ISET Economist Blog

A blog about economics in the South Caucasus.

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The Power of Ambiguity

I know. I know that I know. For as long as human race existed, knowledge embodied power. In the life of a society, however, what becomes even more important is the fact that we share certain knowledge with fellow human beings, and that we, moreover, are aware of each other’s knowledge. This special type of awareness is termed common knowledge: I know that you know that I know that you know - and so on to infinity. In theory, common knowledge is surprisingly hard to achieve. One of the classic examples is the Coordinated Attack Problem, where two armies n...
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The Dark Matter of Georgia

How much foreign wealth does a country really have? In the Balance of Payments Accounts, the net foreign wealth is essentially the difference between the assets held by the country’s residents abroad and the country’s liabilities to foreigners, valued at the market price in each given year. If this number is negative, then the country is a debtor to the rest of the world, and needs to generate enough surplus output in the future to pay back foreign investors. The change in net foreign wealth in any given year reflects the extent of country’s borrowing or...
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The Store of Value

Far from being the root of all evil, money is one of the most spectacularly useful human inventions.  On par with the technology of a wheel, the technology of money has made civilization as we know it possible.  But what kind of technology does money replace? Narayana Kocherlakota (JET 1998) argues that money is a form of memory. Here is an example: John has apples and wants bananas.  Mary has oranges and wants apples. Paul has bananas but wants oranges. When John and Mary meet, John can accept money from Mary in exchange for apples and us...
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