, I'm stuck on the cartel part.

We want to find joint profit maximizing quantities under collusion here. When the marginal cost to each firm is constant this is easy to do, since $C(Q) = C(q_1) + C(q_2)$. However, in this case, $C(Q) = q_1^2 + q_2^2$.

Thus, our joint profits are $\pi(Q) = Q(\alpha - Q) - (q_1^2 + q_2^2) \neq Q(\alpha - Q) - Q^2$. I'm not sure how to take this first order condition (with respect to $Q = (q_1 + q_2)$) given the non-linearity of the cost functions. Any ideas as to how to solve this would be greatly appreciated (not looking for a direct answer; simply a nudge in the right direction).


texts: Is there fundamental economical reasoning for patriotism?

texts:
Patriotism is an emotional attachment to a nation which an individual
  recognizes as their homeland.

That is description from Wikipedia and I think it is safe to say that universally all countries in the world trying to create their patriotic agendas. Sometimes it seems natural as it is with deep roots in history, culture. Sometimes it looks very like a ”project”,especially for relatively new countries.
I am wondering, is there fundamental economical reasoning for that?
For example, patriotism can lower cost of armies that in one or other history moment helps for country to survive or helps to create more stable economical system and so on.

Is there any research made in economical reasoning for patriotism? If anyone could give any links to articles or books or just give insights what is economical reasoning for patriotism (if there is one).


texts: Does anyone recognize the shape of this residuals vs. fitted plot?

texts:
Hello Stack Exchange community,

I'm running a regression on a survey dataset which consists of 45,381 individuals in 36 countries using Stata.  My model is specified as:

reg income religious `controls' [pweight=Combinwt], cluster(village)

where Combinwt is the probability weight and standard errors are clustered at the village level, since the survey is performed by randomly choosing villages in a region and then randomly choosing individuals within that village.

When I ask Stata to produce a residuals vs. fitted plot, this is the result:

I have never seen an rvf plot that looks like this before.  Does anyone have any ideas for what could explain the shape of the plot?

Best regards,


texts: How can I prove $∇U(x).D_m x(p,m)= \text{shadow price}$?

texts:
Why inner multiplication of the gradient of utility function in derivative of demand function with respect to income is equal to shadow price?
This is the equation which is given but I don't know where it comes from, I would be grateful if sb can give me a hint


texts: A Special Case of Difference-in-Differences

texts:
I remember reading a paper where the Difference-in-Differences was a bit special, but I had forgotten the details. My recollection was

Two time periods, specifically one time period before treatment and one time period after treatment.
The "treatment" was such that all firms had to comply with a certain share of a variable X.
The treatment group consisted of firms with very low (or zero) share of X before the treatment, and
The control group consisted of firms with a share already close to the required share of X before the treatment.

The idea was that the treatment group received most of the shock, while the control group was little affected.
Do you know a paper that uses such a framework?


texts: Faulty reasoning in two person card game problem

texts:
I was asked this question in an interview: There are two people Mike and Cheng with one blank card each. Both write either a '0' or a '1' on it without showing the other while writing. They then simultaneously show their cards to each other. If the payoffs are as follows depending on the cards shown:

1,1: Mike pays Cheng 3

0,0: Mike pays Cheng 1

1,0: Mike receives 2 from Cheng

0,1: Mike receives 2 from Cheng

Is this game fair?

Using game theory I reason: Cheng will always play 1 because his payoff from 1 is (-2 or 3) as opposed to his payoff from playing 0 which is (1 or -2). Knowing that Cheng will prefer to play 1, Mike always plays 0 to get a payoff of 2. So the game is unfair to Cheng.

But I also reason: Mike will never play 1 because he has a payoff (2 or -3) vs playing 0 which has a payoff (-1 or 2). So Mike will always prefer to play 0 (this is also inline with the above reasoning). Knowing that Mike will always prefer 0, Cheng always plays 0 so Mike gets -1 every round. So this game is unfair to Mike.

Regardless if the game is played one round or many rounds, I am unable to conclude which is correct.

Can anyone help explain why I am getting conflicting results?

PS: Later the interviewer told me that the game is unfair and Mike always wins.

PPS: I apologize in advance if I have made any mistakes in the posting - this is my first post.


texts: Textbook/Reading Suggestions for Urban Economics

texts: I have a pretty straightforward question. What sort of textbooks or graduate readings are there for urban economics that you would personally suggest and why? Preferably I would like one that has practice exercises/proofs in them that I can use. I've seen a few books that look like graduate texts out there, but don't know much about what's in them, so I figured some people here might.


texts: t test and F test are equivalent under single restriction case

texts:
In Classic linear regression model, under the single restriction
$$y=X\beta +u$$
$$H_0: \beta_j=0$$
If I apply t test, then the t statistic is derived as follows
$$\frac{b_j-\beta_j}{s\sqrt{a_{jj}}}$$
Where $b_j$ is OLS estimate of beta. And $s\sqrt{a_{jj}}$ is the estimated standard error of $b_j$.
I can use F statistic
And F statistic is as follows:
$$\frac{e_R’e_R - e’e}{e’e}.(n-k)/k_2$$
where $y= X_1\beta_1+X_2\beta_2+u$
I write the same regression in the partitioned form.
My question is that how I can show these two are equivalent for single restriction?


texts: Listed property price v.s. transaction price

texts:
A house may be listed at a certain price (e.g. £200,000), but sells for a different price (e.g. £210,000).

In terms of economic theory, how does the transaction price tell us more information than the listed price?

Most papers use listed price because of data availability, and then state that it is more preferable to have transaction price. Why is this the case?


texts:
I was solving for a stable equilibrium in the following 2 player zero sum game. I need to calculate the equilibrium using maxmin and minmax strategies. In this game they should come out to be identical and coincide with the mixed strategy Nash's equilibrium.

                            P2
                   L                R
       L       (0.6,0.4)         (0.8,0.2)

P1

      R        (0.9,0.1)         (0.7,0.3)

If I solve it formally, the expected payoff of P1 will be the expression:

E = { 0.6(pq) + 0.8p(1-q) + 0.9(1-p)(q) + 0.7(1-p)(1-q) }

where p is probability of P1 playing L and q is the probability pf P2 playing L. Now, P2 is trying to minimize E keeping in mind that P1 is trying to maximize it

i.e. min max {E}

and P1 is trying to maximize E keeping in mind that P1 will try to minimize E
i.e.

max min {E}

and vice versa.
Essentially both strategies played simultaneously should give the same equilibrium. How to go about it, I am stuck in the maths part of the problem now.


texts:
A thought experiment: (Based on my understanding of economics)
Suppose we are guaranteed that no natural calamity/war/pandemic happens for one year (from year $0$ to year $1$) in the world. Then the scientific knowledge ($K_{year}$) of the world is $K_1 \geq K_0$. Hence we are reducing the scarcity of resources which would lead to a higher quality of life (or more precisely cheaper goods while the income remains the same). But my practical experience says that things actually get expensive with each year (although it is also noteworthy that income also rises) because the government prints extra money to account for an increase in $K_i$.
My problem is that although logically both idea looks the same (i.e. good getting cheaper with a constant level of income  $=$ income growth outpaces prize increase ), I find the latter method mathematically more complicated. Given that in all branches of science, we describe things in the least complicated way, then why is that economics is done in a more complicated way as shown above. From my perspective, the amount of money in an economy should remain constant (apart from replacing the old torn bills with a brand new one) and things should get progressively cheaper until we reach a technological utopia where everything becomes free.
A possible explanation to my question: By not increasing the money flow, we are not able to reward the individuals who brought about the technological advance as the things get cheaper uniformly for everyone, whereas if we print the extra money, then that extra money goes to person responsible for the change).
I would like to hear your comments/criticism on the accuracy of my understanding.
P.S. I am using money in a broad sense which would also include things like property etc.


texts:
I am looking around at a lot of the central banks around the world (primarily ECB, Fed, and BOJ) and they all seem to be simply printing their way out of any issues with their economies. As far as I understand, this is the central component to MMT. Is this sustainable without collapsing currency? I can't understand how massive supply increase doesn't led to reduction of purchasing power of a currency.
Additionally, will the low-rate environment remain permanent? I can't imagine the Fed, for example, raising rates substantially as 1. It would tank most assets and 2. It would make the already incredibly unwieldy sovereign debt that much harder to manage. It would seem we are locked into an endless money printing path that essentially can't be stopped without immense pain. Am I right in this understanding?


texts: Minimization of costs combination of factors of production

texts:
Given the production function $D(x,y,z)=\min\{2x, \left( 2y+4z\right)\}$, and knowing that P-price $P_x=30,P_y=20,P_z=5$ and volume of production $D=200$. How much of x,y and z is needed to minimize the costs?

I know that i should write:
$2x=2y+4z=200$ but how to find proper values for x,y and z? I general i think i should write this because those factors are complementary thus each of the "components" of the function should be equal to 200 which is the production volume.

The only thing i've managed to do is to guess the numbers: $x=100,z=50, y=0$.
Is there a method to justify that those numbers will minimize the function?


texts: Regulatory differences between stocks and bonds

texts:
If you buy stocks of a company you are buying a share in that business.
If you buy bonds from the same company you are essentially loaning them money for future payment.

I am guessing (correct me if I am wrong!) that if you buy a bond the terms of repayment have to be very concrete, i.e. you get 2 dollars next year and 10 after that. Otherwise they could tag the repayment to the stock price and what you would have is a bond that behaves like a stock with automated dividends.

My question:
What body of law governs what you can and cannot promise in a bond contract and what agency is overseeing this? (Corporate law and the SEC?) I am most interested in the US setting, but info about other countries is also welcome.

