Krugman @ Authors@Google

In an earlier post on income and consumption gap, I mentioned that some economists have criticized Krugman's view in his book The Conscience of a Liberal, that "contemporary America's widening income gap is ushering in a new age of invidious inequalities". Here, We have a chance to listen to Paul Krugman talking about this book, and also about the current economy. The talk takes about an hour.

Mitigating Greenhouse Gas Emissions

...by Kenneth Arrow.

Income gap: widened or not?

The Economist has again focused on the topic of income and consumption gap. Unlike the argument of Paul Krugman, a professor from Princeton University, that contemporary America's widening income gap is ushering in a new age of invidious inequalities, other economists, like Jerry Hausman of MIT and even the Nobel winning economist Robert William Fogel, have aruged that the official statistics do not capture the benefits the poorest have actually gained due to the lowered food prices after Wal-Mart's moving into the grocery business, and that nominal measures of economic well-being often miss such huge changes in the conditions of life.

According to another study, by Dirk Krueger of the University of Pennsylvania and Fabrizio Perri of New York University, consumption inequality has barely budged for several decades, despite a sharp upswing in income inequality.

"...Refrigerators are now all but universal in America, even though refrigerator inequality continues to grow. The Sub-Zero PRO 48, which the manufacturer calls 'a monument to food preservation', costs about $11,000, compared with a paltry $350 for the IKEA Energisk B18 W. The lived difference, however, is rather smaller than that between having fresh meat and milk and having none. Similarly, more than 70% of Americans under the official poverty line own at least one car. And the distance between driving a used Hyundai Elantra and a new Jaguar XJ is well nigh undetectable compared with the difference between motoring and hiking through the muck. The vast spread of prices often distracts from a narrowing range of experience.

After all, "...a widescreen plasma television is lovely, but you do not need one to laugh at 'Shrek'..."

Christmas Reading

Mao and the art of management from the current issue of The Economist.

"...Perhaps for the struggling executive, this is the single most important lesson: if you can't do anything right, do a lot. The more you have going on, the longer it will take for its disastrous consequences to become clear. And think very big: for all his flaws, Mao was inspiring..."

20 Greatest Equations

...from Physicsworld. (see here and here)

Can somebody in the blogsphere produce a list of 20 (or 10) greatest equations in economics? I think the Fisher Equation on nominal and real interest, Equation of exchange (or quantity of money MV= PQ) and the Black-Scholes Equation would be high on it...

Milton Friedman on Charlie Rose Show

In December 2005, just one year before his death, Dr. Friedman appeared on Charlie Rose, talking as persuasively as always about his opinions on foreign debts, domestic deficit, immigration, drug legalization, school voucher and also sharing with us his views on several US presidents. I watched it several times.

Advice to a Successful Career

...given by management guru William G. Ouchi, in which he claimed he worked 120 HOURS a week!! (watch full video)

Hardest Working man in Economics

Which economist works hardest? Read the interview with Eugene Fama by Federal Reserve Bank of Minneapolis and you will find some clue...

Michael Porter on Charlie Rose Show

Charlie Rose interviewed with the Business Strategy Guru Michael Porter at Harvard Business School three years ago. And it's still worth watching.

Nobel Lectures and Interview

Here is an interview with Eric Maskin and Roger Myerson during the Nobel Week. The following are links to this year's Nobel lectures presented at Stockholm University on 8 December:

But Who Will Guard the Guardians? by Leonid Hurwicz (Pre-recorded)
Mechanism Design: How to Implement Social Goals by Eric S. Maskin
Perspectives on Mechanism Design in Economic Theory by Roger B. Myerson

Economics and Psychology

Harvard Economist David Laibson recently gave three lectures at LSE on Psychology of Saving and Investment. In these lectures, he challenged many standard assumptions in economics and showed how a combination of psychology and economics can better predict behavior.

Lectrue 1: The Psychology of Saving and Investment: Intertemporal Choice
Lecture 2: The Psychology of Saving and Investment: Investment for Dummies
Lecture 3: The Psychology of Saving and Investment: Sticky Biases and the Curse of Education

Super Crunchers

Ian Ayres, a lawyer and economist at Yale Law school has a new book, Super Crunchers. The book shows that a new thinking by the numbers provides people with greater insight into human behavior and allows them to predict the future with staggeringly accurate results.

So far, I haven't got the chance to read it. However, according to Freakonomist Steven Levitt, it is fun to read and may also change the way you think. Here is a video introduction.

