Results for “solve for equilibrium” 136 found
*Counterpart* (no significant spoilers)
Girardian television! The basic set-up is that two similar, almost identical universes have branched from one, centered around Berlin. And there is a (controlled and limited) path for tunneling from one world to another. Some interaction ensues. Solve for the equilibrium. The Girardian equilibrium. It joins David Cronenberg’s Dead Ringers as one of the true cultural explanations of Girardian thought, and yes there is an embedded and I would say largely true model in the plot, especially in season two. Here is Wikipedia on the show. It was too smart to last for more than two years on the air. Excellent cast also, with the Whiplash drum instructor (J.K. Simmons) as the lead character(s), and the female lead from Rushmore (Olivia Williams) as his wife(s).
Contingent Wage Subsidies
Robertas Zubricka has a clever idea, Contingent Wage Subsidies. Many macroeconomic problems are caused by a coordination failure–you don’t spend because I’m not spending and vice-versa and so the economy becomes trapped in a low-spending, low-employment equilibrium. Zubrickas shows how to solve these coordination problems. The government announces a contingent wage subsidy, a subsidy that is paid only if hiring is low. If a firm hires and others do not they get the subsidy. If a firm hires and others do hire they get the demand. A no-lose proposition. Hence, all firms hire and the subsidy never has to be paid. Instead of a big push, a zero push! Here’s Zubrickas:
New hiring by one firm is a reason for new hiring by other firms because of employment externalities related to additional aggregate demand, new trading opportunities, or production synergies. Without a coordinated action, however, the virtuous hiring cycle may not start, stranding the economy in a low‐employment, low‐spending equilibrium as in the aftermath of the 2007–2009 financial crisis (OECD, 2016). The traditional approach to this problem emphasizes a “big push,” when one large player like the government spends enough to convince others to spend. In this paper, we show how a “zero push” can achieve the same results.
With the economy in a low‐employment equilibrium, we propose a policy that offers firms wage subsidies for new hires payable only if the total number of new hires made in the economy does not exceed a prespecified threshold. An example would be a promise to cover all new labor costs contingent on that less than, say, 100,000 new jobs are created in total. From a firm’s perspective two outcomes can occur from this policy. One outcome is when the number of new jobs is less than the threshold, in which case the firm has its additional labor costs covered while keeping all the additional revenue. The second outcome is when the threshold is met and no subsidies are paid. The firm then benefits from employment spillovers generated by a substantial increase in total employment which makes hiring profitable even without any subsidies. With hiring profitable in both scenarios and, thus, all firms hiring, the threshold for new hires is reached, bringing the economy to high‐employment equilibrium without any subsidies paid.
Attentive readers will note that the idea has the same structure as my dominant assurance contract (which Zubrickas notes was an inspiration).
Read the whole thing.
Saturday assorted links
2. How is cocaine trafficking doing?
3. Edenville dam failure caught on video.
4. Ten arguments against immunity passports. I mean…those are the arguments you should make. But there is no conception that you have to “solve for the equilibrium” if there are no formal immunity passports, and compare the two situations in terms of cost, unfairness, and the like. In that sense the authors cannot conceive that there needs to be a comparison at all.
6. Do proponents of moral outrage wish to “sneak up on women”? That would explain a lot.
7. The import of super-spreaders in Israel.
8. American Interest interview with Larry Summers. “LHS: There’s a lot of empirical evidence since Keynes wrote, and for every non-employed middle-aged man who’s learning to play the harp or to appreciate the Impressionists, there are a hundred who are drinking beer, playing video games, and watching 10 hours of TV a day.” It’s a good thing that has nothing to do with subsequent delayed re-employment (also known as “unemployment”), isn’t it?
Wednesday assorted links and non-links
2. Secular stagnation vs. technological lull?
3. Dan Klein on Covid and Coase.
5. NYT covers Sweden. In my view we still don’t know how well the Swedish experiment is working out, but a continuing verdict of “we still don’t know” does in fact favor Sweden relative to priors. And Thomas Friedman (NYT) on Sweden. And update on some Swedish numbers.
