The Two Faces of Emergence in Economics
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Methods of Measuring the Economy, Efficiency and Effectiveness Of
Methods Of Measuring The Economy, Efficiency And Effectiveness Of Public Expenditure ANNEX 7: August 2015 1 | P a g e TABLE OF CONTENTS 1 Introduction .......................................................................................................................................... 3 2 PER Context ........................................................................................................................................... 3 3 Necessity of the measures .................................................................................................................... 4 4 Measurement and coding ..................................................................................................................... 5 5 Assumptions .......................................................................................................................................... 5 6 Definitions and basic qualitative measures .......................................................................................... 6 6.1 Measuring Efficiency with DEA ..................................................................................................... 9 6.1.1 DEA ...................................................................................................................................... 10 6.1.2 Assumption of DEA ............................................................................................................. 10 6.2 Scale Efficiency Issues in DEA ..................................................................................................... -
Journal of Mathematical Economics Implementation of Pareto Efficient Allocations
Journal of Mathematical Economics 45 (2009) 113–123 Contents lists available at ScienceDirect Journal of Mathematical Economics journal homepage: www.elsevier.com/locate/jmateco Implementation of Pareto efficient allocations Guoqiang Tian a,b,∗ a Department of Economics, Texas A&M University, College Station, TX 77843, USA b School of Economics and Institute for Advanced Research, Shanghai University of Finance and Economics, Shanghai 200433, China. article info abstract Article history: This paper considers Nash implementation and double implementation of Pareto effi- Received 10 October 2005 cient allocations for production economies. We allow production sets and preferences Received in revised form 17 July 2008 are unknown to the planner. We present a well-behaved mechanism that fully imple- Accepted 22 July 2008 ments Pareto efficient allocations in Nash equilibrium. The mechanism then is modified Available online 5 August 2008 to fully doubly implement Pareto efficient allocations in Nash and strong Nash equilibria. The mechanisms constructed in the paper have many nice properties such as feasibility JEL classification: C72 and continuity. In addition, they use finite-dimensional message spaces. Furthermore, the D61 mechanism works not only for three or more agents, but also for two-agent economies. D71 © 2008 Elsevier B.V. All rights reserved. D82 Keywords: Incentive mechanism design Implementation Pareto efficiency Price equilibrium with transfer 1. Introduction 1.1. Motivation This paper considers implementation of Pareto efficient allocations for production economies by presenting well-behaved and simple mechanisms that are continuous, feasible, and use finite-dimensional spaces. Pareto optimality is a highly desir- able property in designing incentive compatible mechanisms. The importance of this property is attributed to what may be regarded as minimal welfare property. -
Arxiv:0803.2996V1 [Q-Fin.GN] 20 Mar 2008 JEL Classification: A10, A12, B0, B40, B50, C69, C9, D5, D1, G1, G10-G14
The virtues and vices of equilibrium and the future of financial economics J. Doyne Farmer∗ and John Geanakoplosy December 2, 2008 Abstract The use of equilibrium models in economics springs from the desire for parsimonious models of economic phenomena that take human rea- soning into account. This approach has been the cornerstone of modern economic theory. We explain why this is so, extolling the virtues of equilibrium theory; then we present a critique and describe why this approach is inherently limited, and why economics needs to move in new directions if it is to continue to make progress. We stress that this shouldn't be a question of dogma, but should be resolved empir- ically. There are situations where equilibrium models provide useful predictions and there are situations where they can never provide use- ful predictions. There are also many situations where the jury is still out, i.e., where so far they fail to provide a good description of the world, but where proper extensions might change this. Our goal is to convince the skeptics that equilibrium models can be useful, but also to make traditional economists more aware of the limitations of equilib- rium models. We sketch some alternative approaches and discuss why they should play an important role in future research in economics. Key words: equilibrium, rational expectations, efficiency, arbitrage, bounded rationality, power laws, disequilibrium, zero intelligence, mar- ket ecology, agent based modeling arXiv:0803.2996v1 [q-fin.GN] 20 Mar 2008 JEL Classification: A10, A12, B0, B40, B50, C69, C9, D5, D1, G1, G10-G14. ∗Santa Fe Institute, 1399 Hyde Park Rd., Santa Fe NM 87501 and LUISS Guido Carli, Viale Pola 12, 00198, Roma, Italy yJames Tobin Professor of Economics, Yale University, New Haven CT, and Santa Fe Institute 1 Contents 1 Introduction 4 2 What is an equilibrium theory? 5 2.1 Existence of equilibrium and fixed points . -
