Is it possible to reconstitute a labor theory of value? I am not an economist, so highly technical answers may escape me. I know that since Jevons, Marshall, and the "marginal revolution" the classical labor theory of value has been largely abandoned. And clearly, some concept of utility must inform pricing at some level.

But is there any inherent reason why a labor-based system of value and pricing adequate to a modern market economy cannot work? Have any been proposed? What would be the consequences or shortcomings of such a system?

It would be helpful if your question were a little more honed in. This is a very broad set of questions about an entire theory, but a few thoughts that come to mind.

The labor-theory of value naturally predicts that profits will be higher in labor-intensive industries, as opposed to capital-intensive industries, and that's simply not what we see in the data. A firm needs a good balance between both capital and labor. Also note that in developing countries, labor is plentiful compared to capital, so wages are lower and capital is expensive. As welfare and the capital stock increases, labor becomes more sparse since there is more to do with leisure, so wages rise and the price of capital falls (we are better at producing capital.) So in some vague way, the price of a good depends more and more on labor as the development of a country increases, but not because of the intrinsic value of labor, but because of the marginal cost of labor for firms that increases.

When you ask,

  But is there any inherent reason why a labor-based system of value and pricing adequate to a modern market economy cannot work?

you assume that there is a system like this that is "adequate". It's not that labor has no place in production or determining the price of a good, but we have models that are better because they realize there's more than just labor that goes into production. Labor does not exist in a vacuum. Today we take into account both the value of labor as well as the value of capital, amongst other factors of production. Why would we want a model that ignores these things for the sake of saying the price of something should only depend on the amount of labor put into it.

A final note: in industries where worker labor is overwhelmingly the major part of production, the wages paid out are essentially the value of effort put into the product. The worker maximizes

See the second part of my answer to this question to see the mathematical set-up for that result.


How a country is categorized as developed or developing? Can you share an official source or reference of definition of a developed and developing country? some IMF or World Bank definition with link would be preferred. I need to write the reference in my thesis. Thanks

The terms developed and developing are UNDP terms.

Read the paper at the link below - it goes through the UNDP, World bank and IMF classifications and it's an IMF working paper so i'd class that as referenceable. At the very least it will point you to better sources.

https://www.imf.org/external/pubs/ft/wp/2011/wp1131.pdf


How has my profit margin risen? I quote the first few paras. of this Reddit comment:

  [1.] Imagine you had a business selling lollipops at school. Since you can
  buy a bag of 100 for \$10, you can sell them for 25¢ a piece for a
  profit.

  [2.] But you don't have \$10. But there is profit to be made for all if
  people give you the money. So you ask your friends to invest. They
  each give you \$1 and you give them (and yourself) some stock in
  the venture - a promise to split the profit. You guys buy a bag,
  and in one week, you sell all your lollipops for 25¢ each.

  [3.] So now you have 0 lollipops and 25¢ x 100 = \$25 Awesome!  Maybe you
  pay yourself a market rate for your job in the venture as salesman
  (you're also an employee since you sold the pops) - say \$5 So you have
  \$20 to split 10 ways. Everybody makes \$2 from their \$1 investment -
  everybody wins. you could pay them back their \$1 investment and
  another \$1 profit - this extra is called a dividend.

  [4.] Now, would your investors go in again next week? Sure! You're doubling
  their money. And you ran out of lollipops right? So maybe get everyone
  together to vote and we all agree at a shareholder meeting to skip
  the dividend and turn the venture into a business that reinvests
  the profit into 2 bags of lollipops and make money even faster.

  [5.] Next week you sell out again. Since you're just one sales guy, you
  still only cost \$5 and your profit margin has risen. You can now
  buy 4.5 bags of lollipops each week. Your business is growing!

See para. 5:

how has my profit margin risen? The profit is the same in the sales in 1 and 4?
why can I "buy 4.5 bags of lollipops each week"? Is the author just postulating this? Or does this follow from my 2 sales?

The margin with 1 bag was \$25 (revenue) / \$15 (labor + materials), or ~166%. The margin with 2 bags, assuming no additional labor costs, is \$50/$25, or 200%.

When this business plans out expenditures on labor and materials for the third time around, it has \$50 cash, enough to pay $5 for labor and up to of 4.5 bags of candy.


Why do so many models assume homothetic preferences? ...when Engels Law, backed by a good amount empirical evidence, demonstrates that overall consumer preferences are not homothetic.

See for example, Jorgenson (1997)

Here a short answer: Homothetic, identical preferences have the modelling advantage that the distribution of income across individuals does not matter for aggregate demand. That is, if you want to study, let's say, monetary policy where you do not expect changes in the distribution of income to affect your policy recommendations, then this is a reasonable assumption to make. If you want to study questions where changes in the distribution of income have large impact on policy recommendation (e.g., optimal taxation) this may be a bad assumption.


Question about tariffs in Henry Hazlitt's Economics in One lesson I've been reading Henry Hazlitt's Economics in One Lesson and he said something about free trade and tariffs that I don't quite understand.

He uses the example of buying cheaper English sweaters over more expensive domestic sweaters. He says, "By buying English sweaters they furnish the English with dollars to buy American goods here. This is in fact the only way in which the British can eventually make use of these dollars."

I guess this another way of saying current account deficit = capital account surplus. That makes sense. What I don't understand is why importing goods from other countries necessitates that they invest that money back in the US. In his example, why are we able to pay other countries in American dollars instead of, say, British pounds, but the British are only permitted to pay the US in US dollars?

I hope this question makes sense. Thanks for any clarification you can provide.

The author is simplifying things a bit, of course, given the concise nature of the publication.

I believe the main point he is trying to make is that in the long run, current accounts will be balanced. Suppose, following the author, that the domestic economy (us) is the U.S. So, if we buy cheaper British sweaters today, eventually American goods will be purchased in return.

The idea, is that the US dollar is legal tender only (or primarily) in the United States. The British may accept the dollar as payment for their sweaters, but only because they know it will be accepted as legal tender by others (e.g. the U.S.) and others accept it only because the U.S. accepts it. This circular thinking only closes with the U.S. and hence with U.S. goods being purchased at some point. If the U.S. stopped accepting dollars, then dollars would stop being accepted (almost) everywhere.

The British may also pay the Americans in pounds. However, the same logic applies. Americans only accept pounds, because eventually those pounds will be accepted elsewhere as payment, which hinges on the UK accepting pounds as legal tender. They are eventually only (or primarily) accepted in the UK then, e.g. for buying British sweaters. However, this case already starts with American goods being purchased, which is the author's point.

Another alternative would be the Americans paying in pounds. However, for Americans to get pounds, they would have had to sell good to the British in some form at some point.

In all cases, trade (through cheaper products abroad, e.g. British sweaters) involves American good eventually being purchased.


Is Soros' theory of reflexivity aligned with normative vs positive economy dichotomy? Soros' theory of reflexivity is well known and I'll briefly summarize it below based on his Fallibility, reflexivity, and the human uncertainty principle(2013) article. He

  proposes distinguishing between the objective and subjective aspects of reality. Thinking constitutes the subjective aspect. It takes place in the privacy of the participants’ minds and is not directly observable; only its material manifestations are. The objective aspect consists of observable events.

Soros further divides subjective aspect into two parts:

  The participants’ thinking serves two functions. One is to understand the world in which we live; I call this the cognitive function. The other is to make an impact on the world and to advance the participants’ interests; I call this the manipulative function. I use the term ‘manipulative’ to emphasize intentionality.

Soros emphasizes fallibility of human thinking:

  The complexity of the world in which we live exceeds our capacity to comprehend it.

Thus subjective attempts to comprehend reality (but can't do it perfectly due to fallibility), manipulative attempts to impact reality (but again do it imperfectly due to fallibility) so we have a reflexive loop shown below:

Soros criticizes economic theory as follows:

  .. their theories could not be falsified by testing. ... The same argument applies to the mainstream economic theory currently taught in universities. It is an axiomatic system based on deductive logic, not on empirical evidence.

And as usual remembers:

  While I was reading Popper I was also studying economic theory, and I was struck by the contradiction between Popper’s emphasis on imperfect understanding and the theory of perfect competition in economics, which postulated perfect knowledge. This led me to start questioning the assumptions of economic theory.

But at the same time he says in the same article:

  why should social science confine itself to passively studying social phenomena when it can be used to actively change the state of affairs? The temptation to use social theories to change reality rather than to understand it is much greater than in natural science. Indeed, economists commonly talk about normative versus positive economics.

It seems to me that we can associate manipulative function with normative economics and cognitive function with positive economics. Am I right?  Has this line of thought been elaborated by someone?

I would say there is some degree of correspondence between the two dichotomies. However, in the economic side of things, there is in my opinion a much clearer relation between positive and normative economics (at least in the theoretical side), as it is through the use of positive economics that normative means are supposed to be achieved.

The other dichotomy however seems to be less formal in this relation. Individuals or agents can have a given understanding of the world, but this might not be correct, or precise. Thus, if they base their manipulative actions based on their perceptions of the objective reality, it does not necessarily mean they are using the correct map of reality to act upon it.

In other words, positive economics is (allegedly) science, whereas agents cognition is not necessarily (and perhaps not mainly) built upon scientific knowledge.

Now, having said this, it is also debatable that the normalite-positive dichotomy is as clear as initially theorised by Milton Friedman in his 1953 book "Essays in Positive Economics". For example, some Marxists argue that science itself (at least social sciences) is part of the tools used by the ruling/capitalist class to exert control over society.
In philosophy of science, there has been a long debate about what science is and about whether there is such thing as "scientific progress", or whether science is just ideology (for example, see here).


