Levitt on Game Theory and Tom Schelling

...it's interesting.

Bounded Rationality in Organizational Economics

To integrate bounded rationality with organizational economics, should we follow the lead of Ariel Rubinstein? Or the behavioral approach stems from Kahneman and Tversky? Or something else?

Here is a post that deserves a read.

Is the New Supply Side Better Than the Old?

...by Austan Goolsbee.

Lin As the New Chief Economist of the World Bank

Justin Lin is poised to become the World Bank's next chief economist, following the departure of Francois Bourguignon. Some reactions in the blogsphere (Here and here).

Update: Tyler Cowen said that Lin's story was like a movie.

CEO of Princeton Economics Department

Democratic Rep. Marcy Kaptur of Ohio launched into a lengthy question to Ben Bernanke during the Fed chairman's House testimony about community banks, securitization of home loans and investment banks' role in the crisis, ending with this point: "Seeing as how you were the former CEO Of Goldman Sachs…"

She was quickly stopped by Mr. Bernanke and the laughter in the room.

"I’ve got the wrong firm?" she asked, before being corrected that she was thinking of Treasury Secretary Henry Paulson. “Oh, OK. Where were you, sir?”

Said Mr. Bernanke: “I was the CEO of the Princeton Economics Department.”




Hat tip to WSJ RTE.

What Has Tyler Cowen Learned Last Year?

According to Brad DeLong, Tyler Cowen, the Shiva Nataraja of economists, a. k. a. the blog-champion economist, has learned FOUR new things last year! Here are the four things in a nutshell:

#1 REVISING THE CHINESE ECONOMY
#2 IT’S NOT JUST THE LENDERS
#3 IN MUSIC, HARDWARE RULES
#4 LETHAL COLD FRONTS

The Year of the “China Model”

Here. Although I have no idea where to start to comment on this commentary, it's safe to say that it can generate long deliberation for those who truly care about the future of China and many other nations with similar qualities or problems.

Combining TCE and PRT

A recent paper by Patrick Schmitz, “Information Gathering, Transaction Costs, and the Property Rights Approach” (AER, March 2006) tries to reconcile two perspectives in the theory of nature and the boundary of the firm, namely Transaction Cost Economics (TCE, a la Coase, Williamson, Klein, Crawford and Alchain) and Property Rights Theory (a la Hart, Grossman and Moore) by creating a GHM-style incomplete-contracting model in which parties can obtain private information about their ex post benefit, resulting in inefficient rent-seeking over the realized gains from trade. Under certain circumstances, the PRT conclusions are reversed — i.e., the party with the most important relationship-specific investment should not necessarily own the other party’s asset, as the PRT implies. Worth a read.

Hat tip to Organizations and Markets.

Munger on some "old stories" of the Nature of the Firm

On this week's EconTalk (click to download the audio), Mike Munger, of Duke University, talks about some relatively old stories related to one of the most intriguing questions in economics - why firms exist.

Economics: The Year in Books, 2007

...from The New York Times.

Down in New Orleans

Economic Principals, an independent weekly, features in the current issue a variety of topics that have been discussed and debated in the annual meetings of the Allied Social Science Association, including the economics of paid sex markets and sports behavior, the sub-prime lending crisis, and the debate around Nicholas Stern's study of climate change and development.

Unions are evil?

Harvard Economist Richard Freeman dropped by the returning episode of Colbert Report yesterday, explaining why unions are good...

Here is part of the dialogue between Richard Freeman and Stephen Colbert:
...
- (RF) We've had the experience that in the last 30 years, unions have got weaker and weaker and weaker...
- (SC) Hasn't the market spoken? Isn't that just a free market speaking?
- (RF) Every survey that we have says that many more people want unions than ever before...
- (SC) Many more? Many more?
- (RF) Half the American people...
- (SC) Half?!
- (RF) Yes.
- (SC) Fifty percent?!
- (RF) Fifty percent.
- (SC) You can get fifty percent of Americans to say anything! (laughter) ... (ask the audience) Who wants to be a pirate? (Audience yelling...) That's a hundred percent of a RANDOM sampling of American out there...
...
- (SC) Do you yourself belong to a union?
- (RF) No.
- (SC) Thanks for stopping by.