An Equilibrium-Conserving Taxation Scheme for Income from Capital
Eur. Phys. J. B (2018) 91: 38 https://doi.org/10.1140/epjb/e2018-80497-x THE EUROPEAN PHYSICAL JOURNAL B Regular Article An equilibrium-conserving taxation scheme for income from capital Jacques Temperea Theory of Quantum and Complex Systems, Universiteit Antwerpen, Universiteitsplein 1, 2610 Antwerpen, Belgium Received 28 August 2017 / Received in final form 23 November 2017 Published online 14 February 2018 c The Author(s) 2018. This article is published with open access at Springerlink.com Abstract. Under conditions of market equilibrium, the distribution of capital income follows a Pareto power law, with an exponent that characterizes the given equilibrium. Here, a simple taxation scheme is proposed such that the post-tax capital income distribution remains an equilibrium distribution, albeit with a different exponent. This taxation scheme is shown to be progressive, and its parameters can be simply derived from (i) the total amount of tax that will be levied, (ii) the threshold selected above which capital income will be taxed and (iii) the total amount of capital income. The latter can be obtained either by using Piketty's estimates of the capital/labor income ratio or by fitting the initial Pareto exponent. Both ways moreover provide a check on the amount of declared income from capital. 1 Introduction distribution of money over the agents involved in additive transactions follows a Boltzmann{Gibbs exponential dis- The distribution of income has been studied for a long tribution. Note that this is a strongly simplified model of time in the economic literature, and has more recently economic activity: it is clear that in reality global money become a topic of investigation for statistical physicists conservation is violated. -
Chapter 18 Economic Efficiency
Chapter 18 Economic Efficiency The benchmark for any notion of optimal policy, be it optimal monetary policy or optimal fiscal policy, is the economically efficient outcome. Once we know what the efficient outcome is for any economy, we can ask “how good” the optimal policy is (note that optimal policy need not achieve economic efficiency – we will have much more to say about this later). In a representative agent context, there is one essential condition describing economic efficiency: social marginal rates of substitution are equated to their respective social marginal rates of transformation.147 We already know what a marginal rate of substitution (MRS) is: it is a measure of the maximal willingness of a consumer to trade consumption of one good for consumption of one more unit of another good. Mathematically, the MRS is the ratio of marginal utilities of two distinct goods.148 The MRS is an aspect of the demand side of the economy. The marginal rate of transformation (MRT) is an analogous concept from the production side (firm side) of the economy: it measures how much production of one good must be given up for production of one more unit of another good. Very simply put, the economy is said to be operating efficiently if and only if the consumers’ MRS between any (and all) pairs of goods is equal to the MRT between those goods. MRS is a statement about consumers’ preferences: indeed, because it is the ratio of marginal utilities between a pair of goods, clearly it is related to consumer preferences (utility). MRT is a statement about the production technology of the economy. -
Excess Capital Flows and the Burden of Inflation in Open Economies
This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: The Costs and Benefits of Price Stability Volume Author/Editor: Martin Feldstein, editor Volume Publisher: University of Chicago Press Volume ISBN: 0-226-24099-1 Volume URL: http://www.nber.org/books/feld99-1 Publication Date: January 1999 Chapter Title: Excess Capital Flows and the Burden of Inflation in Open Economies Chapter Author: Mihir A. Desai, James R. Hines, Jr. Chapter URL: http://www.nber.org/chapters/c7775 Chapter pages in book: (p. 235 - 272) 6 Excess Capital Flows and the Burden of Inflation in Open Economies Mihir A. Desai and James R. Hines Jr. 6.1 Introduction Access to the world capital market provides economies with valuable bor- rowing and lending opportunities that are unavailable to closed economies. At the same time, openness to the rest of the world has the potential to exacerbate, or to attenuate, domestic economic distortions such as those introduced by taxation and inflation. This paper analyzes the efficiency costs of inflation-tax interactions in open economies. The results indicate that inflation’s contribu- tion to deadweight loss is typically far greater in open economies than it is in otherwise similar closed economies. This much higher deadweight burden of inflation is caused by the international capital flows that accompany inflation in open economies. Small percentage changes in international capital flows now represent large resource reallocations given two decades of rapid growth of net and gross capi- tal flows in both developed and developing economies. For example, the net capital inflow into the United States grew from an average of 0.1 percent of GNP in 1970-72 to 3.0 percent of GNP in 1985-88. -
Strong Nash Equilibria and Mixed Strategies