Milton Friedman Anniversary

Dallas Fed president and CEO Richard W. Fisher sat down with economist Milton Friedman on October 19, 2005. In this wide-ranging interview, Friedman and Fisher discuss a myriad of topics, including globalization, China, the Federal Reserve, free trade, government spending and education reform.

Dallas Fed released the record recently. (also here and mp3, hat tip to Mankiw.) It's at a right time, I think, since November 16th, 2007 would be the first anniversary of the passing away of Dr. Friedman.

Dump Adobe?

R. Preston McAfee - a recognized expert in Industrial Organization - wants us to dump Acrobat into trash can, using Acrobat alternatives, like Foxit reader, to open PDF files. I cannot figure out why the Vice President and Research Fellow at Yahoo! Research hates Adobe so much! Can anybody give me a hint?

Advice for new econ PhDs

Initially posted by Mankiw, if you are an econ grad student about to go on the job market:

Here is the link for the AEA signaling mechanism.
From last year, here is some advice from Al Roth about the mechanism.
Here is advice that new Harvard PhDs are getting.

Access to Lectures on Contracts, Organizational Economics and Strategy

If you've heard of, or even familiar with, TCE, Coase theorem, TIOLI, fundamental transformation, hold-up, V.I., GHM, PRT, residual control rights, Self-serving bias, repeated game, S-C-P, Porter, five forces and core competence, I think the following lectures might be worth a lot to you.

Contract Theory
Oliver Hart, Firms versus Markets;
Oliver Hart, Partial Contracts (former version of Contract as Reference Point);
Oliver Hart, Contracts, Reference Points, and the Theory of the Firm (mp3);
Hideshi Itoh, Relational Contracts and their Interactions with Formal Institutions;

Organizational Economics, Management and Strategy
Robert Gibbons, Organizational Economics and Management Education;
Luis Garicano, Positions, Activities and Organisations: strategy, from conception to implementation (mp3).

The Nobel Message

...conveyed by Jeffrey Sachs.

£awrence $ummers

In The International Economy, Summers, the Harvard professor takes on the subprime crisis, moral hazard, and Alan Greenspan's inflation forecast. Here are a few excerpts:

"I am not one who shares as fully as others the obsession with moral hazard. The mirror image of moral hazard is confidence..."

"There are plenty of predatory abuses that we should correct, but we need to be careful about succumbing to a sadomasochistic 'We need pain or we'll become complacent' sort of world view..."

"...harmony had been purchased at the expense of ambiguity..."

"We only call it a bubble in history if it did burst...In the fall of 1996 when Alan Greenspan used the term "irrational exuberance," the Dow was in the 6,000s. That was a declaration of a bubble that wasn't."

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

...is 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..."

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

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.

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.

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.

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.

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.

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.

When Greenspan promotes his book, Phelps doubts the Fed

On Bloomberg, Greenspan Discusses His Book, Strike on Iran as `Difficult Choice';
However, on the next day, Nobel winning economist Phelps, Doubts Fed Can Prevent a Recession.

Can policy be implied by behavioral facts?

The Boston Federal Reserve Bank is aiming to become the regional Fed that emphasizes behavioral economics. Here is its proclamation:

Behavioral economics is motivated by a range of empirical facts that are at apparent odds with assumptions of standard economic theory. But while behavioral approaches are becoming common in academia, it is unclear how behavioral models should inform economic policymaking in general, and central banking in particular. This conference will discuss the implications of behavioral economics for macroeconomic policy, with special attention to the regulatory and monetary policy responsibilities of central banks.

Playing games with the planet

In the latest issue of the Economist, scholars claim that a version of the "prisoner's dilemma" may suggest ways to break through the Kyoto impasse.

Gerschenkron, Acemoglu and Clark Medal

Here is a great story (although a little bit old) on a prolific MIT economist Daron Acemoglu who is regarded by the author as a successor of Alexander Gerschenkron, a Russian-born, Austrian-trained Harvard economic historian.

"Anyone who hasn't read The Fly Swatter: How My Grandfather Made His Way in the World, Nicholas Dawidoff's account of the life of Alexander Gerschenkron, the great 20th-century scholar of economic development, is missing a good thing. Anyone who doesn't know about Daron Acemoglu is missing a good thing, too."

A recent article published in the Journal of Economic Perspectives has reviewed Daron Acemoglu's achievements from an academic perspective.

Another piece of short history provides a glance at the Clark Medalists' profile, but only covers the recipients from 1947 to 2003, i.e., from Samuelson to Levitt.