A secondary question is what big practical differences between stocks and bonds the regulation causes. (The common economics/finance wisdom is that stocks have higher yields but bigger 'risk'. I am more interested in practical differences that lie in the mechanisms, such as bond owners having precedence in case of bankruptcy.)


texts:
According to Bloomberg, the coupon rate on a 10-year UK government gilt is 4.75%. Bloomberg also states that the yield is currently 0.47%, and the market price £144.57.

The UK Debt Management Office (https://www.dmo.gov.uk/responsibilities/gilt-market/about-gilts/) states that:

  The prices of conventional gilts are quoted in terms of £100 nominal.

So with a coupon rate of 4.75%, this would mean that the annual coupon payment on a 10-year UK government gilt is £4.75:

$100 \times 0.0475 = 4.75$

But if the following formula is correct:

$Current$ $Yield = \frac{C}{P}$

Where:

$C$ = Annual coupon payment

$P$ = Bond price

Then according to the formula, the yield should be $\frac{4.75}{144.57}\approx3.29$%

Clearly this isn't the case. So where did I go wrong with these calculations?


texts: Are these two derivatives the same with regards to TR?

texts:
Given that Marginal Revenue is change in Total Revenue:

TR = P*Q
P = f(Q)
TR = f(Q) * Q
MR = dTR/ dQ

Or

TR = P*Q
Q = f(P)
TR = f(P) * P
MR = dTR/dP

Which of these approach is right? My end goal is to relate revenue to elasticity. Does it matter how I arrive to it?


texts: Is there a game that cannot be represented by a game tree?

texts:
Is there a finite game that cannot be represented by an extensive form or a game tree?

I know that many games are too long and complex to be represented by a tree of a reasonable size, but that's not what I'm looking for because it is in part a computational limitation.

Instead I wonder if there is something simple out there that just doesn't fit into an extensive form? All the books that I've read say something like

  Various games can be represented by trees

But I haven't seen "all games" claim anywhere. Are there any known exceptions?


texts:
I'm interested in estimating the effect of the $event_t$ variable in the price volatility of a financial instrument with the following model
$$V_t = \beta_0 + \beta_1 \ |\Delta p_t| + \beta_2 \ event_t + u_t$$
where $t = \{0, 14, 28, 42, 70, \dots ,364\}$ represents the first day of every odd week; $\Delta p_t = p_t - p_{t-1}$ is the price difference between the current day and the day (not two weeks) before; $V_t =  \frac{1}{5}\sqrt{\sum_{i=t+2}^{t + 6} \Delta p_i^2}$ is the volatility in the days (not weeks) after the event; and $u_t$ is the error term.

I can safely assume that the market is efficient in the sense that two-week-old  prices don't help to predict the price of the current week. i.e. $E(p_t| p_{t-14}, p_{t-28}, \dots) = E(p_t)$. However, this assumption doesn't guarantee there in no serial correlation between $p_t$ and $p_{t-1}$.

If the case was with $t= \{0, 1, 2, 3, 4, \dots ,365\}$, then test for serial correlation would make sense to decide if I estimate the model using methods such as OLS or Cochrane-Orcutt. Since I'm taking a biweekly series with the dependent variable lagged by a day, I'm not sure if I should test for serial correlation. And if so, how?

Edit
Following @markleeds advise, a more sensible model is do a daily regression and add a dummy variable when the event occurs:

$$V_t = \beta_0 + \beta_1 \ |\Delta p_t| + \beta_2 \ d\_event_t + \beta_3 \ d\_event_t \cdot event_t + u_t,$$

with $t = \{1, 2, 3, \dots ,365\}$, $d\_event_t$ is a dummy that takes one when the event occurs and zero otherwise; $event_t$ is a continuous variable; $\Delta p_t = p_t - p_{t-1}$ is the price difference between the current day and the day before; $V_t =  \frac{1}{5}\sqrt{\sum_{i=t+2}^{t + 6} \Delta p_i^2}$ is the volatility; and $u_t$ is the error term.


texts: Has there been an applications of search and matching theory in the Neoclassical Growth Model?

texts: Specifically, I am looking for the standard neoclassical growth model, but the labour decision is based on either search or matching theory instead of a Walrasian labour mechanism.


texts: How does an import quota affect the demand / supply of currency?

texts: An import quota in an open economy might not have the desired affect of increasing the GDP as it increases the demand of domestic currency in the open market raising exchange rate. How does it happen that import quota causes demand to shift positively ?


texts: Original data Altman used for his z-score formula

texts:
At our university we are researching the usefulness of failing (bankrupticy) prediction models. We are interested in the original datasets Altman used for his models. Does anyone know where this datasets can be found?
We have the same question for the datasets Ohlson used.


texts: Will US Treasury and Federal Reserve's expansionary policies in 2020 crowd out?

texts:
Scott Minerd, CIO of Guggenheim Investments contends

  What could go wrong with my outlook? We are already in uncharted territory and another black swan might emerge in the midst of a very fragile market. Or a second-order event could create irreversible damage such as large default volumes in the emerging markets. Risks from reopening the economy are two-sided: State and local governments could ease up on lockdown restrictions, the spread of the virus could prove to be manageable, and the economy could come roaring back—unlike what we’ve predicted, which is more of a checkmark-shaped recovery than a V-shaped recovery. On the other hand, the easing of restrictions could lead to a second spike in the coronavirus that is even worse than what we have already lived through, leading to a new leg down for the economy and markets.

  Another risk is the Treasury itself. The Fed will need to conduct another \$2 trillion of QE this year to keep the Treasury market functioning given the size of the deficit. Net coupon issuance for the rest of 2020 will approach \$1.5 trillion, and net bill issuance could add another \$2 trillion. There is just not enough available credit in the world to absorb all of these Treasury securities without crowding out other borrowers. If at some point markets begin to question the efficacy of QE, or the Federal Reserve is perceived to be behind the curve in making necessary asset purchases, we could very well get a tantrum in the Treasury market, which would likely spill over into a tantrum in corporate credit, and into the stock market.

Is Minerd correct the world doesn't have "enough available credit" "to absorb all of these Treasury securities without crowding out other borrowers"?
Has US Treasury publicly addressed this crowding out? Do they also think they'll crowd out private investments? If so, how will they counteract?
Same question as 2, but for Federal Reserve?


texts: Return on two different ways to construct a portfolio

texts:
I run the following regression:

$$r_i-r_f=a+b(r_m-r_f)+e
$$
Now I see that the alpha is not zero and I construct two different zero cost portfolios:

1) 100% long in ($r_i-r_f$) and -b short in ($r_m-r_f$)

2) 100% long in $r_i$ -b short in r_m and borrow/short (1-b) on$ r_f$

I have problems determining the expected returns of the two portfolios and determining if they are the same.

I would appreciate your help a lot!


texts: Subgame Perfect Equilibrium with Pure Strategies in Sequential Games

texts: If I have a sequential game, i.e. in each node (that I will call $t$) only one player choose an strategy from a finite space of strategies, Is it true there always exist a subgame perfect equilibrium in pure strategies? My intuition says me "yes", because at node $t$ a player could take the strategies from $t+1$ as given, and order all the available options where at least one would be the best (may be not unique, of course). If what I say it is true, I would very grateful to know who makes the proof or where to find it.


texts: Domestic Demand, Private Consumption, Public Consumption, Gross Fixed Investment Relationship

texts:
I'm reading the IMF's January 2016 Report on Sweden's Economic Indicators, and the top section has the following:

Domestic Demand (2012) Percent Change: -0.6

Indented below are:

Private Consumption (2012) Percent Change: 0.8
Public Consumption " ": 1.1
Gross Fixed Investment " ": -0.2

I think the final one, Gross Fixed Investment, is the same thing as Gross Fixed Capital Formation? Although if someone could clarify, that would be useful.
My main question is, should Private Consumption, Public Consumption, and GFI all equal to Domestic Demand? My thinking was that domestic demand constituted these three elements (hence why they were indented), and some sort of weighted combination of them should give the -0.6% change drop in domestic demand?


texts: Consumer preference and price in the Cobb-Douglas function

texts:
I believe I’m using the most basic version of Cobb-Douglas: $U(x,y)=x^\beta * y ^{(1-\beta)}$.  The question I have is: in this example would a consumer’s preference ($\beta$) change if the price of either X or Y changes?

I.e., when presented with several options of a  good at different prices the budget line will change for each.  Given this change the indifference curve will at least shift, if the entire function doesn’t change altogether (different total Utility due to a different basket of goods).

This question is came up when solving for beta and utility using actual data where 1 good is X and the other is all goods not X (income less spend on X).

Got started solving for beta after seeing how they solved for the total derivative here.


texts: Difference between 'Internal Debt' and 'Market Loans' in RBI public debt statistics

texts:
While perusing RBI public debt statistics, I am at my wits end in trying to figure out the table headers.
I am unable to sum up any combination of them to get any other.
Specifically, what is the difference between 'Internal Debt' and 'Market Loans'?


texts: What are some good advanced level textbooks on public economics?

texts:
I'm taking a public policy course and the textbooks that were recommended for the course are way out of sync with the course material. These are:

Gruber, Public Finance and Public Policy

Stiglitz, Economics of the Public Sector

Which are all well and good, except they are too basic.

For example, in class we've derived the Samuelson condition using Lagrange multipliers and analyzed how it differs from the equilibrium with voluntary contributions. But there's nothing of the sort on these textbooks.

