Barbell To behavioural economics

barbell

A stock market investment strategy of investing in bonds with mainly very short-or long-term maturities.

Barber boom

The 1971-4 period in the UK when Anthony Barber as Chancellor of the Exchequer over-stimulated the economy with inevitable inflationary consequences. in the property market, in particular, there was appreciable inflation, e.g. between 1970 and 1973 commercial property prices almost tripled.

Barbon, Nicholas, c.1640-98

Born in London and then a student of medicine in Leyden, and Utrecht. He established the first fire insurance office in London 1681, was elected Member of Parliament for Bramber in 1690 and 1695; founder of a land bank in 1698. In A Discourse of Trade (1690), his principal work, he discusses trade, value and money and distances himself from mercantilists who considered the trade balance to be the central concern of economic policy.

bargain

1 A good or service supplied at a lower than expected price.

2 A sale or purchase of stocks or shares on the London stock exchange at the price agreed, not necessarily at a low price as would be the case outside that stock exchange.

bargaining

Negotiation between parties with opposing interests. They hope to reach an agreement in the form of a compromise or a victory for one of them. If there is a failure to agree, conflict might ensue. From earliest times, bargaining has been a major activity of markets as it can reconcile the opposing interests of buyers for low prices and of sellers for high prices. As a method of coordinating an economy bargaining is the alternative to planning, although even under central planning the managers of different enterprises bargain with government officials to bring about the allocation of goods and services. In the labour market, the advent of trade unions has transformed individual bargaining into collective bargaining.


bargaining theory of wages

An attempt to show how wages are determined by modelling the wage negotiating process. hicks was a pioneer with his wage bargaining model. In Hicks’s diagram, OZ is the wage rate an employer would have paid if unconstrained by a trade union and OA is the highest wage union negotiators can obtain from the employer. The union, as shown by the downward-sloping resistance curve, will begin by asking a high wage rate knowing little of the employer’s position; the employer will gradually increase his or her offer to avoid a costly strike.

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bargaining unit

The group of US workers represented by a labour union. The rules for the boundaries of the unit have been devised by the national labor relations board under the provision of the wagner and taft-hartley acts with a view to making them homogeneous units which reflect local needs and further collective bargaining.

Barings Bank collapse

The failure of the long-established UK merchant bank in February 1995 caused by overtrading in Singapore by Nick Leeson, its senior Singapore trader. This gambling in futures and options of the Nikkei 225 index of the Japanese stock market resulted in a loss of $1.3 billion when the stock market began to fall and margin calls could not be covered. The losses absorbed all the equity of the bank. The ING Group acquired the bank. In a previous Barings crisis in 1890 the bank of England rescued the bank by raising £17 million.

Barnett formula

A method of calculating UK public expenditure for the component countries of the UK introduced by Joel Barnett, Chief Secretary to the Treasury, in 1978. It was intended to bring about convergence in per capita spending but when it failed to do so was criticized for being too generous to Scotland.

barometric firm leadership

The leadership of an oligopolistic firm which first makes price changes to act as a ‘barometer’ to test the market. Often a small firm is chosen for this role, as used to happen when UK clearing banks changed their bank charges.

barrier option

An option with a pay-off depending on the underlying asset reaching or exceeding a predetermined price. A double barrier option has two trigger prices.

barrier to entry

A principal method of creating or preserving a monopoly position. Such barriers can be legal (governments only permit certain qualified persons to enter the market), technological (only large-scale production is possible, as is the case with steel mills and the mass production of consumer durables), financial (a large amount of capital is required to set up a business) or based on customers’ loyalty (through product differentiation). In the labour market, trade unions and professional associations (e.g. medical associations) limit the number of entrants to an occupation to preserve the income and employment of their members.

barrier to exit

The costs or forgone profits of a firm which will occur if it leaves an industry. Barriers to exit are less common than barriers to entry, excepting where a government, to prevent increased unemployment, keeps in existence a large organization threatened with financial collapse; specialized assets may also deter a firm from leaving an industry.