Papers on Contracts

Two papers on contract theory written by Columbia university economist W. Bentley MacLeod are superbly worthy of reading. One of them deals with the choice of formal or informal enforcement mechanisms when buyers hope to assure that the seller, who is to decide the quality of the good, would provide an efficient level of quality. Testable hypothses are also generated for further empirical studies. This paper has already been published in the latest issue of the Journal of Economic Literature. (Here for non-subscribers)

Another paper, which was actually presented at the AEA Annual Meeting this January, shows that established frameworks of contract theory can be used to provide a foundation for behavioral economics theories, like fairness and reciprocity. I've been thinking of incorporating behavioral elements into the ongoing framework of contract theory all the time, like Oliver Hart and John Moore's introduction of short-term commitment in justifying the desirability of ex post renegotiation of incomplete contracts and the concept of retaliation in their recent work of Contracts as Reference Points. So, indeed for me, professor Bentley MacLeod's paper is fresh and innovative. (Here for AER version.)

Ahmadinejad at Columbia University

Here is the event, including a complete video, columbia president Bollinger's introductory remark, and a full transcript of Iranian President Ahmadinejad's Remarks.

Some views and opinions afterwards.

Quotes of the day

We are probably familiar with former president Harry Truman's request of "One-handed economist". However, we might not hear of Ronald Reagan's comment on economists, and it turns out to be quite right...

"Economists are people who see something that works in practice and wonder if it would work in theory."

From the San Francisco Chronicle

A Pity...

One of the most interesting economics and finance blogs - Mahalonobis - has been very silent recently. While I am hoping for its back on track, here comes up the real reason.

Wish them both good luck, and a return to active blogging.

Nobel Predictions

The Royal Swedish Academy of Sciences will announce its choice on Monday, October 15, for the Nobel Memorial Prize in economics. (see here.) As the day approaches, some of the world's best minds are engaged in a highly inexact science: predicting the winner.

Thomson Scientific, which produces an annual list of front-runners based on how many peers cite an economist's work, forecasts three possible combinations for this year's crown:

Harvard's Elhanan Helpman and Princeton's Gene Grossman, "for their contributions to international trade and economic growth"; Robert B. Wilson and Paul R. Milgrom of Stanford, "for their work, both theoretical and practical, on the mechanism of auctions"; and Jean Tirole from IDEI, University of Social Sciences, Toulouse, France, "for his research on industrial organization and regulation".

From the public voting poll, Jean Tirole is a little bit ahead of the other two. But I still prefer the combination of Oliver Hart, Bengt Holmstrom and Oliver Williamson, which is a prediction last year.

New Review Paper on Firm Boundary and Vertical Integration

Francine Lafontaine and Margaret Slade's superb review paper on vertical integration, "Vertical Integration and Firm Boundaries: The Evidence," appears in the current issue of the Journal of Economic Literature (Non-gated version here). In this paper, Lafontaine and Slade consider a broad range of factors potentially affecting vertical integration such as risk, agent effort, firm size, monitoring costs, and repeated interaction as well as the usual transaction-cost variables (asset specificity and uncertainty). They also look closely, following Whinston (2003), at distinctions between the transaction-cost (Williamson) and property-rights (Grossman-Hart-Moore) approaches. Here's the abstract:

Since Ronald H. Coase's (1937) seminal paper, a rich set of theories has been developed that deal with firm boundaries in vertical or input–output structures. In the last twenty-five years, empirical evidence that can shed light on those theories also has been accumulating. We review the findings of empirical studies that have addressed two main interrelated questions: First, what types of transactions are best brought within the firm and, second, what are the consequences of vertical integration decisions for economic outcomes such as prices, quantities, investment, and profits. Throughout, we highlight areas of potential cross-fertilization and promising areas for future work.

Originally posted by Organizations and Markets blogger Peter Klein

Greenspan's bonanza and Stewart's genius

According to WSJ Real Time Economics blog, former Federal Reserve Chairman Alan Greenspan's memoir, "The Age of Turbulence: Adventures in a New World," has sold 129,000 copies in its first week on book shelves, according to Nielsen BookScan, which tracks an estimated 75% of retail book sales in the U.S. This morning the book, published Sept. 17, ranks No. 1 on Amazon.com's list of best-sellers. And Pearson PLC's Penguin Press paid Mr. Greenspan an advance of more than $8 million, some of which the publisher earlier recouped by selling rights to foreign countries. Those fancy numbers do prove that people have a high "interest rate" on Greenspan and his book.

