Wednesday, October 31, 2007

If You Might Be A Quant..

...MIT economist Andrew W. Lo tells you how to tell.

Thanks to Mahalanobis, who has just come back to the blogsphere.

Becker Awarded Presidential Medal of Freedom

Gary S. Becker, the University of Chicago professor known for applying economic theory to social issues ranging from drug addiction to family behavior, is among the latest recipients of the Presidential Medal of Freedom.

The 76-year-old economist's early work showed that companies discriminating on the basis of race or sex hurt themselves by losing out on productive workers. Later, he presented criminality in a rational framework, suggesting that criminals — instead of being mentally ill — take into account the likelihood of being caught, and the expected punishment, before committing a crime.

The White House said today in announcing the recipients: “Gary S. Becker has broadened the spectrum of economics and social science through his analysis of the interaction between economics and topics such as education, demography, and family organization. His work has helped improve the standard of living for people around the world.”

Mr. Becker, who will take home the nation's highest civil award on Nov. 5, has already won the two most prestigious awards for economists. He received the Nobel Prize for economics in 1992 and the John Bates Clark medal, awarded to economists under the age of 40, in 1967.

He's also a blogger, writing The Becker-Posner Blog with Richard A. Posner, the federal circuit judge and University of Chicago Law School lecturer.

Thanks to WSJ RTE for the pointer

Organizational Economics just getting started.

"...the literature on the economics of organizations has become complicated, broad and deep. It is on the verge of coalescing into a field in its own right. No longer does it concern itself simply with business executives' decisions; now bureaucrats and politicians are fair game too. The very meanings of employment, career, compensation and workforce are being rethought..."

Monday, October 15, 2007

Winner on Winner

In a lecture in honor of Leonid Hurwicz in 2006, Roger Myerson reviewed Hurwicz's fundamental concept of incentive compatibility, his questions about social institutions and how these insitutions can be enforced, and how he formalized Hayek's idea that "The economic problem of society is not merely a problem of how to allocate 'given' resources...It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know."

Cowen on Mechanism Design and Three Nobel Laureates

Tyler Cowen acts really, really fast on this. (see here, here and here.) And this post could serve as a bonus one since after reading it, you may be able to explain the mechanism design theory to your grandma.

From Freakonomist to Inner Economist and then to Economic Naturalist

On this week's EconTalk, Robert Frank of Cornell University talks about economic education and his recent book, The Economic Naturalist (watch a video lecture on this). Frank argues that the traditional way of teaching economics via graphs and equations often fails to make any impression on students and then outlines an alternative approach from his new book, where students find interesting questions and enigmas from everyday life.

One question I find most interesting:
Why bridegrooms rent tuxedos for the ceremonies while brides tend to buy the wedding dresses, although the dresses are much more expensive and are probabaly worn only once?

The topics discussed also include the level of civility (or lack thereof) in New York City, the difference between vending machines for soda and newspapers, the tragedy of the commons(also my previous post), and the economics of love.

Time for Mechanism Design

The Royal Swedish Academy has just announced that the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel in 2007 is shared by Leonid Hurwicz, Eric S. Maskin and Roger B. Myerson "for having laid the foundations of mechanism design theory."

Obviously, it's another triumph for the game theory community. However, although Robert Wilson and Paul Milgrom, among others, have largely contributed to this field, particularly to auction theory, they are unlucky (maybe too "practical"?) to win the title in that a maximum of three laureates may be selected per award.

For more information and scientific background, see here and here. And unsurprisingly, their original contributing articles are as follows:

Hurwicz. L. (1960) "Optimality and informational efficiency in resource allocation processes", in Arrow, Karlinand Suppes (eds.), Mathematical Methods in the Social Sciences, Stanford University Press.

Hurwicz L. (1972) "On informationally decentralized systems", in Radner and McGuire, Decision and Organization, North-Holland.

Maskin E. (1977) "Nash equilibrium and welfare optimality". Paper presented at the summer workshop of the Econometric Society in Paris, June 1977. Published 1999 in the Review of Economic Studies 66, 23–38.

Myerson R. (1981) "Optimal auction design", Mathematics of Operations Research 6, 58–73

Sunday, October 14, 2007

What's next for Gore?

