Utopia, you are standing in it!

There will be many posts summarizing the modern market design aspect of Roth and Shapley, today’s winners of the Econ Nobel. So here let me briefly discuss certain theoretical aspects of their work, and particularly my read of the history here as it relates to game theory more generally. I also want to point out that the importance of the matching literature goes way beyond the handful of applied problems (school choice, etc.) of which most people are familiar.

Pure noncooperative game theory is insufficient for many real-world problems, because we think that single-person deviations are not the only deviations worth examining. Consider marriage, as in Gale and Shapley’s famous 1962 paper. Let men and women be matched arbitrarily. Do we find such a set of marriages reasonable, meaning an “equilibrium” in some sense? Assuming that every agent prefers being married (to anyone) to being unmarried, then any set of…

From the Emperor’s Desk: for some reason I am unable to post with pictures. I am looking into it and hopefully pictures will be back soon!

Charles I (November 1, 1600 – January 1649) was King of England, Scotland, and Ireland from March 27, 1625 until his execution in 1649. He was born into the House of Stuart as the second son of King James VI of Scotland, but after his father inherited the English throne in 1603, he moved to England, where he spent much of the rest of his life.

He became heir apparent to the kingdoms of England, Scotland, and Ireland in 1612 upon the death of his elder brother, Henry Frederick, Prince of Wales. An unsuccessful and unpopular attempt to marry Charles to the Spanish Habsburg Infanta Maria Anna culminated in an eight-month visit to Spain in 1623 that demonstrated the futility of the marriage…

Shortly after the death of King Edward IV, Bishop Robert Stillington, the Bishop of Bath and Wells, is said to have informed Richard that Edward IV’s marriage to Elizabeth Woodville was invalid because of Edward’s earlier union with Eleanor Butler, making Edward V and his siblings illegitimate.

Bishop Stillington asserted Eleanor Butler had had a legal precontract of marriage to Edward, which invalidated the king’s later marriage to Elizabeth Woodville. According to Richard Duke of Gloucester, this meant that he, rather than Edward’s sons, was the true heir to the throne.

A precontract is a legal contract that precedes another; in particular it can refer to an existing promise of marriage with another. Such a precontract would legally nullify any later marriages into which either party entered. The practice was common in the Middle Ages, and the allegation of a precontract was the most common means of dissolving a marriage…

In September last year, former Bank of England Deputy Governor Sir Paul Tucker published a substantial discussion paper suggesting paying a sub-market, or zero, interest rate on some portion of the huge increase in bank deposits at the central bank that had resulted (primarily) for the large-scale asset purchase programmes central banks had been running (in the Bank of England’s case since the 2008/09 recession, but in some countries – including New Zealand and Australia – just since 2020).

In late October, I wrote about Tucker’s paper, and you will get the gist of my view from the title of that post, “A Bad Idea”. The Herald’s Jenee Tibshraeny picked up on that post and the following day ran an article on the Tucker tiering proposal, with sceptical quotes from several people including me. There was a difference of view in those quotes. As in my post, I argued that…

It was something of a (perhaps minor) landmark event last Thursday when the Reserve Bank’s chief economist Paul Conway gave an on-the-record speech on inflation. It was only Conway’s second on-the-record speech (the first was on housing, something the Bank has little or no responsibility for) and thus only the second speech from a Reserve Bank chief economist for almost five years. Five years in which chief economists have become statutory decisionmakers (members of the MPC), in which monetary policymakers have dealt with a huge and expensive shock, and in which inflation – prime focus of central bank monetary policy – has been let run amok in ways never seen previously (arguably never envisaged) in the first 30 years of inflation targeting. And when (a) external MPC members are barred from research/analysis, and (b) barred from speaking or disinclined to do so, and (c) the chief economist’s own boss…

The United States has a medium-sized welfare state and nations in Western Europe have large-sized welfare states.

Which approach is better (or, to be more accurate, less worse)?

To answer that question, you want to compare living standards. And that means looking at how much people earn, adjusted for factors such as how much they get to keep after taxes.

The United States wins that contest. Americans earn more and they get to keep more.

That’s apparent when you look at average levels of consumption on both sides of the Atlantic. And it’s even true when you compare living standards of low-income and poor Americans to living standards for average Europeans.

But what if Americans only earn more because they work longer hours? When my left-of-center friends make this argument, my usual response has been that Americans choose to work longer hours because they have better incentives…