My IO reading list
Industrial Organization I, Tyler Cowen (x2312, 4910), [email protected]
BOOKS:
Gordon, John Steele – An Empire of Wealth: An Epic History of American Economic Power
Lowenstein, Roger – When Genius Failed: The Rise and Fall of Long-Term Capital Management
METHODS OF EVALUATION:
There will be weekly quizzes, a midterm, and a final exam.
READINGS:
I. The Firm
Holmstrom, Bengt and Tirole, Jean. “The Theory of the Firm,” in Handbook of Industrial Economics, vol.I.
Rotemberg, Julio. “A Theory of Inefficient Intrafirm Transactions.” American Economic Review (March 1991).
Holmstrom, Bengt and Roberts, John. “The Boundaries of the Firm Revisisted.” Journal of Economic Perspectives 12, 4 (Fall 1998): 73-94.
Demsetz, Harold and Lehn, Kenneth. “The Structure of Corporate Ownership: Causes and Consequences.” Journal of Political Economy 93 (December 1985): 1155-1177.
Gibbons, Robert. “Incentives in Organizations.” Journal of Economic Perspectives (Fall 1998): 115-132.
Chapters from Discover Your Inner Economist, by Tyler Cowen.
Montgomery, Cynthia. “Corporate Diversification,” Journal of Economic Perspectives (Summer 1994): 163-178.
Rasmusen, Eric. “Mutual Banks and Stock Banks.” Journal of Law and Economics 31 (1988): 395-422.
Hansemann, Henry. “Ownership of the Firm,” Journal of Law, Economics and Organization (Fall 1988).
Hansemann, Henry. “The Role of Non-Profit Enterprise.” Yale Law Journal (1980): 835-901.
Cowen, Tyler. “Response to David Friedman,” Economics and Philosophy, at http://www.gmu.edu/jbc/Tyler/TYLER.doc.
Xavier Gabaix and David Laibson, “Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets,” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=728545.
Glenn Ellison, “Bounded rationality in Industrial Organization,” http://cemmap.ifs.org.uk/papers/vol2_chap5.pdf
II. Capital structure and control
Miller, Merton, and commentators. “The Modigliani-Miller Propositions After Thirty Years,” and comments, Journal of Economic Perspectives (Fall 1988): 99-158.
Myers, Stewart. “Capital Structure.” Journal of Economic Perspectives (Spring 2001): 81-102.
Hart, Oliver. “Financial Contracting.” Journal of Economic Literature (December 2001): 1079-1100.
Easterbrook, Frank H. “Two Agency-Cost Explanations of Dividends.” American Economic Review (September 1984).
Fudenberg, Drew and Tirole, Jean. “A Theory of Income and Dividend Smoothing.” Journal of Political Economy (February 1995): 75-93.
Baker, Malcolm and Wurgler, Jeffrey. “A Catering Theory of Dividends,” Journal of Finance (2004), available at http://pages.stern.nyu.edu/~jwurgler/.
Baker, Malcolm and Ruback, Richard. “Behavioral Corporate Finance: A Survey,” found at http://www.wcfia.harvard.edu/seminars/pegroup/BakerRubackWurgler.pdf
MacKinlay, A.C. (1997), “Event Studies in Economics and Finance”, Journal of
Economic Literature 35(1), 13-39.
“Symposium on Takeovers,” edited by Hal Varian, Journal of Economic Perspectives (Winter 1988): 1-82.
Andrade, Gregor, et. al. “New Evidence and Perspective on Mergers.” Journal of Economic Perspectives (Spring 2001): 103-120.
Holmstrom, Bengt and Kaplan, Steven. “Corporate Governance and Merger Activity in the United States,” Journal of Economic Perspectives (Spring 2001): 121-149.
Gompers, Paul and Lerner, Josh. “The Venture Capital Revolution.” Journal of Economic Perspectives (Spring 2001): 145-168.
Stein, Jeremy C. “Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior.” Quarterly Journal of Economics 104 (November 1989): 655-670.
Stein, Jeremy C. “Takeover Threats and Managerial Myopia.” Journal of Political Economy (1988): 61-80.
Scharfstein, David S. and Stein, Jeremy C. “Herd Behavior and Investment.” American Economic Review 80 (June 1990): 465-479.
Hall, Brian and Murphy, Kevin J, “The Trouble with Stock Options,” Journal of Economic Perspectives, Summer 2003, also at http://www-rcf.usc.edu/~kjmurphy/HMTrouble.pdf.
