Intellectual Impact and Trend: An Experiment

Based on word count stats from the Google books database. An Ngram is subsequence of n words from a given sequence.

1. Keynes vs. Friedman vs. Hayek

2. Coase vs. North vs. Williamson

3. Agency theory vs. Transaction cost economics vs. Property rights theory vs. RBV
4. Neoclassical economics vs. Behavioral (& Experimental) economics

Nobel Odds

Latest stats from iPredict:

Oliver Hart 27.5%
Richard Thaler 24%
Jean Tirole 20.86%
Robert Shiller 20.86%
Martin Weitzman 17.75%
William Nordhaus 17%
Angus Deaton 11%
Eugene Fama 7.82%
Avinash Dixit 7.5%
Robert Barro 6.91%
Ernst Fehr 5.18%
Gene Grossman 5.05%
...

And The Simpsons also provide a bet (via O&M):

ummm...Williamson to win the Physics Prize? For what? His demonstration that integrated particles are created by strong force due to physical matter specificity? In fact, the prize in physics went to a former Ig Nobelist because he successfully discovered something by using a scotch tape.

How to get a REAL Nobel?

One way is...to get an Ig Nobel first --

From the Nobel Committee: "The Nobel Prize in Physics 2010 was awarded jointly to Andre Geim and Konstantin Novoselov 'for groundbreaking experiments regarding the two-dimensional material graphene'. "

From Improbable Research: "The Ig Nobel Prize in Physics 2000 is presented to Andre Geim and Michael Berry for using magnets to levitate a frog. "

Now we got a clue.

Award the Creativity

Among 2010's WSJ Technology Innovation Awards winners are computer screens that can bend, adjustable eyeglasses, a low-cost genetic test, an online marketplace for receivables and a new way to battle malware.

Who will win?

According to Thomson Reuters Prediction:

Alberto Alesina for theoretical and empirical studies on the relationship between politics and macroeconomics, and specifically for research on politico-economic cycle

Nobuhiro Kiyotaki & John H. Moore for formulation of the Kiyotaki-Moore model, which describes how small shocks to an economy may lead to a cycle of lower output resulting from a decline in collateral values that creates a restrictive credit environment

Kevin M. Murphy for pioneering empirical research in social economics, including wage inequality and labor demand, unemployment, addiction, and the economic return of investment in medical research, among other topics

Infectious Talk

For those of you who enjoy listening to new ideas rather than reading (particularly true when you are cooking or driving), you may definitely try a couple of these interviews (including Paul Romer, Arnold Kling, and Josh Lerner).

Manage your bibliography is just one-click away

I started to use Zotero - a Firefox plugin - to manage numerous categories of academic papers, books and their bibliographic information, and it was soooo amazing! By just clicking a small button at the end of the address bar, you can easily import the link of an article from various online sources and databases, like JSTOR, ScienceDirect, Google Books, Amazon and so on, and its citation information is also automatically loaded.

When you are writing an article, it is also very easy to create a list of references using Zotero. For instance, if you are using the Word processor, all you need to do is to highlight the list of papers you want to cite in your Zotero window and drag them onto the Word file you are using. Different citation styles are also available to be chosen.

You can also easily creat groups, share your libraries with friends and colleagues, and synchronize all your library information if you are invited to some other groups.

Hat tip to Todd.

Intel CEO Paul Otellini talks about Innovation

Watch it here.

Why do we need more serious research in business?

You will know better after reading this book.

World Cup Guide for Economist

See here.

Recommended Posts

From Organizations and Markets:
The release of the Handbook of the Economics of Innovation (Intro, Vol I, II)
Nicolai Foss on the Assumptions in the Management Research (also some comments there)
A Recent Workshop on Organizational Economics and Organizational Capabilities

From the Project Syndicate:
Identity Economics (also a talk here by Akerlof, and Q&A)

Aside: why acupuncture could reduce pain?

From Scientific American.