Analytically tractable Ramsey model: how to solve ODE for optimal trajectories In Brunner and Strulik (2002) the authors claim, that the solution of
\begin{align}
\dot c &= \frac{c}{\sigma}(\alpha k^{\alpha-1} - \delta - \rho)\\
\dot k &= k^\alpha - \delta k - c
\end{align}

is given by (see eq. 27)
\begin{align}
c(t) &= \left(1 - \frac{1}{\sigma}\right) k(t)^\alpha\\
k(t) &= \left[\frac{1}{\delta\sigma} +\left(k(0)^{1-\alpha} - \frac{1}{\delta\sigma}\right)\exp(-\delta(1-\alpha)t) \right]^{\frac{1}{1-\alpha}}
\end{align}
if $\alpha\delta\sigma = \delta + \rho$.
I can verify the solution for $c(t)$ (see eg. this thread). However I'm not sure how to solve for $k(t)$. We can plug in $c(t)$ into $\dot k$, which gives
\begin{align}
\dot k &=  \frac{1}{\sigma} k^\alpha - \delta k.
\end{align}

How would one proceed?

Solution

With respect to Alecos answer we may solve the following ODE

\begin{align}
\dot z + (1-\alpha)\delta z = \frac{1-\alpha}{\sigma}.
\end{align}

The genereal solution is given by
\begin{align}
z(t) &= \frac{1}{\exp(\int (1-\alpha)\delta dt)}\left[\int \exp\left(\int (1-\alpha)\delta dt\right) \frac{1-\alpha}{\sigma} dt + C \right]\\
&= \frac{1}{\delta\sigma} + C\exp((\alpha-1)\delta t).
\end{align}

With $z(0)$ given we pin down $C$
\begin{align}
C = z(0) - \frac{1}{\delta\sigma}
\end{align}

which yields the desired result
\begin{align}
z(t) &= \frac{1}{\delta\sigma} + \left(z(0) - \frac{1}{\delta\sigma}\right)\exp((\alpha-1)\delta t) \\
\Longleftrightarrow \quad k(t)^{1-\alpha} &= \frac{1}{\delta\sigma} + \left(k(0)^{1-\alpha} - \frac{1}{\delta\sigma}\right)\exp((\alpha-1)\delta t)\\
\Longleftrightarrow \quad k(t) &= \left[\frac{1}{\delta\sigma} + \left(k(0)^{1-\alpha} - \frac{1}{\delta\sigma}\right)\exp((\alpha-1)\delta t)\right]^{\frac{1}{1-\alpha}}.
\end{align}

The differential equation

$$\dot k =  \frac{1}{\sigma} k^\alpha - \delta k$$

has the structure of a Bernoulli equation. We solve it by the following transformation steps:

1) Mulitply throughout by $k^{-\alpha}$:

$$k^{-\alpha}\dot k =  \frac{1}{\sigma}  - \delta k^{1-\alpha} \tag{1}$$

2) Define the variable
$$z \equiv k^{1-\alpha} \implies \dot z = (1-\alpha)k^{-a}\dot k \tag{2}$$

3) Combine to get

$$(1),(2) \implies \frac {1}{1-\alpha}\dot z = \frac{1}{\sigma} - \delta z $$

$$\implies \dot z + (1-\alpha)\delta z = \frac {1-\alpha}{\sigma}$$

This is a standard first-order differential equation with constant coefficients. Solve it and then reverse the change of variable to get the result.

PS: The above requires that $k \neq 0$ everywhere, which is the economically meaningful case.


The Next Breakthrough of Growth Economics Romer has once said, that the growth economics has not had a breakthrough after his work of endogenous model of 1990's. What could somehow prove his saying is that we rarely see the theoretical invention in growth economics area in the recent years but large quantity of empirical study, with a portion of which is just going through the similar old way of the empirical works of 1990's.

My question is, where is the research of growth economics heading to ? What could be the next breakthrough specifically in this area ?

I'm no expert, I'm just now researching this topic for my Master's thesis, and I might miss a bunch of important stuff, but in my opinion, a huge breakthrough might come from the ecological economics side of the debate.
A new (to my knowledge) way of integrating resources and energy into economic growth is to use the so called Exergy (usefull energy) variable in the model. When you use this Exergy (as opposed to simply cost of energy) variable in growth accounting, (again, to my knowledge) it explains away most of the Solow residual. So, ideas, human capital, physical capital and institutions start looking as a really minor factor when you compare them to the amount of calories/watts that we have been using to our advantage throughout the 20-th century...
The implications of the model (I'm speculating a bit here, people who know better could correct me, if I'm wrong) are that it's not that the physical capital per se drives growth, but rather the ability of the capital to extract natural (renewable and expendable) energy resources AND, most importantly, convert those resources into useful work.

You can look up works by Steve Keen

and this paper:

Aggregate production functions: How does the Solow Residual change when introducing quality-adjusted values for capital, labour, and energy?
Authors: João Santosa; Matthew Kuperus Heunb, Paul E. Brockwayc, Marco Sakaic; Tiago Domingosa

Adding: a quote from Steve Keen "Capital without energy is a statue, labour without energy is a corpse."


What is the relationship between inflation and imports/exports? According to the aggregate demand curve, when the price level is higher, the real GDP demanded is lower. One of the explanations given is a consequence of the Mundell-Fleming model:

"As the price level drops, interest rates fall, domestic investment in foreign countries increases, the real exchange rate depreciates, net exports increases, and aggregate demand increases."

So this seems to suggest that increased inflation means more imports and less exports.

But increased inflation should also increase the exchange rate (currency depreciation). If you can trade foreign currency for more domestic currency, then exports should increase and (conversely) imports should decrease.

How do I reconcile these two models? Is this a difference of short run vs. long run? Or is it a matter of all other factors being held constant in each scenario?

As requested in comments:

It is a matter of which other factors are being held constant. If the relative-inflation-adjusted exchange rate (i.e. the real rate) stays constant, there may be no supply or demand effect on export and import volumes.

However exchange rates do not exactly follow relative inflation in different economies; other factors such as interest rates and investment returns, balance of payments differences, and sentiment can also have an effect.


Estimating production functions with time series data A while back I asked How do we estimate production functions?

The answers given address cases when dealing with cross-sectional data, However most of the data I've been seeing is given by a time series.

For example if we have a (logged) VAR(1) with two variables $x_{t,1}$ and $x_{t,2}$, the appropriate model is:

$$x_{t,1}=\alpha_1+\beta_{11}x_{t-1,1}+\beta_{12}x_{t-1,2}+\mu_{t,1}$$
$$x_{t,2}=\alpha_2+\beta_{21}x_{t-1,2}+\beta_{22}x_{t-1,1}+\mu_{t,2}$$

How do we develop concise production functions from a set of equations like these?

How do we develop concise production functions from a set of equations
  like these?

It goes the other way around.

VAR's are  a special group of models for time series data, developed mainly for atheoretical forecasting purposes. In a VAR approach we do not assume some structural economic model, we just want to use the past of a variable and its interelations with other variables, to form a good quality predictor (and it is for this reason that when they were first introduced and propagated by Sims,  they created a lot of controversy).

In general, estimating a production function of a single firm using time-series data does not alter the econometric approach described in the answer to your other question, only here the assumption we make is that the unknown parameters refer to a single firm (and not to many firms), and so stay constant across time (and not across firms on the same time period.

A new econometric issue is that with time series data we are forced to deal with the aspect of serial correlation (in a cross-sectional setting, "serial" correlation makes no sense because we can permutate the index without consequences). Serial correlation may emerge in two ways: a) In the regressors  b) in the error term.

A new economic issue in a production function setting is the intertemporal change in Total Factor Productivity.


Is America getting to a point where there are many more people than jobs or money to go around? Are times better or worse than 50 years ago? Is America headed to a point of too many people, not enough work?  Is life for an average American better than 50 years ago?  I have asked about automation in my first question.  Then I've asked a couple of others but I guess I am asking too general?  I read it should be more precise.  America was a strong nation for many for a long time; now it looks like it just going that way for a few.  think so?

50 years ago would being us to 1965.  My Aunts and Uncles are very old, I'm 22, and they all say the same thing about people as young as me; "What future will they have?"  In some countries population is lowering so much they actually want people to have more kids because of not enough jobs being filled.  In America, over 300 million people and most already in poverty.  If this was 1965 people would be more optimistic.  Now, this decade, technology has come so far in what it can do, not as many humans to none are needed to do certain things anymore.

In the last 50 years taxes are higher, jobs are outsourced to other nations instead of being done by Americans here, automation is increasing so rapidly it is expected that by 2025, even truck driver jobs will start to diminish.  Retailers are already shutting down due to online competition from Amazon and restaurants are getting there too with tablets being placed at tables to take orders.  Another bad factor facing the nation is the rise of income inequality.  Standard cost of living has raised high while wages have stagnated in some places or lowered in others.   The rich are richer than ever, but most of us apart from them have such a small portion of the wealth of America for the work we do or investments we've made.

A few points to note.

1.) With more labor comes more goods that need to be produced. This can be in the form of goods, services, or capital needed to augment the production of labor. If we are talking about whether there are enough raw/natural resources needed to make these things as population increase, note that your worry is not new. As population increases, we create more efficient ways of using the resources we already have. Think of our usage of resources/labor as a transversality condition. As time approaches infinity, the population will not grow faster than the rate of our technological efficiency, simply because of the need to survive. In the meantime, we'll be utilizing additional labor.

2.) I noticed that you had said,

  In America, over 300 million people and most already in poverty.

You could make the argument that more than 150 million Americans are in poverty, but that measure of "poverty" is going to include a lot of well-off Americans. I'm not exactly sure what idea of poverty you have to reach this conclusion.