Murphy, Kevin J. and Zaboznik, Jan. “CEO Pay and Appointments,” American Economic Review, May 2004, also at http://www-rcf.usc.edu/~kjmurphy/CEOTrends.pdf
Jensen, Michael, Murphy, Kevin J., and Eric Wruck. “Remuneration: Where We’ve Been, How We Got to Here, What are the Problems, and How to Fix Them,” available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=561305#PaperDownload.
Robert J. Gordon and Ian Dew-Becker, “Unresolved Issues in the Rise of American Inequality,” http://www.people.fas.harvard.edu/~idew/papers/BPEA_final_ineq.pdf
III. Vertical control, antitrust, and related issues.
Tirole, Jean. “Vertical Control.” In Theory of Industrial Organization, Chapter 4.
Klein, Benjamin and Leffler, Keith. “The Role of Market Forces in Assuring Contractual Performance.” Journal of Political Economy 89 (1981): 615-641.
Klein, Benjamin and Murphy, Kevin. “Vertical Restraints as Contract Enforcement Mechanisms,” Journal of Law and Economics (October 1988).
Breit, William. “Resale Price Maintenance: What do Economists Know and When Did they Know It?” Journal of Institutional and Theoretical Economics (1991).
Bernheim, R. Doug and Whinston, Michael. “Exclusive Dealing.” Journal of Political Economy (February 1998): 64-103.
Rasmusen, Ramseyer and Wiley, 1991, “Naked Exclusion,” American Economic Review, 1137-45.
Bittlingmayer, George. “Decreasing Average Cost and Competition: A New Look at the Addyston Pipe Case,” Journal of Law and Economics (October 1982).
Klein, Benjamin, and Kenney, Roy. “The Economics of Block Booking,” Journal of Law and Economics, (1983), 27, 3, 497-540.
Tirole, Jean. “Information and Strategic Behavior: Reputation, Limit Pricing, and Predation.” In Theory of Industrial Organization, Chapter 9.
Timothy Bresnahan, “Empirical Studies of Industries with Concentrated Power,” Handbook of Industrial Organization, vol.II.
Pakes, Ariel. “Theory and Empirical Work on Imperfectly Competitive Markets,” NBER Working Paper 14117, June 2008.
Sproul, Michael. “Antitrust and Prices.” Journal of Political Economy (August 1993): 741-754.
McCutcheon, Barbara. “Do Meetings in Smoke-Filled Rooms Facilitate Collusion?” Journal of Political Economy (April 1997): 336-350.
Hazlett, Thomas W. “Is Antitrust Anticompetitive?” Harvard Journal of Law and Public Policy, (Spring 1986).
Crandall, Robert and Whinston, Clifford, “Does Antitrust Improve Consumer Welfare?: Assessing the Evidence,” Journal of Economic Perspectives (Fall 2003 ), 3-26, available at http://www.brookings.org/views/articles/2003crandallwinston.htm.
IV. Theory and Regulation of Natural Monopolies
Sanford Berg and John Tschirhart, Natural Monopoly Regulation, Cambridge University Press.
pp. 21-275.
Demsetz, Harold. “Why Regulate Utilities?” Journal of Law and Economics (April 1968): 347-359.
Williamson, Oliver. “Franchise Bidding for Natural Monopolies – in General and with Respect to CATV.” Bell Journal of Economics (Spring 1976): 73-104.
Crandall, Robert W. “An End to Economic Regulation?” available at http://www.brookings.org/views/papers/crandall/20030721.pdf.
Parente, Stephen L. and Prescott, Edward. “Monopoly Rights: A Barrier to Riches.” American Economic Review 89, 5 (December 1999): 1216-1233.
Shleifer, Andrei. “State vs. Private Ownership.” Journal of Economic Perspectives (Fall 1998): 133-151.
Berg and Tschirhart, pp. 480-522.
Associated other topics in regulation, depending on your interests; reading suggestions will follow later in the semester.
Assorted links
1. Deep Glamour, a new Virginia Postrel blog, linked to a forthcoming Virginia Postrel book
2. Videos of Nobel Laureates, recent talks
3. Beware what ye do not know, namely peanut butter
4. Robert Solow takes down Kevin Phillips
Which body parts are sung about the most?
The eyes. Other results vary across genre, for instance gospel and blues sing more about hands than eyes. And get this:
As for the genre that talks about body parts the most, hip hop takes the honors with more references than any other genre. Meanwhile, gospel refers to the body the least. There are plenty of other data points to peruse. It’s nice to know that 23.64 percent of hip hop songs refer to the behind, while 11.83 percent of rock songs talk about eyes.