barter

The most primitive form of exchange in which commodities are directly exchanged for each other. An exchange is possible when two persons mutually desire each other’s production. Barter is more cumbersome than using money as a medium of exchange because the bartering parties usually have to search for each other without the advantage of an intermediary. Nevertheless, in modern times countries short of foreign exchange, e.g. the former USSR, have used this form of trade. If trade bartering is used, there can be a balance at a point of time or over a few years, e.g. in this way Finland and the former USSR balanced their bilateral trade over a five-year period.

barter economy

One of the earliest forms of an economy in which goods are directly changed for other goods without using money as a medium of exchange. Prices are expressed in relative terms, e.g. X amount of A = Y amount of B. Transactions can be expensive as high search costs can be incurred in the pursuit of trading partners. However, to avoid taxation and create employment, in some areas of, for example, Canada and the UK, the exchange of services has replaced the usual market.

base capital

The capital of a securities house required to protect it against a fall in its profitability.

base currency

The currency used to quantify a risk.

base rate

The rate of interest that a UK clearing bank uses as the basis of its structure of interest rates for lending and receiving deposits. Lending rates are above, and rates on deposits below, base rate. Only large and creditworthy institutions borrow close to the base rate. Base rates came into force in 1971. Despite the abolition of their interest rate cartel, few clearing banks have base rates out of line with their competitors.

basic commodity

A good which directly or indirectly enters into the production of all commodities. A concept introduced by sraffa.

basic income

An unconditional income sufficient for basic needs. Earnings beyond this allowance would be progressively taxed eventually reaching the income level at which the person would be a net contributor to the scheme. The disabled and the elderly would get more than the basic income. A government using this approach would ensure that all citizens received a share of the national income.

basic industry

An industry which exports its products to other regions, thus being a major determinant of its own regional prosperity.

basic needs budget

A method of calculating poverty rates which assumes that families with limited incomes survive by consuming inferior goods. The cost of this bundle of goods can rise at a different rate from the basket used to calculate a price index.

basic relief

Income tax relief for all taxpayers irrespective of their marital and other personal characteristics.

basic wage

The common and fundamental element in all Australian wages to which margins are added to produce a differentiated wage structure. The basic wage is not merely a national wage but a general component of all wages which can in itself be altered. An increase in the basic wage will be awarded only if the economy has the economic capacity to pay for it.

basing point pricing

A system of uniform pricing which includes a transport charge for delivery from an arbitrarily chosen geographical base. In the USA, it was first used to sell steel at Pittsburgh prices plus freight charges from Pittsburgh to consumers (hence the name ‘Pittsburgh-Plus’ for the system). The system has also been used in Europe, including the UK cement industry. antitrust and competition policies have long condemned this departure from price competition. This practice distorts the location choices of firms as they are charged less than actual freight charges in some places but in others have to pay for phantom journeys.

basis point

The smallest measure of the yield on a bond or a note. This point is 0.01 per cent of a yield.

Basle Concordat on Banking Supervision

An international pact, drawn up in 1975 by the bank for international settlements, to supervise banking activities.

bastard Keynesianism

This expression was invented by joan robinson to describe the imposition of neoclassical thinking on the theories of keynes. She complained that the concept of effective demand had been abandoned and that there was less concern for the meaning of capital than for its measurement. In particular, she was angry that modern theorists had distorted Keynes by stating that, given a level of savings, the government ensures that there is enough investment, a view little different from the classical assertion that savings determine investment, ignoring the effect of distribution on consumption and investment. hicks with his is-lm analysis, patinkin and her US opponents in the Cambridge controversies were included in the ranks of the illegitimate.

batch production

The production of a limited quantity of a particular product, rather than continuous mass production.

Bauer, Peter Thomas, 1915

A prominent development economist born in Budapest, Hungary, and professor at the London School of Economics 196083. He was created a life peer on retirement. After early field work in Malaysia and West Africa, he progressed to a general study of economic development, emphasizing the superiority of markets as a method of allocation: he has long been a trenchant critic of many forms of economic aid and central economic planning and is therefore opposed to barriers to trade, investment and migration.

Baumol, William Jack, 1922

US economist, educated at City College, New York, and London University and a professor at Princeton University from 1954 to 1971. He is famous for his economic analysis of management science, particularly his research conclusion that businesses set out to maximize their sales subject to minimum profit targets. Also, his ‘unbalanced growth’ model demonstrates that the different opportunities for technical progress in the various sectors of an economy lead to chronic problems in the financing of cities, medical care, educational systems and the performing arts. Recently he has been concerned with the environmental implications of welfare economics and contestable markets.