Our course outline is as follows:

1.    State intervention in the economy

a.  Efficency

b.  Fundamental Welfare Theorems

2.    Market failures

a.  Absence of competition

b.  Externalities

c.  Public Goods

d.  Information issues

e.  Incomplete markets

3.     Public Goods and the Public provision of Private Goods

a.  Public goods: efficiency conditions

b.  Public provision of Private Goods. Rationing systems

4.    Externalities

a.  Theory of externalities

b.  Private and public sector solutions

c.  Distinction between the use of prices and quantities in solving externality issues

5.    Social Choice

a.  Issues with preference aggregation. Arrow’s Theorem

b.  Different voting systems. Median voter theorem

c.  Social welfare functions: utilitarianism, Rawlsian criteria and intermediate
cases

6.    Taxes

a.  Introduction to taxes

b.  Fiscal incidence

c.  Inefficiencies derived from imposition and their consequences for optimal
taxes

d.  Taxes and labor supply, saving and decision making

e.  Fiscal reform

I would appreciate immensely any sort of guidance on this front.


texts: Empirical tests for symmetry of cross-price elasticities

texts:
It is a well known fact in consumer theory that for a Hicksian demand curve the cross-price elasticity of good $i$ with respect to the price of good $j$ equals the cross-price elasticity of good $j$ with respect to the price of good $i$. This result (iirc) depends only on the utility function being continuous and so has great generality.

Of course, no consumer is actually Hicksian (though firms of course are) but the vast majority of goods take up only a small portion of a person's expenditure and so we expect the income effect to be small, and so the consumer de-facto Hicksian. What is the empirical status of this prediction? Do economists agree with my claim that most consumers are de-facto Hicksians? If the answer to the second question is no, have similar empirical tests been done for firms?


texts: Everyone has the same marginal rate of substitution

texts:
I'm currently reading Varian's Intermediate Microeconomics and what struck me, is this statement on page 89 of the 8th edition.

  If everyone faces the same prices for the two goods, then everyone will
  have the same marginal rate of substitution, and will thus be willing to
  trade off the two goods in the same way.

I mean, I see the mathematics behind it, but it still seems kind of hard for me to grasp intuitively. Could someone provide me with examples or another explanation to clear things up ?


texts: Am I using quantity and price correctly in trying to calculate price elasticity of supply?

texts:
The problem I am considering involves a firm that is a price-taker and sells its good at price $p$. From the production function, I calculated the cost function and the profit-maximizing level of output. This allowed me to define my quantity supplied in terms of price. I got

\begin{equation}
q(p) = \frac{p}{2c}
\end{equation}

where $c$ is a constant.

I want to calculate price elasticity of supply.

\begin{equation}
E_s = \frac{dq}{dp}\frac{p}{q}
\end{equation}

Thus, I got
\begin{equation}
\frac{dq(p)}{dp} = \frac{1}{2c}
\end{equation}
Here's where I am confused:

Can I now just multiply that derivative by $\frac{p}{q}$ to get the price elasticity of supply? My confusion is that $q(p)$ is a function of $p$. So am I supposed to merely multiply by  $\frac{p}{q}$ or $\frac{p}{q(p)}$?


texts: Do Central Banks pay interest on reserves?

texts:
In deposits, banks pay an interest to the lender. Similarly, do the CBs pay an interest on bank reserves?

Any help would be appreciated.


texts: Are US federal reserve notes money, or merely currency?

texts: I have heard from my friend that US federal reserve notes (aka dollar bills) are not actually money, but merely currency. He told me that money and currency are different, and that money is currency with some extra properties. That is, all money is currency, but not all currency is money. What is the truth of this? Is it the case federal reserve notes are merely currency, and not money as is usually thought?


texts:
I'm working on my master's thesis in industrial organization and I have a model that is based on social networks. I have had two courses about social networks (one more focused on basic industrial organization questions in networks and the other more about basic graph theory) but as I work more on the model I feel I'm not really using the network in solving the questions that arise and leaving it more as a descriptive structure, and I fear it is mostly due to ignorance.

Can anyone refer to a good book, class notes or papers that might help me learn more deeply the implications of the network structure and/or the pros and cons of modeling a problem as a network? For example on how the network structure might be helpful when trying to determine existence of equilibrium.


texts: Who created the concept of "present value"?

texts:
I cannot find anything on this online. The wikipedia article is purely technical, except by a mention that such system was used in England in early 16th century.

Do you know who was the first to come up with this idea and technique?


texts:
This problem is an example given in Vijay Krishna's Auction Theory (2nd Edition, Chapter-6, Example 6.2). The problem is as follows:

Suppose $S_1,S_2$, and $T $ are uniformly and independently distributed on $[0,1]$. There are two bidders.Bidder 1 receives the signal $X1=S1+T$,and bidder 2 receives the signal $X_2=S_2+T$. The object has a common value for both the bidders, $V=(X_1+X_2)/2$.

Now, we are required to find out the bidding strategy for a first price auction. The equilibrium bidding function is given as $\beta(x)=\int_0^xv(y,y) \,dL(y|x)$. $L(y|x)$ is further equal to $\exp(-\int_y^x\,\frac{g(t|t)}{G(t|t)}\,dt)$.

I have four questions:

  How are $X_1$ and $X_2$ affiliated?
  How is $\frac{g(t|t)}{G(t|t)}$ calculated in this example?
  How do I find the joint density of $X_1$ and $X_2$?
  How do I find the conditional density of $X_2$ given that $X_1=x$?


texts:
I've just started to read an excellent textbook "Macroeconomics" by Gregory Mankiw. In the beginning he explains how economists think:

  Young children learn much about the world around them by playing with toy
  versions of real objects. For instance, they often put together models of cars, trains, or planes. These models are far from realistic, but the model-builder learns a lot from them nonetheless. The model illustrates the essence of the real object it is designed to resemble. (In addition, for many children, building models is fun.)

  Economists also use models to understand the world, but an economist’s
  model is more likely to be made of symbols and equations than plastic and glue.

Then he explains what endogenous and exogenous variables are and

  To make these ideas more concrete, let’s review the most celebrated of all
  economic models—the model of supply and demand

The above is obviously a toy model of Supply and Demand. But since nobody will start building a new car having only a toy model of it, I suppose that there must be some empirical research showing how Supply and Demand curves behave in real life and how equilibrium is reached which are used by economists for decision-making etc.

Is there any article or probably textbook which contain an example of working model (i.e. an opposite of the toy model) of Supply and Demand?  I'd like to grasp the difference between toy and working model of Supply and Demand.


texts: Is there a term for the personal wealth that is not used to generate income?

texts:
A rich person can own companies, shares, houses used for renting etc. that are worth billions of $US. That is the wealth that is generating income. I would call it income-generating wealth or income+jobs-generating wealth or growth-generating wealth

On the other hand, the rich person can own wealth like cash, bank accounts, houses, yachts, land used for playing golf etc. that is not used to generate income - this is a wealth that he is using for enjoying life. I would call this wealth leisure wealth.

A rich person can have an income-generating wealth worth billions of $US and in the same time it can have a leisure wealth that is close to zero. He/she can also have an income that is equal with the medium income. And then he/she can have only his own wage as a leisure wealth.

There are fundamental differences between the income-generating wealth and leisure wealth

The income-generating wealth is actually used to spin the wheel of the economy and it is also directly creating jobs.
In the same time, the leisure wealth is used by the rich person in order to actually live like a rich guy - or to live like an average citizen - depending of his/her choice. The leisure wealth is owned on personal name (not assets owned by a company of the owner) and it's for personal use - i.e. not used by any clients (like the houses for rent)

I think there should be distinct terms for the two in order to make a clear distinction between them.

Is there an already invented term for the wealth that I'm calling leisure wealth?


texts: Critiques to Mankiw, Romer, Weil (1992) paper on Economic Growth

texts:
I'm searching for bibliography on the critiques to the Mankiw, Romer, Weil (1992) paper.

If possible, could you give references to each critique?

Any help would be appreciated.


texts: If all of LATE (Local Average Treatment Effect) assumptions is satisfied?

texts:
I would like to know intuitive and specific interpretation of LATE.
If all the assumptions for LATE is satisfied, we can say that the Instrument Variable (IV) has an effect to estimate X on Y. Also, LATE provides a consistent estimate of the average treatment effect "only" for a subgroup of the population (Compliers). It does not measure the effect of the treatment or everyone (ATE).

Is there more things to be added? Thanks in advance.


texts: How to find right MRP_L in this economic problem?

texts:
Economic problem from my textbook (here is my translation from Russian):

There is a firm that is both monopoly and monopsony. It's monopoly on market of its product and it's monopsony on labor market (i.e. one and only employer). Demand function for its product is $ P=160-Q $ , its production function is $ Q=2L $ . Labor supply is $ L=W - 140 $ , where $ L $ is number of person-hours and $ W $ is price of one person-hour. You need to find such $ L $, that it would maximaze profit of the firm.

I tried to solve the problem, but it seems like something is wrong with my solution. I tried to use $ MRP_L=MC_L $ and solution in the book uses the same formula. $ MC_L $ is the first derivative of $ TC_L $ , and $ TC_L $ is $ L * W $. Thus $ TC_L=L * W=L *(L+140)=L^2+140L $ (I used the labor supply formula to express W). Therefore $ MC_L=(TC_L)'=(L^2+140L)'=2L+140 $. The solution in my texbook agrees that $ MC_L=2L+140 $

Things started to be messy when I tried to calculate $ MRP_L $.  My textbook says that $ MRP_L=MR * MP_L $

I found $ MR $ as the first derivative of $ TR$, $TR=P*Q=(160-Q)*Q=160Q-Q^2$ therefore $ MR=(TR)'=(160Q-Q^2)'=160-2Q $

As for $ MP_L $, I found it as the first derivative of the production function, $(2L)'=2$. Thus $ MP_L=2 $

From this I can conclude that $ MRP_L=MR*MP_L=(160-2Q)*2=320-4Q=320-8L $

Yet in the solution it's said that $ MRP_L=160-8L $

I have no idea how they got this.


texts: Aggregated demand of households given utility function

texts:
I have an utility function given,

$\ u_j(q_{j1},q_{j2} )=q^{3/4}_{1j}*q^{1/4}_{2j}  $

$\ s.t.:  y=p_1*q_{1i} +p_2*q_{2i}$

I do know that the for $\ q_{1j}$ the marginal prospensity to consume is 3/4 of y given prices $\ p_1$.
But I dont acutally get how my teacher calculated the aggregated demand:
$\ q^*_j(p_1,p_2)=(\frac{1/4y}{p}, \frac{3/4y}{p}) $.