To some serious folks (or here), Al Gore's winning of this year's Nobel peace prize is somewhat "inconvenient". However, since Al Gore has won an Emmy, an Oscar, and now a Nobel Prize, all he needs now is a Grammy!! So, don't worry...

Update: Mankiw thinks that Gore and Supply-side economists are much in common.

Friday, October 12, 2007

Michael Moore in Economics Profession

Although Jagdish Bhagwati's rhetoric is sometimes controversial, his notion that "Paul Krugman plays Michael Moore in the economics profession" is quite simple and well-spoken. After all, Krugman may well become the first person outside the field of literature to win both the Nobel and Pulitzer Prizes, the acme of achievement in BOTH academics and journalism.

Paul Krugman, now a new blogger and an Op-Ed columnist for NY Times, has largely contributed to the field of international trade theory, marcoeconomics and trade and geography. For a synopsis, see this. Quite informative for students in economics is his following words:

"It allowed models to replace metaphors as the basis for analysis. Without models, guesswork is all that we have to go on, and those who discipline their guesses with models are more reliable than those who fly by the seat of their pants, no matter how well tailored."

Here is another piece of review on Krugman by Harvard economist Edward Glaeser.

Tuesday, October 9, 2007

Trial of Greenspan: guilty or not?

A recent article written by J. Bradford DeLong lists four charges against Alan Greenspan, which have been elicited by the release of his ghostwritten memoirs The Age of Turbulence.

The indictment contains four counts: that Greenspan wrongly cheered the growth of non-standard adjustable-rate mortgages, which fueled the housing bubble; that he wrongly endorsed Bush's tax cuts; that he should have reined in the stock market bubble of the 1990's; and that he should have done the same with the real estate bubble of the 2000's. According to DeLong, Greenspan now pleads guilty to the first two counts, while those "felonies" of which Greenspan stands accused are the rest two where Greenspan firmly holds his ground and pleads not guilty.

And the final words seem to be eclectic: "All in all, Greenspan served the United States and the world well through his stewardship of monetary policy, especially by what he did not do: trying to stop stock and housing speculation by halting the economy in its tracks. " Right, after all, like Milton Friedman has once pointed out, the economy is ineluctably susceptible to the specific person who takes charge of the Fed. Had someone else done any better than Greenspan?

Betting on Nobel

Intrade has set up a trading market in in the Nobel Prize in economics. (Once there, click on current events, and then nobel prize. )

From Mankiw's Blog

Update: To help you win to fund your own Nobel prize-winning dissertation, WSJ's RTE has synthesized some previous predictions. WSJ is really good at this, isn't it?

Modeling Hybrid Forms

For a long time, the theoretical understanding of hybrid forms and governance is still deficiently unsatisfactory. A major step forward in the understanding of such hybrid governance is Williamson's seminal 1991 paper in the ASQ, "Comparative Economic Organization: The Analysis of Discrete Structural Alternatives," and Holmström and Milgrom's equally important 1994 paper in the AER, "The Firm as an Incentive System."

While in the latest post of Organizations and Markets, another paper, "Both Market and Hierarchy: An Incentive-Systems Theory of Hybrid Governance Forms,"(an earlier version), written recently by Richard Makadok and Russell Coff of Emory University, is highly recommended. In this paper, the authors point out that in extant thinking on hybrid forms, the attributes of governance structures (authority, ownership, and incentives) move together simultaneously. Forms that are intermediate in this sense do exist - like joint ventures - but most hybrid forms do not fall neatly in the middle in terms of the relevant dimensions. They are market-like on some attributes and hierarchy-like on other attributes. Then the problem is, how to model this more complex picture of hybrids?

Makadok and Coff present a model starting from a small modification of the Holmström-Milgrom model: they assume that there may be cross-task synergies (or positive externalities) between costly-to-measure tasks and less-costly-to measure tasks. This will allow for the possibility of high-powered rewards in hierarchies, which was ruled out in Holmström and Milgrom(1994). Then more generalized combinations of authority (strong-weak), ownership (principal owns asset - agent owns asset), and rewards (weak-strong) can be explained.

This paper is regarded, by some strategic management scholars, as a promising one to take its place alongside Lippman and Rumelt (1982) as the most influential modeling paper(s) in the Strategy field.

