Results for “prizes”
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Whiners, in this case whiners about Airspace

We could call this strange geography created by technology “AirSpace.” It’s the realm of coffee shops, bars, startup offices, and co-live / work spaces that share the same hallmarks everywhere you go: a profusion of symbols of comfort and quality, at least to a certain connoisseurial mindset. Minimalist furniture. Craft beer and avocado toast. Reclaimed wood. Industrial lighting. Cortados. Fast internet. The homogeneity of these spaces means that traveling between them is frictionless, a value that Silicon Valley prizes and cultural influencers like Schwarzmann take advantage of. Changing places can be as painless as reloading a website. You might not even realize you’re not where you started…

The profusion of generic cafes and Eames chairs and reclaimed wood tables might be a superficial meme of millennial interior decorating that will fade with time. But the anesthetized aesthetic of International Airbnb Style is the symptom of a deeper condition, I think.

Why is AirSpace happening? One answer is that the internet and its progeny — Foursquare, Facebook, Instagram, Airbnb — is to us today what television was in the last century…

That is all from Kyle Chayka at The Verge.  I found this article interesting, well-written, and making a valid point.  Still, is it not mostly your fault if you are stuck in “Airspace,” as it is called?  Northern Virginia has some of the wealthiest counties in the United States, yet most of the terrain still is not Airspace or anything close to it.  Nor is most of San Francisco this way, or most of Manhattan, much less the other boroughs.  (And might you not prefer Airspace for the NYC subway?)  Seoul is a city which has its share of Airspace, but again is hardly dominated by it — the dense, low-slung neighborhoods of small restaurants are fascinating and mostly retro.

I think of Airspace as a 2-3% of our living space condition, yet a 2-3% that you can immerse yourself in if you are so inclined.

Which I am not.

Via edmundogs.

My Fall Industrial Organization reading list

This is only part one for the class, do not panic over whatever you think might be completely left out. That said, suggested additions are welcome, here goes:

Competition

Bresnahan, Timothy F. “Competition and Collusion in the American Automobile Industry: the 1955 Price War,” Journal of Industrial Economics, 1987, 35(4), 457-82.

Bresnahan, Timothy and Reiss, Peter C. “Entry and Competition in Concentrated Markets,” Journal of Political Economy, (1991), 99(5), 977-1009.

Asker, John, “A Study of the Internal Organization of a Bidding Cartel,” American Economic Review, (June 2010), 724-762.

Whinston, Michael D., “Antitrust Policy Toward Horizontal Mergers,” Handbook of Industrial Organization, vol.III, chapter 36, see also chapter 35 by John Sutton.

“Benefits of Competition and Indicators of Market Power,” Council of Economic Advisors, April 2016.

Jan De Loecker and Jan Eeckhout, “The Rise of Market Power and its Macroeconomic Implications,” http://www.janeeckhout.com/wp-content/uploads/RMP.pdf.  My comment on it is here: https://marginalrevolution.com/marginalrevolution/2017/08/rise-market-power.html

Me on intangible capital, https://marginalrevolution.com/marginalrevolution/2017/09/intangible-investment-monopoly-profits.html.

Traina, James. “Is Aggregate Market Power Increasing?: Production Trends Using Financial Statements,” https://research.chicagobooth.edu/-/media/research/stigler/pdfs/workingpapers/17isaggregatemarketpowerincreasing.pdf

Shapiro, Carl. “Antitrust in a Time of Populism.” UC Berkeley, working draft from 24 October 2017, forthcoming in International Journal of Industrial Organization.

Klein, Benjamin and Leffler, Keith. “The Role of Market Forces in Assuring Contractual Performance.”  Journal of Political Economy 89 (1981): 615-641.

Breit, William. “Resale Price Maintenance: What do Economists Know and When Did They Know It?” Journal of Institutional and Theoretical Economics (1991).

Bogdan Genchev, and Julie Holland Mortimer. “Empirical Evidence on Conditional Pricing Practices.” NBER working paper 22313, June 2016.

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.

Crandall, Robert and Winston, 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.

FTC, Bureau of Competition, website, http://www.ftc.gov/bc/index.shtml., an optional browse, perhaps read about some current cases and also read the merger guidelines.

Parente, Stephen L. and Prescott, Edward. “Monopoly Rights: A Barrier to Riches.”  American Economic Review 89, 5 (December 1999): 1216-1233.

Demsetz, Harold.  “Why Regulate Utilities?”  Journal of Law and Economics (April 1968): 347-359.

Armstrong, Mark and Sappington, David, “Recent Developments in the Theory of Regulation,” Handbook of Industrial Organization, chapter 27, also on-line.

Shleifer, Andrei. “State vs. Private Ownership.” Journal of Economic Perspectives (Fall 1998): 133-151.

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. 

