Download - Lecture 11 Various Micro-topics
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Lecture 11 Various Micro-topics
Charit TingsabadhM.Sc. Programme in Environmental and
natural resource economicsSemester 1/2005
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Topics
• Capital and investment
• Empirical demand and cost functions
• Corruption
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Capital and Investment
• Capital as factor of production
• Source of capital – saving = income not consumed in current period
• Choice between present and future consumption
• Rate of time preference
• Opportunity cost of capital
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Investment
• Rental rate – r – from MR.MPk = r
• MR = marginal revenue, MPk = marginal product of capital
• Rental r, interest i, maintenance m and depreciation d
• r > i+m+d, for a capital renting firm
• Buying equipment, reverse the above.
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Appraisal of investment project
• Benefit (B), Cost (C), discount rate d, time t
• Present value of investment
• PV = t(Bt-Ct)/(1+d)t >= 0
• Other indicators: internal rate of return d* to make PV=0 d*>i
• Benefit cost ratio (BCR) = PVB/PVC >1
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Empirical demand and supply functions
• Demand: perhaps adequate demand systems(Almon)
• Production/Cost function: Cobb-Douglas, CES, Translog
• Recognise and interpret
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Demand function
• Perhaps adequate demand system• AIDS: good I, price p, income y, s = share of good
I in total expenditure
• Almon demand function xi per capita consumption, c constant
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Almon demand function
• Make certain assumptions on substitutions
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Then…
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Empirical estimates..
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For food and cars..
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Production/cost functions
• Production Q as function of factor inputs-capital K and labour L,
• Cost of production C as function of wages w and interest i. So
• Consider some fucntional forms
• Cobb-Douglas, CES, Translog
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Cobb-Douglas
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Estimation
Also useful for growth accounting exercise
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CES production function
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Translog: Specification
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Translog cost function
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Results
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Corruption
• How to consider corruption economics?
• Develop a model
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In praise of microeconomics
• As a tool for thinking about situations
• Understand motivations and behaviour of agents
• Rational explanation of strange behaviour
• Enjoy!!