Inequality in big cities

Kristian Behrens, Frédéric Robert-Nicoud, 24 July 2014

Large cities are more unequal than the nations that host them. This column argues that this is because large cities disproportionately reward talented superstars and disproportionately ‘fail’ the least talented. Cities should thus be the primary focus of policies to reduce inequality and its adverse consequences for society.

Sticky prices and behavioural indifference curves

John Komlos, 24 July 2014

Many quantities fail to respond smoothly to price changes. This column stresses that the ‘endowment effect’ – a well-known behavioural economics concept – implies kinks in indifference curves at the current consumption bundle price. Such kinks may account for the stickiness of prices, wages, and interest rates.

Rethinking African solar power for Europe

Emanuele Massetti, Elena Ricci, 23 July 2014

Concentrated solar power generation in Northern African and Middle Eastern deserts could potentially supply up to 20% of European power demand. This column evaluates the technological, economic, and political feasibility of this idea. Although concentrated solar power is a proven technology that can work at scale, it is currently four or five times more expensive than fossil fuels. Concentrated solar power could play an important role in Europe’s energy mix after 2050, but only if geo-political challenges can be overcome.

A ‘crowding out’ theory of the Eurozone crisis

Fernando A Broner, Aitor Erce, Alberto Martin, Jaume Ventura, 23 July 2014

By 2010, Eurozone periphery countries had faced severe debt problems and a falling credit to the private sector. This column proposes a theory to interpret these events. Governments can discriminate in favour of domestic creditors and public debts trade in secondary markets. This leads to a shift in the debt holdings from foreign to domestic residents. Finally, private financial frictions crowd out private investment, potentially reducing growth.

Long-term damage of the US court’s Argentinian debt ruling

Jeffrey Frankel, 22 July 2014

The US court ruling forcing Argentina to pay its hold-out creditors has big implications. This column argues that some of them are particularly worrying. The court ruling undermines the possibility of negotiated re-structuring of unsustainable debt burdens in future crises. In the future, it will not be not enough for the debtor and 92% of creditors to reach an agreement, if holdouts and a New York judge can block it. This will make both debtors and creditors worse-off.

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