How are radicals created?

Extreme beliefs can easily lead to conflicts between groups. But how do such beliefs arise? Are certain people simply bound to be extremists? Or can significant pockets of extremism arise out of social interactions among moderate individuals?

In other words, the question we are after is how people are radicalized within a society.

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Keeping up with the Joneses

Household borrowing and insolvency has been on the rise lately. This is yet another phenomenon that could not have happened according to baseline neoclassical economic theory, so we need some innovations to explain it.

This post looks at the effect of the “keeping up with the Joneses” phenomenon on excessive borrowing, how borrowing constraints can protect households, and what macroeconomic effects these micro decisions can entail.

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Is austerity a good idea?

In the aftermath of the financial crisis, we have seen two major approaches to bringing the economy back on track. In the U.S. a huge stimulus package was passed, and double-digit deficits were run; in Europe on the other hand government spending was restrained, and austerity ruled, even in countries with no sovereign debt problems. Which one of these approaches is better, and which one is generally recommended by economists?

This post presents the results of an agent-based computational model of the economy, which considers different policies and examines their implications for things like growth, unemployment, or likelihood of crises.

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Universal service obligation: blessing or curse?

Universal service obligation (USO) refers to the situation in which an incumbent must provide the same service to all consumers in a market at the same price. Examples include postal services or even health insurance.

The problem is of course that there are consumers in the market who are expensive to serve. This includes inhabiants of rural towns for a postal company or people with pre-existing conditions for a health insurance company. If the government doesn’t want anyone in the country to have no access to the service, it can require the supplier(s) to give the same service to everyone at the same price, this is universal service obligation.

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3%: the magical inflation target

Developed countries have been keeping their inflation low, between 0 and 3%, for some time now. Developing countries have been trying to do the same with varying success. But what is so special about this range? In particular, why is it detrimental if inflation goes above 3%, or below 0%?

This question is indeed a pressing one as cross-country regressions of GDP on inflation fail to find any significant effect of inflation on GDP.

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