economics 16

If you’re ever taken a course in Economics, and it discussed Game Theory, you may be familiar with The Prisoner’s Dilemma. Roughly, this is the problem. Assume you possess copious quantities of some item (money, for example), and wish to obtain some amount of another item (perhaps stamps, groceries, diamonds). You arrange a mutually agreeable trade with the only dealer of that item known to you. You are both satisfied with the amounts you will be giving and getting. For some reason, though, your trade must take place in secret. Each of you agrees to leave a bag at a designated place in the forest, and to pick up the other’s bag at the other’s designated place. Suppose it is clear to both of you that the two of you will never meet or have further dealings with each other again. ...

The Economist takes a good look at retailing in India.

It’s a good time to be a mathematician.

Starbucks economics. Why Starbucks has a better, cheaper coffee that it keeps a secret. Comments Dhar 11 Jan 2006 10:28 am: This was so damn interesting! ritzkini 12 Jan 2006 6:14 am: “The more market power firms have, the less attractive they make the cheaper products.” I can think of N Marketeers in India doing this ! Madhu 13 Jan 2006 11:10 am: Interesting to compare this with the Bottom of the Pyramid concept of CKP.

Better information is not always beneficial. For $795, LegalMetric LLC will tell you which judges rule most swiftly and which tend to favor patent holders. For lawyer and client, this knowledge can be very valuable. But does it increase the chances that the judge will come to a just decision? It is the sort of information that Nobel laureate Kenneth Arrow labeled “socially useless but privately valuable.” It doesn’t help the economy produce more goods or services. It creates nothing of beauty or pleasure. It simply helps someone get a bigger slice of the pie. Sure, if the product helps win cases, then both sides will buy it – just as both sides in high-stakes product-liability cases invest in jury-selection experts and software – and neither will have an unfair advantage. But does that make the society better off? ...

The authors of Freakonomics visited Google, and were asked “What would you do with our data?” BTW, there is a regular Freakonomics column on the Times.

Why do Americans work so much more than Europeans? Because America has lower marginal tax, says Prescott, the 2004 Economics Nobel Laureate. The important observation is that the low labor supplies in Germany, France, and Italy are due to high tax rates. If someone in these countries works more and produces 100 additional euros of output, that individual gets to consume only 40 euros of additional consumption and pays directly or indirectly 60 euros in taxes. ...

Good discussion on inflation. Talks about how currency used to be a way of exchanging stuff, a way of storing value and a measure of wealth. Today, it’s just a way of exchanging stuff. It’s value keeps changing (inflation or deflation), so it’s not much good for the last two.

Robert Engle and Clive Granger won the Nobel Prize for their work on ARCH and something-or-the-other-I-ought-to-have-studied-at-B-school. I was outside Engle’s office last month (somewhere within 100m of the corridor in the photo), and that’s the closest I’ve been to an Nobel laureate. Of course, some people know him personally and discuss ‘stupid problems’ with him.

Does education really pay? An interesting article on Forbes arguing that education does not cause higher salaries, but is merely correlated with it. The logic sequence is broadly: Labour markets want smart people. Smart people tend to want education. Hence labour markets appear to want educated people.

This Economist article talks about the problems with patent laws. A recent report by the Commission on Intellectual Property Rights says: the interests of the “producer” dominate in the evolution of IP policy, and those of the ultimate consumer are either not heard or heeded.

Interesting Economist article by Drucker about The Near Future. The usual stuff about megatrends, which is, as always, a good read.

Interesting thought-piece by The Economist on how bankruptcy laws may be hurting America. The logic is, industries with excess capacity have bankruptcies. The bankruptcy restores a balance. If courts help bankrupt companies shed debt and re-enter business, excess capacity again results. Leading to bankruptcies again.

Interesting article on which industries have benefited from Sep 11th.

Financial cartoons.

New School’s History of Economic Thought website is an excellent collection of contrasting viewpoints on business and economics.