I  set up the Lagrangean but then end up with $\ p_1=\frac{1}{3}\frac{q_2}{q_1}*p_2$, which does not seem too helpful for me.

Can someone give me a hint how to derive aggregate demand from a given utility function, please.

Thanks


texts: Are democracies more economically productive than autocracies?

texts:
The book The Dictator's Handbook claims in several places that democracies are more productive than autocracies. It's central to their argument of lower taxation rate in democracies giving more wealth than higher taxation in autocracies.
They further claim that democratizing an autocratic nation will make everyone more productive, and increase wealth available in the country.
Is this true? Is it accepted among economists that democratization leads to wealth?


texts: Regression design, difference in differences

texts: I plan to look at the regional differences of a policy effect. I would like to use the difference in differences approach however I am not sure how to assign a control group. I have data for time periods before and after implementation for the same regions. However, the policy was a national approach to improve a particular issue the nation faces meaning the policy was non-excludable. Any advice ?


texts: Why is the Australian Government financing the stimulus via debt rather than the RBA?

texts:
The Australian Government is engaging in quantitative easing for the first time. The RBA is creating money that is being used to buy bonds on the secondary market so that there is enough liquidity for banks and financial institutions to buy new bonds to fund the covid stimulus measures.

Why are financial institutions necessary as an intermediate step? Why not fund the measures directly from the RBA without introducing additional debt (and the associated interest)?

I'd also be curious to know if Modern Monetary Theory has a different answer to this question than conventional economics.


texts:
I do not have any background on economics. So my question might sound too simple and I hope it to be clear enough. I am curious about the following:

Is there any formal definition of a relationship between resource availability and demand? Intuitively I would expect that resource shortage, demand would increase. But this is not expected by the law of demand, assuming that the price of the resource would increase. Am I confusing something here?

Thank you,
best

EDIT 1: @Brythan Thank you for your answer. @EnergyNumbers and @erik thank you for your contributions. They were very useful to understand these concepts deeper. I was reading a little more about this and I wonder if the concept of scarcity is instead better applied here. I reformulate my question:

(1) does supply-induced scarcity implies that demanded is greater than supply?

(2) what is the correlation between supply-induced scarcity and quantity demanded?

EDIT 2: To be more clear, I understand that scarcity does not necessarly refer "to whether a good is in shortage or surplus, nor to whether there are only a few or whether there are many". That is to say that scarcity is not the same as availability. Instead, scarcity "refers to the possible existence of conflict over the possession of a finite thing" (https://mises.org/library/goods-scarce-and-nonscarce). The scarcity of a good (or a resource) happens when supply is not sufficient to meet the demand. "Supply-induced scarcity occurs when environmental degradation, pollution, natural variation or a breakdown in the delivery infrastructure constrains or reduces the total supply or local availability of a specific resource. As the supply of natural resources is reduced, options for pursuing productive livelihood strategies are undermined, potentially creating competition between livelihood groups." (http://www.un.org/en/events/environmentconflictday/pdf/GN_Renewable_Consultation.pdf). That is, supply-induced scarcity is correlated with the resource availability.

Now concerning the questions (1) and (2), it seems reasonable to say that in circumstances of supply-induced scarcity, when a decrease on the availability of a resource happens, because supply is not sufficient to meet the demand, the quantity demanded is higher than in circumstances closer to equilibrium. Does this make sense to you?

Now returning to my original question:

Is there any formal definition of a relationship between resource availability and demand?

I do not know how to answer it. But taking into account the conclusions above it seems plausible to say that there is a relationship between resource availability and quantity of demand (instead of demand): in circumstances of supply-induced scarcity the quantity of demand may increase.

What do you think?


texts:
Granted, I expect this question could be easily answered, but I cannot find a definitive reason as to why income tax is pinned at such a high rate in the United Kingdom.

I'm not much of an economist, but I do understand the function of national insurance, and I do understand the function of a tax to fund the various essential organs of the state (Monarchy, Government, Parliament, Intelligence Services,and Defense and Protection forces). However, I don't get why, if I earn around 40k (Sterling), a large portion, around 15% (which is around 5-6k), is taken for income tax.


texts:
Consider a simple static, incomplete-information entry game.
 Two players, $i=1,2$. where player $1$ is new entrant, and $2$ is incumbent.
 Player 2 can be two types: rational or belligerent, with common prior $(p,1-p)$ over her types.
Action set: $A_1=\{Enter, Out\}$, $A_2=\{Fight, Accomodate\}$

When we turn this extensive form game into normal form, we compute the expected payoff for each pair of strategies $(x,zy)$ where $x$ refers to what player 1 chooses at the information set, and $zy$ refers to what player 2 chooses in case of each type.

My question:
 When we make this incomplete information game into a complete-imperfect one, we introduce Nature and let her draw the type for player 2. However, she knows her type when she is called upon to move, so why do we calculate an expected payoff for player 2 when converting the game into an normal-form? Is this because when we collapse the extensive form into the normal-form, player 2's pure strategy set takes into account each type that she can be (rational or belligerent), thus she is also forced to calculate an expected pay off? I mean, for any pair of pure strategy set, you have to deal with two terminal nodes and their payoff, so it makes sense in this perspective, you need some sort of expected payoff calculation. But it seems odd that player 2 who supposedly knows her type also has to form expectation on her payoff.

My guess is the way strategy is defined in incomplete information is that it prescribes each type of a player what she should do if this is the type Nature draws. So, as long as the cardinality of type space is greater 1, any pair of pure strategy will force each player to face more than 1 terminal nodes (eg. $(Enter, (Fight, Fight)$).

It just sounds odd that all along, Harsanyi allows a player's type to be unknown only to other players, but in the end, no matter what, whether you have various types or not, the payoffs must be computed in expectation.


texts: Microeconomics theory and integration by parts (proof).

texts:
I understand this part: $\int x^\prime (z)F(z) dz+\int x(z)f(z)dz=\int zf(z)dz \rightarrow \int \frac {dx}{dz} F(z) dz+\int x(z)\frac {dF(z)}{dz} dz=\int zf(z)dz \rightarrow x(z)F(z)= \int_{0}^z tf(t)dt$

Then, the author says obtain the following solution by integration by parts.
$x(z)=z-\frac {\int_0^zF(t)dt}{F(z)}$

I don't know which term should I integrate so that I get to that result.

Thank you in advance.


texts: Why do exports include only hard products?

texts:
Looking at country lists by exports.
Diving into exports always shows things like gas turbines, computer hardware, petrolium -- all physical things.
None show things like exporting services: financial services, engineering consulting, licensing software. I would imagine that would be a considerable component in countries like UK. In some countries medical tourism might bring considerable revenue.
If traditional export metric is for hard products only is there a metric that encompasses service export as well? And is there any data on account balance (export - inport) of countries with services included?


texts: How would profit from labor exploitation be possible in a relatively competitive market?

texts:
Marxists often state that capitalists exploit workers by paying them less than than their labor is worth. The extraction of this surplus value results in profit.
I'm wondering why this would be possible assuming most markets are fairly competitive.
It seems like if labor is really producing so much value that profit is possible, other companies would come along and snap up those workers with higher wages and eventually profits would minimize.
But this doesn't seem to happen. Most industries are quite profitable.
And the general trend of wealth accumulating in the upper class suggests that a balance has not been reached.
I have seen it suggested that we shouldn't need minimum wage because it forces companies to pay people more than their labor is worth, but if that were true, it seems like profits should already be small.
I understand that the situation differs considerably between industries, but the overall trend seems to be that most industries are able to be fairly profitable.
Would it be fair to say that while wage labor isn't inherently exploitative, most industries have some sort of market failure (externalities that result in only a few large companies, etc...) so in practice most wage labor IS exploitative (i.e. workers are paid less than the value of their labor)?


texts: Is Adam Smith's "stock" an archaic version of "capital"?

texts:
In The Wealth of Nations, Adam Smith uses the word "stock" many times, but not with the meaning we ascribe to it today (supply of an asset, inventory). I take it that he refers to capital, as in a businessman who deploys capital into a business.
For instance:

Such parts only of the produce of land can commonly be brought to market, of which the ordinary price is sufficient to replace the stock which must be employed in bringing them thither, together with its ordinary profits.

Is my assessment correct?


texts: Are newspaper articles more liberal than their readership?

texts:
This question was posted on a forum (see here), and I thought it was interesting, especially in light of the recent spotlight on Matthew Gentzkow's work. So, I'm re-posting it here.

  Some studies claim that newspaper articles are usually more liberal than their readership. Since the news market is competitive, should we doubt this claim?


texts: covariance of autocorrelated time series

texts: When we calculate the variance of a time series with autocorrelation, we need to do some shrinkage to get the correct value. What about say we have two time series, X, Y. both have autocorrelations. Will that effect the correlation Cor(X, Y)? What about the Cov(X, Y)? What kind of adjustment is needed?


texts: Why can goods be reallocated when there is market failure?

texts:
Hanley, Shogren, and White (2007) states that "A market failure occurs when the market does not allocate scarce resources to generate the greatest social welfare. A wedge exists between what a private person does given market prices and what society might want him or her to do to protect the environment. Such a wedge implies wastefulness or economic inefficiency; resources can be reallocated to make at least one person better off without making anyone else worse off."

