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🔗 Economics 🔗 Robotics 🔗 Game theory

Mechanism design is a field in economics and game theory that takes an objectives-first approach to designing economic mechanisms or incentives, toward desired objectives, in strategic settings, where players act rationally. Because it starts at the end of the game, then goes backwards, it is also called reverse game theory. It has broad applications, from economics and politics (markets, auctions, voting procedures) to networked-systems (internet interdomain routing, sponsored search auctions).

Mechanism design studies solution concepts for a class of private-information games. Leonid Hurwicz explains that 'in a design problem, the goal function is the main "given", while the mechanism is the unknown. Therefore, the design problem is the "inverse" of traditional economic theory, which is typically devoted to the analysis of the performance of a given mechanism.' So, two distinguishing features of these games are:

• that a game "designer" chooses the game structure rather than inheriting one
• that the designer is interested in the game's outcome

The 2007 Nobel Memorial Prize in Economic Sciences was awarded to Leonid Hurwicz, Eric Maskin, and Roger Myerson "for having laid the foundations of mechanism design theory".

🔗 Economics 🔗 Systems 🔗 Business 🔗 Sociology 🔗 Organizations 🔗 Engineering 🔗 Systems/Project management

Parkinson's law is the adage that "work expands so as to fill the time available for its completion". It is sometimes applied to the growth of bureaucracy in an organization.

🔗 Economics 🔗 Energy 🔗 Globalization

Petrodollar recycling is the international spending or investment of a country's revenues from petroleum exports ("petrodollars"). It generally refers to the phenomenon of major petroleum-exporting nations, mainly the OPEC members plus Russia and Norway, earning more money from the export of crude oil than they could efficiently invest in their own economies. The resulting global interdependencies and financial flows, from oil producers back to oil consumers, can reach a scale of hundreds of billions of US dollars per year – including a wide range of transactions in a variety of currencies, some pegged to the US dollar and some not. These flows are heavily influenced by government-level decisions regarding international investment and aid, with important consequences for both global finance and petroleum politics. The phenomenon is most pronounced during periods when the price of oil is historically high.

The term petrodollar was coined in the early 1970s during the oil crisis, and the first major petrodollar surge (1974–1981) resulted in more financial complications than the second (2005–2014).

In August 2018, Venezuela declared that it would price its oil in Euros, Yuan and other currencies.

🔗 Environment 🔗 Economics

Small Is Beautiful: A Study of Economics As If People Mattered is a collection of essays by German-born British economist E. F. Schumacher. The phrase "Small Is Beautiful" came from a principle espoused by Schumacher's teacher Leopold Kohr (1937-1994) The concept is often used to champion small, appropriate technologies or polities that are believed to empower people more, in contrast with phrases such as "bigger is better".

First published in 1973, Small Is Beautiful brought Schumacher's critiques of Western economics to a wider audience during the 1973 energy crisis and the popularisation of the concept of globalization. In 1995 The Times Literary Supplement ranked Small Is Beautiful among the 100 most influential books published since World War II. A further edition with commentaries was published in 1999.

🔗 Environment 🔗 Economics 🔗 Law 🔗 Anthropology 🔗 Sociology 🔗 Game theory

The tragedy of the anticommons is a type of coordination breakdown, in which a commons does not emerge, even when general access to resources or infrastructure would be a social good. It is a mirror-image of the older concept of tragedy of the commons, in which numerous rights holders' combined use exceeds the capacity of a resource and depletes or destroys it. The "tragedy of the anticommons" covers a range of coordination failures, including patent thickets and submarine patents. Overcoming these breakdowns can be difficult, but there are assorted means, including eminent domain, laches, patent pools, or other licensing organizations.

The term originally appeared in Michael Heller's 1998 article of the same name and is the thesis of his 2008 book. The model was formalized by James M. Buchanan and Yong Yoon. In a 1998 Science article, Heller and Rebecca S. Eisenberg, while not disputing the role of patents in general in motivating invention and disclosure, argue that biomedical research was one of several key areas where competing patent rights could actually prevent useful and affordable products from reaching the marketplace.

🔗 Economics 🔗 Literature 🔗 Astronomy

The Theory of Interstellar Trade is a paper written in 1978 by the economist Paul Krugman. The paper was first published in March 2010 in the journal Economic Inquiry. He described the paper as something he wrote to cheer himself up when he was an "oppressed assistant professor" caught up in the academic rat race.

