Friday, August 31, 2007

Discover Your Inner Economist

Marginal Revolution blogger Tyler Cowen's new book Discover Your Inner Economist has sparked many people's curiosity. Here is one short story.

Capabilities and Economic Modeling

In the AEA Annual Meeting this year, there was a session that I cared most, namely Understanding Performance Heterogeneity between Firms: The Role of Organizational Capabilities. Three papers were presented and discussed, including John Sutton's (LSE) Competing in Capabilities, Robert Gibbons and Rebecca Henderson's (MIT) Organizational Capabilities: Persistent Performance Differences among Seemingly Similar Enterprises and Luis Garicano's (University of Chicago) Organizational Capabilities: A Cognitive Perspective. However, only Sutton's paper (maybe another verison) could be downloaded from his webpage. He has also addressed this topic at many different places, including the World Bank.

Nicolai Foss, the blogger of organizations and markets also posted his thoughts yesterday:

"In a recent paper, “Competing in Capabilities: An Informal Overview,” the influence goes the other way, as Sutton takes seriously the notion of capabilities, a central, if not unproblematic (cf. this, this, and this) construct in strategic management research (but actually originating in economics in this paper).

Sutton's approach is to take relatively traditional ideas from standard production theory (akin to the approach in this paper) and add his ideas on sunk cost to make sense of differential capabilities in the context of competition, trade and development, globalization, and technology transfer (in contrast, he is not interested in explaining capabilities themselves). The paper does reach some interesting conclusions, e.g., relating to the dependence of market structure on capability investments, but doesn't seem terribly innovative compared to what has been going in formal evolutionary economics and some parts of the international business literature (I may be wrong, of course; make your own judgment), but it is certainly interesting to note this case of spillover from strategic management to industrial organization. "

My personal comment on Sutton's endeavor is that comparing to the current paradigm of the theory of the firm, he tends not to really formalize the idea of organizational capability within the boundary of the firm, but to obtain some rather macro insights by taking advantage of standard production function and IO theory. However, I'd prefer a breakthrough of the former kind.

Publish or Perish

From Mankiw's Blog, he suggests, for academic researchers who obsessed with using Google-Scholar to count citations to their own and others' work, they should download the free software Publish or Perish.

Krugman on socialized medicine

"Systems of actual socialized medicine, like Britain's, are actually very good at saying no: there's a limited budget, and the medical professionals who run the system set priorities. That's the reason British health care delivers results better than ours, at only 40 percent the cost — there are long waits for elective surgery, but that's because doctors think that it's not a high priority..."

My only concern is that does better delivery means better results, or better medicine? Are 2.5 times costs are only spent for solving long queue problems? If you have comments, go to marginal revolution and post.

Austrian Economics of the Firm

Anyone who is interested in the theory of the firm may listen to this podcast from Ludwig von Mises Insitute.

There is another podcast which focuses on different views on economics methodology by differentiating the thoughts of von Mises and Friedman.

Romer on Growth

In this week's Econtalk, Paul Romer, Stanford University professor and Hoover Institution Senior Fellow talks with EconTalk host Russ Roberts about growth, China, innovation, and the role of human capital.

EconLog blogger Arnold Kling also recommends his students listening to the Roberts-Romer podcast, for a couple of reasons:

"First, I teach economic growth as one of the units of my course, and the discussion is very much on point. Second, my preferred approach to teaching economics is conversational. If you think of an analogy with a foreign language, you want to get students to start speaking economics. Having them listen to Roberts and Romer have a conversation is helpful. I think that the conversation probably gets too fast and covers too much ground for a new student to absorb, but I would hope that something would sink in."

BTW, he also ask his students to listen to Robert Frank's lecture on Youtube.

Sunday, August 26, 2007

Audio Edition of the Economist Magazine

Since July 2007, there has been a complete audio edition of the Economist magazine available 5pm London time on Fridays, the next day after the print magazine is published. It is free for subscribers and available for £4 for non-subscribers.

Thursday, August 16, 2007

Jerry Green on CHOICES

Recently, Harvard economist Jerry Green has written a new paper, namely Choice, Rationality and Welfare Measurement, co-authored with Daniel Hojman. Traditionally, economics is silent about irrational behavior. So, how to deal with it? Dr. Green and his co-author don't follow the traditional view that choice is a manifestation of preference relations. Instead, they are following a somewhat more "behavioralist" presumption that choice is the result of conflicting motivations that exist in varing "strength". Sounds interesting? Unfortunately, I can not find a full version of this paper.

Here is the abstract:

Economists use observed choices to measure the changes in welfare that result from changes in opportunities. This classical economic method breaks down when choice is irrational. The ever-growing evidence of irrationality makes it essential for economists to confront the problem of welfare measurement when the usual rationality assumption does not hold. In this paper we provide a methodology to allow a form of inference about welfare when choice is irrational. Our method is based on the idea that the source of irrationality is a conflict among an individual's motivations. In traditional economic theory, choice behavior is "explained" by the existence of a preference relation which is consistent with the observed choices. Then an individual is said to behave "as if" they had these preferences. In our model we follow the same "as if" logic: We "explain" choice "as if" it were the result of a resolution of conflicting motivations that exist in varying "strengths". These strengths affect the way the conflict is resolved and hence the choices that are observed.

Freakonomist is Back! With...Podcast!

Freakonomist, Steven Levitt, was coming back to discuss cases that illustrate his unique take on research. One example illustrated why Chicago emphasizes the importance of hard data for all kinds of decision-making.