Last week, Emmy winning talk show host Jon Stewart interviewed Mr. Greenspan and asked him an surprisingly excellent question: Why do we have a Fed? Why do we have someone adjusting the rates if we're a free-market society? This fundamental question instantaneously reminded me of a question raised by Ronald Coase 70 years ago: Why do we have firms if the free market price mechanism is perfect? By far, the economics profession does not have good answers to both of them. I agree with Mankiw that Stewart is a genius!

BTW, mankiw didn't think Greenspan's answer to Stewart's question was satisfying and he believed the real answer has something to do with the benefits of a fiat money system and the possibility of short-run monetary nonneutrality.

A video clip can be reached by following this link.

Michael Scott's Business RULES

Michael Scott has TEN rules in business for his employees to learn. However, only four out of ten have been delivered to Ryan Howard in The Office. (Season 2, episode 4, The Fire.)

Rule #1 You have to play to win, and you also have to win, to play.
Rule #2 Adapt, react, re-adapt, act.
Rule #4 In business, image is everything.
Rule #5 Safety first, i.e. don't burn the building down.

Sociology and Property Rights

Although it is a nice piece, the paper "The Sociology of Property Rights" is debatable how much of it is sociology per se. In actuality, most of the paper, which given the journal (research annual) that it is published one would expect to survey sociology contributions, turns out to be a survey of — economics. Specifically, the contributions of Coase, Demsetz, Barzel, and even Hart and Moore are highlighted and summarized. The authors themselves acknowledge that sociology "neglects" property rights. Others have made similar observations (e.g., Richard Swedberg).

According to Nicolai Foss, a blogger from the Organizations and Markets, this neglect of property rights is bizarre; after all, property rights, in a sort of proto-Hartian understanding, were central in Marx' thought. Durkheim and Veblen also didn't neglect property rights. Intuitively, one would think of property rights as a preeminent sociological theme, as it involves power, social stratification, inequality, and other sociology favorites. So, what accounts for the neglect?

Feldstein Stepped Down as President of NBER

Marking the end of an era, Martin Feldstein said he plans to step down as president of the National Bureau of Economic Research after 30 years. Under his tenure the NBER was revitalized to become probably the country's most important research network for academic economists. It also became the official arbiter of U.S. recessions and expansions. From WSJ's Economics Blog, I excerpt Dr. Feldstein's resignation letter:

Dear NBER Colleagues:

I am writing to tell you that this will be my last year as president of the NBER. I am doing this to have more time for writing, research, teaching, and other things. I will of course remain an active NBER Research Associate..

Serving as NBER president has been an intellectually and personally gratifying experience. There is nothing in my professional life that has given me greater satisfaction.

I will continue in my current position until June 2008. That will give the NBER Board ample time to identify my successor and for us to manage the transition together.

I am grateful to all of those who have worked with me during my years as president: the research associates and faculty research fellows, the directors of programs and working groups, the project leaders, and the small but highly effective staff at the NBER.

Sincerely
Marty Feldstein

Do Boys Ruin School for Girls?

Some new research on gender and education, via Tim Harford:

A new working paper from economists Victor Lavy of Hebrew University and Analía Schlosser of Princeton attempts to unpick the peer effects associated with gender, using data on nearly half a million students passing through Israel's school system in the 1990s. They compared consecutive year groups passing through the same school, figuring that if one year's group was 55 percent boys and the next year's was 55 percent girls, that difference was very likely to be random and thus susceptible to meaningful number crunching. Their answer chimes perfectly with the conventional wisdom: Boys benefit from being in a classroom with girls, but girls do not benefit from being in a classroom with boys.

From Greg Mankiw's Blog

Mandelbrot Set with Lyrics

See the video on the Mandelbot set at YouTube. Very fun. But I think this innovation is much more artistic than scientific, in that it generates fun pictures, and can explain a lot ex post, but is pretty useless ex ante.

