Tuesday, March 18, 2008

Paul Krugman on Interstellar Trade

In 1978 Paul Krugman took on the pressing problem of how to set prices when goods are traveling near the speed of light. His opus, "The Theory of Interstellar Trade" [PDF] takes the relativistic economics head-on:

"These complications make the theory of interstellar trade appear at first quite alien to our usual trade models; presumably it seems equally human to alien trade theorists... I do not pretend to develop here a theory which is universally valid, but it may at least have some galactic relevance.

The remainder of this paper is, or will be, or has been, depending on the reader's inertial frame, divided into three sections. Section II develops the basic Einsteinian framework of the analysis. In Section III this framework is used to analyze interstellar trade in goods. Section IV then considers the role of interstellar capital movements. It should be noted that, while the subject of this paper is silly, the analysis does make sense. This paper, then, is a serious analysis of a ridiculous subject, which is of course the opposite of what is usual in economics."
Via Slashdot.

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