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Austrian Subjective Use-Value

Why Its Variations Are the Primary Cause of Substantial Premiums In the Sell Prices Over the Buy Prices of Individuals When Considering Some Goods and Not Others.

The following is essentially my answer to an earlier problem posted here, which in turn was a follow-up to this.

Background Read more »

Alternate Contest Presentation

In a previous contest post , an economic theory was requested to explain why consumers would require a very large premium to resell some goods that were just purchased, but would require a much smaller premium for other goods.

See the earlier post for details.

The following is really the same problem presented in a more concrete manner: Read more »

Narrow Economic Applied Theory Contest, with Prizes

Create and Apply an Economic Theory, Win a Book or Two

In the Introduction to his 1994 book, The Winner's Curse, Behavioral Economist Richard H. Thaler notes that people are usually observed to be willing to pay about half as much for Super Bowl tickets as they would be willing to accept for selling the tickets that they had previously purchased. This is a fairly common result not limited to tickets. Read more »

Fundamental Stock Valuation in the Face of Stock and Option Grants

Imagine a company that pays only cash wages, and pays out all of its profits in dividends, and its yearly results are absolutely constant into the infinite future.

This company can be fundamentally valued by choosing a discount rate and summing the infinite geometric series of dividends to be paid out. For a 5% discount rate, and the first dividend payment of $1M total starting this afternoon, the present value of the total company would be :

$1M + $1M(0.95) +$1M(0.95 X 0.95) + ?

which is equal to $1M/(1 - 0.95) = $20M. Read more »

Stock and Option Expensing, the Bottom Line

A Case of Mistaken Identity Read more »

Kotlikoff, SS and CPI, a Question

Laurence J. Kotlikoff, the Boston University economist and recognized authority on generational accounting, has a plan (pdf file) to try to deal with future shortfalls in funding for Social Security and Medicare. This is a serious plan and worthy of study, but here I only want to question one of the assumptions.

Part of the plan involves a new Federal retail sales tax, declining from a starting point of 12%, intended to replace the payroll tax during phaseout.

From the text -- Read more »

Marshall Blake Explains Economics

From an Elizabeth Doran story in the Syracuse Post-Standard of Sunday, May 30, 2004 entitled 'Raise in Minimum Wage Opposed' --

Also, if New York joins the other 13 states with higher minimum wages than the federal standard, it will only add to the perception that doing business here is too costly and drive businesses out of state, Warner said.

Marshall Blake, president of the Central New York Labor Federation/AFL-CIO, disagrees.

The Cost of Global Warming

According to this article, the cost of global warming is going to be 5 trillion dollars. Read more »

Given use-valued goods A, B, and C, consider the following proposition --

If A is ranked higher than B on an individual's single subjective value scale, then the bundled pair of A and C will also be ranked higher than the bundled pair of B and C.

Refute this proposition by counterexample.

A Thought Experiment

Looking for Evidence of Stock Grant Opportunity Costs

One of the things that spontaneously emerged from the chaos of the arguments over the expensing of employee stock option grants is the claim that the granting of stock itself represents an opportunity cost to the company that is equal to the sale proceeds that otherwise would have been received from the sale of stock on the market.

This not only sounds quite sensible, but would seem to identify a contender for the title of 'The Greatest Thing Since Sliced Bread', as well as a source of an entire free lunch as well. Read more »

Saving for Retirement

You want to retire early at the age of 50. You have accumulated a total of $1M in your traditional IRA, which has an internal rate of return of 10% per year.

Assuming no inflation, and no increase in your overall marginal tax rate of 40%, Approximately how many years can you spend $40K per year before depleting your IRA? (this is a trick question)


Choosing Your Cable Channels

At Marginal Revolution, Tyler Cowen has a post that deals with the consumer comment : "I don't ever watch Bravo but still I must pay for it".

In the post, Tyler references the subject of bundling and decides that price discrimination is a possible reason why channels are not offered on a channel by channel basis.

I'm not prepared to say that any of this is wrong, but that there may be an alternate explanation. Read more »

Economic Puzzle Involving Stock Ownership, Part II

Subtitle -- The Absurdity of Stock and Option Expensing

In Part I , I attempted to set up and explore an ultra simple example dealing with the economic and logical reality involved in the relationship between a company and its shareholder owners. Read more »

Economic Puzzle Involving Stock Ownership, Part I

On the table in front of me sits an unsealed, transparent envelope. The envelope is labelled as follows :

This Envelope and Its Contents are the Entire Assets of the Public Stock Company Known as The Transparent Envelope Company, or TEC.

In my possession I have a stock certificate for 1 (one) share of TEC.

In the envelope, there are two $5 Federal Reserve Notes and a stock certificate for 1 (one) share of TEC, identical to my own.

No other TEC stock certificates exist in any form, anywhere.

Across the table from me sits my brother, who has neither stock nor money. Read more »

The SS Trust Fund

The Social Security Trust Fund, A Political Exercise in Economic Futility Read more »