Here is the lyrics:

Mandelbrot Set by Jonathan Coulton

Pathological monsters! cried the terrified mathematician
Every one of them is a splinter in my eye
I hate the Peano Space and the Koch Curve
I fear the Cantor Ternary Set And the Sierpinski Gasket makes me want to cry
And a million miles away a butterfly flapped its wings
On a cold November day a man named Benoit Mandelbrot was born

His disdain for pure mathematics and his unique geometrical insights
Left him well equipped to face those demons down
He saw that infinite complexity could be described by simple rules
He used his giant brain to turn the game around
And he looked below the storm and saw a vision in his head
A bulbous pointy form
He picked his pencil up and he wrote his secret down

Take a point called Z in the complex plane
Let Z1 be Z squared plus C
And Z2 is Z1 squared plus C
And Z3 is Z2 squared plus C and so on
If the series of Z's should always stay
Close to Z and never trend away
That point is in the Mandelbrot Set

Mandelbrot Set you're a Rorschach Test on fire
You're a day-glo pterodactyl
You're a heart-shaped box of springs and wire
You're one badass fucking fractal
And you're just in time to save the day
Sweeping all our fears away
You can change the world in a tiny way
Mandelbrot's in heaven, at least he will be when he's dead
Right now he's still alive and teaching math at Yale
He gave us order out of chaos, he gave us hope where there was none
And his geometry succeeds where others fail
If you ever lose your way, a butterfly will flap its wings
From a million miles away, a little miracle will come to take you home

Just take a point called Z in the complex plane
Let Z1 be Z squared plus C
And Z2 is Z1 squared plus C
And Z3 is Z2 squared plus C and so on
If the series of Z's should always stay Close to Z and never trend away
That point is in the Mandelbrot Set
Mandelbrot Set you're a Rorschach Test on fire
You're a day-glo pterodactyl
You're a heart-shaped box of springs and wire
You're one badass fucking fractal
And you're just in time to save the day
Sweeping all our fears away
You can change the world in a tiny way
And you're just in time to save the day
Sweeping all our fears away
You can change the world in a tiny way
Go on change the world in a tiny way
Come on change the world in a tiny way

Sensible solutions to the lending mess

Harvard economist Edward Glaeser has put forward his prescription on solving the mortgage problem.

Mankiw: UC Davis should be ashamed of itself

Here is a story:

After a group of UC Davis women faculty began circulating a petition, UC regents rescinded an invitation to Larry Summers, the controversial former president of Harvard University, to speak at a board dinner Wednesday night in Sacramento.

Greg Mankiw pointed out, "If there is any place that should be open to a wide range of views, it is a university. To bar a scholar as prominent as Larry from talking simply because you disagree with him is despicable."

I totally concur with Dr. Mankiw's argument, and by the way, I am a great admirer of Dr. Lawrence Summers. Although being controversial and high-profile, his brilliancy in the profession of economics has always spurred the young scholars and students.

How to Give a Guest Lecture in Business School

In the popular Mockumentary series The Office, manager Michael Scott (Starring Steve Carrell) showed how this was done. Seeing him tear an economics textbook is classic.

Richard Epstein on Property Rights

In this week's Econtalk, Richard Epstein, of the University of Chicago and Stanford's Hoover Institution, makes the case that many current zoning restrictions are essentially "takings" and property owners should receive compensation for the last value of their land. He also discusses with the host Russ Roberts the Kelo case and the political economy of the regulation of land.

Dani Rodrik: why we use math in economics

Here is a short excerpt from Dr. Rodrik's recent post:

"..if you are smart enough to be a Nobel-prize winning economist maybe you can do without the math, but the rest of us mere mortals cannot. We need the math to make sure that we think straight--to ensure that our conclusions follow from our premises and that we haven't left loose ends hanging in our argument.

In other words, we use math not because we are smart, but because we are not smart enough.

We are just smart enough to recognize that we are not smart enough. And this recognition, I tell our students, will set them apart from a lot of people out there with very strong opinions about what to do about poverty and underdevelopment. "

Do We Overvalue Expert Advice？

We are just a year away from the US presidential elections, and a question that keeps coming up during broadcast debates with the candidates is "are you experienced?"

Obviously, it's a valid question to ask. After all, we expect candidates to have a long history of political involvement and the expertise required to make the right decisions in sticky situations.But a new study appearing in the journal Interfaces suggests that experience may be overrated anyway. It shows that people without any expertise in foreign policy can make snap predictions about the outcome of major conflicts almost as well as experts.

Researchers from the University in Australia and the University of Pennsylvania asked policy experts and undergraduates to assess slightly disguised versions of real conflict situations. These included a 1970s border dispute between Iraq and Syria, a nurses' strike, and an unfolding dispute between football players and their management.The researchers received 106 responses from policy experts and 169 from undergraduates. The experts accurately predicted the outcome of conflicts in 32% of the cases, only slightly better than the 29% score achieved by the students. Chance guesses would have given a score of 28% on the test. Experts with less than five years of experience also achieved a 36% accuracy rate – outdoing more senior people in their profession who were 29% accurate.