"Scientists tried the technique on mice that had a pain in the paw, inserting and rotating the needles in the mouse version of one of the most effective acupoints in Chinese medicine. And they found that the tissues around the treated acupoint get flooded with adenosine, a chemical that provides relief by preventing pain signals from reaching the brain.

This biochemical blockade reduced the animals’ discomfort, as did treating them with drugs that boost the amount of adenosine in the tissue. The scientists say the pain relief stems from the body’s natural response to minor tissue injury. So acupuncture’s analgesic effect may have finally been pinned down."

Randomized Control Trials...or not?

Do we need more field experiements and RCTs in doing empirical economics or do we need to rely on alternative methods and develop new econometric techniques? Duflo's Clark Medal has triggered some methodological debates among the development economists recently (see here and here). One possible alternative (as they cite Acemoglu's piece) is to rely more on structural models in which data for counterfactuals could easily be simulated rather than collected via field trials.

To me, this is just another around of methodology debate between the reduced form school and the structural school. Any deep issues aside, for graduate students, it might be a safer strategy if we can do both.

Curbing Risk on Wall Street

Oliver Hart and Luigi Zingales promote again (here for the previous piece) their ideas for a market-based trigger (rise in CDS price) to induce regulators' actions in regulating financial institutions and restraining risks on Wall Street.

Learn from Child

Great talk, maybe that's lesson #1...

Who is OB Drive?

The other day, I looked up a published paper in Industrial and Corporate Change, which cited a recent publication by one professor in our strategy group, prof. Anne Marie Knott. The citation goes like this, "...Knott and Drive (2008)...", my immediate response is that who the heck is Drive? I am familiar with this paper and I am pretty sure that this is a single-author publication!!

Guess what? It turns out that this confusion is simply caused by the omnipotent search engine - Google Scholar! As you can see from here, the search result does look like that the paper is written by Knott and Drive. However, as I dig this a bit further (I simply typed in the keyword "OB Drive") , and from the search result, I could almost immediately explain what went wrong. Many academic papers whose authors are affiliated with Washington University suffer the same problem, because they all share the same critical attribute - their correspondence addresses are all listed as "One Brookings Drive"!!

If we could simply change this to "1 Brookings Drive", this problem might be resolved under the current algorithm of Google Scholar! See, here is at least "1" benefit of using numbers rather than words!!

A Lecture from the New Clark Medalist

John Bates Clark Medal will be awarded annually from this year on, and this year's winner was announced by the American Economic Association yesterday -- the title goes to MIT development economist, Esther Duflo (also see here).
She will visit Wash U next week and give a lecture here.
Update: Here is a talk given by Esther Duflo on social experiements earlier this year.

Insider Econometrics

Ichniowski and Shaw have a great review paper recently on how organizational economists address the question of the adoption of management practice and its potential effects on the productivity of workers, worker groups and firms. With the attractive title of "Insider Econometrics: Empirical Studies of How Management Matters", I am sure if you are interested in recent development in empirical personnel economics, this is a must read.

Insider Econometrics is termed to suggest "the use of rich mirco-level data on workers or work groups inside firms that share a common production function, and at the same time, also refers to the use of insights from insiders - from managers or employees - that inform almost every facet of the research." The latter point, according to the authors, is the defining characteristics of this empirical strategy.

Extrinsic versus Intrinsic Motivation

Can we use rational economic theory to explain voting, volunteering, giving to charity, helping strangers or even risking life? Behavioral economics often attribute these to altruistic preferences. However, some phenomena cannot be explained by sole presence of individuals with other-regarding preferences, such as the well-documented "crowding-out" effect. For example, when people start to get monetary benefits from donating blood, their actual donation will go down.

In a series of papers (see here and here), Roland Benabou and Jean Tirole attempt to explain this crowding out effect using rational economic models. Put it simply, they have built two different models to capture two such possible mechanisms that would eventually lead to crowd-out. One is the so-called informed principal problem. In this model, the principal wants to motivate the agent to make efforts. However, although the principal knows the critical factors of the task the agent is going to take (e.g., its chance of success, or the ability of the agent in doing the task), the agent doesn't know about it. It turns out that the principal would have more incentive to motivate the agent only if the agent is not that good. This would eventually become a bad signal for the agent to make such efforts.