Strong Nash equilibria and mixed strategies Eleonora Braggiona, Nicola Gattib, Roberto Lucchettia, Tuomas Sandholmc aDipartimento di Matematica, Politecnico di Milano, piazza Leonardo da Vinci 32, 20133 Milano, Italy bDipartimento di Elettronica, Informazione e Bioningegneria, Politecnico di Milano, piazza Leonardo da Vinci 32, 20133 Milano, Italy cComputer Science Department, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213, USA Abstract In this paper we consider strong Nash equilibria, in mixed strategies, for finite games. Any strong Nash equilibrium outcome is Pareto efficient for each coalition. First, we analyze the two–player setting. Our main result, in its simplest form, states that if a game has a strong Nash equilibrium with full support (that is, both players randomize among all pure strategies), then the game is strictly competitive. This means that all the outcomes of the game are Pareto efficient and lie on a straight line with negative slope. In order to get our result we use the indifference principle fulfilled by any Nash equilibrium, and the classical KKT conditions (in the vector setting), that are necessary conditions for Pareto efficiency. Our characterization enables us to design a strong–Nash– equilibrium–finding algorithm with complexity in Smoothed–P. So, this problem—that Conitzer and Sandholm [Conitzer, V., Sandholm, T., 2008. New complexity results about Nash equilibria. Games Econ. Behav. 63, 621–641] proved to be computationally hard in the worst case—is generically easy. Hence, although the worst case complexity of finding a strong Nash equilibrium is harder than that of finding a Nash equilibrium, once small perturbations are applied, finding a strong Nash is easier than finding a Nash equilibrium. -
Efficiency Determinants and Dynamic Efficiency Changes in Latin American Banking Industries M
Working Paper 2007-WP-32 December 2007 Efficiency Determinants and Dynamic Efficiency Changes in Latin American Banking Industries M. Kabir Hassan and Benito Sanchez Abstract: This paper investigates the dynamic and the determinants of banking industry efficiency in Latin America. Allocative, technical, pure technical and scale efficiencies are calculated and analyzed in each country. We find that Latin American bank managers have been using resources efficiently, but they are not choosing an optimal input/output. Additionally, we find that traditional banking performance measures are positively correlated with efficiencies while variables that measure banking and financial structure development and macroeconomics present mixed results. About the Authors: Dr. Kabir Hassan is a tenured professor at the University of New Orleans and also holds a visiting research professorship at Drexel University, Philadelphia. He is a financial economist with consulting, research and teaching experiences in development finance, money and capital markets, corporate finance, investments, monetary economics, macroeconomics and international trade and finance. He has published five books, over 70 articles in refereed academic journals and has presented over 100 research papers at professional conferences globally. Dr. Benito Sanchez is an Assistant Professor of Finance at Kean University (Union, NJ.), teaching Corporate Finance, Investment and Financial Institutions and Markets. He has taught finance courses at University of New Orleans and at Loyola University New Orleans. Dr. Sanchez research focuses in asset pricing and banking efficiencies. Keywords: Latin American banks, cost efficiency, revenue efficiency. JEL Classification: D2, G2, G21, G28. The views expressed are those of the individual author(s) and do not necessarily reflect official positions of Networks Financial Institute. -
Egalitarianism in Mechanism Design∗
Egalitarianism in Mechanism Design∗ Geoffroy de Clippely This Version: January 2012 Abstract This paper examines ways to extend egalitarian notions of fairness to mechanism design. It is shown that the classic properties of con- strained efficiency and monotonicity with respect to feasible options become incompatible, even in quasi-linear settings. An interim egali- tarian criterion is defined and axiomatically characterized. It is applied to find \fair outcomes" in classical examples of mechanism design, such as cost sharing and bilateral trade. Combined with ex-ante utilitari- anism, the criterion characterizes Harsanyi and Selten's (1972) interim Nash product. Two alternative egalitarian criteria are proposed to il- lustrate how incomplete information creates room for debate as to what is socially desirable. ∗The paper beneficiated from insightful comments from Kfir Eliaz, Klaus Nehring, David Perez-Castrillo, Kareen Rozen, and David Wettstein. Financial support from the National Science Foundation (grant SES-0851210) is gratefully acknowledged. yDepartment of Economics, Brown University. Email: [email protected] 1. INTRODUCTION Developments in the theory of mechanism design, since its origin in the sev- enties, have greatly improved our understanding of what is feasible in envi- ronments involving agents that hold private information. Yet little effort has been devoted to the discussion of socially desirable selection criteria, and the computation of incentive compatible mechanisms meeting those criteria in ap- plications. In other words, extending the theory of social choice so as to make it applicable in mechanism design remains a challenging topic to be studied. The present paper makes some progress in that direction, with a focus on the egalitarian principle. -
Economic Efficiency, Technical Efficiency, Allocative Efficiency, Productivity
