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Barro's (2009) rare disaster model in the AER: How to derive equation (10)?

In Barro (2009) Rare disasters, asset prices and welfare costs Barro develops a Lucas tree model with Epstein-Zin preferences. My question concerns the paper's equation (10). In this equation Barro ...
drcms02's user avatar
  • 163
14 votes
0 answers
1k views

How do I compute the relative risk aversion of Epstein-Zin preferences?

$$ \newcommand{\E}{\mathbb{E}} $$ Preface This question is related to this one about the elasticity of intertemporal substitution and this one about the definition of absolute risk aversion. (It's ...
jmbejara's user avatar
  • 9,325
13 votes
7 answers
5k views

Does a store suffering increased theft generally cause higher prices?

If a store suffers an increase in theft, will it generally lead to higher prices at that store? My answer is that prices should have already been set to maximize the trade off between profit-per-sale ...
user28791's user avatar
  • 139
13 votes
8 answers
10k views

Understanding the "But they will lose jobs!" argument

Suppose there is some industry whose profit is based on unethical business practices. Eg: A pest control company X, who themselves send pests into people's houses, so as to later earn money from ...
Hopeful Whitepiller's user avatar
13 votes
5 answers
5k 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. ...
rosenjcb's user avatar
  • 269
13 votes
2 answers
5k 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 ...
Atonal's user avatar
  • 241
13 votes
4 answers
831 views

R in econ departments?

According to my personal observation the majority of (prominent) economists prefer use Stata for their statistical analysis and Matlab for other mathematical work. SAS and Excel are also used (...
snoram's user avatar
  • 997
13 votes
4 answers
14k views

Is complex analysis used in economics?

It's frequently useful in physics and engineering applications; are there any applications in theoretical economics? (If not, were there any attempts at incorporating CA that just never caught on?) ...
sirallen's user avatar
  • 391
13 votes
6 answers
5k views

Why must the rate of GDP growth be positive?

There are always expectations that GDP should be growing at a certain rate. This is what I see in the newspapers. I am not an economics major and this is a very basic student question. After adjusting ...
Medan's user avatar
  • 245
13 votes
4 answers
6k views

Does the US stock market tend to rise after natural disasters?

It seems counter intuitive that markets would rise after a huge disaster that probably affects multiple industries like oil or produce. For example, can someone explain why the US markets actually ...
The_MN_MechE's user avatar
13 votes
2 answers
12k views

What is a substitute/complement in terms of mixed partial derivatives?

I am trying to understand how substitutability relates to mixed partial derivatives. I thought the change in marginal utility with respect to a change in the amount of $x$ would correspond to $$\frac{\...
Stan Shunpike's user avatar
13 votes
2 answers
2k views

Monopolies are just a mathematical misunderstanding

A little head-scratcher (and a good example why we should be careful with notation). Consider a profit maximizing monopoly, that solves over price $$\max \pi = PQ(P) - C(Q(P)) \tag{1}$$ Following ...
Alecos Papadopoulos's user avatar
13 votes
3 answers
1k views

What is the point of all the models in an economics degree?

I am a student of Economics doing my masters degree and I have to say I am a bit tired of all the models. On the one side, there is these models where I can see how they are derived, which always ...
ArOk's user avatar
  • 351
13 votes
3 answers
2k views

Is there an economic analysis of the rationality of buying lottery tickets?

It's quite clear that the expected return on a lottery ticket is less than 1. However, I think it can still be argued that buying lottery tickets is still a economically rational decision by ...
dwjohnston's user avatar
  • 2,036
13 votes
4 answers
78k views

What is the definition of exogenous and endogenous preferences?

Wikipedia states: Exogenous Preference -- one that comes from outside the model and is unexplained by the model. Endogenous Preference -- preferences then cannot be taken as given, but are affected ...
Stan Shunpike's user avatar
13 votes
2 answers
2k views

How is freelancing viewed under Marxism?

How does Marxism view freelance workers? Since a freelancer is the owner of their means of production, are they still viewed as exploited by the bourgeoisie? Could freelancing exist in a Marxist ...
EmílioB's user avatar
  • 133
13 votes
1 answer
307 views

Quality of French wine in the US vs French wine in France

I remember reading a study/paper saying that the AVERAGE bottle of french wine drunk in the US is better than the average bottle of french wine drunk in France, due to the fact that nobody bothers to ...
Jason Coyne's user avatar
13 votes
2 answers
562 views

Uses of convex analysis in Economics

I'm taking kind of a crash-course in convex analysis to complement my mathematical skills and was wondering if anyone knew about nice ways in which this kind of tools were used in Economics. To be ...
BVJ's user avatar
  • 380
13 votes
4 answers
605 views

What is it about certain business types that seem to restrict how much large they can grow?