I understand the basic idea that the private and social costs are different, and therefore, there is economic inefficiency. However, the last sentece confuses me, "resources can be reallocated to make at least one person better off without making anyone else worse off". How is this the case? Won't producers be made worse off? And which group is being made better off, and why?


texts: What effect would removing the lowest denomination currency have?

texts:
Here in New Zealand our lowest denomination coin is 10c after the 5c was removed about 10 years ago. I think generally the public is pretty happy about the move.

It's quite a common argument to remove the penny from circulation in the United States. The main argument being that pennies are expensive to produce, are virtually worthless, and tie up time when they're given as change. The argument is that they don't actually serve the purpose of currency very well in terms of easily transferring value, because their value is so small for the effort of using them.

The question I have is, what economic effect would removing the smallest denomination currency have?

Things to consider are:

Immediate rounding on smaller items (eg. newspapers).
Less piggybanking as pennies are no longer lost or stuck in collection jars.

I guess the question is whether removing lowest denomination coins has an inflationary effect.


texts: What are the consequences of government spending by imposing tax?

texts:
The question is "If the government of country Z increases spending by \$12 million dollars and raises tax collections by the same amount, then what will be the overall impact of theses moves on real GDP in country Z." The official solution is that real GDP will increase by \$12 million because it is a balanced budget move.

However, I think it depends. Increased tax collection will discourage production while the spending would encourage production. Any suggestions will be appreciated.


texts: Data on Individual Performance of Franchises

texts: I am doing a research project on the effect of market sharing agreements on the profits of franchises, and I would like to get some empirical data to guide my analysis. Are large franchises required to publish data on the individual performance of their franchisees? I looked on the McDonald's website, and found a huge amount of legal information, but I am not sure which documents, if any, are relevant to me. What would be the best place to look for this kind of data? I would like anything possible, but especially data on sales, profits, etc. over time. Thanks!


texts: Let's say we have ethanol and chips, both of which are made off of corn. If the production of ethanol is subsidized by the government, what happens to the supply of chips? The way I see this, more ethanol will be produced and more corn will be consumed, and so less corn will be reserved for chips, and so the supply of chips decreases. Am I right in this train of thought?


texts: Is there contradiction between ''job creation" and "growth" as implemented by automation?

texts:
Joint goals of job creation and sustainable growth are the main goals of majority of EU funding schemes. E.g. European Innovation Institute explicitly states in its mission https://eit.europa.eu/who-we-are/eit-glance/mission both goals - job creation and growth.

My question is about links between "job creation", "growth" and "automation". Up to now I have came up with 2 intuitive schemes how these notions are linked:

Indirect link: automation automates jobs (mostly bad jobs, e.g. manual jobs in agriculture and food processing) and hence creates production and hence provides disinflationary measures to fund higher education and science and skills development and in such manner people can move in better jobs, economy has more complexity and complexity boost the creation of more sophisticated jobs (e.g. jobs in rejuvation/anti-aging molecular medicine). While quite obvious, such scheme has one uncertain point: the income from the use of automation accumulates in the hands of capital owners and not in the people pockets (majority of them have not enough capital shares to live from the capital income) and it can hurt demand or event stop it altogether. So - there is need for government to act: 1) introduce redistributional measures: tax capital and provide education grants, skill development grants and science grants for people; 2) use government investment measures: government can issue bonds (that can be bought by central banks of capital owners) and finance development, education and science grants, government can hope that such grant will grow the economy in sophisticated and complex and hence fast and robust manner and then receive enough tax revenue in future to repay the bonds. Automation helps to boost the supply side and create enough value in the economy to redistribute the value.
Direct link: automation and sophistication (especially from the government funded schemes) is allowed only when it directly creates new sophistication or complexity. E.g. automation of agriculture jobs have no such direct link because it just eradicates the jobs. But creation of new kind of 3D glasses has such direct link because it 1) creates new product that can be produced and such production creates jobs; 2) allows the possibility to create new types of jobs, so - one can guess - that this can be thought as job creationg. In this scenario the government funds only the increase of complexity of the economy and the pure automation of the bad jobs is left to the market forces and businesses to happen. Well - if businesses operate in the gig economy with technological unemployment then such automation (driven by the market forces) may not happen due to the availability of cheap labour. And so - such one-sided government support leads to the bad jobs and stalled automation.

So - here are my question: how job creation and economic growth and automation are linked and are they compatible or are they mutually exclusive?

I provided my understanding by showing that the links are quite complext and that the exact answer can be hard to find. So - it is hard to understand whether my question is acceptable by the SE standards. But it is really hard economic problem though. I provided my intuition which definitely is very un-academic. But maybe there is some literature, some academic papers, some working papers on this theme about compatibility and exclusiveness?

Well - my question has very practical background: if I come up with the startup that simply automates some agricultural or food processing jobs by not directly creating any new jobs - is such technology/startup adherent with the mission of EIT (competitiveness of Europe, job creation, sustainable growth) and hence - can such startup qualify for EIT funding as decided by adherence to EIT mission and goals (it is required that any enterprise/project funded by EIT adheres by the EIT mission and goals). But I framed my question as the economic question to understand the policy matters deeply.


texts:
In general most economist agree that deficit is not a negative thing, but I have trouble understanding why

For example if country A has 10\$ and country A runs trade deficit to B of 2\$ per year, doesn't this necessary mean that in 5 year country A can no long buy product from other country?

I think I am missing something important here. How can a country run trade deficit multiple years without eventually going bankrupt?

One reason that I have been given is that since country A buys country B's product in country A's currency, country B must use that currency in country A, thus the trade is balance in the long run, is that true?


texts: Meaning of a paragraph related to economics

texts:
Until early 2016, India’s growth had been accelerating when growth in other countries was decelerating. But then the converse happened. The world economy embarked on a synchronous recovery, but India’s GDP growth—and indeed a number of other indicators such as industrial production, credit, and investment—decelerated. There are five reasons for this:

• First, India’s monetary conditions decoupled from the rest of the world. Until the middle of 2016, real policy interest rates were following the global trend downwards. Since then, the downward drift has continued in most other countries, with rates falling. But in India, for the same period, average real interest rates increased. This tightening of monetary conditions contributed to the divergence in economic activity in two ways. First, it depressed consumption and investment compared to that in other countries. Second, it attracted capital inflows especially into debt instruments, which caused the increase in demand for rupee and consequently rupee appreciates which causes dampening of exports.

Can anyone please explain what is written in bold in layman's terms?


texts:
So I have been given a utility function = $ 48 R + Ry -R^2$ where $R$ represents leisure hours and $y$ represents labour income. $y=rl$, $r$ is wage rate and $l$ is labour hours. Find hours worked increases with wage.
So what I thought I can do was:

I equate MRS = Slope of Budget constraint and I got something like this
$(48 + y - 2R)/ R = r $
Then I equated in $R$ and got $R=48+(rl)/r+2$
Can I just now do differential of $R$ with respect to $r$

Can I continue with this method? Have I made some mistake so far? Or is this method completely wrong and is there some other method.


texts: Best way to learn economics for an interested layperson with a mathematical background

texts:
What's a good way for a mathematically-literate layperson who's interested in seriously learning economics?
I suppose the quick answer is "read a textbook", but 1) textbooks are boring, 2) they're expensive, and 3) for economics books, it seems that intro university-level books assume way less mathematical knowledge than the the typical scientist/engineer/STEM grad student (i.e. the type of "layperson" I'm referring to) has, while advanced and graduate level books use a lot of jargon and assume knowledge of introductory economics,
Ideally, it would be nice if there were "advanced pop science" economics books, sort of like The Theoretical Minimum, Quantum field theory for the gifted amateur, or The Road to Realty for physics.


texts: How would unlimited free energy affect the global market?

texts:
What will the effect on today's global market if a new source of free unlimited energy was to be discovered?

How badly will it disrupt today's global market and how badly will it affect our currency?

Or it will do good to today's economy?


texts: Why is the opportunity cost 0 in this case?

texts: My book says that the opportunity cost of purchase of a specialized equipment that has no alternative use is zero and hence such an expenditure is a sunk cost. However, while calculating the user cost of capital, it takes into account how much interest one could have got had one not purchased the capital and invested the money somewhere else. So, why the same treatment has not been applied on the specialized equipment. Rather than buying it for $ \$20000$ (say), I could have invested the money somewhere else and earned a return of $ \$2000$ (say). So, shouldn't my opportunity cost amount to $\$22000$ rather than 0


texts: Dealing with Missing Values in Diff-in-Diff Estimation

texts:
To preface this, I am asking this question on the Econ SE because I was made aware on Cross Validated that Difference in Difference estimation is quite an economics specific method.

The picture above depicts deviations from Covered Interest Parity, for the Yen, the Euro and Pound Sterling. The vertical gray bars mark quarter-end reporting dates. My plan was now to apply a Difference in Difference estimation in order to investigate if larger deviations from CIP coincide with quarter ends after January 2015. The reason behind suspected quarter-end dynamics is the change in reporting standards for global banks in 2015. From 2015 onwards European banks are coerced to report a snapshot of their balance sheet on the last day of each quarter. For U.S. banks a similar report is required, however in the form of the average of the month ends. The reasoning behind this hypothesis is that said reporting standards coupled with capital requirements cause balance sheet costs and therefore lead to a decrease of banks engaging in arbitrage.

