Results for “prizes”

226 found

Win the Nobel Prize in Economics.  That’s funny, because this is precisely the kind of work which is going out of style in the broader profession.  These guys are smart, smart, smart, and Hurwicz is probably the best known of the three.  They are all high-powered theorists, doing incentives, mechanism design, and social choice theory.  None of them are easy to explain to your grandmother. 

Here is the scientific overview.

No doubt mechanism design, and the general problem of inducing truth-telling, will be with us forever.  But how practical are these general results?  Or have the theorists simply provided us with cautionary notes and left the real applications to the context-specific world of practice?  Did these guys get at the real reasons why we don’t organize the entire economy as a second-price auction?

Part of me thinks: "Hey, let’s say Natasha wants Yana to tell her the truth about when she will clean her room.  This stuff isn’t useful!"

Another part of me thinks: "It is most important to get theory right.  These guys are brilliant.  Only the philistines demand that all scientific contributions have immediate applications."

Some of you might argue: "These guys have already had a big impact on real world auctions and incentive schemes."  In terms of the induced improvement in human welfare, I find that a difficult case to make.  The important progress has come from recognizing much simpler truths about incentives.

Here is Wikipedia on Hurwicz.  He is the granddaddy of the group, and the Nobel Committee sums it up nicely:

The seminal work of Leonid Hurwicz (1960,1972) marks the birth of mechanism design theory.  In Hurwicz’s formulation, a mechanism is a communication system in which participants exchange messages with each other, messages that jointly determine the outcome.  These messages may contain private information, such as an individual’s (true or pretended) willingness to pay for a public good.  The mechanism is like a machine that compiles and processes the received messages, thereby aggregating (true or false) private information provided by many agents.  Each agent strives to maximize his or her expected payoff (utility or profit), and may decide to withhold disadvantageous information or send false information (hoping to pay less for a public good, say).  This leads to the notion of “implementing” outcomes as equilibria of message games, where the mechanism defines the “rules” of the message game.  The comparison of alternative mechanisms is then cast as a comparison of the equilibria of the associated message games…

Hurwicz’s (1972) notion of incentive-compatibility can now be expressed as follows: the mechanism is incentive-compatible if it is a dominant strategy for each participant to report his private information truthfully.

In other words, no incentive scheme, no matter how clever, can get people to tell the truth.  Grove, Clarke, Tideman, and Tullock lurk in the hallways.  Note that a second price auction (let everyone bid and the winner pays the price of the next highest bid) fails in terms of Paretian optimality.  The government takes the second price bid from the winner, but what should it do with the money?  Either the government wastes resources by destroying wealth, or it redistributes that wealth in some way but then the resulting redistribution in turn feeds back into bids and we can no longer derive truth-telling as optimal (but is this really a practical problem?; my fear is that the entire incentive-compatibility literature has never gotten at the real reason why we don’t run the entire economy as a second-price auction.) 

Here is Roger Myerson’s very nice piece on Hurwicz.  Myerson ties Hurwicz to the socialist calculation debate of Mises and Hayek and also to the later work of Jean Tirole.  It is sometimes said that moral hazard problems favor capitalism, adverse selection problems favor socialism.

Hurwicz also wrote a very important paper with Kenneth Arrow on the stability of general equilibrium theory, as well as other notable theory pieces, not all on mechanism design.  Here is a list of major works, some of the early ones have pdfs attached.

The Nobel Scientific Background paper is the best introduction to all of these people, and a good introduction to mechanism design in general.

As for Myerson, here is his home page.  Here is his CV.  Here is one overview.  Here is Myerson in Google Scholar.

His most cited paper is on auction design.  He laid out basic results for how to use auctions to extract revenue and elicit information about the value of the good.  These results have informed numerous privatizations and auction schemes in the last twenty-five years.

Here is a very important paper, with David Baron, on how to regulate a monopolist with unknown costs.  Strict marginal cost pricing is no longer possible.  Under some assumptions, allow the monopolist to charge a relatively high price, but design penalties to elicit an honest reporting of costs.  The key point of course is that monopolists won’t always report their costs truthfully.  This is one of the most important papers in regulatory economics in the last thirty years and it has helped disillusion many economists with a narrow ideal of marginal cost pricing.