The other mechanism, often documented in the psychology literature as the "overjustification effect", is called "multi-dimensional signaling" by Benabou and Tirole. They argue, that people don't care only about monetary payoffs, they also care about their self-fulfillment (e.g., intrinsic warm glow when helping others) and their reputation (e.g., what others would say about them when they do good deeds). If all people in the society could be characterized by parameters of intrinsic, extrinsic and reputational motives, and these parameters also follow some kind of distribution, then, as they have shown in their model, when we increase the monetary incentives, part of the population who are initial contributors would be crowded out by new contributors who are more greedy but less altruistic.

Why FBI dysfunctional? From NIE to OE

Richard Posner has an interesting paper in Journal of Institutional Economics in which he applied organizational economics (particularly agency theory) to understand why some public organizations, like common law/civil law judiciary systems, can be quite successful in achieving organizational efficiency while others, such as FBI and some federal intelligence agencies, are rather dysfunctional.

Some comments and follow-up papers (including Frey, Roberts, Ostrom, and of course, Posner's own reply) are also interesting and deserve a careful read.

Jon Stewart Explaining Control Varibles...

In an interview of Daily Show host Jon Stewart with Chicago economist Steven Levitt years ago on Levitt's book, Freakonomics, when Levitt was trying to explain his finding that the legalized abortion in the late 1970s can explain the dramatic decrease in crime rate in the 1990s, Stewart noticed that Levitt was using the word "control". Then came the interpretation according to Stewart:

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Steven Levitt Pt. 2
http://www.thedailyshow.com/
Daily Show Full Episodes Political Humor Health Care Reform

Price, Politics and Path Dependence

The last post --"What is a firm?" -- also reminds me how business strategy researchers can actually contribute in our understanding of the institution of firms, particularly their internal organizations and various sources of persistently heterogeneous performance levels. Robert Gibbons and Rebecca Henderson, among many others, who are pushing this front forward over these years, have written some excellent reviews on the literature of internal organization recently (see here and here), with particular emphasis on the role of path dependence within a firm. Bringing their earlier work on relational contracting, they show how this and many other sources of path dependence could actually explain the existence of persistent performance difference in seemingly similar enterprises, which is arguably the central question in strategic management.

What is a firm?

Firms are an essential part of the economy. Although during the past seven decades, economists have made huge progress in moving beyond the firm as a black box to incorporate incentives, internal organizations and firm boundaries, the very fundamental question of "What is a firm" is still far from uncontroversial. The recent book by Daniel Spulber -- The Theory of the Firm: Microeconomics with Endogenous Entrepreneurs, Firms, Markets and Organizations (Cambridge University Press, 2009) -- has caused yet another ripple among the institutional economists on debating over the very basic concepts of this great human invention and institution -- the firm. One major critic (gated version) of Spulber's book is a guru in modern economic theories of organizations, Harvard professor, Oliver Hart.

To accomplish his goal, Spulber clearly defines a firm in the following sense: "The firm is defined to be a transaction insitution whose objectives differ from those of its owners. The [Fisher] separation is the key difference between the firm and direct exchange between consumers" (p. 63). Then he uses this definition to argue that consumer organizations such as clubs, and basic partnerships are not firms, nor are worker cooperatives, many family businesses, nonpublic organizations, or public enterprises. However, clubs (and worker cooperatives and partnerships) could become firms if and when a market is created in memberships. He uses an example -- a worker cooperative -- to illustrate his basic idea. Put it simply, a "basic" worker cooperative (without membership fee) chooses an employment level to maximize each member's share of surplus. Since there is no separation between the cooperative and its owners, this basic worker cooperative is not a "firm". Moreover, in this case, the optimal employment level turns out to be inefficient in the sense that it is not profit-maximizing as if the cooperative is a standard "firm". When certain level of membership fee is charged, however, by maximizing the objective of the initial owner's payoff, the profit-maximizing employment level can be achieved. Now the objective of the initial owner and that of the "new" cooperative can be separated, so by definition, this worker cooperative with a membership fee is a firm. Although the logic here is perfectly coherent, the definition seems too restrictive -- I'll explain later. For now, I think there is another possible caveat with this definition even in this very illustrative example. Intuitively, these two cooperatives differ only in terms of scale, why would we on earth call a more efficient one a "firm" and not the other one? Hart's treatment makes more sense, that is "both forms of worker cooperative (as well, of course, as a profit-maximizing firm) are firms, but one form is more efficient than the other. If the world is as described above then in equilibrium we would expect to see the basic worker cooperative being replaced by one with membership fees or by a profit-maximizing firm."(p. 11)