6. A reader email on why child abuse is not opposed more passionately: “Basically, I think it comes down to the problem of agency vs structure. The left (including myself) wants to emphasize that problems have large structural components so we need to change the system. However individual heinous acts don’t fit neatly into that paradigm. Plus, child abuse is pervasive enough that it is sort of structural itself, and talking about it can sound like blaming a community or demographic, or hitting close to racism. No idea why the right doesn’t emphasize it more other than the idea that it’s somehow “traditional”?”
7. Mel Baggs, disability advocate, RIP (NYT). Formerly known as Amanda Baggs.
8. Quarantine stereotypes (video, funny, some of it).
9. Will colleges lose twenty percent of their student body this year? Solve for the equilibrium.
10. Jason Furman: “If you had told me we would have a massive pandemic I would have predicted an increase in health spending. Shows why you shouldn’t listen to me. Health spending down 4.9% in Q1 (not annualized). Responsible for nearly 1/2 of the overall GDP decline. Likely down much more in Q2.” Correctly or not, that makes me feel better about the observed gdp decline. I am not minimizing the import of the non-Covid extra death toll (which is what exactly? Is it net even positive?), but I already felt bad about that.
When Will The Riots Begin?
I was surprised when Trump won. The economy was doing well, Trump had charisma but was erratic and made what seemed like many missteps (like disparaging people in the military) that it didn’t seem plausible he could win. Yet, he plowed through the Republican primaries and gathered such a large and powerful base of support that people like Ted Cruz and Lindsey Graham, who have good reasons to hate his guts, even they kowtowed. I don’t want to revisit the debates about why Trump won but one of the reasons was that his base felt disrespected by coastal and media elites–their religion, their guns, their political incorrectness, their patriotism, their education, their jobs–all disrespected.
And now maybe it is happening again. From the point of view of the non-elites, the elites with their models and data and projections have shut the economy down. The news is full of pleas for New York, which always seemed like a suspicious den of urban iniquity, but their hometown is doing fine. The church is closed, the bar is closed, the local plant is closed. Money is tight. Meanwhile the elites are laughing about binging Tiger King on Netflix. It doesn’t feel right. I can understand that or feel that I must try to understand that.
Here’s a picture from a protest in Ohio. It wasn’t a large protest, about 100 people, but they look pretty angry. They want to reopen the economy. 
Photo: Joshua Bickel.
Columbus Dispatch: Kevin Farmer of Cincinnati climbed to the top of the Statehouse steps with his bullhorn to lead the protesters in a series of chants.
“Some say that we’re actually causing havoc or putting lives in danger right now — but actually they’re putting my livelihood in danger and others because we’re laid off during this pandemic,” Farmer said to the crowd.
Farmer told The Dispatch that he has been laid off from his job at Cincinnati Metropolitan Housing, and said his employer will contact him when it is OK to return to work.
Farmer said he hoped DeWine would see the dissent caused by the demonstration, and allow Ohioans to get back to their jobs.
“Don’t Mike DeWine supposed to be a Republican (sic)? Don’t he believe in less government? Small government?” Farmer said.
“He has an obligated right to get us back to work, because if not, what do you think Americans are gonna go through?”
Farmer also led the demonstrators in a series of “When I say tyrant, you say Mike DeWine” chants, among others.
Another demonstrator, John Jenkins of Pleasantville, was bearing an upside down American flag, traditionally a distress signal.
“Ohio is currently under distress,” Jenkins said. “The United States is generally under distress.”
…Joe Marshall, who did not identify where he was from, said he was representing Anonymous Columbus Ohio.
Marshall said he chose to demonstrate against DeWine because he believes DeWine and Acton are being led astray by the World Health Organization, which he said is corrupt and peddling false information to local governments.
“Their numbers here are what these clowns are going by,” Marshall said. “Even if they are right, they don’t justify” enforcing a stay-at-home order.
“These are common sense things,” Marshall said. “The problem is, Mr. DeWine doesn’t want to do common sense things, he wants to listen to Amy [Ohio Health Director Dr. Amy Acton, AT], and Amy gets her orders from the World Health Organization.”