Myerson also has important papers on how social choice theory is linked to bargaining theory, and which social choice procedures are most likely to elicit truthtelling.

I think of his "Mechanism Design with An Informed Principal" as one of his most important papers, though Google Scholar does not concur.  Let’s say that a principal knows something an agent does not and wishes to maintain that information asymmetry.  How can a principal construct the best incentive scheme for the agent?  The problem is, choosing the scheme itself may reveal information to the agent and thus eliminate the principal’s advantage.  Myerson showed what solutions to this problem have to look like.  This is a very clever problem and a very elegant paper.

Among the current research papers you will notice a strong interest in public choice and institutions, though Myerson is not usually thought of as applied, nor is that where his influence has come.  Electoral rules, corruption, and political institutions all are commanding his attention.

Here is an interview with Myerson on game theory.  Here is Myerson’s take on the core problems of social choice theory, a summary of the theoretical side of the field.

Here is Myerson on Hurwicz, which is also a very good introduction to Hurwicz.

Off the beaten track, here is Roger Myerson on Thomas Schelling’s Strategy of Conflict.  Here is Myerson’s Op-Ed draft on why America should accept limits on its military power, namely to limit deadly rivalries.  Here Myerson recommends federalism for Iraq.

In view of these difficulties, it is desirable to design mechanisms in which all equilibrium outcomes are optimal for the given goal function. The quest for this property is known as the implementation problem. Groves and Ledyard (1977) and Hurwicz and Schmeidler (1978) showed that, in certain situations, it is possible to construct mechanisms in which all Nash equilibria are Pareto optimal, while Eric Maskin (1977) gave a general characterization of Nash implementable social-choice functions. He showed that Nash implementation requires a condition now known as Maskin monotonicity (see Section 3.3 for an illustration of this property). Maskin (1977) also showed that if Maskin monotonicity and a condition called no-veto-power are both satisfied, and if there are at least three agents, then implementation in Nash equilibrium is possible.

Maskin considered Nash equilibria in games of complete information, but his results have been generalized to Bayesian Nash equilibria in games of incomplete information (see Postlewaite and Schmeidler, 1986, Palfrey and Srivastava, 1989, Mookherjee and Reichelstein, 1990, and Jackson, 1991). For example, Palfrey and Srivastava (1991) show how the double auction can be modified so as to render all equilibria incentive efficient.

Maskin’s results have also been extended in many other directions, such as virtual (or approximate) implementation (Matsushima, 1988, Abreu and Sen, 1991), implementation in renegotiation-proof equilibria (Maskin and Moore, 1999) and by way of sequential mechanisms (Moore and Repullo, 1988).  Implementation theory has played, and continues to play, an important role in several areas of economic theory, such as social choice theory (Moulin, 1994) and the theory of incomplete contracts (Maskin and Tirole, 1999).

Yesterday, Tyler and I met with Tom Vander Ark, the president of the X-Prize Foundation, to discuss and debate the future of prizes.  One interesting bit of trivia that Tom mentioned was that the X-Prize was funded with an insurance contract.  The funders paid the premium and the insurance company agreed to pay if the prize conditions were met.

To figure out how to price the contract the insurance company called "the experts" at Boeing and McDonnell-Douglas.  According to the experts the conditions for the X-Prize to be won (carrying three people to 100 kilometers above the earth’s surface, twice within two weeks) were so unrealistic as to be basically impossible within any reasonable time frame.  Thus, the funders got lucky.  The insurance company offered the contract at a very low premium and the rest is history!

The X-Prize Foundation is doing exciting work.  They are building on the huge success of the Ansari
X-Prize to launch many more prizes.  Prizes in auto technology and
genomics have already been announced and the foundation will be funding
many more prizes in the future (You can suggest a prize here).

I am awaiting details but this proposal from John Edwards is not entirely crazy.

Mr. Edwards said he wanted to discourage pharmaceutical companies from
obtaining long-term patents on medicines for specific ailments like
Alzheimer’s and cancer. Instead, an upfront cash prize would be made
available to serve as an incentive for research on such drugs.