The US Census Bureau's measure of poverty has been hovering around 15% for a while. That's not great, but that's not necessarily worsening rapidly by any means.

  automation is increasing so rapidly it is expected that by 2025, even truck driver jobs will start to diminish

I'd like to see exactly who said this as well, if you have the citation. Otherwise it's just hearsay.

I think your uncles and aunts have been influencing you with a little bit of their hindsight bias.

3.) You noted that,

  Retailers are already shutting down due to online competition from Amazon and restaurants are getting there too with tablets being placed at tables to take orders.

Does this necessarily decrease labor or displace labor into other jobs that value human labor more? A quick example: Line workers in the United States have been declining steadily over the last decade, and many of them are reaching retirement age. It pays well and is manual labor, but there simply aren't enough interested young workers. If we were to see too much labor in technology-heavy industries, we could say that eventually the labor market would clear and go into well-paying jobs like this one. There are still opportunities out there for Americans.


Is a shrinking money supply environment painful for an economy? During the great depression the money supply in the US fell by about a third. It is my suspicion that any economy with a falling money supply will generally be doing badly but of course I could be wrong. So I was wondering if the were any examples in any countries (preferably not going back to ancient times) where an economy has had a steadily shrinking money supply but has been doing well with respect to other economic variables like unemployment?

EDIT: I am interested in theoretical answers to this question too.

EDIT: there are multiple measures of a money supply - so I should say that I am referring to any measure which includes notes and coins as well as "demand deposits" a.k.a. "credit" a.k.a. "cheque book money" (so many names for the same thing!).

The closes answer will be country with extremely low inflation such as Nordic countries, Kuwait, Brunei. But they are not a good example, as the money supply are "balance" with their heavy surplus from natural resources exploitation.

On the other hand, there is plenty of example for "Dutch disease" : excessive foreign exchange that lead to massive future spending with too little on future transformation.

IMHO, there is no "real answer" for this, unless you like in a world with 100% economist. Due to human nature to exploit system, all economy ideology deems broken once it is brought up. Macro manage economy with money supply are one of those.  I am not sure what you try to achieve. Inflation is not the silver bullet for "growth". Nor the so call "ripples effect" from the rich really effective.

(update)
Keynesianism ciritised European Union below 2% inflation rates lead so "slow growth". Some even suggest country like Greek detach from the Euro and go all out to print money to "stimulate growth". That is a terrible idea of attempt to use monetary policies to solve economy structural issues.

Is shrinking money supply environment painful for an economy?.  Even with a clear scope, there is no clear answer.

Some economist argue that "deflation" will cause people "not to spend", to support "inflation" is good because it will force people to spend. This is counter-intuitive against human behavior : human will acquire stuff that they to fulfilled their desires and needs.

There is no concrete example of "retract economy" under stagnation or deflation.  Due to diversity of human behaviour, some people will hoard the money and go to graveyard without spending all of it. Some will go grab new TV, subscribe to streaming services, etc.


Depreciating companies intangible assets Companies intangible assets are something which is not physical e.g. Patents, copyrights etc.
How can we depreciate companies intangible assets and why it is done?

All assets which have a finite useful life are depreciated. For example, your patents or copyright might hold for 5 or 10 years but no more. Thus, it is quite coherent to reflect the loss of value through depreciation and amortization. Same goes for a software for example: in 5 years time, a software might be obsolete, so we need to reflect this in the financial statements.

However, the intangible assets which do not have a finite useful life (e.g. goodwill) will not be depreciated, though its value can be impaired. A great example was provided last summer by Microsoft.

The way it is done is the very same as for tangible assets.

Under IFRS, the relevant IAS is the IAS 38


Can mixed strategies actually predict behaviour of rational actors in non-constant sum games? I understand how the concept of the mixed NE (mathematically) works. But I don’t understand how we can expect players to behave in a way that would arrive at such an equilibrium.
Consider the following example in which the four axioms of expected utility are met:
Two players play a coordination game of the following form:

(I believe the game is commonly called “meeting in New York”)
This game has a NE in mixed strategies, in which both players play E with a probability of $\frac{c}{1+c}$. This means that the higher the potential payoff of playing C is the lower the likelihood that a player will elect to go with this strategy. We arrive at this paradox, because a player always mixes in a way that makes her opponents indifferent.

But in my opinion, this is not how I would expect a rational, utility maximizing player to behave. In this example, a truly rational player (how knows that her opponents are also rational) should become more and more likely to play C the higher c is.

I have seen various examples of the mixed NE being useful in for example Binmore, but I don't understand why this concept is seen as generally useful? Could somebody help me out?

There is a series of papers that address precisely this question. The most famous ones are probably Walker and Wooders (2001) and Chiappori, Levitt, and Groseclose (2002) that deal with penalty kicks and tennis serves. Both papers conclude that the behavior of professional athletes is consistent with them playing g a mixed strategy equilibrium. A more recent working paper by Gauriot, Page, and Wooders (2016) shows that highly ranked tennis players are closer to playing optimal mixed strategies.

One caveat of those papers is that they deal with zero-sum games. As fas as I know, most of the empirical evidence that supports the use of Nash equilibrium over other solution concepts comes from zero-sum games.

People have also tried to justify the predictive power of Nash equilibrium using theoretical arguments. The results for games without pre-play communication are mixed. For a long time, people believed that Nash equilibrium could be deduced from the rationality of the players. It turns out that this is not the case (e.g., Brandenburger, 1992). People also hopped that behavior over time would converge to Nash equilibrium as the players acquire experience. There are some positive results for some specific settings, but not in general (see Nachbar, 2005). In many settings in which behavior converges, it converges to things that are not Nash equilibria (such as rationalizable strategies, or correlated equilibria).

The game that you describe is one of the hardest games to make accurate predictions. I personally do not see why we should expect people playing Meeting in NY to follow pure or mixed Nash equilibria (unless people talk to each other beforehand and agree where to meet).

  I don't understand why this concept is seen as generally useful?

If for no other reason, Nash equilibrium and its refinements are the most important solution concept because they are by far the solution concept most commonly used, at least in the social sciences.

The reason why Nash equilibrium is used so much could be accidental. People often attribute the following quote to Roger Myerson:

  If there is intelligent life on other planets, in a majority of
  them, they would have discovered correlated equilibrium
  before Nash equilibrium.

It is difficult to justify the concept of Nash equilibrium as "the best" solution concept for general games without communication.


Endogenous Gentrification and Rates of Return to Education Gentrification is, roughly speaking, the displacement or exclusion of poor people from areas with improved amenities due to higher rents and costs of living. The question I have is whether better educational facilities can have a dual effect. That is, if better schooling is an amenity for an area, but raises the wages of poor people by improving the rate of return on education, then will gentrification occur or not?

I've been struggling to find good literature on this topic. A few examples of papers I've found (Chicago citations):

Guerrieri, Veronica, Daniel Hartley, and Erik Hurst. "Endogenous gentrification and housing price dynamics." Journal of Public Economics 100 (2013): 45-60.

This paper talks about separating changes in housing prices as changes in housing demand shocks and gentrification. Education or labor demand is not the major point of endogeneity addressed here.

Baum-Snow, Nathaniel, and Daniel Hartley. "Gentrification and Changes in the Spatial Structure of Labor Demand." (2015).

This paper creates a model for spatial labor demand changes to better describe the nature of gentrification. Their paper would be very helpful, but it is unfinished.

Edlund, Lena, Cecilia Machado, and Maria Micaela Sviatschi. Bright minds, big rent: gentrification and the rising returns to skill. No. w21729. National Bureau of Economic Research, 2015.

This paper probably gets closest to what I'm looking for, focusing on returns to skill and gentrification. It doesn't exactly focus on education specifically, and though it controls for distance from city center, it doesn't control for things like quality of transportation services (as they admit).

My question is whether or not there is any literature that is related to the topic I am interested in, or if there isn't any, what previous literature may be relevant to look at during a review of the literature.

@denesp comment is right to the point as regards the scope of this question. In street-talk "Gentrification" just means "things get more expensive" ("rightly" or "wrongly", that's another matter). The displacement of poor people will happen, for those who remain poor, where here "poor" is a relative concept "poor enough not to be able to afford the new cost levels".

What I believe is interesting here is to ask :"Assume that the amenities of an area increase in value, and so rents and "cost of living" goes up. If this value-increase of amenities is also increasing the productivity/efficiency/earnings of the local population, which effect will dominate?"

Will the income-increase of local residents be enough to cover the increased costs of living?

Instinctively speaking, I would say "no", if the productivity-increase comes through education, because the phenomenon of price-increases in such areas happens much faster than the time needed for education to bear income fruits.


Regarding the group formation in an oil-price experiment I'd like to have your opinion on the following;

Assuming that I'm doing a research on setting the optimal price for gasoline for a company and my client wants me to perform a study on customers' gasoline purchasing habits when they notice an increase in the price of gas.

I have a training data on these categories:

People who have not noticed a gas-price increase

People who drive electric cars

People who have recently noticed a gas-price increase

People who ride their bikes to work

People who ride the bus

Where I am going to form a treatment and a control group. Though I'm not sure how to pick the categories I'll be including in the test.

My opinion (definitely not an expert), I would ignore the people who ride their bikes to work and who drive electric cars, as they are simply out of the interest of the research. And randomly distribute the other categories' members. Thing I'm not sure is about the people who ride the bus; should I include them or not?

However my other opinion is that there might be also some switches for EVs, bikes or public bus. In this case I'd better include every category in the data.

Thanks in advance for every opinion.

Without knowing more about your specific project, you probably want to look at difference-in-difference methodologies. It's the bread and butter of this sort of psudo-experiment.