Bayesian econometrics

This is founded on Bayes’s theorem, or the principle of inverse probability: that the information in given data can be used to infer the random processes generating them. Both sample and a priori information are used.

Bayesian equilibrium

A nash equilibrium in which the players in a game with incomplete information value their expected utility using subjective probabilities; the local best response at each information set.

Bayesian method

A method of revising the probability of an event occurring by taking into account experimental evidence. The usefulness of this approach depends on the size of the sample used in an experiment. Bayes’s theorem of 1763 originally stated that the probability of q conditional on H (prior information) and p (some further event) varies as the probability of q on H times the probability of p, given q and H.

Bayes, Thomas, 1702-61

Born in London. A Presbyterian minister in Holborn, London and Tunbridge Wells, Kent; admitted to the Royal society in 1742. He used an inductive approach to establish a mathematical basis for probability in his posthumous ‘Essay towards Solving a Problem in the Doctrine of chances’, Transactions of the Royal Society of London (1763). This inspired an approach to the calculation of probabilities and the foundation of a new branch of econometrics.

BB

standard & poor credit rating of securities which designates them as speculative.

BBB

standard & poor credit rating of securities which states that they are of medium grade.

BDI

Bundesverrand der deutchen Industrie. A major employers’ association in Germany founded in 1949 by an amalgamation of thirty-nine national industrial federations. BDI now has separate sections for the sectors of the economy.

bear

A market speculator who, believing that prices will fall, sells securities (for example) now and purchases them later to effect delivery of them. A profit is made by the difference between the selling and buying prices. This reversal of the normal sequence of transactions is possible on stock exchanges as securities do not have to be immediately delivered. Also, there is speculation of this nature in currency and commodity markets where there is a choice between spot and future transactions. If the bear already possesses what is being sold, he or she is ‘protected’ or ‘covered’; if not, he or she is selling short.

bearer bond

A bond owned by the person currently holding it. As no endorsement is needed to transfer such bonds, there is no central register of the owners of any particular bearer bond issue. The Eurobond is a major example of bearer bonds.


bearer share

A company share owned by the person holding it at a particular time.

Becker, Gary Stanley, 1930

us economist, educated at princeton and chicago, who was a professor at columbia university from 1960 to 1970 and then at Chicago from 1970. Famous for his analysis of racial and sexual discrimination in labour markets using the utility functions of employers and employees to demonstrate a ‘taste for discrimination’; the formalisation of the study of human capital by an examination of the investmentlike nature of schooling and on-the-job training; the analysis of crime as an occupation with expected benefits and expected costs (if caught); and a new economics of the family as a multi-person production unit practising division of labour amongst its members. His work has extended economic study into areas previously the preserve of sociologists, psychologists and anthropologists. He was awarded the Nobel prize for Economics in 1992.

bed and breakfast

1 A sale and purchase of securities within twenty-four hours to accumulate tax-deductible losses.

2 Tourist accommodation for one night with a breakfast included in the tariff.

beggar-my-neighbour policy

A protectionist foreign trade policy which attempts to improve the domestic economy at the expense of foreign countries. This policy was at the heart of much of mercantilist thinking and was later practised in the 1930s by many countries. First predominantly agricultural economies adopted it; later it was adopted by the UK, USA, France, the Netherlands and Switzerland. After 1945, currency devaluations have embodied this principle. A policy of this type has always been criticized because of its self-defeating character: domestic industries can ignore foreign competition so become more inefficient and export industries facing retaliation have a reduced output and consequentially higher unit costs which make them even more uncompetitive in world markets.

behavioural economics

The varied approaches to the study of economic behaviour, including decision making in firms and other organizations, a psychological approach to the study of consumers and a multidisciplinary ‘technological economics’ with some ofthe assumptions of the post-keynesians. This school of economics, mainly concerned with micro-economic issues, also considers macroeco-nomic matters such as inflation and unemployment. The specialist journals of this branch of economics are the Journal of Behavioral Economics and the Journal of Economic Behavior and Economics.

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