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18
votes
3answers
608 views

When Optimal Control fails (?)

In order to "ask my question", I have to solve a model first. I will omit some steps but still, this will unavoidably make this post very long -so this is also a test to see whether this community ...
18
votes
2answers
784 views

Why is capital income taxed differently than wage income?

Why is income from capital gains taxed differently than wage income? There are perhaps historical, practical, and theoretical reasons. What are they? (As far as historical reason go, I'm asking ...
17
votes
8answers
22k views

Most common programs used by Economists

I recently asked a professor if he was planning on hiring a research assistant for next semester. I thought I'd be a pretty good candidate since I have decent experience using STATA, SAS, SPSS, R ...
17
votes
10answers
11k views

Car prices haven't changed in 20 years, no inflation?

I notice that there seems to be little or no change in car prices over the last 20 years and they seem to be unaffected by inflation. For example, a Toyota Camry sold for about \$23,000 +/- \$2,000 (...
17
votes
5answers
2k views

Unemployment and the Minimum Wage---what are the main counter-arguments to Card and Krueger?

Card and Krueger's paper (AER 1994, "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania") uses a difference-in-difference identification strategy to ...
17
votes
6answers
585 views

Experiments contradicting the expected utility model

This is a question I asked on the cognitive science beta which never got any answer there. I do not know what the policy should be for question migration/reposting (maybe worth discussing in the meta?)...
17
votes
3answers
4k views

What does Yanis Varoufakis mean by “surplus recycling mechanism”?

Yanis Varoufakis, the current finance minister of Greece, talks about a "surplus recycling mechanism", a term he coined and uses to describe (as I understand it) a relief valve for economies running a ...
16
votes
5answers
4k views

Topological concepts in economic theory

QUESTION: What are the major or systematic applications of post-1960s mathematics to microeconomics? For example, in the late 19th century, Fisher first used the mathematical ideas of Gibbs to ...
16
votes
4answers
4k views

Why is fractional reserve banking allowed?

I learned about banks' fractional reserves and that revolted me. How is that not considered to be fraud? The idea doesn't seem too sophisticated, on the contrary, it sounds very simple: the bank ...
16
votes
2answers
4k views

What is the importance of Epstein-Zin preferences?

I've heard that there is a lot of work being done recently that applies Epstein-Zin preferences. The Wikipedia page doesn't seem to be very full. Why are Epstein-Zin preferences important? How does ...
16
votes
3answers
844 views

Complete Markets in Continuous Time

In the standard discrete time economies with a finite number of states, $n$, a complete markets economy is simply an economy with $n$ independent assets (Think Ljunqvist and Sargent Chapter 8). This ...
16
votes
1answer
482 views

When a country adopts the Euro, what happens to its debt?

When a country, say Greece, adopted the Euro as its currency, what happened to the debt that was based on the Drachma? Was it converted into Euros?
16
votes
5answers
4k views

How do economies grow?

These days, we hear again and again about the so-called "need" for economic growth. But how do countries actually grow economically? That is, why/how does their GDP increase over time? ...
16
votes
5answers
736 views

Has an increase in housing supply in popular cities including Amsterdam led to an increase in house prices?

Common economic thinking dictates that an increase in price should lead to an increase in supply, and that an increase in supply should then lead to a decrease in price. According to Maarten van ...
16
votes
1answer
246 views

Does merger control really affect market structure?

Pretty much since 1976 (the passage of Hart-Scott-Rodino Act) US antitrust authorities have been reviewing mergers, challenging only 1.8 per cent of the total number of above-threshold notifications (...
15
votes
4answers
13k views

Why can't a country print its own money to spend it only abroad?

If a country prints money and distributes it between the people, it causes inflation. But what if a country prints its own money to spend ONLY abroad, which would allow a country to buy whatever it ...
15
votes
6answers
11k views

Why is the Free Rider Problem a problem?

Why is it bad that someone can use something like a park or an emergency room without paying?
15
votes
6answers
4k views

Why aren't we seeing carbon taxes in practice?