In conclusion, experts do use their judgement to predict what will happen. However, their forecasts are of little value in terms of accuracy. Sometimes, they lead people into false confidence.

from New Scientist Short Sharp Science blog by Roxanne Khamsi

Market Intermediary: Angel or Devil?

Ever wander around a store and wonder why it's so hard to find what you're looking for? Don't worry, it might not be you. A new research conducted by HBS professor Andrei Hagiu and colleague Bruno Jullien shows that retailers—and malls, magazines, brokers, familiar search engines, and Internet shopping sites—can sometimes have an economic incentive to purposefully complicate things for consumers. Here is the abstract：

“We propose a model for analyzing an intermediary's incentives to increase the search costs incurred by consumers looking for sellers (stores). First, we show that the quality of the search service offered to consumers is more likely to be degraded (i.e. the probability that consumers find their favorite store in the first round of search is less than 1) when the intermediary derives higher revenues from consumers shopping at the lesser-known store relative to revenues from consumers shopping at the more popular store. Second, the intermediary may have an incentive to degrade the quality of search even further when its design decision influences the prices charged by stores. By altering the composition of demand faced by stores, the intermediary can force the latter to price lower and thereby increase total consumer traffic.”

Some Truth about the Housing Market

The sub-prime mortgage crisis and the credit crunch that has followed in its aftermath are taking their toll on the housing market. On August 28, the S&P Case-Shiller U.S. National Home Price Index fell 3.2% in the second quarter. According to the National Association of Realtors, the inventory of unsold homes is at a record high. As sales have fallen, many home builders have seen their stock prices drop by more than 60% during the past year. How serious is this situation? Is there light at the end of the tunnel?
Joseph Gyourko, director of Wharton's Samuel Zell and Robert Lurie Real Estate Center, and Todd Sinai, a professor of real estate, spoke to Knowledge@Wharton about these questions and more.

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.

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.

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.

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.

The Gettysburg Powerpoint Presentation

Powerpoint is everywhere and indispensable, huh? We couldn't live without it, could we? Let me draw your attention to President Lincoln's Powerpoint address at Gettysburg.

The Nature of Nonprofit Firms

Organizational economists are learning more about family firms and cooperatives but still know relatively little about nonprofits. What is their objective function? How are they organized, managed, and governed?

Jill Horwitz and Austin Nichols's NBER paper, "What Do Nonprofits Maximize? Nonprofit Hospital Service Provision and Market Ownership Mix" looks at the behavior of nonprofit, government, and for-profit hospitals to address these questions. Their key finding is that nonprofit and government- owned hospitals respond to competiton; the more local-market competition they face from for-profit hospitals, the more likely they will offer profitable services and the less likely they will offer unprofitable services. For- profit hospitals, however, tend to offer the same mix of services regardless of what competing for-profit hospitals are offering.

Overall, Horwitz and Nichols find the Newhouse (1970) model, in which nonprofits maximize their own output, more plausible than the Hirth (1999) model in which nonprofits are "for-profits in disguise."

Originally posted by Peter Klein of Organizations and Markets

The Tragedy of the Commons: Revisited

In one of our PhD seminars, we are asked to re-read the classical paper by Garrett Hardin, The Tragedy of the Commons, published in Science in 1968. Here is my short summary.

The basic logic underlying the so called the tragedy of the commons is trivial. The marginal benefit from an individual's rational decision outweighs her marginal cost, but the society as a whole, was becoming worse-off due to overuse of the commons. So, totally different from Adam Smith's utopia of "invisible hand", the society in this situation has confronted a social dilemma, in which self-interests cannot result in social optimal outcome.

The author focused on the conundrum of overpopulation and its natural consequence of the overuse of resources and other kinds of social problems. How to solve this diemma? Can we realize Jeremy Benthem's goal of "the greatest good for the greatest number" at the same time through ingenious technique solutions? The answer was no and the reasons sprang from mathematical proof and biological facts.

Then what about property rights? Economists, like Ronald Coase had argued that property rights matter. Yes, they did matter. But according to the author, the power of property rights was limited because of pervasive existence of public goods problems and economic externalities. And furthermore, the efficacy of property right approach was also constrained by legal sanctions and enforcement of law.

Therefore, can we push this idea one more step so that we may simply rely exclusively on the legal system in our society? Indeed, we can control birth or overuse of the resources through legislation. But how can we legislate our temperence? By conscience? Can we rely on that? Again no. Conscience is self-eliminating and also can generate mental disorder and pathogenic effects.