Another protestor from a follow-up:
Columbus Dispatch: “We have children to feed, businesses to run, employees to pay, and Ohio must end this shutdown now. Those with high-risk categories and compromised immune systems can shelter safely at home while the rest of us can exercise our constitutional liberties to work and take care of our businesses and children.
“Patriots who love and respect our liberties and the Constitution are sick and tired of the fear-mongering while the governor and (state Health Director) Dr. (Amy) Acton continue to hide the numbers from the public.”
As Tyler put it yesterday, “America is a democracy, and the median voter will not die of coronavirus.” Solve for the equilibrium.
Addendum: In an excellent historical piece, Jesse Walker at Reason notes that cholera riots were common in Europe in the 19th century. Respect also played a role:
The more high-handed the ruling classes were, the more likely they were to be targeted by rumors and revolt. The riots persisted longest, Cohn writes, “where elites continued to belittle the supposed ‘superstitions’ of villagers, minorities, and the poor, violated their burial customs and religious beliefs, and imposed stringent anti-cholera regulations even after most of them had been proven to be ineffectual. Moreover, ruling elites in these places addressed popular resistance with military force and brutal repression.
*Very Important People*
The author is Ashley Mears and the subtitle is Status and Beauty in the Global Party Circuit. I loved this book, my favorite of the year so far.
Haven’t you ever wondered why more books shouldn’t just take social phenomena and explain them, rather than preening their academic feathers with a lot of non-committal dense information? Well, this book tries to explain the Miami club where renting an ordinary table for the night costs 2k, with some spending up to 250k, along with the underlying sociological, economic, and anthropological mechanisms behind these arrangements. Here is just a start on the matter:
Any club, whether in a New York City basement or on a Saint-Tropez beach, is always shaped by a clear hierarchy. Fashion models signal the “A-list,” but girls are only half of the business model. There are a few different categories of men that every club owner wants inside, and there is a much larger category of men they aim to keep out.
Or this:
Bridge and tunnel, goons, and ghetto. These are men whose money can’t compensate for their perceived status inadequacies. The marks of their marginal class positions are written on their bodies, flagging an automatic reject at the door.
A clever man can try to use models as leverage to gain entry and discounts at clubs. A man surrounded by models will not have to spend as much on bottles. I interviewed clients who talked explicitly about girls as bargaining chips they could use at the door.
The older, uglier men may have to pay 2k to rent a table for the evening, whereas “decent-looking guys with three or four models” will be let in for free with no required minimum. And:
Men familiar with the scene make these calculations even if they have money to spend: How many beautiful girls can I get to offset how I look? How many beautiful girls will it take to offset the men with me? How much money am I willing to spend for the night in the absence of quality girls?
How is this for a brutal sentence?:
Girls determine hierarchies of clubs, the quality of people inside, and how much money is spent.
Here is another ouch moment:
…I revisit a second critical insight of Veblen’s on the role of women in communicating men’s status. In this world, girls function as a form of capital. Their beauty generates enormous symbolic and economic resources for the men in their presence, but that capital is worth far more to men than to the girls who embody it.
if you ever needed to be convinced not to eat out at places with beautiful women, this book will do the trick. Solve for the equilibrium, people…
You can pre-order here. (By the way, I’ve been thinking of writing more about “lookism,” and why opponents of various other bad “isms” have such a hard time extending the campaign to that front.)
Monday assorted links
1. New book on Never Trumpers by Robert Saldin and Steve Teles. And should a Fields medalist be mayor of Paris? (NYT)
3. Jennifer Doleac on Thomas Sowell.
4. Interns: “A résumé audit study with more than 11,500 applications reveals that employers are more likely to respond positively when internship applicants have previous internship experience. Employers are also less likely to respond to applicants with black-sounding names and when the applicant is more distant from the firm.”
Thursday assorted links
1. A Bayesian approach to Bernie Sanders (show your work).
2. Should libertarians ally with Bolsonaro?
3. In which I interview Tom Kalil, Chief Innovation Officer at Schmidt Futures (other sessions too, scroll down for mine). And Phantom Tyler says solve for the equilibrium.