(See also a version of this question under politics, https://politics.stackexchange.com/questions/48764/why-arent-we-seeing-carbon-taxes-in-practice) It seems that there are many advantages to carbon ...
15
votes
3answers
18k views

Real Exchange Rate vs PPP rate

I'm having troubles to understand the difference between the Real Exchange Rate and the PPP rate. I know the first one is calculated using a basket of goods and services so that the non-tradeable ...
15
votes
3answers
1k views

Are there theories that invalidate the “tragedy of the commons”?

Wikipedia states: The tragedy of the commons is an economics theory by Garrett Hardin, according to which individuals, acting independently and rationally according to each one's self-interest, ...
15
votes
5answers
2k views

Implications of abolishing Fractional Reserve Banking on mortgages and interest rates

Suppose for a moment that someone with legislative power decides to abolish Fractional Reserve Banking and passes a law that forces banks to only lend the money they own, that is M0. What would be the ...
15
votes
2answers
2k views

How is price elasticity determined in practice?

Price elasticity of demand and Price elasticity of supply are two of the most important concepts of microeconomics, but they're generally explained from a hypothetical standpoint, and little effort is ...
15
votes
3answers
2k views

Are monotonic and continuous preferences necessarily rational?

Let $\succsim$ be a strictly monotonic and continuous preference relation, and let $X=\mathbb{R}^{n}$ be the consumption set. Is rationality of $\succsim$ implied by these conditions? I think ...
15
votes
1answer
2k views

How could the economic cost of the world not speaking the same language be estimated?

While languages are fun and add color and flair to cultures and make the world a more interesting place, they also have a cost. Beyond the monetary costs of translation/editing/proofreading, ...
15
votes
5answers
2k views

How can banks pay interest to the central bank?

If the central bank is the only institution that can increase the monetary base (create both, digital and paper money), how can any institution that borrows from it (mostly banks) satisfy its interest ...
15
votes
1answer
281 views

Submodularity property in congestion games?

Let $G$ be a $n$-players and $m$-elements congestion game. For an equilibrium $e$, denote by $$SUP(e)\triangleq<sup_1(e),sup_2(e),\ldots, sup_n(e)>$$ Where $sup_i(e)$ contains the support of ...
15
votes
0answers
462 views

How do I use the Malliavin calculus to solve for the optimal trading strategy in the classic Merton problem?

How do I use the Malliavin calculus to solve for the optimal trading strategy in the classic Merton problem? In Duffie's book "Dynamic Asset Pricing," he outlines the "Martingale method" of solving ...
14
votes
12answers
12k views

If I gain, then someone else loses. Correct?

On a very small scale, it's certainly true that if I gain, somebody else might lose. If I take away my brother's chocolate, then he will lose it, and will most probably not get anything comparable. ...
14
votes
5answers
6k views

Applications of Trig functions in Economics?

Are there any applications of trig functions (ie $\sin(x)$, $\cos(x)$,$\tan(x)$) in economics?
14
votes
5answers
7k views

Should I stay or should I quit?

Is there an economic theory of quitting an activity? A theory that weighs the investment costs put into something and the opportunity costs of pursuing it. I am aware of Fershtman and Gneezy ...
14
votes
4answers
5k views

Is Malthusian theory of population growth being realized?

You probably are familiar with Malthus' Theory of Population Growth. If you are not, Malthusian model has the following mathematically form: $$P(t) = P_0e^{rt}$$ A basic graphic representation is: ...
14
votes
7answers
2k views

Economic policies to decrease obesity (would they be effective?)

According to the Center for Disease Control and Prevention, approximately 35% of adults in the United States are obese. I have done much research on the topic of economic policies to reduce obesity (I ...
14
votes
4answers
2k views

Use of mathematics and imprecise definition of terms

As a postgraduate student of economics I've been trying to expand my mathematical "toolset". While doing so I've talked to engineers, physicists and mathematicians, many of which have ...
14
votes
5answers
5k views

What was economics like as a field before Adam Smith, the father of *modern* economics?