Strictly optional most of you shouldn’t read this: Ariel Pakes and dynamic computational approaches to modeling oligopoly: http://www.economics.harvard.edu/faculty/pakes/files/Pakes-Fershtman-8-2010.pdf

http://www.economics.harvard.edu/faculty/pakes/files/handbookIO9.pdf

 

Economics of Tech 

Farrell, Joseph and Klemperer, Paul, “Coordination and Lock-In: Competition with Switching Costs and Network Effects,” Handbook of Industrial Organization, vol.III, chapter 31, also on-line.

Weyl, E. Glenn. “A Price Theory of Multi-Sided Platforms.” American Economic Review, September 2010, 100, 4, 1642-1672.

Tech companies as platforms, Tyler Cowen chapter, to be distributed.

Gompers, Paul and Lerner, Josh. “The Venture Capital Revolution.” Journal of Economic Perspectives (Spring 2001): 145-168.

Paul Graham, essays, http://www.paulgraham.com/articles.html, and on Google itself, http://www.slate.com/blogs/blogs/thewrongstuff/archive/2010/08/03/error-message-google-research-director-peter-norvig-on-being-wrong.aspx

Acemoglu, Daron and Autor, David, “Skills, Tasks, and Technologies: Implications for Employment and Earnings,” http://econ-www.mit.edu/files/5607

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

Song, Jae, David J. Price, Fatih Guvenen, and Nicholas Bloom. “Firming Up Inequality,” CEP discussion Paper no. 1354, May 2015.

Andrews, Dan, Chiara Criscuolo and Peter N. Gal. “Frontier firms, Technology Diffusion and Public Policy: Micro Evidence from OECD Countries.”  OECD working paper, 2015.

Mueller, Holger M., Paige Ouimet, and Elena Simintzi. “Wage Inequality and Firm Growth.” Centre for Economic Policy Research, working paper 2015.

Readings on blockchain governance, to be distributed.

Haltiwanger, John, Ian Hathaway, and Javier Miranda. “Declining Business Dynamism in the U.S. High-Technology Sector.” Ewing Marion Kauffman Foundation, February 2014.

 

Organization and capital structure

Ronald Coase and Oliver Williamson on the firm, if you haven’t already read them, but limited doses should suffice.

Gibbons, Robert, “Four Formal(izable) Theories of the Firm,” on-line at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=596864.

Van den Steen, Eric, “Interpersonal Authority in a Theory of the Firm,” American Economic Review, 2010, 100:1, 466-490. 

Lazear, Edward P. “Leadership: A Personnel Economics Approach,” NBER Working Paper 15918, 2010.

Oyer, Paul and Schaefer, Scott, “Personnel Economics: Hiring and Incentives,” NBER Working Paper 15977, 2010.

Tyler Cowen chapter on CEO pay, to be distributed.

Cowen, Tyler, Google lecture on prizes, on YouTube.

Ben-David, Itzhak, and John R. Graham and Campbell R. Harvey, “Managerial Miscalibration,” NBER working paper 16215, July 2010.

Glenn Ellison, “Bounded rationality in Industrial Organization,” http://cemmap.ifs.org.uk/papers/vol2_chap5.pdf 

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.

Hansemann, Henry.  “The Role of Non-Profit Enterprise.” Yale Law Journal (1980): 835-901.

Kotchen, Matthew J. and Moon, Jon Jungbien, “Corporate Social Responsibility for Irresponsibility,” NBER working paper 17254, July 2011.

Strictly optional but recommended for the serious: Ponder reading some books on competitive strategy, for MBA students.  Here is one list of recommendations: http://www.linkedin.com/answers/product-management/positioning/PRM_PST/20259-135826

 

Production

American Economic Review Symposium, May 2010, starts with “Why do Firms in Developing Countries Have Low Productivity?” runs pp.620-633. 

Dani Rodrik, “A Surprising Convergence Result,” http://rodrik.typepad.com/dani_rodriks_weblog/2011/06/a-surprising-convergence-result.html, and his paper here http://www.hks.harvard.edu/fs/drodrik/Research%20papers/The%20Future%20of%20Economic%20Convergence%20rev2.pdf

 Serguey Braguinsky, Lee G. Branstetter, and Andre Regateiro, “The Incredible Shrinking Portuguese Firm,” http://papers.nber.org/papers/w17265#fromrss. 

Nicholas Bloom, Raffaella Sadun, and John Van Reenen, “Recent Advances in the Empirics of Organizational Economics,” http://cep.lse.ac.uk/pubs/download/dp0970.pdf.

Nicholas Bloom, Raffaella Sadun, and John Van Reenen, the slides for “Americans do I.T. Better: US Multinationals and the Productivity Miracle,” http://www.people.hbs.edu/rsadun/ADITB/ADIBslides.pdf, the paper is here http://www.stanford.edu/~nbloom/ADIB.pdf but I recommend focusing on the slides.

