EC101: Links for 27th June, 2019

  1. “Total Expense Ratio aka TER means cost incurred by a fund house to run a fund. It includes management fee, legal fees, registrar fee, custodian fee, distributor fee etc. The major part of the TER consists of management fee followed by distributor fee. The TER is calculated daily and will be deducted by AMCs on the same day, which means your NAV includes the impact of fees on your fund.”
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    A good article to help you understand how mutual funds make money, what the new SEBI regulations mean for retail investors, and how dependent the mutual funds are (as of now) on the distributor.
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  2. “…Say’s Law provides a theory whereby disequilibrium in one market, causing the amount actually supplied to fall short of what had been planned to be supplied, reduces demand in other markets, initiating a cumulative process of shrinking demand and supply. This cumulative process of contracting supply is analogous to the Keynesian multiplier whereby a reduction in demand initiates a cumulative process of declining demand. Finally, it is shown that in a temporary-equilibrium context, Walras’s Law (and a fortiori Say’ Law) may be violated.”
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    Econ nerds only – and perhaps the even stranger beasts called macro-econ nerds only. David Glasner gives us a view of Say’s Law that may actually be (gasp) Keynesian in nature.
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  3. “Why incentives? Economics is based on the premise that incentives matter. Incentives can help by increasing or decreasing the motivation to take up a certain activity, by changing the cost or benefit of the activity. If someone were to pay John enough for each time he hit his steps goal, he would likely begin walking, perhaps even enthusiastically. After all, health consequences are in the distant future, but cold, hard cash can be given in the present. ”
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    That is from this link – you’ll actually have to download and read the PDF. This excerpt is useful to me because it essentially says that behavioral economics is, well, economics.
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  4. “This view goes something like this – there are no priors (in fact, you discredit experience as being biased – after all you guys have been doing development for decades and we still have poverty and misery in abundance) >> and therefore conventions, latent wisdom, and experience counts for little >> therefore there are no theories >> so we need evidence on everything >> how better to create evidence than look for data >> so let’s do experiments (RCTs) or mine administrative data and understand reality and design evidence-based policies.”
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    Gulzar Natarajan is less than pleased with Raj Chetty’s new course at Harvard (the first item from 23rd May, 2019’s posting), and I am very inclined to agree with his views. Empiricism is slightly overrated today.
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  5. “The Baumol effect predicts that more spending will be accompanied by no increase in quality.
    The Baumol effect predicts that the increase in the relative price of the low productivity sector will be fastest when the economy is booming. i.e. the cost “disease” will be at its worst when the economy is most healthy!
    The Baumol effect cleanly resolves the mystery of higher prices accompanied by higher quantity demanded.”
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    Alex Tabarrok over on Marginal Revolution is on a spree with the Baumol Effect, and having followed his series, I’d say with good reason. It upends several things in microeconomics that we might have taken for granted.
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Author: Ashish

Prof at Gokhale Institute, Pune, Blogger at econforeverybody.com, Podcaster at anchor.fm/backtocollege

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