I’ve been dating a great, loving and caring woman for a year and a half. She’s in her early thirties – eight years older than me – and works as a senior manager in a big company; she earns around £60,000pa, and her company provides a car and a city-centre flat. I am about to finish my PhD and my stipend is £14,000pa.

We’re in love and think it’s about time to move our relationship to the next level – which is moving in together. However, I feel that my girlfriend is stingy towards me. I’m the one who treats at posh restaurants and buys expensive gifts, and when we spoke about me moving into her flat she said that I’d have to pay the bills in return.

I’m finding it silly to mention such things, but they do annoy me. Am I shallow, greedy and opportunist? I understand her pay isn’t supposed to be a perk of our relationship but I must admit that, deep inside, I feel that a better lifestyle out of it wouldn’t go amiss.
Confused student

Dear Confused,

Your girlfriend is testing you, and you are at risk of failing. Naturally she is pleased to have a young, intelligent boyfriend, but she is worried that you only love her for her cash and will dump her for a younger model once you have a decent income of your own.

So she is using a “screen”, as described by Nobel laureate Michael Spence. By ensuring that she remains a cost centre rather than a cash cow, she is creating a situation that would be intolerable to a genuine gold-digger. She wants to see how you react, but by assuming that the “next level” is a free apartment for you, rather than a proposal of marriage, you are simply confirming her fears. Forget the flat, buy her a diamond ring, and she will mellow.

All this assumes, of course, that she is not just a miserly sociopath. Either way, good luck.

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I’m a 32-year-old American woman; I moved to Italy about five years ago and later applied for a master’s programme at an Italian university. Average earnings for my BA in political science are low, so I wasn’t missing out on much.
My problems are two-fold: first, dating. Italy has the second-oldest population in the world. Seeing a single thirtysomething is like finding a unicorn. Eliminate men who live with their mothers, are chain-smokers, or are shorter than me, and I’m in a convent.
Second, my Italian university has decided to reverse its previous decision to accept my American degree. I am being forced to re-earn an Italian BA, which could take a further year.
I’d hate to turn down another degree, but can I handle another year’s worth of pasta and enforced singledom?
My current plan includes going to San Francisco upon my return, though I do have the choice of a semi-permanent job with Nike in the middle of nowhere. Or I could stay in Italy; but if I spend another year single, according to my mother, I will die alone.
Crying in my cappuccino

Dear Crying,

You appear to be committed to staying in a country whose food, bureaucracy and dating scene do not suit you. Your judgment has been clouded by the sunk-cost fallacy: you hoped to get a master’s degree, great food and an Italian paramour. Things didn’t work out and you have wasted five years. You’re only human if you want to waste another year or two, but you’re making a mistake. Go home.

As for your career, forget cash: the happiness literature suggests that a happy relationship and secure job are far more important. San Francisco is not famed for its excess of single straight men, but the demographics of the middle of nowhere are excellent, with many eligible bachelors. Your new life awaits.

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My son has two children and my daughter four. I propose to give £5,000 to each grandchild in my will. Would this be equitable, given that £20,000 would go to my daughter’s side of the family and only £10,000 to my son’s?
Mr Robinson

Dear Mr Robinson,

Let me be frank: at first glance I thought your dilemma was idiotic. If you want to hand out equal shares, that’s fine – but make your mind up. Given your daughter’s fecundity and some basic arithmetic it is quite clear that you cannot simultaneously give equal shares to grandchildren and to children.

Why, then, would you hand out £5,000 to each grandchild and still fret about fairness between your children? Your children don’t get the money; your grandchildren do. Similarly, it would make no sense to hand out £15,000 to each child and then start worrying that your grandchildren had been unequally treated.

Yet arch-rationalists such as Gary Becker or Robert Barro might leap to your defence. Assume your children are Becker-Barro altruists. This means that they care not about how much cash they give, but about the total sum their children receive from all sources.

If you give your grandchildren £5,000 each, that is simply £5,000 that their parents don’t have to give. They will adjust their bequests in the light of yours. Viewed in this way, your attempts to give money to your grandchildren are really hidden transfers to your children – and you would be quite right to worry that your daughter was getting more than your son.

But before you pat yourself on the back (Becker has a Nobel prize; Barro may get one too), ask yourself if your children are Becker-Barro altruists. Most people focus narrowly on their bequests, not on the total receipts of their offspring. I doubt your children are Becker-Barro altruists. After all, you aren’t.

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When the Chancellor of the Exchequer reduced value-added tax from 17.5 per cent to 15 per cent as an incentive for consumers to spend, there was a widespread view that the reduction was too small to be of use. Now that we are approaching the time when VAT returns to 17.5 per cent, some retailers say that the increase will have a negative impact. This doesn’t sound logical, but is it true?
Andrew Hewett, Hertford

Dear Andrew,

I remember the complaints well: how is a 2.5 per cent cut in the price of goods going to boost spending? (Let us leave aside the facts that while the cut was 2.5 percentage points, it was actually only 2.1 per cent; that not all goods are liable for the tax; and that some retailers decided to increase pre-tax prices rather than reduce post-tax prices.) And in truth, the VAT cut, while billed as a “stimulus”, was tiny compared with the vast government deficit.

My own view is that people are price-sensitive, so the modest VAT cut probably had a modest effect, the increase will reverse that effect, and the details will be so small that we will never know for sure.

Is it logical to claim that the cut was pointless but the rise is significant? The motive for the claim is obvious enough. And it may be justified. The switch each way caused a fixed cost: menus had to be printed, staff trained, accounts re-counted and tills reprogrammed. It is reasonable, and perhaps true, to say that the benefits for businesses of the VAT cut were swallowed by the costs of adjustment. The VAT rise, and a second round of adjustment costs, simply adds injury to the insult.

Psychology may be at work too. Behavioural economists believe in “the endowment effect”, a tendency for people to overvalue the status quo. The VAT cut seemed trivial until retailers got used to it. Now they regard it as indispensable.

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Marketplace worked with me to produce this video about the economics of signalling in the workplace. They did a fantastic job, and you even get to hear my David Attenborough impression. The video is loosely based on one of the Dear Economist letters. Enjoy!