At last, Dr. Hardin called upon some kind of social responsibility, say, mutual coercion to resolve this dilemma, "the only kind of coercion I recommend is mutual coercion, mutually agreed upon by the majority of the people affected." By common definition, this kind of mutual coercion can be regarded as social norms. It's simple, isn't it? However, further questions arised, where do social norms come from? Can norms stem from rationality assumptions? Can norms be designed? If so, through what way and what's the driving force?

Management Journal Impact Factors 2006

The new journal impact factors for 2006 are now available from the ISI Web of Knowledge. Consider the journal list within "management" or "business". Here are some quick observations (excluding marketing and information systems):

• AMR and AMJ are still top 1 and 2. The difference between their respective impact factors is, at 4.515 and 3.353, is pronounced.
• Organization Science has made it to No. 3! It is fair to say that Organization Science is one of the true success stories among management journals!
• Strategic Management Journal is No. 4. A lot of people whine about SMJ, particularly its allegedly very lengthy review processes and random decisions.
• Administrative Science Quarterly, once generally regarded as the top management journal, is now down to No. 5. A consequence of focusing too much on sectarian sociology and behavioralist stuff?
• Journal of International Business Studies is now up at No. 6. This is JIBS's highest ranking ever. It's clearly extremely good news for the international business (IB) community which has had to deal with a reputation of doing less than rigorous research.
• Journal of Management Studies continues to climb the reputational hierarchy and is now No. 8. This corresponds to my personal casual empiricism that the reputation of the JMS among particularly US management academics has been very strongly increasing over the last couple of years.

The impact factors are not objective criteria for evaluating journals in that one particularly popular article may be sufficient to make a journal jump considerably up within the hierarchy. So don't take this ranking too seriously...

Contents based on Organizations and Markets Blog

Mathematicians and Economics

The following quote is excerpted from Richard Feynman's comments on mathematicians. This Nobel laureate delineates the efforts of pure mathematicians doing physics, and this logic may also be applied to pure mathematicians doing economics (or finance). I paraphrase his quote a little bit by substituting all "physics" into "economics":

"...The equations are complicated, but after all they are only mathematical equations and if I understand them mathematically inside out, I will understand the economics inside out." ... Mathematicians who study economics with that point of view -- and there have been many of them -- usually make little contribution to economics and, in fact, little to mathematics. They fail because actual economic situations in the real world are so complicated that it is necessary to have a much broader understanding of the equations...

-- From The Feynman Lectures on Physics

Nobel Lectures Online

You can watch six past Nobel laureates' online lectures by following these links:

Dr. John Nash Jr.
The Agencies Method and Cooperative Games
Prof.Sir Clive W.J. Granger
Building Econometric Models to Consider Policy for Deforestation in the Amazon Rain Forest
Prof. Sir James Mirrlees
Optimal commodity taxation
Prof. Robert Engle
Global Financial Volatility
Prof. Douglass North
The Natural State or why effective economic reform is so difficult
Prof. Robert Mundell
China's Macroeconomic Strategy and its Currency Relations with Asia and the International Monetary System

The Bilateral Trade Deficit: Meaningless Statistic

The Irrelevance of Bilateral Trade Balances below comes directly from Greg Mankiw's intermediate macroeconomics textbook (6th edition):

The trade balance we have been discussing measures the difference between a nation's exports and its imports with the rest of the world. Sometimes you might hear in the media a report on a nation's trade balance with a specific other nation. This called a bilateral trade balance. For example, the U.S. bilateral trade balance with China equals exports that the United States sells to China minus imports that the United States buys from China.

The overall trade balance is, as we have seen, inextricably linked to a nation's saving and investment. That is not true of a bilateral trade balance. Indeed, a nation can have large trade deficits and surpluses with specific trading partners, while having balanced trade overall.

For example, suppose the world has three countries: the United States, China, and Australia. The United States sells $100 billion in machine tools to Australia, Australia sells $100 billion in wheat to China, and China sells $100 billion in toys to the United States. In this case, the United States has a bilateral trade deficit with China. But each of the three nations has balanced trade overall, exporting and importing $100 billion in goods.

Bilateral trade deficits receive more attention in the political arena than they deserve. Most economists, however, believe that bilateral trade balances are not very meaningful. From a macroeconomic standpoint, it is a nation's trade balance with all foreign nations put together that matters.