I worry, however, that the prizes will be far too small.  Since the social value of breakthrough medicines greatly exceeds the private profit, prizes of tens of billions of dollars would not be unreasonable.  In fact, optimal prizes must increase the profits of US drug companies.  Can a Democrat like Edwards sell that?  And who will decide how the prizes are handed out?  Can the US government award billions of dollars in prizes without significant rent seeking?

Partly for these reasons, I would much prefer a patent buyout as suggested by Michael Kremer (Kremer’s paper can also be found in Entrepreneurial Economics.)  Let’s at least have a few experiments to buyout say 5 years of the time remaining on some important patents.

Do keep in mind that the problem of expensive drugs is overblown – a typical new drug will go off patent in 12 years anyway.  The real issue is how best to increase the incentive to develop new and important pharmaceuticals.

We study the relation between gender and job performance among brokerage firm equity analysts.  Women’s representation in analyst positions drops from 16% in 1995 to 13% in 2005.  We find women cover roughly 9 stocks on average compared to 10 for men.  Women’s earnings estimates tend to be less accurate.  After controlling for forecast characteristics, the difference in accuracy is roughly equivalent to four years of experience.  Despite reduced coverage and lower forecast accuracy, we find women are significantly more likely to be designated as All-Stars, which suggests they outperform at other aspects of the job such as client service.

Here is the link.  Here are non-gated versions.  The authors claim that more women don’t enter the sector because of their preferences, rather than discrimination; after all, They Win Prizes!.  Is the implication that women analysts are less productive, but men receive consumption value from voting them as "All-Stars"?  I don’t know how the voting works, but possibly the companies lobby for them, so as to show they have visible female stars.  I see the possibility of patronizing condescension in the data.  That’s not quite the same as outright discrimination, but I suspect the real story remains uncovered.  The odd mix of positive and negative discrimination that women, and some minorities, face, has not yet made its way into good models.

For a few weeks twice a year, after Ramadan and before Christmas,
thousands of Lebanon’s young men return from jobs abroad – and run
smack into one of the world’s most aggressive cultures of female
display.  Young women of means have spent weeks primping and planning
how to sift through as many men as possible in the short time
available.  The austere month of Ramadan ended a week ago.

The
country’s high rate of unemployment pushes the young men to seek work
elsewhere, sometimes in Western countries like France and Canada, but
mainly in the United Arab Emirates, Saudi Arabia and the other oil states on the Persian Gulf.  The women, inhibited by family pressures, are generally left behind.

MR readers will not be shocked to learn these women strongly prefer the Lebanese men with foreign jobs and foreign incomes; here is the full story of competition and rent exhaustion.

My simple theory of where the women are attractive has two variables: income inequality, and the willingness of wealthier men to marry beautiful women from the lower income and social classes.  Women then compete for lucrative marriage prizes.  That puts Cuba (the wealthy men are the tourists) and Brazil near the top of the list, where they belong.  New York City isn’t bad, and this mechanism won’t hurt China either.

Edmund Phelps.  Here is the announcement from Sweden. 

Here is his autobiography.  He was born in Chicago in 1933 and now teaches at Columbia.  Here is his CV, and here is another version.  Here are recent papers.  His Wikipedia entry is a short stub, but watch it grow.

Here is his summary of his research.  Here is another good summary of his work.  This summary, from Sweden, is the best and most comprehensive, albeit more technical.

His main contribution is a better understanding of the Phillips curve and the dynamics of short-run unemployment and the concept of the natural rate of unemployment.  He gave the Phillips curve microfoundations and developed the "expectations-augmented Phillips curve."  As the name suggests, the level of inflationary expectations matter for how money will influence output.

Here is his memoir on developing the idea of the natural rate of unemployment.  His most influential 1960s work suggested that economies possess a natural rate of unemployment, monetary policy can reduce unemployment only temporarily (NB: in his view this is a conclusion, and should not be an axiom in economic models), monetary policy can reduce unemployment temporarily, and Keynesian economics should not treat the rate of unemployment as arbitrarily at the whim of monetary and fiscal policy.  He was also concerned with how the natural rate of employment can change over time; here is his 1997 paper on that topic.