Bloom, Nicholas, Raffaella Sadun, and John Van Reenen. “Management as a Technology?” National Bureau of Economic Research working paper 22327, June 2016.

Syerson, Chad “What Determines Productivity?” Journal of Economic Literature, June 2011, XLIX, 2, 326-365.

David Lagakos, “Explaining Cross-Country Productivity Differences in Retail Trade,” Journal of Political Economy, April 2016, 124, 2, 1-49.

Casselman, Ben. “Corporate America Hasn’t Been Disrupted.” FiveThirtyEight, August 8, 2014.

Decker, Ryan and John Haltiwanger, Ron S. Jarmin, and Javier Miranda. “Where Has all the Skewness Gone?  The Decline in High-Growth (Young) Firms in the U.S. National Bureau of Economic Research working paper 21776, December 2015.

Furman, Jason and Peter Orszag. “A Firm-Level Perspective on the Role of Rents in the Rise in Inequality.” October 16, 2015.

http://evansoltas.com/2016/05/07/pro-business-reform-pro-growth/

Furman, Jason. ”Business Investment in the United States: Facts, Explanations, Puzzles, and Policy.” Remarks delivered at the Progressive Policy Institute, September 30, 2015, on-line at https://m.whitehouse.gov/sites/default/files/page/files/20150930_business_investment_in_the_united_states.pdf.

Scharfstein, David S. and Stein, Jeremy C.  “Herd Behavior and Investment.”  American Economic Review 80 (June 1990): 465-479.

Stein, Jeremy C. “Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior.” Quarterly Journal of Economics 104 (November 1989): 655-670.

 

Sectors: finance, health care, education, others

Gorton, Gary B. “Slapped in the Face by the Invisible Hand: Banking and the Panic of 2007,” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1401882, published on-line in 2009. 

Erel, Isil, Nadault, Taylor D., and Stulz, Rene M., “Why Did U.S. Banks Invest in Highly-Rated Securitization Tranches?” NBER Working Paper 17269, August 2011. 

Healy, Kieran. “The Persistence of the Old Regime.” Crooked Timber blog, August 6, 2014.

More to be added, depending on your interests.

The Most Momentous Place?

The old city of Jerusalem is astonishingly small for a city with so many momentous places. One can walk from Christianity’s holiest site to the holiest site of Judaism, pausing to look at one of the holiest sites of Islam, in less time than it takes to walk from my office on the campus of George Mason University to the campus Starbucks. Jerusalem is actually smaller than the GMU campus. GMU has had a few big events to its credit–two Nobel Prizes, several presidential speeches and so forth–but few people come here on pilgrimage. GMU doesn’t compete with Jerusalem.

Is there another parcel of land of similar size to the old city of Jerusalem that can lay claim to being similarly momentous? The signing of the Declaration of Independence in Philadelphia was pretty important but not much has happened there since. Cape Canaveral gets a nod but doesn’t span multiple fields of endeavor. Rome was important for a long time but its momentous events have faded compared to those that occurred in Jerusalem.

My best guess for a momentous parcel of land of similar size to old Jerusalem would be Cambridge University in the UK. Cambridge can lay claim to being the place of Newton, Darwin, Maxwell, Babbage, Turing, Oppenheimer, and Crick and Watson and many others in the fields of politics, literature and the social sciences including economists such as Keynes, Marshall and Sen. Overall, Cambridge gives Jerusalem a run for its money. Jerusalem had its momentous period between say the building of the first temple in 957 BCE and Muhammad’s night journey around 621 CE, a period of roughly 1600 years, while Cambridge has had only an 800 year run since being built in 1231 so controlling for a time a case can be made that Cambridge beats Jerusalem. Perhaps you disagree but then Cambridge is still racking up momentous events while Jerusalem hasn’t had much in the past 1400 years so Cambridge is certainly catching up. Of course, one big event could put Jerusalem back on top.

Aside from Cambridge, cases can be made for other universities such as Oxford, Harvard and even newcomer Chicago. But it’s interesting that universities come to mind as perhaps the only places in real competition with Jerusalem. Are there others?

Simplifiers vs. constructors in science

Simplifiers give one a better overall picture of how the world works, whereas constructors are trying to build something.  The balance seems to be shifting, for instance in physics:

Within the Physics label…we find the simplifiers dominated three quarters of the Nobel Prizes from 1952 to 1981, but more recently constructors have edged the balance with more than half of those from 1982 to 2011.

There is also a shift toward constructors in chemistry, though it is less abrupt.  In the fields of physiology and medicine, however, simplifiers reign supreme and there has been no shift across time.  Three-quarters of the prizes are still going to simplifiers.

Does that mean we should be relatively bullish about progress in those areas, based on forthcoming fundamental breakthroughs?

All these points are from Jeremy J. Baumberg’s new and interesting The Secret Life of Science: How It Really Works and Why It Matters.