I see you use the phrases "train" and "test".  Be very careful, typically machine learning approaches are designed to get very good $\hat{Y}$s.  Economists in general don't care about $\hat{Y}$s much at all. We care about having good $\hat{\beta}$'s. It will take some time to get used to that idea.

Naive use of traditional ML techniques will lead to highly biased estimators and very misleading estimates of $\hat{Y}$ that often lead to bad policy decisions.


Relationship between IRS and Competitive equilibrium If there are increasing returns to scale in both sectors (in a 2x2x2x2) production and consumption economy, then a profit maximizing allocation most likely involves the economy producing only one type of good?

"Most likely" is not a precise term.

Given the available information it is quite possible that an equilibrium does not exist. In that case we can't really tell what will happen.


Measuring "Intangible Utility" (reference request/methodological discussion) I was just listening to some music and I found myself thinking about how I might measure the utility I experience from listening to it. I know there has been a lot of work done with measuring utility gained through altruism, but has there been any work done in economics (or any other fields) regarding measuring 'intangible utility'? Any references or methods would be greatly appreciated, thanks!

This is just a follow-up on denesp's comment. In economics, the utility is a tool used to represent choices, and therefore the right way of measuring the individual's utility from listening to the song is to elicit his willingness to pay for it. This can be done by a Becker-DeGroot-Marschak mechanism that eliminates moral hazard. Note that this refers to ex-ante anticipated utility.

The only way to look at actual experienced utility is to rely on other means of investigation, like neuro-imaging or survey questions, in the spirit of happiness research. But this is quite controversial, since the concept of experienced utility is itself poorly defined. Most economists would not agree to base welfare analysis on such measurements. You can have a look at happiness research (e.g. Deaton, Kimball, Benjamin, ...) if you want to learn more on this.


The Oil hike of the 2000's: Did it go unnoticed, and why? I'm reading a macro text book, the authors stated that in the 2000's we witnessed the greatest increase in oil prices ever, even when compared to the 70's oil shocks. To most of us, this fact went a bit unnoticed, at least when compared to the 70's. Usually in this shocks, we have a trade and supply shock. If the CB only considers the trade shock component, then the economy will face the usual stagflation. Some of the reasons the authors give for the lack of stagflation are increased lending from financial institutions, which prevented a marked decrease in consumption and eventually in output, and that workers were 'less inclined or able to get compensation through their wages' making the Equilibrium rate of Unemployment(ERU) curves to shift less than expected.

I would like to assess the truth of such claim. I've been trying to get some data, but I'm really bad at it. So, my question is: Are the authors right? From, the two pictures below (the last is US GDP growth rate if I'm not mistaken), I would say that it might have gone unnoticed, but I wasn't able to check if real wages decreased, and by how much...

Any help would be appreciated.

P.S.: In your answers, could you please name your data sources, and give some indication as to how we could replicate the graphs? I'm interested in learning how to do it. Many thanks.

I consider the very rapid growth of infrastructure in the BRIC countries to be a strong driver of the high oil prices (as well as other building commodities) in the mid-2000s.  It takes a lot of energy to build roads, mine copper and iron, make cement, etc...

I would disagree with two of the implications in the statement: "in the 2000's we witnessed the greatest increase in oil prices ever, even when compared to the 70's oil shocks. To most of us, this fact went a bit unnoticed..."  I disagree with the comparison of the early '73 OPEC oil embargo and the oil spike in 2008, and I disagree that it went unnoticed.  This is not an apples to apples comparison.  In 1973 there were times that you could not buy gasoline.  In 2008, gasoline was always available, it was just more expensive.  And I, and all of my acquaintances, noticed it, and we complained about it, but we always had it available.  That's a very big difference to not being able to buy something crucial to your livelihood.

That being said, I would agree that increased lending in the mid 2000s and a very strong world economy may be a reason that the spike of oil prices in 2008 wasn't considered a crisis.

I would also agree that oil prices did not cause the late 2000s recession.  The recession was caused by an abrupt evaporation of interbank lending and a hasty tightening of credit.

Since you are a student of Economics (and I assume of markets), let me say something that wasn't clear to me until I spent 30 years working in investment management: the economy and markets are very different.  The economy is 7 billion people a day waking up and having to be productive to survive.  It is real, and it is very hard for any government to derail it, as hard as they might try.  I have huge faith in the economy. The securities markets, rather, are places built on fear and greed, two very intense emotions that are self-reinforcing, meaning that the more the emotion is fed, the stronger it becomes, thus feeding that emotion even more.  That is why we get bull market bubbles and bear market cliff dives that do not correlate in their magnitude with the underlying economy.

The stock market is a leading indicator of economic direction, but not of magnitude.  Keep this in mind.

Alright, sorry for the preachiness.  Good luck.


What is considered a "final product" for gross domestic product? Given a territory and a time range, the gross domestic product is the sum of all the values added. The term “value added” is open to interpretation. Since the value added of a product or service is its total value minus the value of the intermediate product and services used to produce it, it follows that in an identical scenario, the GDP will vary according to what is classified as final products. Yet in reports, a single number is quoted as if it was the GDP.

For instance, a factory will need cleaning. Is the service of cleaning a factory considered a final product or intermediate consumption needed to produce whatever the factory produces?. What about the plant's paint, electricity, training of workers and so on?. People need to eat in order to work and produce, and more so the more they work (hence food may be classified as intermediate consumption), and need medical care to live (and hence produce) just like car factories need steel. I have seen these things sometimes taken to be final consumption. The consumption of decoration from a restaurant is a requirement (since people go to a restaurant in part, due to the style) and by that reasoning, it is intermediate consumption, but a luxury in one's house (therefore final consumption). When doing the accounting at an high level (city, state or national), how do the accountants know what part of the paint consumed take as intermediate consumption and what part to take as final consumption?.

The boundary between intermediate and final consumption seems blurry. How, and where is the line drawn. Could you please cite a (preferentially publicly available) relevant document from an organization in charge of computing a GDP about the methodology regarding the intermediate-final consumption?.

Since you're asking a question about the value-added approach to calculating GDP, the answer that follows talks about the value-added approach. It's worth noting, however, that GDP can (and is) also calculated through two other approaches: the expenditure approach and the income approach. In the US, the value-added approach is used primarily in the GDP-by-industry accounts.

The boundary between intermediate and final consumption seems blurry. How, and where is the line drawn?

Products and services provided to consumers are considered to be final products. Products and services provided to businesses are treated as intermediate inputs. See point 4 on page 3 in this NIPA primer.

When doing the accounting at an high level (city, state or national), how do the accountants know what part of the paint consumed take as intermediate consumption and what part to take as final consumption?

A simplified answer (ignoring issues like capital consumption and inventories) is that at the national level, business revenue is totaled, and then business expenses (other than labor costs) are subtracted.

So if a restaurant sells \$100 worth of dinners, pays a farmer \$50 for the food, and pays a designer \$10 for designing the restaurant, the totals look like this:

Restaurant: \$100-(\$50+\$10)=$40

Designer: \$10

Farmer: \$50

Total: \$40+\$10+\$50 = \$100

As you can see in this example, by subtracting business expenses from revenue, double-counting is eliminated.

At the state level in the US, GDP is actually allocated from the national level using a variety of techniques. Metro area GDP is allocated from the state level to counties based on income by industry and then aggregated. As a result, the value-added approach is simply not used to calculate state and local GDP in the US.

Is the service of cleaning a factory considered a final product or intermediate consumption needed to produce whatever the factory produces?

Intermediate consumption.

What about the plant's paint, electricity, training of workers and so on?

Intermediate consumption.

The consumption of decoration from a restaurant is a requirement (since people go to a restaurant in part, due to the style) and by that reasoning, it is intermediate consumption, but a luxury in one's house (therefore final consumption).

Intermediate consumption.

People need to eat in order to work and produce, and more so the more they work (hence food may be classified as intermediate consumption), and need medical care to live (and hence produce) just like car factories need steel. I have seen these things sometimes taken to be final consumption.

If you refer to the example above, you will see why they're treated as final consumption. The household sector is not treated as a business; if it were, the value-added approach would not work. Wages paid to workers would be subtracted as intermediate inputs, and workers' consumption of whatever they consume would also be subtracted as intermediate inputs, and everything would sum to zero.

If a restaurant sells \$100 worth of dinners, pays a farmer \$50 for the food, pays a designer \$10 for designing the restaurant, and pays workers \$20 for making the food, the totals look like this:

Restaurant: \$100-(\$50+\$10+\$20)=$20

Designer: \$10

Farmer: \$50

Households: \$20-\$100=\$-80

Total: \$20+\$10+\$50-\$80 = $0

What we've discovered above is called the circular flow of goods and services.

A simpler example can make this obvious: let's say that there exist two businesses in an economy. One grows cabbage, the other raises pork. The cabbage guy gets hungry for some pork, and buys \$10 worth of pork, while the pork guy decides he wants some cabbage and buys some of that for \$10. Under the value-added approach, \$20 of market output has been produced. If we said, "Hey, wait, but people need to eat food to live!" and did not count the food production, then we'd end up concluding that \$0 of market output had been produced. That would be incorrect.


Money in the animal kingdom Animals living in packs must have ways to decide how to distribute their goods among the pack members.  Just like prices can appear in an exchange economy, prices could appear in pack economy.  Though money can serve many different functions, are there examples of money-like objects (abstract symbols of value?) in the animal kingdom?

The only use of money (other than by humans— who, it should be noted, lived for most of human history without it) in the animal kingdom that I'm aware of has been when researchers have taught other primates (Capuchin monkeys) how to use it. While the introduction of currency was apparently successful (there was Capuchin prostitution), the research did not go so far as to show that equilibrium prices would arise endogenously through exchange.


