Mathematical Economics Assignment on Arn
Description
In his article, Harberger makes a seminal empirical attempt to assess the size of the “allocative and welfare effects of monopoly” in the U.S. economy, just before the Great Depression. Based on a number of simplifying assumptions, Harberger determines an average monopoly price increase and the resulting deadweight-loss from monopoly in the manufacturing sector as a percentage of GNP. Deadweight-losses are since sometimes referred to as ‘Harberger-triangles’. The assignment (specified in more detail below) is to critically review Arnold Harberger’s classic article. For that purpose, you will first have to trace the steps in his analysis. The questions below will help you to understand their logic. The answers to the questions are tentative and meant to provide you with key insights into the text containing the main ideas, which will help you to write your essay on this paper, using mathematical economics.
Short essay question
In his article, Harberger concludes that: “Our economy emphatically does not seem to be a monopoly capitalism in big red letters” (page 87). On the basis of your understanding of Harberger’s analysis, you are to critically assess this conclusion. Is it warranted, in that it follows logically from his study? To what extent does the conclusion depend on the particular assumptions and compar- isons he makes? Also, is the estimate of the welfare loss really conservative, as Harberger claims, or maybe also here and there rather downwardly biased by his research approach? You are to explain your answers in a fluent review article of the paper.
To help you organize your thinking, below are a few hints. It helps if you visualize your analysis in a figure like Harberger’s Figure 1 on page 78.
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