The excellent Kevin A. Bryan on innovation

He has a forthcoming JET paper with Jorge Lemus, here is the abstract:

We construct a tractable general model of the direction of innovation. Competition leads firms to pursue inefficient research lines, because firms both race toward easy projects and do not fully appropriate the value of their inventions. This dual distortion will imply that any directionally efficient policy must condition on the properties of hypothetical inventions which are not discovered in equilibrium, hence common R&D policies like patents and prizes generate suboptimal innovation direction and may even generate lower welfare than laissez faire. We apply this theory to radical versus incremental innovation, patent pools, and the effect of trade on R&D.

Here is a slightly different version of the abstract, along with other research papers.  Here is Kevin on travel.  Kevin is at the University of Toronto, and also is author of the excellent blog A Fine Theorem.

Here is Kevin’s reading list on innovation, recommended.

Nobel Prize awarded to Richard Thaler

This is a prize that is easy to understand.  It is a prize for behavioral economics, for the ongoing importance of psychology in economic decision-making, and for “Nudge,” his famous and also bestselliing book co-authored with Cass Sunstein.

Here are previous MR posts on Thaler, we’ve already covered a great deal of his research.  Here is Thaler on Twitter.  Here is Thaler on scholar.google.com.  Here is the Nobel press release, with a variety of excellent accompanying essays and materials.  Here is Cass Sunstein’s overview of Thaler’s work.

Perhaps unknown to many, Thaler’s most heavily cited piece is on whether the stock market overreacts.  He says yes this is possible for psychological reasons, and this article also uncovered some of the key evidence in favor of the now-vanquished “January effect” in stock returns, namely that for a while the market did very very well in the month of January.  (Once discovered the effect went away.)  Another excellent Thaler piece on finance is this one with Shleifer and Lee, on why closed end mutual funds sell at divergences from their true asset values.  This too likely has something to do with market psychology and sentiment, as the same “asset package,” in two separate and non-arbitrageable markets, can sell for quite different prices, sometimes premia but usually discounts.  This was one early and relative influential critique of the efficient markets hypothesis.

Another classic early Thaler piece is on a phenomenon known as “mental accounting,” for instance you might treat a dollar in your pocket as different from a dollar in your bank account.  Or earned money may be treated different from money you just chanced upon, or won that morning in the stock market.  This has significant implications for predicting consumer decisions concerning saving and spending; in particular, economists cannot simply measure income but must consider where the money came from and how it is perceived by consumers, namely how they are performing their mental accounting of the funds.  Have you ever gone on a vacation with a notion that you would spend so much money, and then treated all expenditures within that range as essentially already decided?  The initial piece on this topic was published in a marketing journal and it has funny terminology, a sign of how far from the mainstream this work once was.  It is nonetheless a brilliant piece.  Here is more Thaler on mental accounting.

Thaler, with Kahneman and Knetsch, was a major force behind discovering and measuring the so-called “endowment effect.”  Once you have something, you value it much more!  Maybe three or four times as much, possibly more than that.  It makes policy evaluation difficult, because as economists we are not sure how much to privilege the status quo.  Should we measure “willingness to pay” — what people are willing to pay for what they don’t already have?  Or “willingness to be paid” — namely how eager people are to give up what they already possess?  The latter magnitude will lead to much higher valuations for the assets in question.  This by the way helps explain status quo bias in politics and other spheres of life.  People value something much more highly once they view it as theirs.

This phenomenon also makes the Coase theorem tricky because the final allocation of resources may depend quite significantly on how the initial property rights are assigned, even when the initial wealth effect from such an allocation may appear to be quite small.  See this Thaler piece with Knetsch.  It’s not just that you assign property rights and let people trade, but rather how you assign the rights up front will create an endowment effect and thus significantly influence the final bargain that is struck.

With Jolls and Sunstein, here is Thaler on a behavioral approach to law and economics, a long survey but also constructive piece that became a major trend and has shaped law and economics for decades.  He has done plenty and had a truly far-ranging impact, not just in one or two narrow fields.

Thaler’s “Nudge” idea, developed in conjunction with Cass Sunstein over the course of a major book and some articles, has led policymakers all over the world to focus on “choice architecture” in designing better systems, the UK even setting up a “Nudge Unit.”  For instance, one way to encourage savings is to set up pension systems for employees so that the maximum contribution is the default, rather than an active choice people must make.  This is sometimes referred to as a form of “soft” or “libertarian paternalism,” since choice is still present.  Here is Thaler responding to some libertarian critiques of the nudge idea.