Jordi Gali Markup Marginal Cost Relation Jordi Gali defined price, marginal cost and mark up relationship as

Drago Bergholt tried to reach gali's representation from firm maximization problem.

I think that there is error in derivation.

Can you help me correcting derivation process and obtaining gali's representation ?

Now, is there any derivation error below (last part) ?

is this part ?

Here, in the left side need to be "-" negative  ?

Continue....

Nt and Nit are different?

The problem is the maximization of profit of a firm that produces a differentiated good $i$ using labor $N_i$ as unique input, under the demand function of the consumers (or final goods producers) and the production function.

The first three steps are computed by substituting the two constraints and the market clearing condition for goods market $Y_t=C_t$ into the objective function in order to have a free maximization problem in one unknown, $P_{it}$.

The FOC for $P_{it}$ is right and the same is true for the next step, where the left hand side is positive because he has divided for $-(1-\epsilon)$, i.e. $(\epsilon-1)$ that you see at the denominator of $\epsilon$. The highlighted part is correct too: this is the derivative of the function nested in the square brackets; he added $\frac{1}{P_t}$ because he kept $\frac{P_{it}}{P_t}$ all elevated at $-\epsilon-1$, this means that $P_t^{-1}$ and $P_t$ goes away. You could also have written
\begin{gather}
\epsilon\frac{\frac{P_{it}^{-\epsilon-1}}{P_t^{-\epsilon}}C_t}{A_t}=\epsilon\frac{\big(\frac{P_{it}}{P_t}\big)^{-\epsilon-1}C_t}{A_t}\frac{1}{P_t}
\end{gather}

After the "Continue...", he just sum the two expressions in square brackets because they are exponentials with the same base and in the second step he notice that
\begin{gather}
\bigg[\frac{\frac{P_{it}}{P_t}^{-\epsilon}C_t}{A_t}\bigg]^{\frac{1}{1-\alpha}}=N_t
\end{gather}
using again the demand for $Y_{it}$, $Y_t=C_t$ and the production function.

The last step is a rearrangement of the previous one (simple algebra) and it is still the FOC for $P_{it}$. If you rearrange it as in Gali, you obtain the optimal pricing condition for the monopolistic firm in flexible price setting.


What is the meaning of "labor input" in the context of incentive theories? In the article "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design" (Holmström and Milgrom, 1991) it is said that two identical agents ($i=1,2$) devote attention $t_i(k)$ to a task $k$, i.e., they allocate $t_i(k)$ across a continuum of tasks indexed by $k\in[0,1]$. Later it is said that total labor input $\overline t_i$ is equal to $\int t_i(k)dk$.
With this in mind, my questions are the next: what is the meaning of labor input in this context? How can I graph attention $t_i(k)$ and labor input $\overline t_i$?
I have an intuitive idea of the general meaning of labor input, but I can't figure out its meaning in this context. For me, there is no difference between labor input and attention. The problem that I have is that I can't clearly understand the meaning of labor input beyond its mathematical definition as the summation of attention.
In particular, I'm more interested in a verbal and familiar (easy to understand for a freshman) interpretation of "labor input". For example, if attention is the derivative of labor input, does this mean that attention is a measure of the productivity of labor input? (this doesn't make much sense to me) How would you define "labor input" with familiar words?
I will appreciate any help.

Since the authors state that the total labor input is:
$$\int t_i(k)dk$$
the meaning of the total labor input in this case would be that it is the sum of all attention $t_i$ allocated over those tasks $k$.
For example if we would assume that $t_i (k) = k$ then the labor supply across continuum given by $[0,1]$ would be equal to $\frac{1}{2}$ because $\int k dk = \frac{1}{2} k^2 + c$ and when you evaluate it between bounds $[0,1]$ the area would sum to $\frac{1}{2}$ (note that geometric interpretation of an integral is an area under the curve that you are integrating).
You can graph it by making assumption about the function, for example following my assumption of $t_i(k)=k$ the labor supply can be plotted (using tikz in LaTex) as:

Where the total labor supply is the area under the curve bounded by $[0,1]$. Of course you might want to impose some less simplistic assumption on the function $t_i (k)$.


Where is there more money: Bank Accounts or Brokerage Accounts? There is a significant amount of money in the stock market in US companies. For example, look at the largest US company by market cap - Apple. It is currently worth over 800 billion US dollars. I've heard there is about 1 trillion total US paper dollars. So Apple would cost you about 80% of all US paper money. I've also heard people say it is just 'funny money' and the 800 billion is not 'real money'. I would think there are brokerage accounts out there that account for the 800 billion that is Apple - that it is not just a made up number. So my question is, is there more money in traditional bank accounts like Bank of America checking and savings accounts or in brokerage accounts where the money in the account is accounted for by shares of companies and possibly other equities like ETF shares? What are the actual numbers? Is it even close? I see many of the big tech companies getting to around half a trillion dollars and it makes me wonder where all this money is when you also see articles that say something like 40% of Americans don't have $1000 in savings available for an emergency.

At the time of writing this answer, I would note that the question is somewhat confusing. The issue is that the question uses the common definition of the word "money" which corresponds to the term "wealth" in economics, while "money" has a narrow technical meaning (referring to the "money supply aggregates").

This section is the part that is confusing.

  For example, look at the largest US company by market cap - Apple. It
  is currently worth over 800 billion US dollars. I've heard there is
  about 1 trillion total US paper dollars. So Apple would cost you about
  80% of all US paper money. I've also heard people say it is just
  'funny money' and the 800 billion is not 'real money'.

(Please note that I have not validated these numbers; the exact values are not important.)

Paper dollars (technically, "currency in circulation") is one form of financial instrument, and is a component of the various money aggregates. It is easy to work with, because it has a fixed value. The shares of a company (equity) are another financial asset, but they are not a component of the money supply. (That is, they are not "money" from the perspective of economics.) The value of equities change continuously during the trading day. If there is good news, the price of a stock could double, doubling the wealth of all of the holders. This means that a shareholder's brokerage account value could double, without any "money" changing hands.

Is this "real" money? It is certainly wealth. But it would be effectively impossible for all Apple shareholders to sell at the same time at the current share price, and so the market value cannot be converted into "money" at the current market capitalisation. This is not a problem for U.S. paper money - it can always be redeemed at par (for a bank account balance). Therefore, there is a logic to not treating the market value of a company as the same thing as the equivalent amount of money in the bank.

As for the comparison of sizes, any numbers I give will be outdated when later people read this answer. I will instead send you to a good source of data - the U.S. Federal Reserve's "Flow of Funds Report" (the Z.1 Report). Link to Z.1 Report

This report offers a quarterly summary of financial statistics for the United States. It contains data on flows - the value of transactions in instruments for the quarter, as well as balance sheet data ("stock variables" in economics jargon).

I would recommend just looking at the balance sheet tables for now. In particular, you can look at the table for "Households and Nonprofits" (table L.101). It has a breakdown of household (and nonprofit) balance sheets. (Link to html table for households.)

As of the end of 2016, households held \$15874.2 billion (\$15.87 trillion) in corporate equities; that does not include indirect holdings. Meanwhile, bank deposits and currency was only \$1237.2 billion, (or \$1.24 trillion). In other words, equity holdings swamp narrow "money" holdings (currency and bank deposits) for households. (Total bank deposits are much larger. I just wanted to compare direct holdings; the reader will have to look at the tables in their entirety to see total asset and portfolio sizes.)

The other balance sheet tables will also be useful to find the relative sizes of financial asset holdings by various sectors. This may help answer your concerns.


Where can I find information on relationships between different commodities? I'm looking for information about relationships between commodities. Essentially, what things do you need to use to produce other things. The info doesn't need to reflect the current state of technology, but the newer (and bigger) the dataset, the better.

I started to look for datasets used by the Gosplan to calculate material balances for economic plans, but so far, I have found only higher level summaries and analyses, not the data itself. However, it seems that Soviet planners did have quite substantial datasets:

  Even then, industrial supply and distribution plans compiled by Gosplan have been known to (...) deal with well over 30000 commodities
  (from: Soviet Economic Structure and Perfomance)

Does any of you know where I could find these datasets? Or maybe I should be looking for something else? They don't need to be quantitative, I'm interested in qualitative relationships.

Quick answer, as I'm on my phone, but product by product input output tables can be obtained from Eurostat for EU countries, and are probably your best bet.  Individual countries may have more detail from their own National Statistical Institutes' websites.

The production functions in these are derived under some fairly strong assumptions, though, and you're certainly not going to get 30000 products worth of detail!

OECD also have some as well, and there are a number of multi-country input output tables available. I hear SE Asia do this well, but I don't know what data are publicly available. Countries which use hybrid transformations to produce IO tables may be able to provide you with their technology assumptions matrix, which might help you distinguish joint production from by-production.

This is all quantitative data, though, and you need to be careful about imports. If you can get an imports matrix as well, that would help, although if you're only looking for qualitative info, if you stick to tables for larger economies the problems should be mitigated.

You might be able to find more detail on a qualitative basis elsewhere, but I'm afraid I don't know from where.

Editing to add links and further detail:

Eurostat collect datasets from EU members and make them available here.

Note that some of the tables will be industry-by-industry (IxI) rather than product-by-product (PxP).  The former will do in a pinch, but it's not strictly what you're after.

OECD provide data for a wider range of countries as part of their STAN database but again these are IxI.

The UK do produce PxP tables under a hybrid technology assumption, available here but I would add the caveat that the UK have not carried out a full purchases inquiry since before a change in classification from SIC 2003/NACE Rev. 1 to SIC 2007/NACE Rev. 2, so you could see the odd spurious cell as a result of the correlation matrix method used for their conversion.

