By George A. Akerlof
Those essays discover what occurs while a skilful economist makes unconventional assumptions. monetary concept has often relied upon a tacit and 'classical' set of assumptions that experience progressively got a lifetime of their very own in defining how economists write and the way they justify monetary versions. equally, those assumptions have obtained an self sufficient personality: they consultant the best way economists take into consideration the realm. consequently, attention of different assumptions has develop into taboo. those essays are substantively and stylistically novel simply because they holiday those taboos and convey new assumptions into financial concept. The papers follow this adventurous method of a variety of matters - from assurance markets and exchange in underdeveloped nations to unemployment and discrimination. many of the essays derive the results for financial markets of expensive uneven info. Others discover the findings of alternative social sciences resembling anthropology, psychology and sociology.
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Extra info for An Economic Theorist's Book of Tales
3 The economics of caste and of the rat race and other woeful tales I. Introduction There is a standard model of economic behavior, the Arrow-Debreu general equilibrium model of perfect competition. While this model may not be entirely adequate as a description of economic reality, it is most useful as a standard of comparison. For in equilibrium in this model, subject to the careful qualifications of Pareto optimality, peoples' lives are as pleasurable as they possibly can be, given their tastes and productive capabilities.
Let np denote the number of poor people, with np/n = fi. •. ,n Thus, total net revenues are: n i-l r -y< n a? - E i* i-l i-np+l and n Z' r,= -npaY+tf\Yi i-l i-l or using the definition of ft, np = fin (b) £ Ti - - ^ ^ 7 + * E r« i-l i-l Dividing the left-hand and right-hand sides of (b) by SF t yields: n E ^ nY UK Zr. i-l i-l or g = —jSa + ^. 48 An economic theorist's book of tales Formula (2) shows that tagging makes the tradeoff between levels of support and marginal rates of taxation more favorable by eliminating the grant to taxpayers, and thus allows greater support for the poor with less distortion of the tax structure.
In situations where this coalition must be large, where trade with the caste economy is necessary, or where the cost of forming a coalition is high, the threat to equilibrium of such a coalition is small. These principles are illustrated in the examples that follow. Three examples of caste equilibrium Example 1. Racial discrimination. " 42 An economic theorist's book of tales that persons use race to predict how everyone else will react to hiring persons of different races in different jobs. 25 Example 2.