I first encountered Thaler’s work in graduate school, in the mid-1980s, in particular some of his pieces in the Journal of Economic Behavior and Organization; here is his early 1980 manifesto on how to think about consumer choice.  I thought “this is great stuff,” and I gobbled it up, as it was pretty consistent with some of what I was imbibing from Thomas Schelling, in particular Thaler’s 1981 piece with Shefrin on the economics of self-control, a foundation for many later discussions of paternalism.  I also thought “a shame this work isn’t going to become mainstream,” because at the time it wasn’t.  It was seen as odd, under-demonstrated, and often it wasn’t in top journals.  For some time Thaler taught at Cornell, a very good school but not a top top school of the kind where many Laureates might teach, such as Harvard or Chicago or MIT.  Many people were surprised when finally he received an offer from the University of Chicago Business School, noting of course this was not the economics department.  Obviously this Prize is a sign that Thaler truly has arrived at the very high levels of recognition, and I would note Thaler has been pegged as one of the favorites at least since 2010 or so.  When Daniel Kahneman won some while ago and Thaler didn’t, many people thought “ah, that is it” because many of Thaler’s most famous pieces were written with Kahneman.  Yet as time passed it became clear that Thaler’s work was holding up and spreading far and wide in influence, and he moved into a position of being a clear favorite to win.

Here is Thaler’s book on the making of behavioral economics.  Excerpt:

…my thesis advisor, Sherwin Rosen, gave the following as an assessment of my career as a graduate student: “We did not expect much of him.”

Very lately Thaler on Twitter has been making some critical remarks about price gouging, suggesting we also must take into account what customers perceive as fair.  Here is his earlier piece about fairness constraints on profit-seeking, still a classic.

Thaler has written many columns for The New York Times, here is one on boosting access to health care.  Here are many more of them.  Here is “Unless you are Spock, Irrelevant Things Matter for Investment Behavior.”  Here is Thaler on making good citizenship fun.  He also told us that trading up in the NFL draft isn’t worth it.

Thaler is underrated as a policy economist, here is an excellent NYT piece on the “public option” for health insurance, excerpt: “…instead of arguing about whether to have a public option, argue about the ground rules.”

His last pre-Nobel tweet was: “The web site is using lots of . Advertised rates include cashing in of “points”, cancellation policies not salient if bad…”

A well-deserved prize and one that is relatively easy to explain, and most of Thaler’s works are easy to read even if you are not an economist.  I would stress that Thaler has done more than even many of his fans may realize.

My Fall 2017 Ph.d Industrial Organization reading list

It is long, and thus below the fold…

  1. Competition

 

Einav, Lira and Levin, Jonathan, “Empirical Industrial Organization: A Progress Report,” Journal of Economic Perspectives, (Spring 2010), 145-162.

Bresnahan, Timothy F. “Competition and Collusion in the American Automobile Industry: the 1955 Price War,” Journal of Industrial Economics, 1987, 35(4), 457-82.

Asker, John, “A Study of the Internal Organization of a Bidding Cartel,” American Economic Review, (June 2010), 724-762.

Bresnahan, Timothy and Reiss, Peter C. “Entry and Competition in Concentrated Markets,” Journal of Political Economy, (1991), 99(5), 977-1009.

Whinston, Michael D., “Antitrust Policy Toward Horizontal Mergers,” Handbook of Industrial Organization, vol.III, chapter 36, see also chapter 35 by John Sutton.

“Benefits of Competition and Indicators of Market Power,” Council of Economic Advisors, April 2016.

Klein, Benjamin and Leffler, Keith.  “The Role of Market Forces in Assuring Contractual Performance.”  Journal of Political Economy 89 (1981): 615-641.

Bogdan Genchev, and Julie Holland Mortimer. “Empirical Evidence on Conditional Pricing Practices.” NBER working paper 22313, June 2016.

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.

Crandall, Robert and Winston, 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.

FTC, Bureau of Competition, website, http://www.ftc.gov/bc/index.shtml.  Read about some current cases and also read the merger guidelines.

Parente, Stephen L. and Prescott, Edward. “Monopoly Rights: A Barrier to Riches.”  American Economic Review 89, 5 (December 1999): 1216-1233.

Demsetz, Harold.  “Why Regulate Utilities?”  Journal of Law and Economics (April 1968): 347-359.

Armstrong, Mark and Sappington, David, “Recent Developments in the Theory of Regulation,” Handbook of Industrial Organization, chapter 27, also on-line.

Shleifer, Andrei. “State vs. Private Ownership.” Journal of Economic Perspectives (Fall 1998): 133-151.

Farrell, Joseph and Klemperer, Paul, “Coordination and Lock-In: Competition with Switching Costs and Network Effects,” Handbook of Industrial Organization, vol.III, chapter 31, also on-line.

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. 

 Strictly optional: Ariel Pakes and dynamic computational approaches to modeling oligopoly: http://www.economics.harvard.edu/faculty/pakes/files/Pakes-Fershtman-8-2010.pdf

http://www.economics.harvard.edu/faculty/pakes/files/handbookIO9.pdf

 

2. Organization

Gibbons, Robert, “Four Formal(izable) Theories of the Firm,” on-line at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=596864.