Your best bet (at least as far as IO tables go) is probably the tables produced by the US BEA.

Their Total Requirements: Commodity by Commodity table (also known as the Type I Leontief inverse) has a 389 commodity breakdown.  This isn't a PxP table as such; each cell shows (in monetary terms) how much of each input (labelled on the row) is needed to make one unit of output of the product labelled on the column in the whole domestic supply chain.

It sounds like you want something more like a direct requirements matrix, which gives only the things directly used to make that product, not including the things used to make the things used to make the product, and the things used to make those etc. etc.  For this you want the direct requirements matrix, which is unfortunately only provided on an IxI basis.  You might want to go ahead and use this, or you could try to back out the direct requirements matrix (also known as the A-matrix) mathematically.

Ordinarily I'd say just invert your total requirements matrix and subtract EDIT(it from) the identity matrix, but looking at the spreadsheet I'm seeing some negatives, which shouldn't happen with a Type I Leontief inverse by construction so I'm not sure what's going on there; I'm guessing some of final demand has been endogenised.  It may be worth digging into their methodology or getting in touch with BEA to discuss this.  They may even be able to directly provide you with something suitable.

You'll likely find that there are a lot of cells with (relatively) very small values in either approach; for a qualitative analysis I'd suggest setting a threshold value and setting anything below it to 0 and above to 1, or just picking the largest n cells in each column to look at.

One final caveat: Product-by-Product tables are basically never compiled from directly collected data, and are in a sense an inherently synthetic beast.  Instead they are constructed from Supply and Use tables, which are much closer to directly collected data.  These both have product-by-industry dimension, with the supply table showing what each industry produces, and the use table showing what each industry consumes.  If you can make use of those instead, then that's preferable to using IxI or PxP tables.

If you want to learn more about input-output, I can recommend some books.

The first is "Input-Output Analysis: Foundations and Extensions" by Miller and Blair, which seems to be the bible among academics on the subject (I would add a warning that I find their presentation of the Type II Leontief model suboptimal for applied work, but this shouldn't be an issue here).

Thijs ten Raa has a book, "The Economics of Input-Output Analysis" which is a bit more high level (not to mention shorter!).

If you don't want to fork out the cash, the Eurostat manual on Supply, Use and Input-Output Tables is available online but is heavily geared towards construction of the tables themselves.  If you're looking for detail on how Supply and Use tables are converted to Input-Output tables, my favourite mathematical presentation online is actually that from the 1968(!) version of the UN System of National Accounts which you can get from the UN here.

There's also a UN Handbook on Supply, Use and Input-Output Tables due to be published sometime this year, which I'd recommend looking at when it's finally published.


What does it mean by Global recession? I am bit curious to understand what it actually means when I read global recession is coming soon. There are some questions which pop in my mind reading such news. Some of them are:

What causes global recession?
How is it possible that all countries' economies go down at the same time. A loss in business for someone means profit for another. So how come all economies start going downward at the same time?
Does it mean that people's consumption capacity has declined or does it mean that the production of goods has declined which is leading to fall in GDP growths of all countries? If its the later case how difficult it is pump up the production capacity for any country to improve the economy instead of stating that global recession has led their economy to go down.
How does the world come out of global recession? If it has happened before many times in history, why haven't the major economies taken lessons from it and only do things which helped them to come out of recession last time?
Last but not least, is there a bigger picture which I am missing that all this global recession can be a planned activity by major economies every few years/decades to achieve something bigger?

Let me start from the bottom up.

"[...] is there a bigger picture which I am missing that all this global recession can be a planned activity by major economies every few years/decades to achieve something bigger?"

No, global recessions usually hurt all economies and though in theory one can come up with an example where someone might benefit from a global recession, arguing that such actors actively caused a global recession for personal gains, is simply a false conspiracy theory. I don't think there is a single example of history where this has happened.

4."How does the world come out of global recession? If it has happened before many times in history, why haven't the major economies taken lessons from it and only do things which helped them to come out of recession last time?"

Global economies are complex systems, it is not like you pull a trigger and you're out. People have won Nobel prices for coming up with ideas to come out of a recessions. However, each recession is different and might need different actions to come out of it. However, we have learned a LOT from previous recessions, nowadays,  global recessions are less frequent, and a lot less severe than they were in the past.

1-3.

A global recession is a complicated phenomena, it might be caused because there are problems in the financial sector, or firms are investing less, or consumers are worried about the future and consuming less.  It could be because there is a war in an oil producing country which will increase the production costs for a lot of countries, etc, etc.
It is absolutely false that a country's loss is always some other country's profit. Though there are situations where it might be true. For example Mexico losses economic growth because Americans are now substituting Mexican goods for Chinese (this is a fictitious example), but there are far more situations where this is false. Usually the growth of one country fosters the growth of its trading partner countries, and vice versa. In the crisis of 2008, to put a concrete example, most economies were worse off. Higher unemployment everywhere, less goods and services where produced and consumed, lower wages, etc.

If you are interested in the last financial crisis of 2008, I recommend you to watch or read "The big short". It is a well-balanced narrative that explains how the causes of a crisis can be complicated. And how a crisis usually occurs due to multiple mistakes in human actions, but not because someone wanted to cause a crisis. The way out of that crisis turned out to be quite complicated since the crisis looked nothing like previous ones.


NPV but adding last year net value? I have found the following NPV (Net Present Value) formula:

CF = unlevered cashflow

i = interest rate (WACC)

$$NPV = -I_0 + \frac {CF_{2019}}{(1+i)} + \frac {CF_{2020}}{(1+i)^{2}} +\frac {CF_{2021}}{(1+i)^{3}} +\frac {(assets_{2021}-liabilities_{2021}) - \sum_{}CF}{(1+i)^{3}}$$

I have always seen NPV formula without that last weird addition of assets-liabilities etc.

Can someone explain me its meaning?

It looks like a cash-accounting NPV that includes closing the position (selling the plant, the car, whatever) after the period of consideration. Asset values show up in the final term because cash accounting applies cash outlays to the period in which they actually occur. Typically, that asset value would be net of depreciation and therefore less than $I_0$.  Contrast this with accrual accounting, which would spread the depreciation over the period, perhaps by making some reasoned assumption about an annualized depreciation rate.

Note that unlevered free cash flow does not count debt obligations. This means interest payments as well as any principle are not counted by the $CF_{year}$ terms, and is why liabilities show up in the calculation explicitly, rather than being rolled into the cash flow term.

However, it's not clear to me why discharge of those liabilities is deferred to the third year - or why a "sum of all cash flows" term shows up, which appears to be double-counting. Perhaps if you share the context of where you're seeing this, that will help.


Are short-let platforms really contributing to rising rent prices? Short-term rent services such as AirBnB are often criticized for eroding the communities by increasing rent prices for locals:

  ... as short-term letting transfers much-needed housing from the residential sector into the tourist economy, it [...] contributes to rising rent levels ...

While it makes sense that with less houses available for long-term rent, the rent price goes up, I would expect the effect of short-term rents to be insignificant, as most properties proposed on AirBnB are not available for long-term rents anyway.

Are there any studies which managed to quantify how big this effect really is?

Yes an example of such study is this Sheppard, S., & Udell, A. (2016). Do Airbnb properties affect house prices. Williams College Department of Economics Working Papers, 3.

This is their conclusion:

  We find that in New York City, the impacts appear to be that an increase in localized Airbnb availability is associated with an increase in property values. In our hedonic model estimates, a doubling of Airbnb listings is associated with increases of 6% to 11% in house values, ceteris paribus. Using a difference-in- difference approach produces an even larger estimated impact, suggesting that properties that are subject to the Airbnb treatment increase in value by about 31%. Rough calculations based on average property values, average Airbnb rentals, and an assumption that potential income streams will be fully capitalized produces an intermediate estimate of about 17.7%.

  While our results might be taken as supporting critics of Airbnb who complain that the firm’s services act to increase house prices and diminish housing affordability, we want to stress that this conclusion may be unwarranted. A service that increases house prices (such as improved police protection, making better local schools available to residents, or providing more and better public parks) need not diminish community well-being.
  Public policies that reduce house prices in pursuit of housing affordability by diminishing the efficiency with which an owner can make use of his or her property are unlikely to be welfare-improving, in the same way as a city that creates “affordable” housing by encouraging more crime hardly seems desirable.

  Evaluating the welfare consequences of Airbnb, and hence the appropriateness of any regulatory action to limit use of Airbnb services, requires deeper analysis than we have provided here and much deeper analysis than appears to have been undertaken to date.


What happens when a country's central bank significantly reduces the available currency? The central bank of Iraq has significantly reduced the note count from 55 Trillion to 5 trillion.

Logic would dictate that when a supply is reduced the value of the item that has been reduced will go up.

Is this incorrect thinking? And if so, what is the correct way to look at this?

According to standard monetary equation:

$$MV=PY$$

Where $M$ is the money supply, $V$ velocity of money, $P$ price level and $Y$ real output. And where the‘value’ of money is inversely proportional to the price level $P$, we can rearrange the above for $P$ to see how it changes when parameters change and from that we can infer what happens to the value of money:

$$P=\frac{MV}{Y}$$

Hence if the money supply goes down and velocity and output stays the same the $P$ will decrease and money become worth more. Important caveat is that both velocity and output might not stay constant. If real output decreases faster than the decrease in money supply then the price level would still increase and value of money decrease. Also, in more complex models expectations play big role. If the change in money supply is expected to be reversed in near future it might not affect price levels and the relationship might not hold at 0 lower bound (see the influential paper from Krugman on this here).


