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Wednesday, April 25, 2018

The Economics Textbook Pricing Wars

Let's play this Bertrand pricing game,  I have the set the price of my e-book at $0.    Will Greg and Austan lower their books' prices to compete with me?  This book's title is:  "An Introduction to Empirical Microeconomics".   I wrote this because I think that most early economics courses are a pinch goofy in the following sense.

We spend a lot of time in class taking the perspective of the economic agent; "Given that I have cobb-douglas preferences defined over pizza and beer and given this budget constraint, what is my best choice of pizza and beer?"

A more interesting and relevant question is the inverse.  Given your budget constraint, if the researcher observes you choose X units of pizza and Y units of beer and then given a shift in the budget constraint if the same person now chooses Q units of pizza and Z units of beer, what has the researcher learned about your preferences?

This "partial identification" approach based on revealed preference logic is the only idea I explore in my book.  This takes the essence of structural applied microeconomics and teaches it to freshmen without doing any formal statistics or econometrics. This approach helps to get students ready for formal stats and econometrics classes as they see how the "inverse" problem works and why it is important.