“Make Versus Buy in Trucking: Asset Ownership, Job Design, and Information,” by George P. Baker and Thomas N. Hubbard, American Economic Review, (June 2003), 551-572.

Van den Steen, Eric, “Interpersonal Authority in a Theory of the Firm,” American Economic Review, 2010, 100:1, 466-490.

 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.

Hansemann, Henry. “The Role of Non-Profit Enterprise.” Yale Law Journal (1980): 835-901.

Optional: Charness, Gary and Kuhn, Peter J. “Lab Labor: What Can Labor Economists Learn From the Lab?” NBER Working Paper, 15913, 2010, Lazear, Edward P. “Leadership: A Personnel Economics Approach,” NBER Working Paper 15918, 2010, Oyer, Paul and Schaefer, Scott, “Personnel Economics: Hiring and Incentives,” NBER Working Paper 15977, 2010.

Cowen, Tyler, Google lecture on prizes, on YouTube.

 

3. Production 

American Economic Review Symposium, May 2010, starts with “Why do Firms in Developing Countries Have Low Productivity?” runs pp.620-633. 

Nicholas Bloom, Raffaella Sadun, and John Van Reenen, “Recent Advances in the Empirics of Organizational Economics,” http://cep.lse.ac.uk/pubs/download/dp0970.pdf.

Nicholas Bloom, Raffaella Sadun, and John Van Reenen, the slides for “Americans do I.T. Better: US Multinationals and the Productivity Miracle,” http://www.people.hbs.edu/rsadun/ADITB/ADIBslides.pdf, the paper is here http://www.stanford.edu/~nbloom/ADIB.pdf but I recommend focusing on the slides. 

Bloom, Nicholas, Raffaella Sadun, and John Van Reenen. “Management as a Technology?” National Bureau of Economic Research working paper 22327, June 2016.

Syerson, Chad “What Determines Productivity?” Journal of Economic Literature, June 2011, XLIX, 2, 326-365.

Diego Restuccia and Richard Rogerson, “The Causes and Costs of Misallocation,” Journal of Economic Perspectives, Summer 2017, 31, 3, 151-174. 

Dani Rodrik, “A Surprising Convergence Result,http://rodrik.typepad.com/dani_rodriks_weblog/2011/06/a-surprising-convergence-result.html, and his paper here http://www.hks.harvard.edu/fs/drodrik/Research%20papers/The%20Future%20of%20Economic%20Convergence%20rev2.pdf

Serguey Braguinsky, Lee G. Branstetter, and Andre Regateiro,The Incredible Shrinking Portuguese Firm,” http://papers.nber.org/papers/w17265#fromrss.

David Lagakos, “Explaining Cross-Country Productivity Differences in Retail Trade,” Journal of Political Economy, April 2016, 124, 2, 1-49.

Casselman, Ben. “Corporate America Hasn’t Been Disrupted.” FiveThirtyEight, August 8, 2014.

Decker, Ryan and John Haltiwanger, Ron S. Jarmin, and Javier Miranda. “Where Has all the Skewness Gone?  The Decline in High-Growth (Young) Firms in the U.S. National Bureau of Economic Research working paper 21776, December 2015.  NB: This paper and the three that follow have some repetition, so read them selectively rather than exhaustively.

 Decker, Ryan and John Haltiwanger, Ron S. Jarmin, and Javier Miranda. “The Secular Business Dynamism in the U.S.” Working paper, June 2014.

Haltiwanger, John, Ian Hathaway, and Javier Miranda. “Declining Business Dynamism in the U.S. High-Technology Sector.” Ewing Marion Kauffman Foundation, February 2014.

Haltiwanger, John, Ron Jarmin and Javier Miranda. Where Have All the Young Firms Gone? Ewing Marion Kauffman Foundation, May 2012.

Song, Jae, David J. Price, Fatih Guvenen, and Nicholas Bloom. “Firming Up Inequality,” CEP discussion Paper no. 1354, May 2015.

Andrews, Dan, Chiara Criscuolo and Peter N. Gal. “Frontier firms, Technology Diffusion and Public Policy: Micro Evidence from OECD Countries.”  OECD working paper, 2015.

Furman, Jason and Peter Orszag. “A Firm-Level Perspective on the Role of Rents in the Rise in Inequality.” October 16, 2015.

Mueller, Holger M., Paige Ouimet, and Elena Simintzi. “Wage Inequality and Firm Growth.” Centre for Economic Policy Research, working paper 2015.

http://evansoltas.com/2016/05/07/pro-business-reform-pro-growth/

Furman, Jason. ”Business Investment in the United States: Facts, Explanations, Puzzles, and Policy.” Remarks delivered at the Progressive Policy Institute, September 30, 2015, on-line at https://obamawhitehouse.archives.gov/sites/default/files/page/files/20150930_business_investment_in_us_facts_explanations_puzzles_policies_slides.pdf

Scharfstein, David S. and Stein, Jeremy C.  “Herd Behavior and Investment.”  American Economic Review 80 (June 1990): 465-479.