4. New British fast-track visa, aimed especially at scientists.
5. Taste for Indian food predicts Bernie Sanders support (NYT). But what does an interest in Pakistani food correlate with? In the United States, Pakistani food usually is better than Indian.
6. “A professor at one of China’s top universities has quit what many academics would regard as a dream job after he gained celebrity status through an online “knowledge-sharing” platform.” (former GMU student, 2008 Ph.d)
Vancouver vending machine markets in everything
Health advocates say a safe supply of opioids is critical to help prevent people from overdosing on tainted street drugs.
Now, a pilot project in Vancouver’s Downtown Eastside provides some high-risk users with access to an automated machine that dispenses opioids prescribed by a doctor…
The machine, called MySafe, is stocked with hydromorphone tablets that are released on a pre-determined schedule to high-risk opioid users. A user must scan their palm on the machine to identify themselves. The machine recognizes each individual by verifying the vein pattern in their hand and then dispenses their prescription.
Made of steel and bolted to the floor, MySafe resembles an ATM or vending machine. It logs every package that is released and sends that information to a web feed that only program administrators can access.
Here is the full article, please solve for the equilibrium. Via Michelle Dawson.
Abhijit Banerjee reminiscenses
Abhijit and I were in the same first year class at Harvard, and I have two especially strong memories of him from that time.
First, he was always willing to help out those who were not as advanced in the class work as he was. Furthermore, that was literally everyone else. He was very generous with his time.
Second, when it came to the first-year Macro final (I don’t mean the comprehensive exams), Andy Abel wrote a problem with dynamic programming, which was Andy’s main research area at the time. Abhijit showed that the supposed correct answer was in fact wrong, that the equilibrium upon testing was degenerate, and he re-solved the problem correctly, finding some multiple equilibria if I recall correctly, all more than what Abel had seen and Abel wrote the problem. Abhijit got an A+ (Abel, to his credit, was not shy about reporting this).
One of my favorite Abhijit papers is “On Frequent Flyer Programs and other Loyalty-Inducing Economic Arrangements,” with Larry Summers. I believe it was published QJE 1987, but somehow the jstor link does not show up from google searches. This was one of the first papers to show how consumer loyalty programs could segment the market and have collusive effects.
Another favorite Abjihit paper of mine is his job market paper, “The Economics of Rumours,” later published in ReStud 1993. Have you ever wondered “if this rumor is true, why haven’t I heard it before?” Abhijit works through the logic of the model on that one, in a scintillating performance. It turns out this paper is now highly relevant for analyzing information transmission through social media.
Abhijit is the clearest case I know of a brilliant theorist who decided the future was with empirical work — he was right. Nonetheless his early theory papers are still worthy of attention. When Abhijit went on the job market, his letter writers suggested he might someday win a Nobel Prize, so strong were his talents. They were right, but I suspect they had no idea for what the prize in fact would turn out to be.
Tuesday assorted links
1. Solve for the equilibrium price of real estate.
2. Kanye + Star Wars vs. NIMBY.
3. Reputation markets in everything: “The Wall Street Journal’s Erich Schwartzel recently wrote a story revealing that none of these tough-guy actors likes it very much when the characters they play get pummeled on screen. One of them even negotiated limits on how much his character can get beat up. Another has his sister, a producer, count how many times his character gets punched, to make sure he gives as good as he gets.
Today, Erich joins us to talk about the lengths these actors have gone to preserve their ever-so-fragile reputations for macho toughness. And the incentives they have for doing so.”
4. A Straussian take on Kenyan rebellion (song, The Rivingtons, 1962). This was the recording that prompted Dave Marsh to describe Bob Dylan’s “The Times They Are a Changin'” as a “dull diatribe.”
Highly decentralized solar geoengineering
Nonstate actors appear to have increasing power, in part due to new technologies that alter actors’ capacities and incentives. Although solar geoengineering is typically conceived of as centralized and state-deployed, we explore highly decentralized solar geoengineering. Done perhaps through numerous small high-altitude balloons, it could be provided by nonstate actors such as environmentally motivated nongovernmental organizations or individuals. Conceivably tolerated or even covertly sponsored by states, highly decentralized solar geoengineering could move presumed action from the state arena to that of direct intervention by nonstate actors, which could in turn, disrupt international politics and pose novel challenges for technology and environmental policy. We conclude that this method appears technically possible, economically feasible, and potentially politically disruptive. Decentralization could, in principle, make control by states difficult, perhaps even rendering such control prohibitively costly and complex.