Chinese Medicine Fuels the Illegal Wildlife Trade?

Here is an introduction to a short documentary appeared on Mediastorm sponsored by washingtonpost.com (here watch the video):

"The wildlife trade is the third largest illegal trade in the world, rivaled only by guns and drugs. Every year up to 30,000 primates, 2 to 5 million birds and 10 million reptile skins are traded. Strong beliefs in obscure parts of traditional Chinese medicine fuel the development. According to ancient custom, animal parts are imbued with 'magical' properties. For the superstitious, eating the flesh of a tiger provides the animal's strength. Despite scientific studies proving these beliefs wrong, the trade of animals and animal parts continues largely unchecked, fueled by desire, greed and corruption. The problem seems insurmountable; one way of curbing the rampant killing and to decrease the demand for rare animals is by educating future generations and removing antiquated and false beliefs."

For me, this seems a myth rather than reality...Yes, indeed, traditional Chinese medicine does hold the belief that some animl parts can be used as the "magical" treatment to certain kinds of illnesses. However, what the documentary doesn't tell us is the underlying incentives to kill wild animals, i.e., for what purpose do those poachers engage in illegal trading? Again, animal parts. But what really matters is which parts do they care most! Intuitively, I just don't think the black market for traditional Chinese medicine can sustain the large demand of "magical" parts from wild animals. It's not even a universal economic phenomenon. What's more obvious to us is that we actually do not rely on Chinese medicine to treat our illnesses. Out there exists a much larger market for Western medicine.

What is really intriguing is the deeper needs of human beings. The pervasive worldwide markets for luxury goods might easily outweigh the markets for Chinese medicine. These needs are hard to measure, but they do exist. As a natural outcome, what we see is actually a small tip of a giant iceberg...

Social Physics?

What if someone told you that the way to understand human behavior is through physics rather than economics or psychology? Do you think that would be insane?

Physicist and former editor of Nature Mark Buchanan lectures on how simple physics models can reproduce the bizarre decision-making behavior of human beings. It seems like a fascinating introduction to the new discipline of social physics.

Watch the lecture here.

Societal Forces Behind the Industrial Revolution

What's responsible for Industrial Revolution and the astonishing increase in living standards in some countries but not others since then? Gregory Clark, an economic historian at the University of California Davis, in his new book "A Farewell to Alms," suggests an intriguing, even startling answer: natural selection!

Sounds interesting? Well, from the Invisible Hand Podcast, you can listen to Gregory Clark talking about his insightful ideas in this book. Maybe you wanna read a book review before putting on your headphone. OK, here is one, by Benjamin Friedman, a Harvard Economist.

A New Blog

...namely, Doing Business Blog, whose authors are members of the World Bank Group.

World's Most Expensive Cities: Beijing Ranks 95th

...from bloomberg.

AEA Annual Meeting

2008 AEA Annual Meeting is approaching. To my interests, I will focus on the session of Relational Contracts and Transactional Efficiency. Four papers will be discussed:

What Do Managers Do? Suggestive Evidence and Potential Theories about Building and Managing Relational Contracts by
Robert Gibbons (Massachusetts Institute of Technology)
Rebecca Henderson (Massachusetts Institute of Technology)

The Governance of Interfirm Agreements: A Relational Contract Perspective by
Claude Menard (ATOM - University of Paris Pantheon - Sorbonne)

Relational Contracts in Public-Private Partnerships: A Point of View from Multi-Market Contacts by
Eshien Chong (University Paris XI Sud)
Claudine Desrieux (University Paris XI Sud)
Stephane Saussier (University Paris XI Sud)

Contractual Completeness and Ex-post Efficiency: Trade-Offs between Ex-Ante and Ex-Post Costs in Contract Design by
Ricard Gil (University California, Santa Cruz)
Jean-Michel Oudot (ATOM - University Paris Pantheon - Sorbonne)