This paper by DU et. al., which applies a difference in difference estimation, investigates the above-explained dynamics:
https://onlinelibrary.wiley.com/doi/full/10.1111/jofi.1262

As can be seen in the graph the three time-series that I could acquire, have different missing values. Consequently, I am unsure of how to proceed.
The procedure applied in the paper does not seem like it actually requires a panel, please correct me here if you disagree. What leads me to believe that a panel is not actually required here, is based on the fact that the treated and untreated group are not as normally the case two different parts of the panel, in this case they are treated and untreated groups, at quarter-end/not at quarter-end and prior to 2015/after 2015 in all three time-series.

Hence this results in two questions:
Is it possible to build a panel considering that the three time-series have missing values at different points in time without losing every observation that is missing for one of the three currencies?

Is it possible to estimate this difference-in-difference for each currency by itself, considering the facts I have pointed out above?

Model:

$x_{1w,it}= \alpha_0 +\gamma_1Post15_t+ \beta_{1}QendW_{t}+\beta_{2}QendW_{t} \times  Post15_t + \epsilon_{it}$

Where $QendW$ equals 1 if the settlement date of the contract is within a reporting date, $Post15$ equals 1 after the European Leverage Ratio Delegated Act was established, and zero otherwise.

I am very grateful for any tips or hints, thank you!


texts: Verification of understanding of the substitution and income effect of normal, inferior and Giffen goods?

texts:
My understanding is as follows:

Normal Goods: Income and Substitution effects are both positive.

Inferior Goods: Income effect negative, substitution effect positive. Substitution effect outweighs income effect and so although when the price of an inferior good F decreases (real income increases) and leads to an increase in the quantity of F consumed, this increase is small relative to the decrease in its price due to the substitution effect's magnitude being bigger than that of the income effect.

Giffen Goods:Income effect negative, substitution effect positive. Unlike inferior goods, income effect outweighs the substitution effect.

Please verify whether my understanding, as described above, is accurate.

Additionally, is it correct to assert that the positivity/negativity of the substitution/income effect of a change in price of a good remains the same regardless of whether said good's price increases or a decreases, e.g. regardless of whether the price of a normal good N increases or decreases, its income and substitution effect will always be 'positive'?


texts:
A staple of intro economics textbooks is the circular flow diagram. Example from Frank et al. (2019, Principles of Economics)

What is the significance of the above diagram?

One thing it can illustrate is that Production = Consumption = Income. But it seems to me that this point could be stated separately without resort to some diagram such as the above.

Is there anything else the above diagram can usefully illustrate?

Thoughts: It seems to me that these circular flow diagrams are just some cutesy device that some textbook writer long ago first came up with, and which other textbook writers have simply and mindlessly stuck with.

These diagrams seem "cool" because they're analogous to similar diagrams in the natural sciences (e.g. the water cycle). But they have not anywhere near as much significance (or indeed any significance at all). Of course, I could very well be wrong--hence this question.


texts: Calculating cross price elasticity of demand

texts:
$Q=0.3L^{-1}M^{\frac{1}{3}}R^\frac{2}{3}Y^{\frac{1}{2}}$
I'm asked to find both the cross-price elasticity of demand for $R$ wrt $Q$ ($1$) at current prices and cross-price elasticity of demand for $L$ wrt $Q$ ($2$) at current prices. I'm given no constants to substitute for $L,M,R$ or $Y$.
I'm using the formula CPEoD = $\frac{dQ}{dR}\frac{R}{Q}$ to solve the question.
Since everything cancels my answers are:
$1$) $\frac{2}{3}$
$2$) $-1$
Is this correct? I'm used to having the variables having substitutable constants and solving for a constant Q rather than this.


texts: Energy saving technology and energy service price

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I want to assess the effects of energy saving technologies on output growth using time series data. My work would benefit from time series data on patents for energy saving innovations, but this is hard to find. I have time series data on energy service prices (not energy prices), which I am thinking of using as a proxy for energy saving technologies. Energy service prices appear to have declined over time and this is due to the improvement in energy technologies, mainly. Thus, I assume the energy service price data reflects the improvements in energy technologies.

Do you think the idea of proxying energy technologies with energy service prices is appropriate in an empirical analysis?

Edit: Price of energy refers to the price of energy carrier, say oil. Energy service price refers to the cost of providing an energy service, say heating or lighting etc.


texts: Question about an economy with 3 components household, firm and government with functions given

texts:
I've spent considerable amount of time on this question, in vain. It is from one of the competitive exams for admission to a grad econ program. Help would be tremendously appreciated. Thanks.

An economy comprises of a consolidated household sector, a firm sector and the
government. The household supplies labour $L$ to the firm. The firm produces a single good $Y$ by means of a production function $$Y = F(L);\ F'(L) > 0,\ F′′(L) < 0 $$ and
maximizes profits $$Π = PY −WL $$ where $P$ is the price of $Y$ and $W$ is the wage rate.

The household, besides earning wages, is also entitled to the profits of the firm. The household maximizes utility $U$, given by:
$$U = \frac12lnC\ +\frac12ln (\frac{M}{P}) \ - d(L)$$

where $C$ is consumption of the good and $\frac{M}P$ is real balance holding. The term $d(L)$ denotes the disutility from supplying labour; with $ d'(L) > 0,\ d′′(L) > 0 $. The household's budget constraint is given by:
$$PC + M = WL + Π + \bar{M} - PT $$ ;
where $\bar{M}$  is the money holding the household begins with, M is the holding they end up with and $T$ is the real taxes levied by the government. The government's demand for the good is given by $G$.The government's budget constraint is given by:
$$M - \bar{M} = PG - PT$$
Goods market clearing implies: $Y = C + G$

(a) Prove that $\frac{dY}{dG} ∈ (0,1)$, and that government expenditure crowds out private consumption (i.e., $\frac{dC}{dG} < 0 $)

(b) Show that everything else remaining the same, a rise in $\bar{M}$ leads to an equiproportionate rise in $P$


texts: Can logarithm and polynomial transformation be included in the same equation

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Is it allowed to include logarithm and polynomial tranformations in the same econometric model.
For instance :
$$Y = x_1 + \log(x_2) + x_3 + x_3^2$$

I didn't find any interdiction however it seems to be not used in practise.

Thank you !


texts:
And if so, to what extent?

Also, how does the extent of China's subsidies compare internationally?

(I understand this is a broad question but I can imagine that some economists somewhere have come up with some convenient measures or indices for this purpose.)


texts:
Construct a pair of startegies for the ultimatum game ($T=1$ bargaining game), that constitutes a Nash Equilibrium and together support the outcome that there is no agreement reached by the two players and the payoffs are zero to each. Show that the disagreement outcome can be supported by a Nash Equilibrium regardless of the number of bargaining periods.

I understand that in a bargaining game if $T=1$  then any division of surplus $x^*$ belonging to $[0,1]$, $(v_1, v_2)=(x^*,1-x^*)$ can be supported as a Nash Equilibrium.

In the question given above, I'm supposed to find a strategy such that there is no agreement reached and both players end up getting $0$ each. I have some trouble thinking about such strategies and whether it would constitute a Nash Equilibrium. One pair I could think of is: Player $1$'s strategy is to offer, say, $(x^*,1-x^*)=(0.6,0.4)$ and Player $2$'s strategy is Accept any offer $(1-x^*)$, $>$ or $=$ $0.5$. Hence we see that Player $2$ will reject the strategy. However, I cannot understand how a Nash Equilibrium startegy can be constructed (since the above stated startegy is clearly not optimal).

Another strategy could be, Player $1$ proposes $(0,1)$, and Player 2's strategy is Accept only strictly positive offers, i.e., reject $0$. However, this strategy cannot be Nash Equilibrium because the first mover has no Best Response.

Please help me understand the question. Hints for the next part would also be appreciated. Thank You!

Reference: Game Theory: An Introduction, Steven Tadelis


texts: What are modern examples of established economic theories being used on a large scale in real life?

texts:
I was thinking recently how economic theories (the stuff they teach you in college) affects real-life decisions. I found some examples (see below), but most of them are from the past and many of those theories are not "established"/respected today.

What are examples from the present or recent past, when an established economic theory affects real-life decisions, preferably on a large scale?

I'm interested in cases when some organization or individual decides what to do based on such theories and their decisions affect many people (e. g. it is known that the central bank of country X uses some monetary economics theory to decide what the interest rate should be). I'm looking for examples of established economic theories being widely used "in the wild" (in the real world).

Examples from the past:

Vulgar liberalism: Economic reforms in the post-Soviet Russia in the 1990es.
Marxism-Leninism: Soviet Russia
In the late 1990es many people believed that free trade between the US and China would benefit both sides. This belief was based on the experience with trade between the US and European countries (Germany, France). The US helped China join the WTO in 2001. 17 years thereafter it turned out that free trade with China was harmful to the US economy because China is very different from Germany and France. The methodology used by those economists was wrong and the decisions based on it affected about 400 000 people in the American manufacturing sector (source, passage starting with "We would conservatively estimate...").
Chicago school of economics: Milton Friedman's ideas influenced how Estonia's economy was reformed in post-Soviet times.
Input-output models were used, among other things, in the Soviet planning economy.
Linear programming/Operations research was used to optimize the output of factories (allegedly both in socialist and capitalist countries).
Demurrage proposed by Silvio Gesell was used in, among other things, the Austrian city of Wörgl (German) in 1932.


texts: Continuity of Prices for Constant Elasticity of Substitution Production Functions

texts:
Imagine I have a CES production function

$$ Y_{\sigma}   = Z [ \sum_{i=1}^N  \alpha_{i} X_i^{\frac{\sigma}{1-\sigma}}]^{\frac{1-\sigma}{\sigma}}$$

I know that as $\sigma \to 1$, the corresponding production function becomes the Cobb-Douglas production function

$$Y_1  = Z  \prod_{i=1}^N X_{i}^{\alpha_i}$$

My question is, is the same true for the corresponding cost functions? That is, if I have the CES cost function

$$C_{\sigma} = \frac{1}{Z} [\sum_{i=1}^N \alpha_i^{\sigma} P_i^{1-\sigma}]^{\frac{1}{1-\sigma}}$$

Is it true that as $\sigma \to 1$, $C_{\sigma}$ converges to the following Cobb-Douglas cost function?

$$C_1 = \frac{1}{Z} \prod_{i=1}^N P_i^{\alpha_i}$$


texts: Is there any fundamental reason that output elasticity of capital $<1$ in general?

texts:
In Solow growth model, if one perturb the saving, there is convergence of old equilibrium capital to new equilibrium capital as investment breaking point capital is attractor.