American Journal of Economics 2012, 2(1): 37-46 DOI: 10.5923/j.economics.20120201.05 Economic Efficiency Analysis in Côte d’Ivoire Wautabouna Ouattara University of Cocody, Cote d'Ivoire Abstract This study investigates the determinant factors of efficiency or inefficiency in Cote d’Ivoire. A stochastic analysis of production resulted in technical and allocative efficiency in economic efficiency levels. The findings of an investigation about 5,000 firms observed from 2000 to 2010 reveal that the Ivorian economy is not economically efficient as a consequence of the ensuing: socio-political instabilities; outside debt burden; unemployment rate; and weakness in savings on organizational productivity. Therefore, this study recommends a permanent mechanism of supervision for economic efficiency indicators; promotion of a factual and evocative employment policy for the youth; and the enforcement of granting financial aid to enterprises to assist them in having high added value to improve organizational productivity. Keywords Economic Efficiency, Technical Efficiency, Allocative Efficiency, Productivity determinants of Ivorian economy efficiency or inefficiency. 1. Introduction Since some years, the socio-political instability has brought about a disorganization of the production machinery In this study, we intend to think about economic efficiency and an irrational use of the production factors. Furthermore, in Côte d’Ivoire. The notion of efficiency can be defined by this instability has brought about the loss of qualified dissociating what comes from technical origin from what is manpower which immigrated towards others countries. So, due to a bad choice, in terms of inputs combination, we postulate in favor of the main hypothesis according to compared to the price of the inputs. -
Arxiv:1701.06410V1 [Q-Fin.EC] 27 Oct 2016 E Od N Phrases
ECONOMICS CANNOT ISOLATE ITSELF FROM POLITICAL THEORY: A MATHEMATICAL DEMONSTRATION BRENDAN MARKEY-TOWLER ABSTRACT. The purpose of this paper is to provide a confession of sorts from an economist to political science and philosophy. A confession of the weaknesses of the political position of the economist. It is intended as a guide for political scientists and philosophers to the ostensible policy criteria of economics, and an illustration of an argument that demonstrates logico-mathematically, therefore incontrovertibly, that any policy statement by an economist contains, or is, a political statement. It develops an inescapable compulsion that the absolute primacy and priority of political theory and philosophy in the development of policy criteria must be recognised. Economic policy cannot be divorced from politics as a matter of mathematical fact, and rather, as Amartya Sen has done, it ought embrace political theory and philosophy. 1. THE PLACE AND IMPORTANCE OF PARETO OPTIMALITY IN ECONOMICS Economics, having pretensions to being a “science”, makes distinctions between “positive” statements about how the economy functions and “normative” statements about how it should function. It is a core attribute, inherited largely from its intellectual heritage in British empiricism and Viennese logical positivism (McCloskey, 1983) that normative statements are to be avoided where possible, and ought contain little by way of political presupposition as possible where they cannot. Political ideology is the realm of the politician and the demagogue. To that end, the most basic policy decision criterion of Pareto optimality is offered. This cri- terion is weaker than the extremely strong Hicks-Kaldor criterion. The Hicks-Kaldor criterion presupposes a consequentialist, specifically utilitarian philosophy and states any policy should be adopted which yields net positive utility for society, any compensation for lost utility on the part arXiv:1701.06410v1 [q-fin.EC] 27 Oct 2016 of one to be arranged by the polity, not the economist, out of the gains to the other. -
Pareto Efficiency by MEGAN MARTORANA
RF Fall Winter 07v42-sig3-INT 2/27/07 8:45 AM Page 8 JARGONALERT Pareto Efficiency BY MEGAN MARTORANA magine you and a friend are walking down the street competitive equilibrium is typically included among them. and a $100 bill magically appears. You would likely A major drawback of Pareto efficiency, some ethicists claim, I share the money evenly, each taking $50, deeming this is that it does not suggest which of the Pareto efficient the fairest division. According to Pareto efficiency, however, outcomes is best. any allocation of the $100 would be optimal — including the Furthermore, the concept does not require an equitable distribution you would likely prefer: keeping all $100 for distribution of wealth, nor does it necessarily suggest taking yourself. remedial steps to correct for existing inequality. If the Pareto efficiency says that an allocation is efficient if an incomes of the wealthy increase while the incomes of every- action makes some individual better off and no individual one else remain stable, such a change is Pareto efficient. worse off. The concept was developed by Vilfredo Pareto, an Martin Feldstein, an economist at Harvard University and Italian economist and sociologist known for his application president of the National Bureau of Economic Research, of mathematics to economic analysis, and particularly for his explains that some see this as unfair. Such critics, while con- Manual of Political Economy (1906). ceding that the outcome is Pareto Pareto used this work to develop efficient, might complain: “I don’t his theory of pure economics, have fewer material goods, but I analyze “ophelimity,” his own have the extra pain of living in a term indicating the power of more unequal world.” In short, giving satisfaction, and intro- they are concerned about not only duce indifference curves.