A Random Walk

I just finished reading Burton Malkiel’s influential book A Random Walk Down Wall Street. Originally published in 1973, the book was one of the first to advocate for the creation of a “no-load, minimum-management-fee mutual fund that simply buys the hundreds of stocks making up the broad stock-market averages and does no trading from security…

Neo-Laffer Curve

The Laffer curve is a compelling economic concept.  It claims that government revenue as a function of tax rates is shaped as an inverted-U.  This means that, at first, raising the tax rate from zero will increase tax rates.  However, there is some tax rate which maximizes government revenue (but not necessarily social welfare).  When…

Banzhof power index

Why do the Orthodox Jews have so much political power in Israel? Why are third parties in the U.S. so weak? These phenomenon can be explained by the Banzhof power index. The index is calculated as follows. Let us look at the Israeli election in 2003 for the Knesset. Here are the voting results of…

Utility Function

Sean Carroll, a physicist at California Institute of Technology, has some interesting comments regarding how economists use the utility function in a post titled “So what have you been maximizing lately?“  For instance, here are his musings on ‘rational choice’: If the job of science is to describe what happens in the world, then there…

How a Ph.D. Can Save Your Life

Why do people, like myself, go through the grueling, boring, masochistic process of obtaining an Economics PhD. Well, according to Paul Kedrosky (“Self help“) getting a PhD can help you discover what you really like to do. …what I found out when doing my thesis — and something I noticed in pretty much everyone I…

Theory of the Second Best

There have been some interesting economics blog postings in recent weeks about the theory of the second best. Dani Rodrik of Harvard argues (“Why do economists disagree“) that economists can generally be viewed as first-best economists and second best economists. For instance, first-best economists would claim that all healthcare should be privately financed, with a…

Cats and dogs

Here are two interesting articles from the blog-o-sphere: Cat Bonds The NY Times has an interesting article about catastrophic risk (“In Nature’s Casino“). The article talks about how individuals such as John Seo and Karen Clark have helped to create a market for cat bonds. The problem with catastrophes is that insurance companies have not…

Maps on acid

The Undergraduate Economist has three interesting maps to consider. The first draws each country with its size proportional to its PPP-adjusted public sector health spending; the second shows territory size proportional to the number of people 15-49 with HIV. The final map shows each country with its territory size proportional to the percent of worldwide…