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Showing posts with the label trade offs

Decision Making as Output and Bounded Rationality

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  The classical economics theories proceed on the assumption of rational agents. Rationality implies the economic agents undertake actions or exercise choices based on the cost-benefit analysis they undertake. The assumption further posits that there exists no information asymmetry and thus the agent is aware of all the costs and benefits associated with the choice he or she has exercised. The behavioral school contested the decision stating the decisions in practice are often irrational. Implied there is a continuous departure from rationality. Rationality in the views of the behavioral school is more an exception to the norm rather a rule. The past posts have discussed the limitations of this view by the behavioral school. Economics has often posited rationality in the context in which the choices are exercised rather than theoretical abstract view of rational action. Rational action in theory seems to be grounded in zero restraint situation yet in practice, there are numerous restra
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Indian Economy and COVID-19 Second Wave

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  The challenge in the second wave of the coronavirus orginatiing in China is managing the economy. In the previous instance of the first wave of 2020, India had gone in for an early lockdown when the cases were hardly in double digits. India had perhaps one of the strictest lockdowns in the world. This certainly managed to contain the wave and slow down the spread. The peak came something later around mid-September, partly causes by the increased flow of migrants across the country. The gravity was essentially a result of mismanagement in contact tracing by states like Maharashtra and Delhi. The lockdown took a heavy toll on the economy. The economy crashed to fall nearing 25% yoy. The lockdown also led to the recession for the first time in India. The economic scars is something government wants to avoid this time around. The economic impact and consequent social transfers led to the fiscal deficit hitting close to 10% of the GDP. There is of course a question whether India would be
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Rational Spending Rule : To be rational or not

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Rational spending rule, despite the abstract derivation, can be used to make sense of several real world phenomenon.                                                 Some cities have grown vertically while the rest have grown horizontally. To use popular analogy, it can be described as the lift vs the car model. The answers can be sought in utility analysis. Cities which are short of space find it difficult to accommodate people close to the city center. The cost of land being high deter people and either move them to the margins or compel to look at alternatives. Similar is the case with commercial space in land starved locations. An analysis would probably reveal a greater spending on alternative goods than housing.   It need not necessarily be for upper income groups alone. Experts have often wondered on the increased consumption of consumer electronics or durable goods in poorer localities. Dharavi in Mumbai may not have enough space to provide basic housing and sanita
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Corner or convex solutions –Mahabharata to Jinnah to Anna Hazare

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Indifference analysis enables locating the optimal consumption bundle of typical consumer. Corner solutions are exception to law of equi-marginal utility. But do they occur in practice? The answer is yes if one is prepared to go beyond the text book. Few examples are in order. Corner solutions refer to the situation wherein the consumer is happy when he has all of one good and none of the other. He either wants all of it or none at all. Take the example of Mahabharata. Pandavas and Kauravas fight for the land of Hastinapura.   Bheeshma’s solution of division of the territory did not solve the matters but postponed it. The game of dice and Pandava’s consequent exile resulted in Duryodhana ruling over the Indraprastha hitherto ruled by the Pandavas.   Post their return from exile, there were multiple options. The whole kingdom could go either to Pandavas or to Kauravas or a division could happen which could allot varying proportions to the both the parties. Bheeshma’s formula r
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Job- Family Balance: Trade Offs, Double Income and Single Income Families

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Many believe that job-family balance is strictly a time management issue. With many women and men reporting difficulties in constantly adjusting to the demands of the double duties of employment and family in an atmosphere of economic insecurity, demanding jobs, and unsupported workplaces, tradeoffs become essential.    Yet inspite of these perceived difficulties, we do find existence of both single income and double income families. Let us explore this phenomenon through a lens of an economist. Economics posits the presence of trade-offs. Studies indicate the existence of both employment trade-offs and family trade-offs.   The former refer to sacrifices that people make in their jobs because of their family responsibilities and the latter refers to the other way round.   As individuals offer themselves in the labour market, the benefits accrue through increased income, increased knowledge and consequent associated higher living standards. This however results in decreased t
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