For example, I've never heard of a large lawn-mowing corporation. Phone and computer repairers seem to consist mostly of 1 or two man operations. Wedding planners and photographers seem exclusively to ...
Lachy Vass's user avatar
13 votes
3 answers
1k views

When treating a relative, normalized utility function as a pmf, what is the interpretation of Shannon entropy or Shannon information?

Suppose $\Omega$ is a set of mutually exclusive outcomes of a discrete random variable and $f$ is a utility function where $0 < f(\omega) \leq 1$, $\sum_\Omega f(\omega) = 1$, etc. When $f$ is ...
EM23's user avatar
  • 131
13 votes
3 answers
377 views

What have been the main developments in macroeconomics and financial economics since the 2008 financial crisis?

In the aftermath of 2008 economists were, fairly or not, blamed for a failure to foresee the coming crisis. Ideas such as "The Great Moderation" and market efficiency were openly ridiculed as ...
Ubiquitous's user avatar
  • 16.8k
13 votes
3 answers
1k views

Understanding the construction of stochastic processes

I've seen stochastic processes modeled/constructed in the following way. Consider the probability space $(\Omega, \mathcal F, Pr)$ and let $\mathbb S$ be the (measurable) transformation $\...
jmbejara's user avatar
  • 9,325
13 votes
1 answer
733 views

When does the Divine Equilibrium refinement coincide with that of Perfect Sequential Equilibrium?

In signaling games, it seems that the Cho Kreps refinement (intuitive criterion) is the go to refinement for eliminating bad sequential equilibria. Divine equilibrium and perfect sequential ...
Pburg's user avatar
  • 2,198
13 votes
1 answer
240 views

Nash equilibrium - mistake in proof of paper?

I have a question regarding the proof of Proposition 1 in Besley and Ghatak (2007) in Appendix A of their paper. It is a quite highly cited paper but I believe there is a mistake in the proof of their ...
elbarto's user avatar
  • 349
13 votes
2 answers
5k views

Where can I find data on income and social mobility over time? How far back is data available?

I'm interested in income and social mobility. I understand that Piketty's research deals with the the distribution of income over a long time period. I have also seen some of Chetty and Saez's ...
jmbejara's user avatar
  • 9,325
13 votes
2 answers
2k views

Differentiate a positive externality and the absence of a negative externality. Tax or subsidize?

I hope this isn't overly semantic, but I'd like to gain some clarification on the use positive (or negative) externality. I usually shoot down suggestions for examples of positive externalities like ...
Pburg's user avatar
  • 2,198
13 votes
6 answers
888 views

Does land value tax create an incentive to merge land ownerships?

LVT is "a tax on the unimproved value of land", and "in theory, it does not distort decision making". But if I own land then improvements such as buildings on my neighbour's land can easily increase ...
bdsl's user avatar
  • 271
13 votes
2 answers
1k views

Is there a solution to the Joker's game in The Dark Knight?

In the final battle in the movie, the Dark Knight (2008), the Joker has rigged two ferries carrying people out of Manhattan Gotham to explode. One ferry carries mostly civilians with a substantial ...
Batman's user avatar
  • 131
12 votes
3 answers
3k views

Economics term for those who benefit even though they didn't contribute

I believe there's an economics term that describes people who refuse to participate in a community project even though they receive the same benefit from the project. For example, the village needs a ...
michael's user avatar
  • 121
12 votes
6 answers
839 views

What metrics would indicate a house bubble rather than genuine market values?

There are concerns that Auckland, New Zealand, is currently experiencing a housing bubble. Auckland is one of the top 10 cities in the world on a housing unaffordability index. The question is - ...
dwjohnston's user avatar
  • 2,036
12 votes
6 answers
3k views

How do economic sanctions work? How do they not create an arbitrage opportunity?

(Not sure if this should be on Politics.SE) This is something I've been thinking about since the Russian invasion of Ukraine. Many countries enacted sanctions on Russia in response. Let's say one of ...
Allure's user avatar
  • 1,198
12 votes
3 answers
52k views

Prove the sample variance is an unbiased estimator

I have to prove that the sample variance is an unbiased estimator. What is is asked exactly is to show that following estimator of the sample variance is unbiased: $s^2=\frac{1}{n-1}\sum\limits_{i=1}^...
Andreas Dibiasi's user avatar
12 votes
4 answers
8k views

Why are high/rising property values considered a good thing?

