A shadow price is a process $${\widetilde{S}}$$ lying within the bid/ask prices $${\underline{S},\overline{S}}$$ of a market with proportional transaction costs, such that maximizing expected utility from consumption in the frictionless market with price process $${\widetilde{S}}$$ leads to the...

Does the composition of governance affect firm outcomes? We exploit the timings and thresholds of a gender quota in boards of directors and supervisory boards to causally determine the impact of a change in leadership on performance. Using a novel design and data on boards, we find that firms...

This paper develops a general methodology for analyzing shadow wage (and other shadow prices). Our approach is to identify those reduced form relationships describing the economy which are central to the determination of the shadow wage, and use these to obtain simple formulae for the shadow...

We analyze the rapid growth of Saudi Arabia's domestic oil consumption, a nine-fold increase in 40 years, to nearly 3 million barrels per day, about one-fourth of production. Such rapid growth in consumption – 5.7% annually, which is 37% faster than its income growth of 4.2% – will challenge...

A well-known survey of economists revealed that many of them could not correctly answer a basic question on the concept of opportunity cost. This paper argues that the results highlight shortcomings in the way that opportunity cost is understood and taught. A more general understanding of...

Counterfactual conditionals are cognitive tools that we incessantly use during our lives for judgments, evaluations, decisions. Counterfactuals are used for defining concepts as well; an instance of this is attested by the notions of opportunity cost and excess profit (residual income), two...