Also in this Podcast Series, Raghu Rajan, the youngest IMF chief economists discussed global imbalances in savings, investments and economic growth as part of the Global Leadership Series.

More recently, one of the brightest economists on Chicago campus, Kevin Murphy, talked about wage inequality. He asserted that increased demand for skilled workers has created wage inequality between those who have college degrees and those who don't in the United States, but the news isn't all bad. Just listen to find out why.

PhD or not? Mankiw's Advice

I think Dr. Mankiw's advice is cogent. In one of his recent posts, he mentioned that a student wondered whether he should pursue a PhD in economics:

"Would you recommend someone to do a PhD if he knows he's unlikely to become a star in the field (weak math background due to lack of trainings and not being particularly gifted; lack of confidence in his creativity and talents) and does not have a burning desire to do research, but has interests in social science, enjoys learning, and likes to be able to interact with people he admires and respects? Or do you think it's better for him to work first until he's certain that research is what he wants to do?"

Here is Dr. Mankiw's advice:

A PhD takes quite a bit more time and concerted effort than most graduate degrees. An MBA is two years, a JD is three years, while a PhD is often about five or six years. This fact has a couple implications. First, you should be more confident that you really want the degree before you start (although there is nothing dishonorable about starting a PhD and then changing your mind after a year or two once you recognize that it is the wrong path for you). Second, you should not take off much time after college before starting. A year or two is fine, but more than that can be problematic, for the simple reason that as most people approach age 30, their willingness to lead a student lifestyle diminishes.

If one has the requisite degree of enthusiasm and commitment, however, one needn't be a superstar to pursue a PhD. A person can be perfectly happy with a PhD from a lower ranked school, followed by a career as a college teacher. There are thousands of economics professors around the country (as well as PhD economists in government and the private sector), and most lead very satisfying lives without ever being candidates for the Nobel prize. The one thing they share is a passion for the study of economics.

Thursday, August 9, 2007

SRT (Student Research Training) and My Years at Graduate School

The following short essay is a summary of my research experience when I was an undergraduate student at the University of Electronic Science and Technology of China.

My first two years at UESTC was smooth and uneventful. I've already got used to ordinary coursework and student activities which, by the way, seemed exciting and sometimes challenging. Well enough and no regrets? Not really. Since the beginning of my sophomore year, I became extremely interested in my major discipline which was claimed by critics as dismal science but later widely regarded as the crown of the social science. Economics has revealed some basic laws and principles that governed individual and collective behavior, and its causes and consequences. That is to say, economic laws and theories must have strong explanatory power and predictive power toward social and economic phenomena, which in turn can be used properly in order to achieve some desired outcome. Unfortunately, we could not be educated systematically because of the valuable but scarce teaching resources and the high substitutability between teaching and research tasks of most professors. Then I asked myself, why couldn't I adopt the process of “learning by doing”? Well, it sounded plausible but a new question arose, “How?”

In my junior year, opportunity finally came by. Our management school and economics department sponsored a brand new program, namely Student Research Training (SRT hereafter) program which was targeted exclusively for (sophomore and junior) undergraduate students in order to get them prepared for specialized and deep and independent research. I was fortunately advised by our dean, professor Zeng Yong, on the subject of venture capital contracts. Since then, my research interest was shaped. The fundamental theory of why firms exist and what factor characterizes and determines the boundary and the internal organization of the firm became my central concern. One strand of literature, i.e., the framework of incomplete contract attracted me most. Not only because it has incorporated so many insightful ideas from neoclassical theory, principal-agent model, transaction cost economics, and the nexus of contracts approach into its own framework, but also because it has explained the fundamental question in an integrated and coherent manner and at the same time it could be used to explain a bunch of phenomena within and between organizational boundaries. The debate is still going on, and the foundations of incomplete contract and its extensions are now at the very frontier of modern economic theory.

I might not get so obsessed with this fundamental theoretical question if I hadn't engaged in SRT program and at the same time under the supervision of professor Zeng. More broadly, I might not get accustomed to my study and research methodologies in graduate school so fast if I hadn't participated in SRT program so early.

An early start often means a first mover advantage, particularly in an academic context. With the aid of the process of “learning by doing”, this effect could be strengthened. The study of two-tier principal-agent relationships and its governance mechanisms in venture capital industry also shed light on other contractual relationships as well, such as Strategic Alliances, International Joint Ventures (IJVs), Outsourcing and Offshoring contracts and the like. The study of incomplete contract can also be applied to activities inside an organization. My term paper on technological innovation is also indebted a lot to this framework in that residual control rights do matter in motivating parties to invest in innovative activities, as the theory has long argued.

One year of SRT program was fruitful. Not only did I learn a lot on theories and thier applications, but also on research ethics and methodologies. How to conduct an independent research? What rules should you follow? What specific methods could you employ in proceeding according to your intention? How to organize your materials so that the main theme is proposed adequately and logically? I think I've already found some answers to these crucial questions, at least preliminarily.

Undoubtedly, my own research will continue. From my personal Econ-Biz Blog, I excerpt the following paragraph, “I believe that in the process of pursuing the beautiful truth of nature and mankind, everyone could make a contribution, and in order to achieve that goal, you need vision, passion and devotion.” Thanks to SRT program and the school of management at UESTC, I can enrich my knowledge reservoir so that my dream would become closer. I am largely indebted to professor Zeng for his generous help and illuminant guidance. On behalf of all previous and current SRTers, I am also grateful to the faculty members and staffs for their excellent work. It is them that make all this happen.