Chen, Peter, Loukas Karabarbounis, and Brent Neiman. “The Global Rise of Corporate Saving.” National Bureau of Economic Research Working Paper 23133, February 2017.

 

4. Incentives

Edmans, Adam, Xavier Gabaix, and Dirk Jenter, “Executive Compensation: A Survey of Theory and Evidence,” NBER Working Paper 23596, July 2017.

Kaplan, Steven N. “Executive Compensation and Corporate Governance in the U.S.: Perceptions, Facts and Challenges.” Working paper, July 2012. 

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

Stein, Jeremy C. “Efficient Capital Markets, Inefficient Firms: A Model of Myopic Corporate Behavior.” Quarterly Journal of Economics 104 (November 1989): 655-670.

https://marginalrevolution.com/?s=short-termism

Ben-David, Itzhak, and John R. Graham and Campbell R. Harvey, “Managerial Miscalibration,” NBER working paper 16215, July 2010.

 

5. Sectors: finance, health care, tech, others

 Gorton, Gary B. “Slapped in the Face by the Invisible Hand: Banking and the Panic of 2007,” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1401882, published on-line in 2009. 

Erel, Isil, Nadault, Taylor D., and Stulz, Rene M., “Why Did U.S. Banks Invest in Highly-Rated Securitization Tranches?” NBER Working Paper 17269, August 2011. 

Philippon, Thomas. “Has the U.S. Finance Industry Become Less Efficient? On the Theory and Measurement of Financial Intermediation.” Working paper, September 2014. 

Gompers, Paul and Lerner, Josh.  “The Venture Capital Revolution.” Journal of Economic Perspectives, Spring 2001, 145-168.

Paul Graham, essays, http://www.paulgraham.com/articles.html.

Optional: consider subscribing to Ben Thompson’s Stratechery, periodic emails on the tech industry, note it is expensive.

Friedman, Milton. “The Social Responsibility of Business is to Increase its Profits.” The New York Times Magazine, September 13, 1970.

Healy, Kieran. “The Persistence of the Old Regime.” Crooked Timber blog, August 6, 2014.

More to be added, depending on your interests.

Should the federal government be paying more or less overhead to universities?

That is the topic of my latest Bloomberg column, here is one excerpt:

…it is possible to imagine an alternative vision where federal overhead allocations fall and the liberated money allows more scientists to get more (smaller) grants. Would that be a good idea?

If we look to the private sector as a model, maybe so. Private philanthropy is typically more oriented toward specific projects than toward overhead. One view is that makes federal government funding of overhead all the more important to fill in the gaps; an alternative take is that the private sector realizes a lot of overhead funding ends up wasted, and the federal government ought to see the same. There is some truth to both of these stories, but not surprisingly the academic scientific community is stressing the former.

Research funds spent on overhead strengthen the power and discretion of administrators (who capture and allocate the funds), senior scientists, the lab-based sciences and relatively expensive projects. They make universities more hierarchical and less egalitarian places, where the ability to bring in overhead funds yields status and influence.

Spending less on overhead and more on individual projects would favor small-scale research, and would decentralize authority and influence. Lower overhead allocations would give the government more authority over project choice, and the university less discretion, for better or worse. Overall, projects would have to prove themselves more in the broader world of prizes, donors and news coverage, rather than lobbying within the university for support.

A mixed bag of course — there is much more at the link.

“If only there were a vast empirical literature…”

Paul Krugman blogged on that, with initial impetus from Noah Smith.  Here is Noah:

If you and your buddies have a political argument, a vast literature can help you defend your argument even if it’s filled with vague theory, sloppy bad empirics, arguments from authority, and other crap. If someone smart comes along and tries to tell you you’re wrong about something, just demand huffily that she go read the vast literature before she presumes to get involved in the debate. Chances are she’ll just quit the argument and go home, unwilling to pay the effort cost of wading through dozens of crappy papers. And if she persists in the argument without reading the vast literature, you can just denounce her as uninformed and willfully ignorant. Even if she does decide to pay the cost and read the crappy vast literature, you have extra time to make your arguments while she’s so occupied. And you can also bog her down in arguments over the minute details of this or that crappy paper while you continue to advance your overall thesis to the masses.

…My solution to this problem is what I call the Two Paper Rule. If you want me to read the vast literature, cite me two papers that are exemplars and paragons of that literature. Foundational papers, key recent innovations – whatever you like (but no review papers or summaries). Just two. I will read them.

If these two papers are full of mistakes and bad reasoning, I will feel free to skip the rest of the vast literature. Because if that’s the best you can do, I’ve seen enough.

