The Big Mac Index And Real-Income Disparity

The Big Mac Index was introduced to (semi-humorously) test the theory of purchasing power parity and measure the disparity in currency values. Instead, in this paper, we consider this index to find out the per capita real-income disparity across 54 countries. We find that the per capita real-income can be very low in some countries even when Big Mac burgers are very cheap, like in India. Among these countries, Hong Kong’s per capita Big Mac affordability is the highest with 47 burgers daily whereas Pakistan’s people could afford just one a day. Additionally, we find that Russia and China’s Big Mac affordability has been significantly increasing over the last decade, Brazil’s has remained more or less constant, however USA’s Big Mac affordability has been falling, indicating that per capita real-income of Americans has been decreasing over the last decade. Finally, we find that increased role of the government might be negatively correlated to per capita real-income. Czech Republic has been experiencing increased Big Mac affordability as the country has been reducing the government’s role; whereas Argentina has been experiencing reduced Big Mac affordability as the country has been moving left and increasing the government’s power

Literacy Traps: Society-wide Education and Individual Skill Premia

Using a model of O-ring production function, the paper demonstrates how certain communities can get caught in a low-literacy trap in which each individual finds it not worthwhile investing in higher skills because others are not high-skilled. The model sheds light on educational policy. It is shown that policy for promoting human capital has to take the form of a mechanism for solving the coordination failure in people’s choice of educational strategy.education, literacy, O-ring, skill formation, traps

The Big Mac Index: A Shortcut To Inflation And Exchange Rate Dynamics? Price Tracking And Predictive Properties

The Economist magazine has been publishing the Big Mac Index using it as a rule of thumb to determine the over- or under-valuation of international currencies based on the theory of Purchasing Power Parity since 1986. According to the theory, using the Big Mac as a tradable single-good basket, the Dollar-value of the hamburger should be equalized around the world due to arbitrage. The popularity and following of the Big Mac Index led the authors to the following two questions: 1) How effective is the Big Mac price as an indicator of overall inflation? and 2) how accurate are exchange rate movement predictions based on Big Mac prices? They find that Big Mac prices tend to lag overall inflation rates, which is highly important in studies that use Big Mac prices as measures of affordability or real incomes over time. As a guide to exchange rate movements, there is support for the theory of Purchasing Power Parity, but only as a qualitative indicator of movement in the nominal exchange rate in rich and economically stable countries, proving less effective in forecasting exchange rate movements in emerging markets. The statistical analysis is carried out using data from 1986 to 2012 from The Economist and from the World Bank for 54 countries. The importance of these findings lies on the widespread use of the index and thus perpetuation of perceptions on the relative value of currencies in the areas of corporate finance, international trade and finance, and international business

Search, Project Adoption and the Fear of Commitment

We examine project adoption decisions of firms constrained in the number of projects they can handle at once. Adoption requires a commitment for a period of uncertain duration, restricting the firm in subsequent periods. Capacity constraints create a “fear of commitment” — some positive return projects are not adopted. In the sequential move dynamic game, the second mover sometimes adopts projects that were rejected by the first, even when both firms are symmetric and equally informed. We study the e§ects of competition on the fear of commitment, and compare the jointly optimal adoption decision to the behavior of strategic non-cooperative firms

Say At Home, Or Stay At Home? Policy Implications on Female Labor Supply and Empowerment

This paper develops a theory of female labor supply in a general equilibrium framework in the context of a developing economy. In stage 1, men and women decide whether to get married foreseeing the power and market dynamics in stage 2. Single people make their own decisions whereas married couples make decisions together, the power distribution among partners is determined endogenously. It is shown that female labor supply can take different shapes due to structural differences between economies and multiple equilibria might occur, causing low female labor force participation trap. As for policy implications, we find that tax-break to the employers can give a huge boost to female employment and may reduce the wage-gap. However, tax-benefit to women may widen the wage-gap although both these policies empower women. We also conclude that true empowerment should come with the freedom of choice (to work); increasing female labor force participation does not necessarily empower women. Results found here resonate well with previous empirical findings and suggest additional testable implications

Do Journals Accept Too Many Papers?

This paper provides a theoretical model for analyzing the behavior of peer-reviewed journals. It finds that, apart from natural human errors, inefficiencies arise purely for reasons of inter-journal strategic behavior. Specifically, as a result of competition, journals tend to set their quality cut-offs excessively low

Power, Patents And Peer-Review: Essays In Applied Microeconomic Theory

My dissertation is a collection of four essays in applied microeconomic theory. The first chapter develops a theory of female labor supply in a general equilibrium framework where decisions are taken by the households and the power distribution among the members is determined endogenously. It is shown that female labor supply can take different shapes due to the structural differences between economies, and multiple equilibria might occur in the labor market. Policy implications of tax-benefits, subsidies for labor-saving household durables, and reservation for women at employment are worked out. The results found here resonate well with previous empirical findings and suggest additional testable implications. In the next chapter, Talia Bar and I study and criticize the current patent system in the United States, particularly, prior art search and its disclosure policy. To determine patentability, inventions are evaluated in light of existing prior art. Innovators have a duty to disclose any prior art that they are aware of, but have no obligation to search. We identify conditions in which innovators have no incentive to search. Search intensity increases with R&D cost, the examination intensity, and patenting fees. In the later half of the chapter, we study determinants of patent quality and the volume of patent applications. We model a policy reform proposal to establish a two-tiered patent system. Introducing a second patent-tier can reduce patent applications and the incidence of bad patents. We claim that innovators with high ex-ante probability of validity will more likely apply to the more valuable patent-tier, but sorting in the dimension of economic significance is not obvious. The last chapter provides a theoretical model for analyzing the behavior of peer-reviewed journals. It finds that, apart from natural human errors, inefficiencies arise purely for reasons of inter-journal strategic behavior. Specifically, as a result of competition, journals tend to set their quality cut-off points excessively low

Do journals accept too many papers?

This paper provides a theoretical model for analyzing the behavior of peer-reviewed journals. It finds that, apart from natural human errors, inefficiencies arise purely for reasons of inter-journal strategic behavior. Specifically, as a result of competition, journals tend to set their quality cut-offs excessively low.Peer-review system Market structure of journals Journal acceptance rate

Prior Art: To Search Or Not to Search

To determine patentability, inventions are evaluated in light of existing prior art. Innovators have a duty to disclose any prior art that they are aware of, but have no obligation to search. We study innovators\u27 incentives to search for prior art, their search intensities and the timing of search. We distinguish between early state of the art search-conducted before R&D investment, and novelty search-conducted right before applying for a patent. We identify conditions in which innovators have no incentive to search for prior art. Search intensity increases with R&D cost, the examiners\u27 expected search effort, and with patenting fees. We also find that innovators prefer to correlate their search technology with that of the patent office. In light of our model, we discuss the implications of some proposed policy reforms

Open Source Software: Competition With a Public Good

This paper looks at price and quality competition in software markets under two different forms of competition—one where two proprietary firms first choose quality and then engage in price competition, and second where a proprietary firm faces competition from an open source software (OSS) firm that allows its users to determine quality level and provides the software at zero price. We find that OSS competition never improves quality for consumers who value quality highly. However, it may provide greater quality to users with a low valuation for quality. In addition, we find that although OSS has a zero market price, the public good nature of OSS competition can lessen price competition, making the proprietary firm better-off with increased profit but leaving consumers worse-off with lower surplus