However, in derivation of convergence, one needs to invoke $a_K$ elasticity of output to capital. Assuming growth in knowledge, growth of population and decay of capital. Then I need $a_K<1$ to guarantee convergence of old equilibrium to new equilibrium. I am assuming Inada condition on output per effective labor and knowledge is only labor augmenting in the model.

Is $a_K<1$ predetermined by Solow growth model or some condition on the model? This discussion does not assume any particular form of production function, in particular, Cobb-Douglas function.

Ref. Romer, Advanced Macroeconomics, Chpt 1, Sec 5 on speed of convergence.


texts: How to change the observation for the first lag in an AR(1) model?

texts:
I run a simple AR(1) model in my analysis using ols:

ar.ols(df$y, order.max = 1))

However, I work with generations as my unit of analysis. Therefore, the first lag of y would be the observation of y at time t-30. How can I specify this in the AR(1) model in R?


texts: Real Positive Eigenvalue, but Stable Dynamics

texts:
UPDATE
I was not thinking straight anymore and got totally confused after working hours on my equations. The point is, I have an unstable system, but I force it on the stable path. After realizing that crucial point everything made perfect sense.

Problem

(I fixed some major errors)

I'm having a two dimensional system with dynamics
\begin{align}
\dot{k} &= \frac{1}{1+\frac{1}{\rho}} - \frac{1}{1+\lambda}\\
\dot{\lambda} &= \rho\lambda - \frac{1}{k}.
\end{align}
Where $k\in[0,2]$ is the state, and $\lambda$ the costate. There is a (symmetric) fixed point $E(\tilde{k},\tilde{\lambda})$ at $\tilde{\lambda} = \frac{1}{k\rho}$ which yields $\tilde{k}=1$. The Jacobian at the fixed point is given by
\begin{align}
J_E = \begin{bmatrix}0,& \frac{1}{\left(\frac{1}{\rho}+1\right)^2}\\
1,& \rho\end{bmatrix}_E
\end{align}
I get two eigenvalues which are opposite in sign
\begin{align}
(\mu_1,\mu_2)=\left(\frac{p(p + \sqrt{p^2 + 2p + 5}+ 1}{2(p + 1)},\frac{p(p - \sqrt{p^2 + 2p + 5}+ 1}{2(p + 1)}\right)
\end{align}
where $\rho\in\mathbb{R}_{++}$ (time preference rate). The first eigenvalue is always positive ($\mu_1>0$) and the second one is always negative ($\mu_2<0$). So it is an unstable saddle,right? Nonetheless the system is stable. How is that possible, cause I used to think that it must be unstable?  The image shows the evolution of the state and the control which is a function of the costate. ($\rho = 0.05$)

For reference I add figures with $\rho=2,5$.
The first one seems to converge to a different fixed point $k<1$ (I didn't solve for that one, cause I deal with a symmetric situation; I think there are three in total).

And the second picture shows a strange attractor? Which I actually quite like cause of its chaotic stability. For $k\in[0,3]$ the policy function $\tau_1(k)$ is quite weird.


texts: What are the 'Public Account Liabilities' of the Government of India?

texts:
In the Quarterly Report on Public Debt Management for the Quarter Jul - Sep 2020 of the Government of India, an increase in 'Public Debt Liabilities' is declared.
What are they?


texts:
Could one define a production function which is homogenous as having constant elasticity of substitution. Just want clarification .
Thanks


texts: What amount of share buy-backs are legitimate?

texts:
My understanding of a shareholder buy-backs is the definition given by Investopedia:

  A stock buyback, also known as a "share repurchase", is a company's
  buying back its shares from the marketplace. You can think of a
  buyback as a company investing in itself, or using its cash to buy its
  own shares. The idea is simple: because a company can't act as its own
  shareholder, repurchased shares are absorbed by the company, and the
  number of outstanding shares on the market is reduced.

In "The Entrepreneurial State: Debunking Public vs. Private Sector Myths" by Dr. Mazzucato claims that shareholder buy-backs are a sign of stagnant economy that prioritizes stock prices and executive pay over things benefiting society:

  We are witnessing an increased financialization of the business
  sector, with many companies spending more on share buybacks—to boost
  their stock prices, stock options, and executive pay—than on areas
  like human capital and R&D. As the work of Lazonick (2014) has shown,
  in the last decade, nearly $4 trillion has been spent on share
  buybacks by Fortune 500 companies.

I've reviewed the book if you're looking for more context to this quote.

Furthermore, Robert Reich believes they should be made illegal, as they were before 1982:

Stock buybacks are artificial efforts to interfere in the so-called “free market” to prop up stock prices. Because they create an artificial demand, they force stock prices above their natural level. With fewer shares in circulation, each remaining share is worth more.

  Buybacks don’t create more or better jobs. Money spent on buybacks
  isn’t invested in new equipment, or research and development, or
  factories, or wages. It doesn’t build a company. Buybacks don’t grow
  the American economy.

  So why are buybacks so popular with Corporate CEOs?

  Because a bigger and bigger portion of CEO pay has been in stocks and
  stock options, rather than cash. So when share prices go up,
  executives reap a bonanza. The value of their pay from previous years
  also rises – in what amounts to a retroactive (and off the books) pay
  increase on top of their already outrageous compensation.

Is there some amount of shareholder buy-backs that could be seen as the sign of a healthy economy? Wherein "healthy" means still benefiting society via redistribution of wealth to those participating in the labour that created the profits or increase of collective human knowledge. Alternatively, what regulation has been proposed to correct short-sighted buy-backs?


texts: von-Neumann-Morgenstern v. Bernoulli Utility Function

texts:
A great deal of time is spent distinguishing the big $U$ (von-Neumann-Morgenstern)v. small $u$ (Bernoulli Utility Function). The v.NM function maps from the space of lotteries to real number as it represents the preference defined on the lottery space while the Bernoulli is defined over sure amounts of money.

Why is this distinction so important in the theory of expected utility? Also, what does this distinction enable us to achieve that is important in the expected utility theory? What is the most intuitive way to understand the expected utility theory is constructed in this way?


texts: Combine Gini index with GNI/capita (PPP) to produce an indicator which gives the same weight to low percentile incomes as to high percentile incomes

texts:
Consider the attached charts, which illustrate that low-inequality Country A can have both a lower average income and higher average log income than high-inequality Country B. This sparked my interest in determining how to integrate inequality data with income data in such a way as to address the way in which higher inequality can suppress living standards (even if average income is unchanged).

I believe that one way to do this would be by giving the % difference in individual income (between Countries A and B) the same weight at any given income percentile. To do this, we can plot log(Y=individual income) against X=income percentile and compare the area underneath the graph for Country 1 vs Country 2 (as in Graph 2). Or we can compare average log(individual income) for Country 1 vs Country 2. Unfortunately, this takes a long time using raw income distribution data from the World Bank (which it uses to calculate Gini).

Therefore, I would like to know the best way to approximate average log(individual income) from average individual income and the Gini coefficient?

Perhaps by way of ranking the countries by

(average individual income).((1-Gini)^a), where a is either a constant or a function of Gini,

and determining which a results in the most similar ranking order as when ranking by

average log(individual income)?

Should this be the case I would like to know how to determine a, via iteration or otherwise.

Many thanks!

NB: I am not experienced at all in economics, so please suggest to me how I could make my question more clear. If it is clear and there is no need for me to keep on editing/improving it let me know as well.
Reference 1 suggests that average individual income (GDP per capita) can be adjusted for inequality by using the expression (GNI per capita PPP).(1-Gini), but countries ranked by (GNI per capita PPP).(1-Gini) are not in exactly the same order as countries ranked by average log(individual income). So a=1 is incorrect.

(1) https://ideas.repec.org/p/ipc/pbrief/7.html


texts: What are the (immediate) effects of changing a good's price on consumer and producer surplus?

texts:
Basically, I'm trying to understand why the total surplus is maximized at the equilibrium and what happens if the price isn't at the equilibrium.

Say the price of a good is the equilibrium price. Now make it more expensive. I know that after a while the price will adjust to the equilibrium again, but what will happen before that? I'm trying to use an example but there are things I can't fill in:

The equilibrium price of the good is \$20 and the equilibrium quantity is 20. Given a straight demand and supply curve and a maximum buyer's imposed value of \$40, the consumer surplus is $\frac{1}{2}(40-20)\cdot20=200$ and the producer surplus is $\frac{1}{2}(20-0)\cdot20=200$.

Now make the good \$30. The quantity demanded falls to 15 and the quantity supplied rises to 25. Now, the consumer's surplus is the triangle I marked in blue, $\frac{1}{2}(40-30)\cdot15=75$ (because only 15 items will be sold), but what about the producer's surplus? Is this the triangle I marked in red? I think not, because that seems to imply that the price is only \$10. But if not, what is the producer's surplus, and why?

Thanks in advance and my apologies for the possibly confusing phrasing.


texts: In the event of a company's bankruptcy, how does a SPV continue operations if it can no longer collect payments on collateral

texts:
Let's say a company sells car loans (or mortgages or credit cards, I don't think it really matters). The company sells the loans to an SPV, who then issues securities backed by the cash flows the SPV receives from the loan repayments, which, as far as I understand, come through the initial company (as it is the entity that services the car loans and repossesses them in the event that a car purchaser cannot make payments).

