Nash Equilibrium is Not a Theory of Bargaining

Nash did not resolve the bargaining problem, brilliant as his 1950 paper was and remains. He engineered the outcome of bargaining– not the process of bargaining – into neo-classical equilibrium. It is pure homo economicus (Beinhocker does not appear to have noticed this at all). He has bought right into the notion that Nash demonstrated the pay-offs from co-operation – yes, but only by Nash assuming they were not bargaining at all! He writes:...more>>

Economists and Their Values

I haven't posted at Environmental Economics for a while, and this actually reverses the flow by posting their stuff here. Oh well. This discusses a disconnect between the public and economists on public policy issues, environmental policy in particular: ...more>>

What market failure does a central bank address?

And does it succeed? Better then other (private, market-based) alternatives?

This post certainly cannot answer such momentous questions. I would, however, like to use these questions as a focal point for thinking about one of the hot topics on the economics blogs. I think a lesson that comes out of this (are you listening, grad students?) is that monetary policy questions can have very deep roots in fundamental questions about the nature of money and markets....more>>

Money and mental health

Yes - money can buy mental health. That's the finding in this new paper (pdf):

We offer new evidence by using longitudinal data on a random sample of Britons who receive medium-sized lottery wins of between £1000 and £120,000 (that is, up to approximately U.S. $200,000). When compared to two control groups -- one with no wins and the other with small wins -- these individuals go on eventually to exhibit significantly better psychological health...more>>

Is Paul Krugman a Better Economist Than James Tobin?

Now, on the more substantive point, again, here's my best guess of how Krugman would respond:

The logic seems to run as follows:

1. Krugman advocates policies that would reduce the income of affluent people.

2. But Krugman is an affluent person.

3. Therefore, Krugman is being dishonest....more>> ...more>> ... more>> ... more>> ...more>>

Greg Mankiw's Blog: Letter from Milton

Greg Mankiw's Blog: Letter from Milton

Notes on the size of government

I’m working on a summary of the evidence on economic effects of the size of government. I’ll probably cite the usual suspects such as Barro and DeLong in due course, but I’d be interested in comments, particularly pointing to evidence outside the usual pattern of growth regressions and so on...more>>

Competitiveness

...We are experiencing another competitiveness panic. These occur every 15 or 20 years. There's an outpouring of worried reports and articles. After Sputnik in 1957 -- the first artificial earth satellite -- we were supposedly doomed to be overtaken by the Soviet Union. In the late 1970s and 1980s, it was Germany and then Japan. Lately, China and India have been the threats. ...

One problem with these debates is that competitiveness is a vague term. What does it mean? If it means keeping the lead in every industry where we once led, we're doomed. ... Similarly, if competitiveness requires the United States to maintain its present share of the world economy, we are also probably doomed. ...more>>

Do Monopolies Undermine The Environment?

For many skeptics of the environmental benefits of market economies it seems that the fear of monopoly control over natural resources is one of their greatest concerns. The reality is actually much more complicated; here’s why...more>>

Does Income Inequality Lead to Consumption Inequality?

This paper first documents the evolution of the cross-sectional income and consumption distribution in the US in the past 25 years. Using data from the Consumer Expenditure Survey we find that a rising income inequality has not been accompanied by a corresponding rise in consumption inequality...more>>