Here is a summary of the results:
Moral luck and Rawlsian biography
As Thomas Pogge has noted in his recent biography John Rawls: His Life and Theory of Justice,
Rawls was especially sensitive to issues of luck because of a sad
occurrence in his own life. Two of his brothers died in childhood
because they had contracted fatal illnesses from him. Pogge calls the
loss of the brothers the “most important events in Jack’s childhood.”
In 1928, the 7-year-old Rawls contracted diphtheria. His brother Bobby,
younger by 20 months, visited him in his room and was fatally infected.
The next winter, Rawls contracted pneumonia. Another younger brother,
Tommy, caught the illness from him and died.
That’s from libertarian David Gordon, whom I suspect has never infected anybody. The hat tip goes to Will Wilkinson, who in his post describes himself as a "neo-sentimentalist." I can just imagine Kerry (his girlfriend) saying to Will on their third date: "Oh, Will, you’re such a neo-sentimentalist!"
The return of physiognomy
It has been found, for example, that women can predict a man’s
interest in infant children from his face. Trustworthiness also shows
up, as does social dominance. The latest example comes from a paper
just published in the Proceedings of the Royal Society by
Justin Carré and Cheryl McCormick, of Brock University in Ontario,
Canada.The thesis developed by Mr Carré and Dr McCormick is that
aggressiveness is predictable from the ratio between the width of a
person’s face and its height. Their reason for suspecting this is that
this ratio differs systematically between men and women (men have wider
faces) and that the difference arises during puberty, when sex hormones
are reshaping people’s bodies. The cause seems to be exposure to
testosterone, which is also known to make people aggressive. It seems
reasonable, therefore, to predict a correlation between aggression and
face shape.
The bottom line is that a wide face predicts male aggression. The study is based on photos of hockey players and measures of their combativeness. Here is the full story. Here is an Oprah magazine article on how women can camouflage a wide face with the right haircut.
The best two paragraphs I read today
…the campaign against Obama has metastasized into a variant of class
warfare. It’s the resentment of the meritocracy. What the GOP realized
was that Obama did come across different than the average American, but
not so much because he was black as because he was effortless. The very
set of supercharged talents and qualities that allowed Obama to
levitate past the boundaries of race and class make him different than
those who haven’t rocketed upward on the strength of their intelligence
and charisma and charm. After all, if you’re a fumbling, struggling
individual out in suburban Ohio, how can you believe that this guy who
doesn’t look to have struggled a day in his life cares about your
pathetic problems? Obama, in other words, is elite. As in "A group or
class of persons enjoying superior intellectual, social, or economic
status." Obama isn’t an economic elite, but he is a social and
intellectual elite. And it’s that creeping sense that he’s different,
that he’s better and knows it, that McCain is trying to exploit.The Obama campaign, similarly, has realized that McCain is an elite,
and that voters won’t believe that a guy who has so many houses that he
can’t keep track of them will care if they lose the small condo they
call home. This election, in other words, is becoming a contest to
decide which type of elite voters hate — or fear, or mistrust — more:
A social elite or an economic elite?
Zero-price Markets in everything: “Fake following”
Jason Kottke reports:
This is a little bit genius. One of the new features of FriendFeed (a
Twitter-like thingie) is "fake following". That means you can friend
someone but you don’t see their updates. That way, it appears that
you’re paying attention to them when you’re really not. Just like
everyone does all the time in real life to maintain their sanity. Rex calls it
"most important feature in the history of social networks" and I’m
inclined to agree. It’s one of the few new social features I’ve seen
that makes being online buddies with someone manageable and doesn’t
just make being social a game or competition.
The Myth in Paperback
Just in time for the conventions you can now buy Caplan’s The Myth of the Rational Voter in paperback. If McCain wins I predict Caplan will be in high demand as half the population dazedly asks what went wrong? If Obama wins the great and the good will sigh with relief and the Bush years will be written off as an aberration of democracy since righted.
Very good sentences
The first lesson in economics is: things are often not what they seem.
That’s a sentence in the first edition of Samuelson’s Principles. Justin Wolfers discusses the book here. Part of chapter one is on-line here. Use the search function. Here (search for "communism") Samuelson says that economics cannot pass judgment on whether American society will go the "revolutionary" path (toward communism) or the "evolutionary" path, or whether Russia indicates the "folly" or the "wisdom" of communism. Indeed things are not always what they seem. You can have lots of fun with the search service.
Economic Philately
Which stamp predicts development and which stamp dissension?
For the answer, Chris Blattman points us to Michael Kevane’s paper on stamps and development.
