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“If you know a good story, tell it from time to time.” — Noah Smith.

Actually, I know two related stories, which I will recount in this post because both stories need to be understood much more widely than they currently are given how often their affiliated problems crop up in the manuscripts I read.

Take the most basic theoretical problem in microeconomics: A producer has to choose how much labor ℓ to use in order to maximize its profit from producing and selling some output q whose production is dictated by the production function q = f(ℓ), where f(.) is the technology available to the producer. The output q sells at price p, and labor ℓ sells at wage w.

Setting the maximization problem, taking the first-order condition, checking that the second-order condition is satisfied, and solving for the profit-maximizing quantity of labor will yield a labor input demand ℓ* = ℓ(p,w). In such a problem, we say that ℓ is an endogenous variable–it is determined within the context of the problem–while p and w are exogenous variables–they are predetermined, that is, they are given, and they do not depend on the problem. (Alternatively, we also say that p, w, and f(.) are the primitives of the problem, but that is neither here nor there for the purposes of this discussion).

I began a three-year term as editor over at Food Policy in 2015, which means that I handle submissions in my areas of expertise, deciding which manuscripts get rejected and which ones get reviewed, selecting reviewers for those manuscripts that do get reviewed, and so on.

Once again, I wanted to feature a few articles from the latest issue of the journal. There is nothing special about those articles beyond the fact that I thought they would be of interest to readers of this blog.

From an article on the high-end housing market in the Twin Cities published in the Star Tribune on Christmas:

Upper-end homes always take longer to sell than those that are closer to the market median. At the very top, the scarcity of comparable homes means that pricing is part art and part science. Agents are often at the mercy of their clients, who are sometimes out of touch with what’s happening in the market.

“You have to balance the relative demand in the market and the taste of buyers,” Berg said. “But you have to balance that against a lot of factors including what a seller has put into the property, which is sometimes irrelevant and has nothing to do with fair market value.”

This made me think about the concept of sunk cost which, as per Wikipedia, is “a cost that has already been incurred and cannot be recovered.”