Wednesday , October 28 2020
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Managerial Econ

Managerial Econ is hosted by a group of economists who have written a managerial economics book together called Managerial Economics. This blog add an economic analysis to quirky topical news like why uber drivers are more efficient than taxi drivers.

Airlines are Sunk Costs

Demand for air travel fell during the pandemic, like a lot. It fell to about 5% of the previous year in early March and is still at 30%. And it won't get back to 100% for at least a year, maybe two or three. Assets are going to have to leave this industry.The physical assets are very industry specific. There is little else you can do with an airplane but fly it. This is a risk one takes when one invests in airlines. Subsidizing these does not help since these assets are sunk costs. Human...

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Reducing leverage hurts options buyers

Financial options on funds are bets that, e.g., a fund's price will increase up to a specified strike price.  Leverage tends to make a fund more risky, and more likely that the fund price will hit the strike price at which the option pays off.  So far so good.  But for every person who buys an option (long) hoping that the price will increase to the strike price, there is a seller on the other side (short), who hopes that it doesn't.  Colleague Bob Whaley has pointed out that changes in...

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What is the best warfighting strategy?

It is interesting to compare the allied strategy in Libya:But the first shots fired didn’t appear to produce an immediate collapse in the rule of Qadhafi, who has surprised his enemies with his resilience. Qadhafi’s tenacity, both in his present circumstance and as evidenced over decades of survival in a very tough neighborhood, begs the question of what happens if this self-consciously limited allied response does not succeed in chasing him from power.Allied leaders so far haven’t provided...

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Should you buy from sweatshops?

PRO:  Sweatshops are better than the alternatives:When workers voluntarily take a job they demonstrate that they believe the job is the best alternative available to them – even when that job is unsafe and the pay is very low compared to wages in the United States. That’s why economists with political views as divergent as Paul Krugman and Walter Williams have both written in defense of sweatshops.Sweatshop jobs are often far better than the vast majority of jobs in the countries where they...

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