The same lesson applies to individuals as it does to nations. Economist Robert Solow once explained the irrelevance of bilateral trade balances as follows: "I have a chronic deficit with my barber, who doesn't buy a darned thing from me.” But that doesn't stop Mr. Solow from living within his means, or getting a haircut when he needs it.

Contents Based on Greg Mankiw's Blog.

Spousal Researchers

Who are the top husband-and-wife teams in economics, management, finance, and related fields? Perhaps some candidates:

Milton and Rose Friedman
George Akerlof and Janet Yellen
Birger Wernerfelt and Cynthia Montgomery
David and Christina Romer
Guido Imbens and Susan Athey
Scott Schaefer and Rachel Hayes

There must be many more.

Economics Lecture Podcasts at LSE

London School of Economics has been podcasting its public lectures and events for free since October, 2006. Audiences can easily get access to the lecture slides and even transcripts of those lectures.

Harvard Economist, also the co-founder of the promising incomplete contract theory, Oliver Hart delivered a lecture titled Contracts Reference Points and the Theory of the Firm this February. In this lecture, Hart discussed how his recent work with John Moore on contracts as reference points can be used to shed light on the theory of the firm.

Identity and Economics: The Missing Motivation?

Is identity the missing motivation of economics? UC Berkeley's George Akerlof and University of Maryland's Rachel Kranton certainly think so. I blogged earlier this month that George Akerlof asserted a missing motivation in economics in his AEA presidential address, and from his recent lecture at LSE, it seemed that this big idea emerged a decade ago. Akerlof explains how this interest arose:

In the spring of 1996 Rachel wrote me a letter which said that my previous paper, on Social Distance, in Econometrica, had missed the concept of identity. She also said that concerns regarding identity were a serious omission from economic theory.

Initially I was not pleased to receive this letter, which said that my previous paper was all wrong. I also thought that Rachel was in error. I thought that identity was just an aspect of people’s tastes. As a result, I also thought that standard utility theory already took full account of it. But after we talked it over for a great deal of time we discovered that identity really does have a meaning. We decided also that it is a major factor missing from current economics.

Rachel and I have now written four lengthy papers on this subject, and now we are trying to summarize it in a book. ...this lecture is a summary of where we have gotten to date on that book.

In this Stamp lecture Akerlof provides the wider argument, spanning all four papers. Both the Powerpoint (PDF) and transcript (PDF) from Akerlof's Stamp Lecture on 'Economics and Identity', delivered at the London School of Economics on April 25, are now available. This body of work is certainly starting to influence economic debates.

Many of us would agree that the neoclassical model of human behaviour is incomplete. To what extent does the Akerlof-Kranton thesis help complete the picture? I'm not yet sure. But I think it's certainly worthwhile for me to read all four papers below.

Further reading:
* Economics and Identity (PDF), Quarterly Journal of Economics CXV(3), August 2000, pp. 715-733.
* Identity and Schooling: Some Lessons for the Economics of Education (PDF), Journal of Economic Literature, 40(4), December 2002, pp.1167-1201.
* Identity and the Economics of Organizations (PDF), Journal of Economic Perspectives, Fall/Winter 2004; a longer version with the modelling is available here (PDF).
* The Missing Motivation in Macroeconomics (PDF), AEA Presidential Address, January 2007

Pioneers of Industrial Organization

Pioneers of Industrial Organization: How the Economics of Competition and Monopoly Took Shape is the title of a new volume edited by Henk de Jong to be published this month by Edward Elgar. Here is the synopsis of the book:

This encyclopaedic work celebrates the scores of leading pioneers who created the modern economic field of industrial organization, at the heart of which lie competition and monopoly, the two great forces that drive modern markets. Their pioneering work has shaped the field’s growing research as well as the past, present and future debates in Europe and America since 1880. This landmark book includes authoritative entries on all the major figures in both Europe and North America. “Pioneers of Industrial Organization” also reveals how public policies such as antitrust and regulation - and deregulation since the 1970s - can promote, or impede economic results and progress. Readers will find the intellectual pioneers, the theories and policies, and the debates, in all their variety. Some pioneers have been free-market advocates, others have been more protective of popular values, but all have strained to make the economic engine promote more wealth, progress and fairness. This book presents the people, ideas and debates with careful neutrality, and also with clear, concise writing. For all those interested in modern economic progress and its problems, this book provides deep insight as well as great personal colour. It will be an essential source of reference for students, researchers and professors of economics as well as those concerned with the historical foundations and the most recent developments in industrial organization.

From Organizations and Markets blogged by Nicolai Foss and Peter Klein.