That is from Jesse L. Reynolds & Gernot Wagner, and injecting fine aerosols into the air, as if to mimic some features of volcanic eruptions, seems to be one of the major possible approaches. I am not able to judge the scientific merits of their claims, but it has long seemed to me evident that some version of this idea would prove possible.
Solve for the equilibrium! What is it? Too much enthusiasm for correction and thus disastrous climate cooling? Preemptive government regulation? It requires government subsidy? It becomes controlled by concerned philanthropists? It starts a climate war between America/Vietnam and Russia/Greenland? Goldilocks? I wonder if we will get to find out.
Via the excellent Kevin Lewis.
Biblical Adverse Selection
And Jesus said, Behold, two men went forth each to buy a new car.
And the car of the first man was good and served its owner well; but the second man’s was like unto a lemon, and worked not.
But in time both men grew tired of their cars, and wished to be rid of them. Thus the two men went down unto the market, to sell their cars.
The first spoke to the crowd that had gathered there, saying honestly, My car is good, and you should pay well for it;
But the second man went alongside him, and bearing false witness, said also, My car is good, and you should pay well for it.
Then the crowd looked between the cars, and said unto them, How can we know which of ye telleth the truth, and which wisheth falsely to pass on his lemon?
And they resolved themselves not to pay for either car as if it were good, but to pay a little less than this price.
Now the man with a good car, hearing this, took his car away from the market, saying to the crowd, If ye will not pay full price for my good car, then I wish not to sell it to you;
But the man with a bad car said, I will sell you my car for this price; for he knew that his car was bad and was worth less than this price.
But as the first man left, the crowd returned to the second man and said, If thy car is good, why then dost thou not leave to keep the car, when we will pay less than it is worth? Thy car must be a lemon, and we will pay only the price of a lemon.
The second man was upset that his deception had been uncovered; but he could not gainsay the conclusion of the market, and so he sold his car for just the price of a lemon.
And the crowd reasoned, If any man cometh now to sell his car unto us, that car must be a lemon; since we will pay only the price of a lemon.
And Lo, the market reached its Nash equilibrium.
From username42 on Reddit. Hat tip: Michael Lane.
Your challenge: Explain an economics principle the King James Way.
Bitcoin is Less Secure than Most People Think
I spent part of the holidays poring over Eric Budish’s important paper, The Economic Limits of Bitcoin and the BlockChain. Using a few equilibrium conditions and some simulations, Budish shows that Bitcoin is vulnerable to a double spending attack.
In a double spending attack, the attacker sells say bitcoin for dollars. The bitcoin transfer is registered on the blockchain and then, perhaps after some escrow period, the dollars are received by the attacker. As soon as the bitcoin transfer is registered in a block–call this block 1–the attacker starts to mine his own blocks which do not include the bitcoin transfer. Suppose there is no escrow period then the best case for the attacker is that they mine two blocks 1′ and 2′ before the honest nodes mine block 2. In this case, the attacker’s chain–0,1′,2′–is the longest chain and so miners will add to this chain and not the 0,1… chain which becomes orphaned. The attacker’s chain does not include the bitcoin transfer so the attacker still has the bitcoins and they have the dollars! Also, remember, even though it is called a double-spend attack it’s actually an n-spend attack so the gains from attack could be very large. But what happens if the honest nodes mine a new block before the attacker mines 2′? Then the honest chain is 0,1,2 but the attacker still has block 1′ mined and after some time they will have 2′, then they have another chance. If the attacker can mine 3′ before the honest nodes mine block 3 then the new longest chain becomes 0,1′,2′,3′ and the honest nodes start mining on this chain rather than on 0,1,2. It can take time for the attacker to produce the longest chain but if the attacker has more computational power than the honest nodes, even just a little more, then with probability 1 the attacker will end up producing the longest chain.