An analysis of the imagery on postage stamps suggests that regimes in Sudan
and Burkina Faso have pursued very different strategies in representing the
nation. Sudan’s stamps focus on the political center and dominant elite (current
regime, Khartoum politicians, and Arab and Islamic identity) while Burkina
Faso’s stamps focus on society (artists, multiple ethnic groups, and
development). Sudan’s stamps build an image of the nation as being about the
northern-dominated regime in Khartoum (whether military or parliamentary);
Burkina Faso’s stamps project an image of the nation as multi-ethnic and
development-oriented.
The new “Chicago Boys”
The number of Chileans who studied Ph.d. economics at the University of Chicago in the 1990s: 4
The number of Chileans studying there since 2001: 10
According to this interesting article, studying at Chicago no longer bears the stigma of association with the Pinochet regime. Nor do those who study at Chicago aspire to be hard-core market reformers. This is a sign of how "normal" Chile has become, and also a sign of how "normal" the University of Chicago has become, but most of all the former.
Another example of randomized Nash equilibrium
From an interview with Vladimir Kramnik. Note that Kramnik is playing in a regular chess tournament, shortly before with world championship match with Anand:
Is it difficult for you, because of course you cannot show your preparations, your openings for the match, so you have to choose, let us say, not your real openings…
Yes, sometimes. But it is nor really about this, it is about that fact that sometimes it would be too simple if you don’t show anything. That also gives a lot of information to your opponent. Then he knows that what you played you will for sure not play in the match. That is why you need to mix. Some things. I have to show, some things I don’t show. So I am trying to confuse as much as possible my opponent. And this is a bit difficult. Before each game I start to think if he plays this should I play this or should I play that, or even during the game I start to think maybe I should play this or maybe I shouldn’t play it. It is a little bit confusing I would say. It is easier to play when you don’t have such an event in front of you.
Kramnik has been playing indifferently lately, yet when times demand he can be the world’s strongest match player. Anand is the current world champion, noting that he won the title through a tournament structure. Match chess is all about adjustments and stamina and defense and preparation and strength of will. Winning tournaments requires that you beat the weaker players consistently and that has never been Kramnik’s strength.
Anand, by the way, can play speed chess almost as well as he plays classical slow chess. He is an amazing tactician and a brilliant defender. But does he have a deep enough strategic style to prevail in a longer and tougher setting? I’ll let you know how the match goes.
Markets in Everything: Panhandling
In Memphis, a local FOX News reporter, Jason Carter, donned old
clothes and hit the streets earlier this year, earning about $10 an
hour. “Just the quasi-appearance of being homeless filled my cup,”
Carter observed. That all the money is beyond the tax man’s clutches
adds to the allure of professional panhandling.Carter prepared for his stint on the street by surfing the Internet,
where a variety of websites dispense panhandling advice. NeedCom, for
example–subtitled “Market Research for Panhandlers”–offers tips from
Baker and other pros on how to hustle. The website’s developer, Cathy
Davies, wants it to get people “thinking about panhandling as a
realistic economic activity, rather than thinking that panhandlers are
lazy or don’t work very hard.”
More here, overly sensationalistic but interesting in parts.
Thanks to Tim Groseclose for the pointer.
Does grandpa matter?
Even fathers with only one wife provided no [longevity] benefit to their grandchildren, a finding supported by previous research.
That is based on a study of Finnish church data from the 18th and 19th centuries. The thrust of the entire piece is the claim that polygamous men will live longer than monogamous men. But note, all you Lotharios out there, this result is correlated with actual [multiple] marriage, not running around in bars and the like.
If I Believed in Austrian Business Cycle Theory, part II
Karl, a loyal man, has a request:
In your post from a few years ago, "If I believed in Austrian business
cycle theory," you made some of the most apt predictions you have made
on this blog. Nearly everything has come true. Obviously though you are
not touting these predictions because being associated with the
"intransigent" Austrians will damage your credibility as a hip, quirky
thinker. So instead, can you just give me a socio-economic cost-benefit
analysis of breast implants.
Here is my original post. Two points:
1. What happened is best thought of as a bubble where loose monetary policy was one of several triggers but the market response was more at fault than was government.
2. Second, one important false market signal was that people thought rising asset prices could substitute for savings out of disposable income. That is not the Misesian or Hayekian scenario.
My "predictions in the subjunctive" were largely correct — more correct than I knew at the time — but that doesn’t mean Austrian business cycle theory is largely correct. I would, however, endorse a modified version of the theory which goes beyond the "blame the government inflation" for everything interpretation.
On Karl’s other question, it’s not just a zero-sum game, socially speaking, but my personal preference would be for Q = 0.
Addendum: Walter Block wrote a 58-page critique of my earlier writings on ABC. He has sent it to me twice and I am happy to link to it. Update: Here is the correct Block link.