Krugman analyzed the question of

How should interest rates on goods in transit be computed when the goods travel at close to the speed of light? This is a problem because the time taken in transit will appear less to an observer traveling with the goods than to a stationary observer.

Krugman emphasized that in spite of its farcical subject matter, the economic analysis in the paper is correctly done. In his own words,

while the subject of this paper is silly, the analysis actually does make sense. This paper, then, is a serious analysis of a ridiculous subject, which is of course the opposite of what is usual in economics.

🔗 Economics

An Information cascade or informational cascade is a phenomenon described in behavioral economics and network theory in which a number of people make the same decision in a sequential fashion. It is similar to, but distinct from herd behavior.

An information cascade is generally accepted as a two-step process. For a cascade to begin an individual must encounter a scenario with a decision, typically a binary one. Second, outside factors can influence this decision (typically, through the observation of actions and their outcomes of other individuals in similar scenarios).

The two-step process of an informational cascade can be broken down into five basic components:

1. There is a decision to be made – for example; whether to adopt a new technology, wear a new style of clothing, eat in a new restaurant, or support a particular political position

2. A limited action space exists (e.g. an adopt/reject decision)

3. People make the decision sequentially, and each person can observe the choices made by those who acted earlier

4. Each person has some information aside from their own that helps guide their decision

5. A person can't directly observe the outside information that other people know, but he or she can make inferences about this information from what they do

Social perspectives of cascades, which suggest that agents may act irrationally (e.g., against what they think is optimal) when social pressures are great, exist as complements to the concept of information cascades. More often the problem is that the concept of an information cascade is confused with ideas that do not match the two key conditions of the process, such as social proof, information diffusion, and social influence. Indeed, the term information cascade has even been used to refer to such processes.

🔗 Mathematics 🔗 Economics 🔗 Politics 🔗 Game theory

In game theory, the Nash equilibrium, named after the mathematician John Forbes Nash Jr., is a proposed solution of a non-cooperative game involving two or more players in which each player is assumed to know the equilibrium strategies of the other players, and no player has anything to gain by changing only their own strategy.

In terms of game theory, if each player has chosen a strategy, and no player can benefit by changing strategies while the other players keep theirs unchanged, then the current set of strategy choices and their corresponding payoffs constitutes a Nash equilibrium.

Stated simply, Alice and Bob are in Nash equilibrium if Alice is making the best decision she can, taking into account Bob's decision while his decision remains unchanged, and Bob is making the best decision he can, taking into account Alice's decision while her decision remains unchanged. Likewise, a group of players are in Nash equilibrium if each one is making the best decision possible, taking into account the decisions of the others in the game as long as the other parties' decisions remain unchanged.

Nash showed that there is a Nash equilibrium for every finite game: see further the article on strategy.

🔗 Climate change 🔗 Economics 🔗 Politics 🔗 Energy 🔗 International development 🔗 Mining

The resource curse, also known as the paradox of plenty or the poverty paradox, is the phenomenon of countries with an abundance of natural resources (such as fossil fuels and certain minerals) having less economic growth, less democracy, or worse development outcomes than countries with fewer natural resources. There are many theories and much academic debate about the reasons for and exceptions to the adverse outcomes. Most experts believe the resource curse is not universal or inevitable but affects certain types of countries or regions under certain conditions.

🔗 Economics 🔗 Statistics

The gravity model of international trade in international economics is a model that, in its traditional form, predicts bilateral trade flows based on the economic sizes and distance between two units.

The model was first introduced in economics world by Walter Isard in 1954. The basic model for trade between two countries (i and j) takes the form of

${\displaystyle F_{ij}=G*{\frac {M_{i}*M_{j}}{D_{ij}}}}$

In this formula G is a constant, F stands for trade flow, D stands for the distance and M stands for the economic dimensions of the countries that are being measured. The equation can be changed into a linear form for the purpose of econometric analyses by employing logarithms. The model has been used by economists to analyse the determinants of bilateral trade flows such as common borders, common languages, common legal systems, common currencies, common colonial legacies, and it has been used to test the effectiveness of trade agreements and organizations such as the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) (Head and Mayer 2014). The model has also been used in international relations to evaluate the impact of treaties and alliances on trade (Head and Mayer).

The model has also been applied to other bilateral flow data (also 'dyadic' data) such as migration, traffic, remittances and foreign direct investment.