Here is an article from the NYT on the legislative battle on the labeling of GM food.
A number of articles on carbon taxes and the environment:
This more recent one by Greg Mankiw and he refers two other articles: one written by him on carbon taxes and another on the political economy of the implementation of carbon taxes in British Colombia, Canada.
And an ominous opinion piece in the NYT on the impacts of climate change.
It is easy to see why a straight line supply function going through the origin is unit elastic.
And here is a numerical example with some plots.
I had a question about 'classifying' solutions and about the Coase Theorem.
One way to think of solutions is technological vs. market solutions (of course we also spoke about social sanctions/norms and perhaps outright bans). Technological solutions generally reduce or clean-up emissions. Examples include: catalytic converters and scrubbers.
Market solutions seek to create markets. Markets do not exist because of property rights issues (“air” has public goods characteristics non-rival and non-excludable). Carbon markets create ‘permits’ which can be traded. Permit to do what? Pollute. But you have to pay to pollute (so you need to buy permits - and because they cost money - you will take the 'costs' of pollution in your decision making - or 'internalize' - same with carbon taxes)
The Coase Theorem is for ‘small-numbers’ problems – bargaining is costly when you have large numbers. Assignment of property rights – is important for the Coase Theorem (the lack of a no-smoking sign ‘gives the smoker the right to smoke’). Or if the assignment is ambiguous you could go to court and let a judge decide. But all the assignment of the property rights does - is that - it determines who pays whom. It has no impact on the outcome. The outcome will be what it will be and depends on how much the smoker values smoking and how much the non-smoker values smoke-free air.
If there is no ‘sign’ then the non-smoker pays the smoker to stop smoking. Suppose the value to the smoker of smoking is $10 and the value to the non-smoker of clean air is $20. Then a deal can be struck and the ‘price’ will lie between $10 and $20. The ‘efficient’ outcome will be that the smoker will stub out their cigarette.
But it the value to the smoker of smoking is $50 and the value to the non-smoker of clean air is $20. There will be no deal. The ‘efficient’ outcome will be that the smoker will continue smoking. Bargaining solutions depend on costs/benefits (max willingness to pay vs. minimum the other person is willing to accept)
Of course the Coase theorem has other assumptions (bargaining costs must be zero (or very low). If they are not then of course bargaining solutions won’t be feasible.
Another question about what should be included in transactions costs: Everything: time costs (search costs), legal costs, contracting, monitoring and bonding costs – bonding means making sure people stick to their bargain – or to the contract they signed.
The last question was about the river with a laundry upstream and a beer producer downstream - and I used the term vertical integration. The question was if this is an appropriate term. It could be because 'clean' water is an input for the beer producer and the laundry is polluting the water. But even if you don't want to think of this as a vertical relationship, it's fine. What it is - is joint profit maximization - that helps to 'internalize'. So either firm can buy up the other in order to get to that solution. Of course there could be other solutions - they could go to court. The beer producer could install a water filtration system - all depends on costs and benefits.
The textbook shows us 'typical' cost curves and we now know (from our first case discussion) that actual shapes may vary by industry as shapes are driven by technology (or engineering). We have also seen that 'data' can come in different forms - a spreadsheet for example or as in this case an equation for total cost, from which we can derive average and marginal costs and plot the function.
This is for a power plant. And it is an engineering cost function since I was told it's from the design manual. So we see declining average costs (at all levels of output) which makes this like a 'natural monopoly' and we also see the marginal is below the average, since the average is declining.
Here is an article from The Economist on emerging markets - Brazil and Russia are in trouble. And another, another which is about the high levels of corporate debt in these countries - this debt is issued in places like the Cayman Islands, partly to get around capital controls.
This is a recap of our discussion on Brazil.
Here is the recap for this week (last week)
We are discussing Brazil for the next two weeks so I am posting some articles from The Economist.
A special report on Brazil: September 2013
Some more recent articles
And the IMF's change of heart about Capital Controls ... although it would appear they still are no substitute for good macro policies and a sound financial system.
Bottom line is that many governments look to demand side policies to fix business environment or supply side problems - it just does not work. This is funny because fixing the supply side is 'in the hands of the government' as it were - the issues are purely domestic, yet they appear to make little progress on infrastructure, education, taxes, institutions, corruption .... instead they call for 'global regulation' and 'international coordination' of demand side issues.
In 2016-17 things are looking up for Brazil (at some point things are so bad, that they do have to get better) and the government has tried to do something about the labour market and pensions.
Here are two articles from the NYT on QE. QE may be coming to an end but interest rates are likely to remain low for some time.
Here are a couple of articles from the New York Times. The China piece is about using PPP versus nominal exchange rates to compare economic size - an issue which IMHO does not deserve the kind of attention it seems to be getting in 'policy circles'. The average person does not care about size - they care about the amount of money in their pocket.
The India piece is more intriguing. It compares the downturn in the US and some European countries to the deindustrialization of India in the 18th and 19th centuries (the background academic piece on the deindustrialization in India is here). Although the NYT article mentions Italy and France and some southern European countries. The argument probably also applies to Spain which we discussed recently. France and Italy have been in the news lately because they have been lagging on reforms. Generally the story goes something like this ... Agriculture is not a huge contributor to the economy anymore in terms of its share of output and employment (and as we discussed earlier, it is highly subsidized and distorted). Manufacturing in Europe has been hit by China - Germany is really the only country which still does manufacturing really well. Meanwhile, Europeans now acknowledge that Lisbon Agenda has been a failure - so in essence, Europe has not managed to catch up to the US in IT. So really there are no productive outlets available. Add to this the poor business environment and the inflexibilities in the labour market - and you are going to get stagnation. It's no wonder all the money went to construction and real estate (and therefore Finance) during the boom. It still is - look at the UK - the economy is on an upturn, but in the last couple of years a lot of money has gone back into real estate because interest rates are low. Of course the British government likes to pretend that this is because there is a shortage of housing. There may be, but real estate is still driving London, and London is driving the rest of Britain. Sure there is some IT happening in London but not nearly as much as the Brits would like or have us believe - the problem it appears, is a shortage of venture capital - for that, they need to head to America.