Diminishing returns and economies of scale I was wondering whether these are contrary as one effectively says production becomes cheaper as production increases. To increase production you may need to upgrade from a standard machine to high capacity (like if a seemstress wanted to go from making friends clothes to a small buisness) which would cost alot more to produce more (diminishing returns). I know they are uneven but I'm I going wrong somewhere? Is diminishing returns an advantage of smaller buisnesses?

In production with more than one input, "diminishing returns" refers to what happens when we increase one input while keeping all the rest constant. "Economies of scale" is a more informal term for "increasing returns to scale" and so relates to what happens when we increase all inputs by the same proportion (while, and this is important, we keep the technology unchanged).

Perhaps it could help you to revisit your example based on the above standard definitions of these concepts.


What does it mean that households provide the four factors of production? I've learned that the factors of production are Labor, Land, Capital and Entrepreneurship. I've also learned that households, or units of people living under one roof, supply these resources.
But I'm confused because I can only understand how a household can provide Labor and Entrepreneurship. When does a firm ever pay rent to a household for the use of land? Don't they pay other firms?
Doesn't capital usually come from other firms as well? If a publishing company invests in computers, they get them from Microsoft--not any household, right?

While it’s true that firms can pay other firms for land or capital (and in fact firms can pay another firms for entrepreneurship - you can hire consulting firms, and there are also firms that ‘borrow’ workers to other firms). All firms are in the end owned by some household.
Even if legally you can have both physical and legal persons (i.e. limited company for example) in the end any company has to be owned by household. A building or a machine cannot own property. In the end after some chain of legal ownership there must be some physical person (i.e. household) that owns those companies.
From economic perspective it does not really matter how long the paper chain between company and some household is, only thing that matters is that it exists. Hence in the end it always must be some household providing that capital or land (by providing equity to the firms).
This is really just obscured in modern world and hidden under all the legal arrangements but in the end there can be no company that is just owned by itself there must be some household behind it. If you own a plot of land and decide to build factory on it you are supplying that land to your firm where you are the household and as a result your compensation (profit you will get from operating the company) will include the rent from land as well as return on capital you supply that firm. If you put your own entrepreneurship or labor profit will include that as well.


what are Investments (as defined in macroeconomics) that Households make? i guess a) NEW house
b) buying shares in a domestic company in an IPO
c) investment in a personal business , eg taxi driver buying a NEW taxi, shop owner buying his shop or renovating it

what about paying for school for kids? (improvement of human capital)?

what about land improvement, eg building a parking lot, or new apartment building ,

what about in farming, is maintenance = investment? eg is putting in fertilizer investment?
i guess that maintenance is not investment , only IMPROVEMENT could be investment.  eg trucking in better quality soil would be investment ?

The terms investment and capital are highly confusing because they are different in everyday language and in economics.

Definitions in economics:

Investment is the purchase of any (new) capital goods.
A capital good is any good that is used to produce other goods.
A good is anything that satisfies human wants.

(a) By convention, a house counts as a capital good, the idea (or fiction) being that it generates a stream of housing services over time. Hence, the purchase of a new house counts as investment.

(b) A share in a company does not count as a capital good, because it cannot be used to produce other goods and services.

(c) A taxi driver buying a NEW taxi and a shop-owner buying a NEW shop both count, because as in (a), the idea is that these goods in turn generate a stream of taxi/retail services over time.

The use of fertilizer counts as intermediate consumption (i.e. the use of intermediate goods in the production of other goods and services).

Generally, major improvements to existing buildings also count as investment. So a shop-owner renovating his shop, building a parking lot, a new apartment building all count.

However, ordinary maintenance and repairs do not count as investment (they instead count as intermediate consumption). As you can probably guess, in practice this gets tricky because it can be difficult to distinguish between a "major improvement" and an "ordinary repair". (See UN SNA 1.56.)

Paying for improvements in human capital does not count as investment. (See UN SNA 1.54 and 1.55, which also discusses how like you, many argue that this should count as investment, but right now, by convention, it does not. Schooling counts as consumption, while training by companies counts as intermediate consumption. Perhaps in future editions of the SNA it will be counted as investment.)


Problem if Shareholder is a Director There are some clear conflict of interest with when a person simultaneously holds a director position and is also part of the management, as CEO for example. We would clearly have a conflict of interest as the board should make decisions for the benefit of the shareholders, and the CEO has to rule the company. On top of this an incompetent CEO, who is also on the board of directors, is hard to fire.

I wanted to know if there is any governance problems or conflict of interest, in the case where a shareholder or a trustee, also occupies the role of chairman of the board of directors.

Thank you for your help.

There is a potential conflict of interest (not only for a chairman but also for any director or employee who owns shares in the company) arising from the possibility of insider trading.  Suppose the chairman of a quoted company has a large shareholding and, through their position, becomes aware of information, not yet disclosed to the market, that means the company's prospects are not as good as previously believed.  They might then want to sell shares immediately, rather than waiting until the information has been disclosed and as a result the share price has fallen.

Since directors including chairmen are supposed to act in the interests of the company and its body of shareholders, there are two possible conflicts here.  Firstly, by focussing on whether to sell their own shares and arrangements for doing so, a chairman might neglect their duties to the company at a critical time for it.  Secondly, the selling of a large block of shares would tend to depress the share price to the detriment of other shareholders.

This is not to say that a chairman should not hold shares. A relatively small shareholding would be unlikely to give rise to a serious conflict of interest. In many countries (see here) the issue has to some extent been addressed by making insider trading illegal (although the detailed rules differ between countries).


Consequences to lending and value of national currency from a negative interest rate and 140-year mortgages in Sweden According to an article at Yahoo Finance, the Swedish central bank dropped its zero interest rate to -0.1 percent a couple of days ago (the article is dated to Thursday, February 12th, 2015).

Now, already in 2013 this article from Business Times reported that Swedish households were repaying their mortgages so slowly that it will take 140 years on average. It seems that the mortgage repayment system in Sweden is such that while a bank may set a theoretical limit on how soon the mortgage should be repaid, the individual is free to make interest-only repayments as long as they see fit. So the 140-year average length is not caused by lenders granting 140 year loans, but by the individuals simply paying them back at a rather slow pace.

If mortgage debts are already being paid on a rather low rate, can reducing the interest rate to below zero actually help the economy? Wouldn't this kind of decision just speed up a crash?

As to the Forex rate for the Swedish krona, can it be expected that this situation pushes down the value of the krona?

Update:
My reason for asking this question is because of the assumption that the Central Bank interest rate controls the rate at which other banks lend money to individual customers. Thus the central bank would set the interest rate low so as to lower the interest rates of loans in the country, and through this, to stimulate lending. This is what for example USA did during the first decade of this century.

I would have thought that stimulating lending in a situation where mortgages are being paid back at an extremely low rate would be a recipe for a house price bubble and subsequent crash(?)

There is some concern about the interest rates (currently at -0.5%) fueling a housing bubble in Sweden. This article at Fidelity states:

  In a bid to track the ECB, Sweden has cut its interest rate below
  zero, a radical move that involves charging banks to hold some types
  of deposits with the aim of encouraging them to lend.

  Similar trends have emerged in other small, open economies, such as
  those of Denmark and Switzerland, which also have subzero rates.

  In Sweden, the central bank governor has warned that the low rates
  could be creating a housing price bubble.

A reason why this risk exists in particular for Sweden is because the regulation has allowed the borrower to pay only the interest on common mortgage types, and since the interest rates have been very low for many years, the sizes of these payments have been low.

These mortgages are referred to as "Swedish style mortgages" in this report published by the Swedish Central Bank (dated April 2015).

Overall the situation has stimulated borrowing and fueled the growth of the overall indebtedness of the households. Above report states on p. 4 that:

  Sweden, in particular, has seen household indebtedness rise from 90%
  of disposable income in 1995 to 172% in 2014

Current situation is still as described as on page 14 in the Sweden - Selected Issues paper published by the IMF (dated August 2014), shown in below image.

On p.15 this IMF report states that:

  If progress under the current voluntary approach remains limited, a binding maximum amortization period for new mortgages would be
  helpful. Swedish banks are working to raise amortization through
  voluntary means. However, the picture remains largely unchanged. The
  share of new mortgages granted in 2013 that has an amortization plan
  has remained broadly constant from 2012. And, of the existing mortgage
  stock, a significant 40 percent of households either increased or did
  not decrease their debt in 2013. For the remaining 60 percent of
  households, it would take 100 years to fully pay down their debt if
  they continued to amortize at current speeds.

In fact they attempted to regulate the mortgages last year but according to this article it looks like the proposed changes were rejected by an appeals court. The article states that

  Under the original plans, customers would have been asked to pay two
  percent of the value of their mortgage every year until they had
  repaid 30 percent of the loan. They would then have been required to
  pay at least one percent a year until they hit the 50-percent mark.

  But the watchdog backtracked after an administrative court of appeal
  in Jönköping in southern Sweden suggested that the proposed changes
  were not supported by Swedish law.

I am not sure however if they were able to pass that law later in some modified form.

Understandably the current level of indebtedness poses a large risk for the banks in the event of a downturn on the housing markets. However the already existing debt levels (as discussed in this report) in comparison to disposable income may make it difficult to implement drastic changes to the regulations.

The reason for the interest-rate cut you asked about seems to have been to avoid further deflation. One of the consequences of this has been, according to this article, an overall increase in house prices. So while at least two of the symptoms of a housing bubble (high prices and high levels of household debt) are present in Sweden, there are also factors that play against a US-style mortgage crisis, such as:

The ability of households to make interest-only mortgage payments
without penalty for an extended period.
Large amounts of recent immigrants (refugees from mainly the middle
east) that will require housing. In addition to this Sweden already
had low levels of new construction even before the latest influx of
immigrants.
The relatively small size of the country; people tend to not move
geographically as far away as in USA for reasons such as employment and may stay at a particular address longer.