As an example, Budish shows that if the attacker has just 5% more computational power than the honest nodes then on average it takes 26.5 blocks (a little over 4 hours) for the attacker to have the longest chain. (Most of the time it takes far fewer blocks but occasionally it takes hundreds of blocks for the attacker to produce the longest chain.) The attack will always be successful eventually, the key question is what is the cost of the attack?
The net cost of a double-spend attack is low because attackers also earn block rewards. For example, in the case above it might take 26 blocks for the attacker to substitute its longer chain for the honest chain but when it does so it earns 26 block rewards. The rewards were enough to cover the costs of the honest miners and so they are more or less enough to cover the costs of the attacker. The key point is that attacking is the same thing as mining. Budish assumes that attackers add to the computation power of the network which pushes returns down (for both the attacker and interestingly the honest nodes) but if we assume that the attacker starts out as honest–a Manchurian Candidate attack–then there is essentially zero cost to attacking.
It’s often said that Bitcoin creates security with math. That’s only partially true. The security behind avoiding the double spend attack is not cryptographic but economic, it’s really just the cost of coordinating to achieve a majority of the computational power. Satoshi assumed ‘one-CPU, one-vote’ which made it plausible that it would be costly to coordinate millions of miners. In the centralized ASIC world, coordination is much less costly. Consider, for example, that the top 4 mining pools today account for nearly 50% of the total computational power of the network. An attack would simply mean that these miners agree to mine slightly different blocks than they otherwise would.
Aside from the cost of coordination, a small group of large miners might not want to run a double spending attack because if Bitcoin is destroyed it will reduce the value of their capital investments in mining equipment (Budish analyzes several scenarios in this context). Call that the Too Big to Cheat argument. Sound familiar? The Too Big to Cheat argument, however, is a poor foundation for Bitcoin as a store of value because the more common it is to hold billions in Bitcoin the greater the value of an attack. Moreover, we are in especially dangerous territory today because bitcoin’s recent fall in price means that there is currently an overhang of computing power which has made some mining unprofitable, so miners may feel this a good time to get out.
The Too Big to Cheat argument suggests that coins are vulnerable to centralized computation power easily repurposed. The tricky part is that the efficiencies created by specialization–as for example in application-specific integrated circuits–tend to lead to centralization but by definition make repurposing more difficult. CPUs, in contrast, tend to lead to decentralization but are easily repurposed. It’s hard to know where safety lies. But what we can say is that any alt-coin that uses a proof of work algorithm that can be solved using ASICs is especially vulnerable because miners could run a double spend attack on that coin and then shift over to mining bitcoin if the value of that coin is destroyed.
What can help? Ironically, traditional law and governance might help. A double spend attack would be clear in the data and at least in general terms so would the attackers. An attack involving dollars and transfers from banks would be potentially prosecutable, greatly raising the cost of an attack. Governance might help as well. Would a majority of miners (not including the attacker) be willing to fork Bitcoin to avoid the attack, much as was done with The DAO? Even the possibility of a hardfork would reduce the expected value of an attack. More generally, all of these mechanisms are a way of enforcing some stake loss or capital loss on dishonest miners. In theory, therefore, proof of stake should be less vulnerable to 51% attacks but proof of stake is much more complicated to make incentive-compatible than proof of work.
All of this is a far cry from money without the state. Trust doesn’t have the solidity of math but we are learning that it is more robust.
Hat tip to Joshua Gans and especially to Eric Budish for extensive conversation on these issues.
Addendum: See here for more on the Ethereum Classic double spend attack.
Christmas assorted links
1. 99 good news stories from 2018. p.s. not all of them are good, though most of them are. But prices going to zero for normal market goods and services usually is a mistake.
2. The seasonal business cycle in camel rentals.
3. David Brooks’s Sidney Awards, part I (NYT).
4. Should credit card companies be required to monitor or limit weapons purchases? (NYT, I say no and view this as a dangerous trend).
5. Should the EU enforce content regulations on streaming services? (I say no and view this as a dangerous trend).