Why is this definition too restrictive? Hart contends that apart from the fact that many natural firms, like Microsoft, Google, News Corporation, Berkshire Hathaway, CBS, and the New York Times, all seem to fail the test, there is also a question of how to empirically apply this defintion. In his words, "How can we say empirically whether an entity has an objective function that differs from that of its owners? How do we learn what the objective function of a firm is?...More generally, does it even make sense to talk about the objective function of an oganization?". As Jensen and Meckling argued in their famous 1976 article, "...the personalization of the firm implied by asking questions such as 'what should be the objective function of the firm'... is seriously misleading. The firm is not an individual. It is a legal fiction which serves as a focus for a complex process in which the conflicting objectives of individuals...are brought into equilibrium within a framework of contractual relations". Indeed, a large body of literature in the principal-agent theory since the early 1970s is trying to formalize these conflicts within firms and find optimal contracts to overcome incentive problems. Although this stream of literature has achieved limited progress on how to essentially characterize the firm, more great insights have been drawn by other organizational economists studying the internal organizations as well as the boundaries of the firm. But still, neither the incentive schemes nor the internal organization or the boundary issues seems to be the central focus of Spulber. To me, as well as pointed out by Hart, Spulber's notion of firm is more or less a redux to the neoclassical paradigm of treating firms as production function rather than opening it and examining what is going on inside.

For spulber, his goal in this book is to explain why firms exist, how they are established, and what they contribute to the economy. Considering this, his definition and the implication that firms may behave as if they have different objective functions are plausible and of practical importance. However, as pointed out by Hart, "...this raises the question: should we take a firm's objective functions as the starting point of our analysis, or do we need to dig deeper and derive the behavior of the firm from its governance structure, incentives of managers, culture, etc.?" For a prominent strategy scholar like Spulber who is passionate to understand the performance heterogeneity among firms as well as their contributions to the whole economy, it's difficult for me to understand why he doesn't put enough emphasis on the crucial issues like the incentives, internal organizations, and boundaries of the firm.

What does technology want?

Technology enthusiast Kevin Kelly discovers that technology is evolving toward difference, diversity, options, freedoms, ubiquity and complexity which is much like the evolution of life.

Krugman the Great on the Economic Meltdown

Krugman made yet another public speech on the causes of the Great Recession in 2008.

Quote of the day

Being far more than a decorative literary device, Metaphor, is one of our most often used and effective ways of knowing. The power of a good metaphor far exceeds that of a simple word or a careful drawing. Indeed, every once in a while we could be amazed by someone who come up with one extremely simple but intuitively elegant metaphorical analogy to describe another situation which looks dissimilar but shares critical attributes with the one in the new sense. That is a moment of a great enlightenment. As Aristotle wrote, in De Poetica,

"The greatest thing by far is to be a master of metaphor; it is the one thing that cannot be learnt from others; and it is also a sign of genius, since a good metaphor implies an intuitive perception of the similarity in the dissimilar."

2010 AEA Annual Meeting Webcasts

From the AEAweb.

Keynes - Hayek Rap Battle

via Mankiw. Sing along here.

Spence on Economic Growth

Michael Spence talked with EconTalk host Russ Roberts on Economic Growth.

Source: EconTalk (or here).

Chicago Interviews

From The New Yorker.