If the company goes bankrupt, and must discontinue operations, I understand that the SPV is legally separate, and as such the company's creditors have no claim on the assets held by the SPV.

But how is the SPV going to collect/ repossess the car loans/ cars? It's not set up to do that. Would the SPV not also end up defaulting on its obligations at this point?


texts:
If I have four input factors (a, b, c, b) and I want to construct a nested CES production function such that (a, b) are substitutes, (c, d) are substitutes and [(a, b), (c, d)] are complements, I.e. a, b together are complements of c, d together. How would such a production function look like?

I saw some people include a Cobb Douglas there to simplify the function. So, under what situations do people use Cobb Douglas in a nested CES? Cause the factor price of a here in my model will decrease asymptotically to zero, if use the classic CES, b will be completely substituted, which I don’t want.


texts: Constant absolute risk aversion and certainty equivalent

texts:
I need to prove that Constant Absolute Risk Aversion (CARA) is equivalent to
\begin{gather}
\int u'(x)dF(x) = u'(c(F,u))
\end{gather}

where $u(x)$ is a Bernoulli utility function, $F$ is the distribution of the lottery and $c(F,u)$ is the certainty equivalent.

I started from the fact that CARA is defined as $-\frac{u''(x)}{u'(x)}=a$, where $a$ is a constant and that the certainty equivalent is defined as $u(c(F,u))=\int u(x)dF(x)$.

I tried to mix up the two definitions but I am a bit lost with the interaction of integration and differentiation.

Do you have any hint?


texts: Why has increased productivity over the last 100 years not affected how much people work?

texts:
If we are generally richer and more productive due to better technology and other factors, why do we still work so much?

I understand that there are various incentives to work (e.g. implicit status awards) that aren't linked with productivity in the abstract. But in a very simple model, if we can do more with less input, why are we still doing as much as we can?


texts: comparison of micro production functions

texts:
There are many different production function estimation methods, relevant for micro and firm data. For example Olley-Pakes, Levinsohn-Petrin, Ackerberg et al., Wooldridge etc.

But does anyone know of a paper or lecture slides that compares and assesses these different estimation techniques to give the practitioner some ideas of their pros and cons?


texts:
The Boston Consulting Group has suggested BIM will save the Construction Industry $1.7 trillion /pa and increasing by  2025.

What effect will this have, if any, on social issues such as poverty, on global growth, improved quality of life and that sort of thing?

ps

BIM is Building Information Modelling and is used increasingly through the construction industry, building management and city modelling.
The paper that give these numbers is from the Boston Consulting Group paper on the Impact of BIM. See the link in the comment below.

The more specific question requested in the comments might be in social terms, what are the social benefits of reducing construction, energy and infrastructure costs over the long term. Would it result in improved living standards or does it get lost in the bank balances of the utilities and construction companies.

For what it is worth BIM is predicted to reduce GHG emissions by a significant (15%?) amount.


texts: Why does increasing the money supply decrease the interest rate in layman's terms?

texts: If money supply increases, then I will have more money in my pocket to spend more. I imagine that prices will also increase over time to adjust to there being more money in circulation. Is it because that now, fewer people want to save because they have so much money to spend that the interest rate in general decreases when the money supply increases? Can someone explain it to me from an average Joe perspective, as in how does the increase of the money supply affects me personally and why the interest rate would decrease?


texts: What is the term for requiring taxes/regulatory changes to be above a certain threshold to overcome organisational communication barriers

texts:
Help remembering the specific term for the following would be very much appreciated!
The following:
When a government implements a tax/regulation that is too low in stringency, the new policy may not be sufficient for those that deal with the new policy within a firm (i.e. environmental officer/accountant/compliance staff) to elevate the issue to those who decide on firm-level investment and direction issues (i.e. board members/directors etc.).
In my specific context - the implementation of low levels of new environmental regulation may not be sufficient to stimulate increased investment/focus on innovation (via the mechanism proposed in Porter and Linde (1995)) since it is less likely to overcome the organisational communication barriers.


texts: When nominal interest rates reach zero bound,why inflation will turn to have a positive relation with output gap?

texts:
From the graph, inflation has a negative relation with output gap when interest rates are higher than zero but turn to a positive relation when reach zero.
I cannot understand why the relationship changes when rates reach zero.

Furthermore, why central banks commit to keeping  interest rates low for an extended period is a solution to avoid deflation trap?


texts: rebasing an index with inconsistent ratios between old and new data points?

texts:
I have a question about rebasing indices, hoping someone might be able to help.
I'm working with two sets of index data for residential property prices from the Australian Bureau of Statistics. the indexes are constructed from house prices for the 8 main cities, weighted for population.

one dataset is referenced to 1990, the other to 2012. There are 8 points of overlap between the two series.
the issue i am struggling with is that the ratio between the overlapping data points are not consistent as the table below shows.
I am guessing that there are revisions to the index  which I am not aware of. Perhaps because the index is a weighted average of house prices from 8 cities, there may have been some changes to the weighting at different points in time? but i don't know why that would create such large changes in ratio between years.
Can anyone shed some light on 1. why this might be, and, 2. how to work around it when trying to rebase the old series? eg does it seem reasonable to take the average ratio of the 8 overlapping data points and use that to rebase the old indices?
any help would be really appreciated.


texts: What books to read to learn about geography and how it affects economic development?

texts: I saw youtube videos like how geography doomed Africa and heard how Japan's prosperity is an anomaly due to its isolation and they got me interested.


texts: Why does HDI use log-transformed data for income index?

texts:
For calculation of HDI, the Income Index used is $\mathrm{I_{income} = \dfrac{ln(Income) - ln(min Income)}{ln(max Income) - ln(min Income)}}$. Why is the log transformed income used here? World Bank has answered that it is to emphasize the diminishing returns to the standard of living but I don't get how log-transform can reflect diminishing returns.
I know that log-transform is generally used to reduce skewness in the data and a log-transformed independent variable does reflect diminishing returns in a linear regression model but for calculating HDI, we take geometric mean and don't perform multiple linear regression.


texts: Stata's "ivregress 2sls" command - generating F-stats to test for weak instrument

texts:
I am transitioning to using the "ivregress 2sls" command in Stata for IV estimates. I've been trying to produce F-statistics to test for whether the instrument is weak. I believe that the key is, after running the following:
ivregress 2sls haz (event12 = distanceToBorder) sex age m_age m_everschool ///
 nightLights13 UR windex5  no_hhmembers hh_head_sex i.language , vce(cluster cluster_number)

You then call on the estat command as follows:
 estat firststage

But for my estimation, this produces F-stats that are suspiciously high (like 500+). Am I missing something?


texts: Do there exist macro (policy) models that adopt non-rational choice quantity decision making with boundedly rational expectations?

texts:
Do there exist macro (policy) models that adopt learning-to-optimize decision mechanics instead of rational optimisation? I guess hand to mouth consumers are an example. There are many New Keynesian macro models incorporating learning models based on learning-to-forecast experiments (LtFE) results into their design to study policy implications of boundedly rational expectations, like Hommes and Zhu (2014), Bullard and Mitra (2002), Hommes et al. (2018), but they all still optimize based on rational choice, to the best of my knowledge and understanding. But what about models that comine boundedly rational expectations with simple quantity decision heuristics?
Learning-to-optimize (LtOE) refers to a design where subjects are asked to submit their economic quantity decisions regarding consumption, trading or production, without direct elicitation of their forecasts of market aggregate outcomes like prices, output, or inflation. (Assanza et al., 2014 a or b?). These market outcomes are calculated for the subjects by the experimenters. All individual quantity decisions by the subjects are fed into the model macro economy adopted in the experiment, in order to obtain the aggregate outcome.
In learning-to-forecast experiments, subjects are asked to directly forecast the aggregate variable of interest, like for example the output gap, inflation, or asset prices. These individual forecasts are fed into the equations for the macro model economy adopted in the experiment, and the resulting value for aggregate variable of interest is then calculated and made available to each subject. All other agents’ decisions such as consumption, production, investment etc., leading to this outcome, are calculated by the experimenters, usually based on optimal, rational assumptions (Hommes, 2018), making use of utility and profit optimization techniques [add ref]. As such, subject’s trading actions are considered rational, conditional on the submitted forecast (Anufriev et al., 2019).
Subjects are thus forecasting in a dynamic self-referential system, with market realisations depending endogeneously on subject’s average forecasts. Realisations which in turn influence subjects’ forecasts. Separating the quantity choice from direct forecast elicitation in a LtOE versus a LtFE respectively, is a way of decomposing the problem faced by agents in complex macroeconomic settings so that it does not involve a joint test of rationality in both optimization and expectation formation (Duffy, 2016). These macro experiments provide data at the micro level as well as at the macro level, which can be used to formulate and test both theories of learning and assess the time series properties of aggregate economic variables like output and inflation.
Hommes, C., Lustenhouwer, J., & Mavromatis, K. (2018). Fiscal consolidations and heterogeneous expectations. Journal of Economic Dynamics and Control, 87, 173–205. https://doi.org/10.1016/j.jedc.2017.12.002


texts: Why does the profit reaches its maximum value at the equilibrium point?

texts:
When we talk about marginal cost and marginal benefit/cost, why does the equilibrium point is the most convenient for the production of a product. If the marginal cost and the marginal benefit/revenue are the same Wouldn't the cost of producing a product would be the same as the revenue you obtain from selling it? Wouldn't you be earring nothing when you reach the equilibrium point?

Extra question; Are marginal benefit and marginal revenue the same concept?