Adam Smith is called the "father of modern economics" and his book The Weath of Nations, a fundamental work in the field of economics, is considered the first modern book on economics. In addition, ...
14
votes
2answers
12k views

The relationship between the expenditure function and many others!

I dont understand the relationships between Hicksian demand, walrasian demand (marshallian), the expenditure function and the indirect utility function (including the value function V(b)). I have ...
14
votes
4answers
966 views

What benefits does Bitcoin (i.e. cryptocurrency) offer?

I really, really like moderate inflation. I live in Sweden where the interest rates just went negative because we are on the brink of deflation, and the rate of inflation we have now is far too low. ...
14
votes
5answers
807 views

Are there Utility Monsters in Economics?

Economics, especially in the modern school is broadly influenced by the utilitarian concept of utility. More so since the labor theory of value has been broadly replaced by the theory of marginal ...
14
votes
3answers
706 views

Destroying the dollar

Let's destroy the USD dollar: I am the government of a small, economically and geopolitically unimportant country that has its own currency and a local central bank. I order the local central bank (at ...
14
votes
1answer
11k views

How does one derive the elasticity of substitution?

For two goods $x$ and $y$, the elasticity of substitution is defined as $$\sigma \equiv \frac{d\log\left(\frac{y}{x}\right)}{ d\log\left(\frac{U_x}{U_y}\right) }= \frac{\frac{d\left(\frac{y}{x}\right)}...
14
votes
2answers
965 views

How do reserves move between the 12 federal reserve banks?

In single central banks systems (e.g. Bank of England) then the final ledger for electronic money transfer is the adjustment of reserve account balances. In the Federal Reserve System, there are 12 ...
14
votes
2answers
1k views

What is the difference between contract theory and mechanism design?

Can someone explain the difference between contract theory and mechanism design?
14
votes
1answer
630 views

Have there been instances where economists have advocated a trade embargo?

Due to Comparative Advantage, it is generally accepted among economists that free-trade is the best policy for a country and increases the standard of living for the citizens of that country and the ...
14
votes
3answers
187 views

Current knowledge about the empirics of consumer theory

I would like to get up to speed on the current state of empirical work done to test the assumptions and predictions of consumer theory (think Chapters 1, 2, 3, and 6 of Mas-Colell et al.). Can anyone ...
14
votes
2answers
2k views

Available code for computing solutions to matching algorithms?

The question of designing matching procedure (between high-schools and students, med intern and hospitals, kidney donors and receivers,...) has been widely studied by economists and vastly contributed ...
14
votes
3answers
2k views

Should Finland leave the eurozone?

Finland's economic recovery from the shock of the global financial crisis of 2007–2008 has been very weak. The country has been in recession for the past three years, with GDP expected to expand by ...
14
votes
0answers
361 views

How accurate is duality?

In economic theory we know that with the use of some calculus, Hotellings Lemma and Sheppards lemma we can derive a given firms supply function and in term its Profit function. With data of a given ...
13
votes
7answers
3k views

Textbook for macroeconomics (advanced undergrad)

I find that many contemporary macroeconomics textbooks are too applied, filled with examples, case studies and intuitive illustrations, often at the expense of quantitative rigour and therefore the ...
13
votes
2answers
4k views

If public roads are public goods, in what way are they non-rivalrous?

I get why, say, the military is a public good, but I don't get why public roads are public goods, since they can't be non-rivalrous, given that at any time only a subset of the population can actually ...
13
votes
5answers
4k views

Econometrics: Is elasticity meaningful in my, or any, regression?

A few months ago I interned at this organization; and, as a going away present, I decided to spend my last week, with whatever off time I had, to investigate the factors that affect teacher salaries. ...
13
votes
5answers
311 views

Contest: earliest written instance of economic thought

Following part 5 of @Lateral fractal answer to "Handy Hints for Committing to the Beta" on the meta "Have fun! No fun = No play. No play = No beta. I'm sure I'm not the only one to feel that a ...

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