Update: According to this article, Sweden did change the maximum length of a mortgage to 105 years earlier this year.


Short textbook of econometrics? I'm looking for a textbook about econometrics, but I'd like to find one with the following features :

Short (350 pag. max)
Introductory
Clear on the math and stats used
With exercises

Do you know a book like this? Thanks!
My purpose is to be able to read it in not too much time and understand the subject without covering all aspects but just the essential.

An Introduction to Econometric Theory by James Davidson might be worth a look. It satisfies all your condition at a slim 256 pages.


How to show that the estimator is consistent? $Y_i=\beta_0+\beta_1X_i+U_i$ is my regression model for an I.I.D. sample with N=1000 observations. Suppose $U_i\sim I.I.D.(0,\sigma^2)$ and Xi are also I.I.D for i=1,2,3......1000. Xi is independent of Ui. How to show that the estimator $\beta_1={{Y_3-Y_2}\over {X_3-X_2}}$ is a consistent estimator of the OLS estimator?
Simplication gives
$\tilde {\beta}={{\beta_0+\beta_1X_3+U_3-\beta_0-\beta_1X_2-U_2}\over {X_3-X_2}}={{\beta_1(X_3-X_2)+U_3-U_2}\over {X_3-X_2}}=\beta_1+{{U_3-U_2}\over {X_3-X_2}}$
What is the next step?

Remember that consistency describes how the estimator behaves in the limit as N asymptotically approaches infinity. Assuming no errors in your math up to this point, you need to consider how your error terms $U_i$ behave asymptotically as well.


RDD with multiple cutoffs I am trying to study the effects of a policy on educational attainment of individuals (years of schooling, primary/secondary school completion, literacy). Since the policy starts in a specific year I decided to use an RDD using birth year as running variable.

The problem is that my sample is made of 5 different countries in which the policy has been implemented in 5 different years.
Am I able to pool the effect of the policy across countries?

Because if I build a unique running variable as being 0 for each cutoff year I get individuals born in e.g. 1994 having running variable both 0, -2, +3 depending on the country of origin.

How can I deal with this issue? Should I run a RD for each country alone?

This paper:https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2712957

Is exactly what you need.


Reading list: history of economic thought / political economy Can you all please suggest books that I can read to get started in the fields of political economy and the history of economic thought?

While my major in Mathematical Economics has given me a good grounding in the theoretical models of economics and the empirical methods used to test them in the real world, I feel that my knowledge of political economy and economic history is sadly lacking. I would like to get a more holistic understanding of the discipline(s) and would greatly appreciate your advice.

My app is acting odd and won't allow me to comment, but here's my follow up comment.

Yeah, for sure! My list consists of this:

Wealth of Nations - Adam Smith
Capital - Karl Marx
Principles of Economics - Alfred Marshall
General Theory of Employment, Interest and Money - John Maynard Keynes.

Those are just the most definitive works in the field that I've found, so there are many more I've yet to discover. If I remember correctly I think Marshall put most of his analytic work in the appendices at the back of his Principles. Marshall had the body of his work written - not in math, but in words - to be concise, but yet understandable for most of the laymen of his day.

Anyways, I pulled out those four books because they establish a turning point in some way for the field (i.e. General Theory caused a bifurcation between macro and microeconomics where it left Marshall's Principles for micro and Keynes for macro.)

If you are pressed for time, then I'd suggest reading Backhouse's book along with the Teachings book by Heilbroner. Those will give you a very broad and quick view of where the fields come from and almost catch you up to modern day economics. And unfortunately a lot of the classics are lengthy and hard to decipher. Karl Marx writes his critique of capitalism in a full three or four volume set! (I can't remember the exact number.)

I think if you approach this adventure in the right manner, you may become hooked. That's how I got fascinated with the field, I read Worldly Philosophers when I was younger and just fell head over heels for the subject.

Hopefully this helps out, just let me know if you have any more questions or concerns.


When to invest into additional products? This is a very applied question so I hope it's the correct adress here for it:

I'm running a small entertaining business for virtual reality experiences. Investment was about 120 k. I now build it all up and just opened a week ago. Money left is 25 k. There are two major things I would like to buy, one costs 6 k, the other 18 k (both software licences).
At the moment, without any income, I can survive about one year. That's why I probably will skip the expensive one of both licences. On the other hand it is a high award winning experience and also advertised by very famous people in our nation. That's why I'm not skipping it at all in my head.
The other one I guess it could fit to my finances. But anyhow, since VR is probably requested way more in winter time than in summer time I'm not sure how much profit I'll gain and if it is smart to invest into one of both.

Is there thumb of rule or even any academic method how to figure out if an investment promises to be a good decision? I'm aware that it is probably rather difficult but I'm a technician and I'm used to research anything at different methods. Hence, I believe there must be some tools to use for business purposes?

Other than the generic calculation of "Present Value", there's no rule of thumb as such. Your decision should largely depend on your knowledge of the market, your capital and other production inputs, whether the licenses are substitutes, the marginal profit each one would bring, and so forth.

If a license has an expiration date, you might want to postpone the purchase till peek season is approaching. That way, you are not cash-strapping yourself unnecessarily. Also, there is always a possibility that some substitute and more affordable software might be released (or be noticed by you) sometime soon. For instance, would you buy a license if you find an open-source equivalent elsewhere?

On the other hand, the deployment of a specialized software might take time to stabilize, whence you would need to assess whether that would disrupt business operations.

Another aspect to consider is that by spending more of your remaining --and arguably vital-- resources, you are placing "more eggs in the same basket". That type of management is discouraged unless you have the certainty that your business will be profitable.

Knowingly or not, during your decision-making you'll inherently be applying many principles of economics and finance. There is just no tool or test that gives the precise type of guidance you are seeking.


Correlation over time, panel data variable I think my question seems to be quite simple, but I cannot figure out a solution. I have panel data with about 1000 different people over 10 years. Standard panel regression is not the problem, but I am searching for a method to measure the correlation or effect of the independent variable on itself over time for the whole dataset (not for every single year).
Is the answer a time-series method?

Thanks!
Best
Tom

The answer (if I understand your question correctly) is a dynamic panel data model. In such models, one expresses the DGP as follows: $$y_{it}=\rho y_{it-1}+x_{it}'\beta+\alpha_{i}+u_{it}$$
 This has been studied extensively for the past 20 years.
Some classic estimators are:

a) Arellano-Bond estimator
 b) Anderson-Hsiao estimator and
c) Arellano-Bover systems GMM estimator.

I would suggest that you go with the 3rd option.  I think this one is the latest+most robust estimator. You can verify the statement. Each of these methods deals with an alternative way of consistently estimating $\rho$ by using instruments (or systems of instruments).


I don't know why these two method yield different solutions for marginal product of labour Given a homogeneous of degree one function
$$Y=F(K,N) \\
y=\frac{Y}{N}
=F(\frac{K}{N},1):=f(k)$$
I am looking for the partial derivative for $N$
Method 1
$$F_N=\frac{\partial F(K,N)}{\partial N}=\frac{\partial Nf(k)}{\partial N}\\
F_N=f(k)+N\frac{\partial f(k)}{\partial N}\\
F_N=f(k)+N\frac{\partial f(k)}{\partial k}\frac{\partial k}{\partial N}, \quad k=KN^{-1}\\
F_N=f(k)+Nf'(k)(-1)KN^{-2}\\
F_N=f(k)+f'(k)(-1)KN^{-1}=f(k)-f'(k)k
 $$
Method 2
$$F_N=\frac{\partial F(K,N)}{\partial K}\frac{\partial K}{\partial N}\\
F_N=\frac{N\partial f(k)}{N\partial k}\frac{\partial K}{\partial N}\\
F_N=f'(k)\frac{\partial Nk}{\partial N}=f'(k)k
$$
I have no idea where is the method 2 gone wrong.  Any help would be appreciated!
Re-edited Solved
$$\frac{dF(K,N)}{dN}=\frac{\partial F(K,N)}{\partial K}\frac{dK}{dN}+\frac{\partial F(K,N)}{\partial N}\frac{dN}{dN}\\
\frac{dNf(k)}{dN}=f'(k)k+\frac{\partial F(K,N)}{\partial N}\\
f(k)-f'(k)k=\frac{\partial F(K,N)}{\partial N}
$$

I am not sure why you expect method two to work, as generally
$$
\frac{\partial F(K,N)}{\partial N} \neq \frac{\partial F(K,N)}{\partial K}\frac{\partial K}{\partial N}.
$$
These are partial derivatives. Unless information to the contrary exists
$$\frac{\partial K}{\partial N} = 0.$$
You can easily see that these formulas are not connected by calculating the area of a rectangle which sides have lengths of $a,b$. Thus $A(a,b) = a\cdot b$ and
$$
\frac{\partial A(a,b)}{\partial b} = a \neq b \cdot 0 = \frac{\partial A(a,b)}{\partial a}\frac{\partial a}{\partial b}.
$$
In case you insist on homogeneity of degree one you can take the square root of the area.


how to raise utility of an individual having min utility function I was doing an exercise of utility and got confused with a min utility function. endowments can redistribute among individuals. How am i supposed to increase his utility. Can i simply reduce the endowment of this min utility person(or give him extra)?

Given a utility function of the form $U(a,b)=min\{a,b\}$. Suppose that currently $a<b$. To increase utility, you should allocate more of $a$ to this person until $a=b$ and then increase $a,b$ proportionally.