EC101: Links for 25th July, 2019

Five economic theorems you may not have heard of. They are somewhat abstruse, but all are truly interesting. All Wikipedia articles too – like Twitter, grossly underrated.

 

  1. “In game theory, Aumann’s agreement theorem is a theorem which demonstrates that rational agents with common knowledge of each other’s beliefs cannot agree to disagree. It was first formulated in the 1976 paper titled “Agreeing to Disagree” by Robert Aumann, after whom the theorem is named.”
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  2. “The Alchian–Allen effect was described in 1964 by Armen Alchian and William R Allen in the book University Economics (now called Exchange and Production [1]). It states that when the prices of two substitute goods, such as high and low grades of the same product, are both increased by a fixed per-unit amount such as a transportation cost or a lump-sum tax, consumption will shift toward the higher-grade product. This is true because the added per-unit amount decreases the relative price of the higher-grade product.”
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  3. Revenue equivalence is a concept in auction theory that states that given certain conditions, any mechanism that results in the same outcomes (i.e. allocates items to the same bidders) also has the same expected revenue.”
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    Unless you are an avid student of math and economics (and, not or), feel free to Ctrl-F the word “Implication” and skip straight to that section.
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  4. Mandeville’s paradox is named after Bernard Mandeville, who posits that actions which may be qualified as vicious with regard to individuals have benefits for society as a whole. This is alluded to in the subtitle of his most famous work, The Fable of The Bees: ‘Private Vices, Public Benefits’. He states that “Fraud, Luxury, and Pride must live; Whilst we the Benefits receive.”) ”
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    This is a painfully short article – I have set myself a target of using only Wikipedia links in today’s set, but I am breaking my own rule.
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  5. “In law and economics, the Coase theorem describes the economic efficiency of an economic allocation or outcome in the presence of externalities. The theorem states that if trade in an externality is possible and there are sufficiently low transaction costs, bargaining will lead to a Pareto efficient outcome regardless of the initial allocation of property. In practice, obstacles to bargaining or poorly defined property rights can prevent Coasean bargaining. This ‘theorem’ is commonly attributed to Nobel Memorial Prize in Economic Sciences winner Ronald Coase during his tenure at the London School of Economics, SUNY at Buffalo, University of Virginia, and University of Chicago.”
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    Perhaps the most important, and certainly the most misunderstood of all the theorems above – and I probably misunderstand it myself!

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