By the way, following the original post, several comments and responses are recommended as well.

Monday, October 8, 2007

EconTalk on Schumpeter and Creative Destruction

In this week's Econtalk, Thomas McCraw of Harvard University talks about the ideas of Joseph Schumpeter from his book, Prophet of Innovation: Joseph Schumpeter and Creative Destruction. McCraw and EconTalk host Russ Roberts discuss innovation, business strategy, the role of mathematics in economics, and Schumpeter's vision of competition embodied in his most important idea -- creative destruction.

Sunday, October 7, 2007

New podcast

Check it out, Feldstein on dollar decline, national security and Mark Carney's succession as the Governer of Bank of Canada, and his 30 years as the president of the National Bureau of Economic Research.

Trains, Fly and John von Neumann

John von Neumann is one of the greatest mathematicians in the 20th century for his pioneering and popular work of Theory of Games and Economic Behavior with Oskar Morgenstern. However, you might not hear of some funny stories about him. Here is one:

Q: Two trains 200 miles apart are moving toward each other; each one is going at a speed of 50 miles per hour. A fly starting on the front of one of them flies back and forth between them at a rate of 75 miles per hour. It does this until the trains collide and crush the fly to death. What is the total distance the fly has flown?

A: The easy (maybe the easiest) way is as follows: Since the trains are 200 miles apart and each train is going 50 miles an hour, it takes 2 hours for the trains to collide. Therefore the fly wasflying for two hours. Since the fly was flying at a rate of 75 miles perhour, the fly must have flown 150 miles.

When this problem was posed to John von Neumann, he immediately replied,"150 miles.""It is very strange," said the poser, "but nearly everyone tries to sum the infinite series.""What do you mean, strange?" asked von Neumann. "That's how I did it!"

For more on von Neumann, here is Oskar Morgenstern's account of his collaboration with von Neumann. (needs authentication)

Getting a PhD takes so long

The average student takes 8.2 years to get a Ph.D.; in education, that figure surpasses 13 years. Fifty percent of students drop out along the way, with dissertations the major stumbling block. At commencement, the typical doctoral holder is 33, an age when peers are well along in their professions, and 12 percent of graduates are saddled with more than $50,000 in debt. (See here and here.)

Astonishing, huh?!

More Predictions

This year's Nobel prize in economics will be announced in three more days. Since Thomson has made its predictions based on the peer citations of economists' publications, many more professional economists and bloggers become so eager in predicting this annual super-uncertain event.

Tyler Cowen would offer the prize jointly to Anne Krueger, Jagdish Bhagwati, and Gordon Tullock for their work on rent- seeking. However, he also suggests that William Nordhaus (for his concept of "green accounting), Eugene Fama (both for testing CAPM for securities prices and for figuring out what is wrong with it) with either Richard Thaler or Kenneth French, and Oliver Williamson and/or Jean Tirole (for principal-agent theory as applied to the business firm) are highly competitive.

While Austrian Economists, surely, hope this year's prize would go for "entrepreneurship" and to Israel Kirzner and William Baumol.

Harvard has even set up a prediction pool, and receives many replies. In response to some Freakonomics fans, I'm afraid that Stephen J. Dubner will not win this title, 'cause if so, Steven Levitt will be so jealous and rampageous that he would not coauthor with Dubner in the first place.

Update: Mankiw would put a bet on Fama, Feldstein, or Barro.

Monday, October 1, 2007

More on Martin Feldstein

Martin Feldstein announced his resignation as NBER president several days ago. Here is an interview of him published in IMF's Finance and Development three years ago, covering his contributions to public finance, social insurance and macroeconomics, his years as the chairman of the Council of Economic Advisers under Reagan administration, and his 30 years stewardship of "the Bureau" in encouraging economists to do more empirical oriented research. His appearance on the cover of Time magazine in March 1984 confirmed his constant fighting against US budget deficit. He also disapproved of IMF's insistence on structural reforms as a condition for loans, and was pessimistic about the future of Euros which was characterized by him as "at best an act of uncertain merit" and a "costly device to achieve political union."

"Are you working on anything new?" "Sort of...I've been thinking about the economics of national security...I get to go back to all that with new ideas, new data, new techniques. . .", replied by Feldstein.