Increasing prices for housing are pretty much universally treated as positive in the news and in political discourse: newspapers run headlines like "Good news: Home values are up" and talk about "...
tparker's user avatar
  • 760
12 votes
6 answers
1k views

References to learn continuous-time dynamic programming

Does anyone know of good references to learn continuous-time dynamic programming? The references don't have to be books. They could be links to online resources as well. Links to clear, concise ...
jmbejara's user avatar
  • 9,325
12 votes
9 answers
6k views

What Level of Government Debt to GDP Ratio is Sustainable?

I was reading that Japan has a debt to gdp ratio of 240pc and I cannot understand why this has not left the country "bankrupt"? From looking at this like an ordinary person this level would be ...
Trajan's user avatar
  • 649
12 votes
6 answers
5k views

Why are cost functions often assumed to be convex in microeconomics?

Why are cost functions typically assumed to be convex in producer theory of (introductory) microeconomics? For me this goes against the intuition of economies of scale. There are fixed costs (FC) ...
Richard Hardy's user avatar
12 votes
8 answers
321 views

Is belief in future dividends the only long term value of stock?

Are future dividends the primary value backing that a stock price will rise? (Let's assume that purchase by a competitor is an unlikely event and discount the value this might have). It seems to me ...
user48956's user avatar
  • 291
12 votes
5 answers
933 views

What is the reasoning behind the sharp fall of oil prices starting in mid 2014?

Things I have considered: Poor economic conditions around the world could have caused an unpredicted decrease in demand. The resulting surplus has begun driving prices down. This could be ...
123's user avatar
  • 2,911
12 votes
2 answers
15k views

Solow Model: Steady State v Balanced Growth Path

Okay, so I'm having real problems distinguishing between the Steady State concept and the balanced growth path in this model: $$ Y = K^\beta (AL)^{1-\beta} $$ I have been asked to derive the steady ...
James Baker's user avatar
12 votes
2 answers
40k views

Marshallian Demand for Cobb-Douglas

When trying maximize the utility having a cobb-douglas utility function $u=x_1^ax_2^b$, with $a+b = 1$, I found the following formulas (Wikipedia: Marshallian Demand): $x_1 = \frac{am}{p_1}\\ x_2 = \...
user1170330's user avatar
12 votes
5 answers
7k views

Can the stock market grow faster than GDP indefinitely?

My understanding of conventional wisdom is that average long-term growth of advanced economies is expected to be significantly lower than the average long-term growth of the value of the largest firms ...
Dan's user avatar
  • 1,356
12 votes
7 answers
118k views

How interest rate affects currency

I am quite new to economics. I was reading about changes in interest rates and its effect on currency value. The fact is as interest rates increases, the currency value also increases and vice versa....
Mahesha999's user avatar
12 votes
4 answers
825 views

What are the empirical techniques to show causation?

A simple linear regression only shows correlation between two variables. To establish causation, two commonly taught methods are IV regression and natural experiments. What are the other methods ...
Bravo's user avatar
  • 1,699
12 votes
4 answers
18k views

What is an example of a utility function where one good is inferior?

Say the consumer has a standard convex, monotonic preference over Apples and Bananas. (Update: I'd like the preference to be as 'standard' as possible. So ideally we have diminishing MRS everywhere ...
user avatar
12 votes
5 answers
35k views

How does a country devalue its currency?

I recently read an article in the New York Times that talked about China devaluing its currency (which I believe is held to a peg against the US Dollar). My question is: specifically what tools does a ...
rambalachandran's user avatar
12 votes
4 answers
950 views

What are some good repositories for economic data

Economic data is a very broad concept. It can include discrete preference relation data-sets as well as extensive time series data. But it is important that theories are tested against data, and the ...
12 votes
1 answer
1k views

Conventions for reading mathematically rigorous academic articles in economics

How would an informed reader typically go about reading a mathematically rigorous academic article in economics, with lots of notations, assumptions and postulations (e.g, a typical article published ...
Eli J's user avatar
  • 419
12 votes
4 answers
6k views

How does a national budget differ from a household budget?

We are often told by pundits that "Country X cannot spend more than they take in in revenue, because a house that makes A and spends B will always collapse if B>A". Essentially the siren calls of a ...
Jason Nichols's user avatar
12 votes
2 answers
3k views

What is the Gross Domestic Product (GDP)?

I suppose GDP is supposed to create a measure of a country's wealth/welfare, something easily indexable. But how exactly is it composed? And is its composition disputed? How good is it at measuring a ...
FooBar's user avatar
  • 10.6k
12 votes
2 answers
476 views

Are there any states that don't have debt?

I've not been able to find any states that don't have debt to other states. This, to me at least, seems really strange. Are there any nation states that are not in debt to other states, if so which ...
Zell Faze's user avatar
  • 223

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