The evolution of Phelps’s thought on how money can matter is complex.  His later work stresses monetary non-neutrality, mostly through non-rational expectations and non-synchronized wage and price setting.  His work in the 1980s focused on what the concept of rational expectations means in such complex environments.   

Do not assume that early Phelps and late Phelps are saying the same things or arguing against the same opponents.  Sometimes it is argued that he redefined macroeconomics twice.  After criticizing Keynesianism, he later turned against the "rational expectations"  point of view.  He is a complex thinker, although it can be hard to divine his "bottom line."  He fails to fit inside the "macroeconomics boxes" that have developed since the early 1980s, namely real business cycle theory vs. neo-Keynesianism.

Phelps’s work was considered revolutionary in the 1960s, though the subsequent work and influence of Milton Friedman have brought related ideas into the mainstream some time ago.

He also has done work on economic justice and how a Rawlsian maximin analysis might modify the idea of a zero rate of marginal taxation on top earners, as had been suggested by James Mirrlees.  Phelps believes that considerations of justice and distribution are important, and neglected, in economic thinking.  Once he had a piece in the Journal of Philosophy on ideas of justice in public finance.

He also wrote some well-known papers on what intergenerational justice means, the optimal accumulation of capital, and whether those allocations will prove sustainable and consistent over time.  He asks what kind of principles should govern how much capital we should leave for the next generation.  His 1961 work on capital theory formulated the notion of a "golden rule" of capital accumulation.  It asked what savings rate would maximize per capita income on an ongoing basis.  The concepts behind this work remain important for work on capital accumulation and also the sustainability of natural resource use and environmental policy.  Phelps also generated the counterintuitive result that the savings rate can be too high, and that all generations could be better off with a lower savings rate.  He does not, however, seem to think that this latter idea is policy-relevant.  The best summary of this work on capital theory is here, scroll through a bit.

Lately he has been working on the possibility of subsidies for hiring low-wage labor and Eastern European transitions.  Here is his book on wage subsidies.  Here is a more popular Phelps piece on wage subsidies.  He has also done work on the structural dynamics of economies and the underlying factors behind economic innovation.  Here is an early Phelps paper on technological diffusion; surprisingly it is his most frequently cited work according to scholar.google.com.  He looked to education and population size as key factors driving the rate of economic growth; this piece is a precursor of later work on endogenous growth theory.

Phelps also wrote a 1972 paper on statistical discrimination, one of the earliest formal economic treatments of that topic.

Here is Phelps on Project Syndicate, the link offers numerous essays on current events.  The European malaise stems from lack of dynamism.  He opposed the Bush tax cuts.  Here is Phelps on the rise of the West and the need for humane capitalism.  He has a broadly classical liberal slant but has adopted the modern liberal idea that distribution requires government intervention into labor markets and other parts of a modern economy.  He has a strong concern with the moral foundations of a free society.

Here are his cites on scholar.google.com.  4600 is a relatively low number for a Nobel Laureate.  Vernon Smith for instance has over 40,000.  In part this relatively small number reflects the older nature of Phelps’s major contributions, and that often his ideas have been absorbed but without citation.  Furthermore Phelps does not always write within the context of the most contemporary debates.

Over the last twenty years Phelps has spent a great deal of time in Europe.  In general his European influence and reputation is stronger than in the United States.

My take: It is hard to argue with this pick.  It is a good selection.  His 1960s macro work was true, important, and extremely influential.  The capital theory work endures and provides a foundation for subsequent theory.  The overall scope is impressive, and Phelps’s concerns never strayed far from the real world.

But Phelps is not an economist who has influenced my own thinking much if at all.  His major contributions were absorbed, and were standard fare, by the time I was a young’un.  For instance I drunk the same macro milk through the writings of Milton Friedman.  I find him to be a murky writer, and often he is frustrating to read and hard to pin down.  His advocates would characterize him as a "rich" thinker.

What this Prize means: The big questions still matter.  Unemployment, economic growth, labor markets, capital accumulation, fairness, discrimination, and justice across the generations are indeed worthy of economic attention.  Phelps contributed to all of those areas.   Normative questions matter.  Relevance and breadth triumph over narrow technical skill.

Addendum: The U.S. has now won six Nobel Prizes in a row, but I bet we don’t get the Peace Prize this year.