Those are both interesting posts, but my perspective is different, probably more as a matter of temperament than thinking they are objectively wrong.  Here are a few comments:

1. The best two papers on ethics are not very convincing.  Nonetheless people who have worked their way through a good amount of that literature are much better at ethical reasoning than those who have not.

2. The best two papers on global warming are not very convincing.  What is convincing is how many different perspectives and how many different branches of science point toward broadly similar conclusions.  In fact the aggregate effect here is quite overwhelming (don’t debate gw in the comments, not today; I’ll delete).  It is a question of many moats, not all of them being entirely muddy.

3. I see the Smith-Krugman standard as fairly economistic, and fairly MIT-late 20th century at that.  It is one vision of what a good literature looks like, and a fairly narrow one.  It will elevate simple answers in status, whether or not that is deserved.  It discriminates against dialogic knowledge, book-based knowledge, historical knowledge, and knowledge when the answers and methods are not very exact.  There is the risk of ending up too certain about one’s knowledge.

That all said, I do understand that specialized top researchers, including Nobel Laureates, often may do better holding relatively narrow methodological visions.  Look at all the Nobel Prizes that have been awarded to Chicago.  It might be entirely correct to insist that Becker’s treatise on the family pay more attention to anthropology, but that doesn’t mean he should have followed that advicee.

4. The standard seems to discourage reading, and I would not want to teach it to my students.  I teach something more like “always read more, unless you are writing or doing relevant quantitative work.  And one reason you write is to improve the quality of your reading.  Read more and write more, all the time.”  I still think that is better advice for most (not all) people.

5. Isn’t there a lot to be said for deferring to the opinions of those who have read through the “muddy moat”?  By no means are they all partisans, and the non-partisan ones care most of all about the truth.  After all, they did all that reading!  Defer, rather than trust so much in your ability to pick you the right two papers, or have someone pick them out for you.  I have a much more positive view of survey articles than does Noah, while understanding they do often leave you fairly agnostic on major issues.

6. If the truth of the matter is in fact muddy, you may need to dip into the muddy moat to learn that.

7. The difference between total value and marginal value may be relevant.  You might conclude a field literature has low total value, but the marginal value of learning more about that area still could be quite high.  That is in part because muddy fields and results don’t spread so readily, and so dipping into the muck can yield some revelations.  That is another reason why I would not offer the “two paper standard” as practical advice.

8. If anything, I would put the reading pressure on the other side, namely more rather than less.  Rather than encouraging readers to dismiss or downgrade fields, I would urge them to consult different disciplines altogether, including political science, sociology, and anthropology, others too.  This is much easier to do if you take a more positive attitude toward survey articles.

9. This is quite a subjective impression, but I worry that the dogmatic will use the two paper standard to dismiss or downgrade particular lines of investigation.

10. I don’t know if Noah and Paul were referring to my colleague Garett Jones, who frequently tweets “…if only there were a vast empirical literature” when he sees claims that he regards as empirically false.  Now, I am not the Garett Jones oracle, but I always took his use of the word “vast” to be slightly sarcastic.  Usually these are cases where even a fairly cursory knowledge of the literature in question would indicate something is wrong with the claim at hand.  In my view, Garett is not demanding “vastness” of effort, rather he is criticizing those who don’t grasp what the effort space looks like in the first place.

Summers on Arrow

Larry Summers reflects on Ken Arrow with a memory that captures well the academic life. I had similar experiences watching my father, a professor of mechanical engineering, interacting with his students in our home.

My mother’s brother, the Nobel economist Kenneth Arrow, died this week at the age of 95. He was a dear man and a hero to me and many others. No one else I have ever known so embodied the scholarly life well lived.

I remember like yesterday the moment when Kenneth won the Nobel Prize in 1972. Paul Samuelson—another Nobel economist and, as it happens, also my uncle—hosted a party in his honor, to which I, then a sophomore at MIT, was invited. It was a festive if slightly nerdy occasion.

As the night wore on, Paul and Kenneth were standing in a corner discussing various theorems in mathematical economics. People started leaving. Paul’s wife was looking impatient. Kenneth’s wife, my aunt Selma, put her coat on, buttoned it and started pacing at the door. Kenneth raised something known as the maximum principle and the writings of the Russian mathematician Pontryagin. Paul began a story about the great British mathematical economist and philosopher Frank Ramsey. My ride depended on this conversation ending, so I watched alertly without understanding a word.

But I did understand this: There were two people in the room who had won Nobel Prizes. They were the two people who, after everyone else was exhausted and heading home, talked on and on into the evening about the subject they loved. I learned that night about my uncles—about their passion for ideas and about the importance and excitement of what scholars do.

Wednesday assorted links

1. Beans and peas increase fullness more than meat, paper here.

2. Does bullying make men leave the labor market?, paper here.

3. Classical liberal and gay rights advocate Ralph Raico has passed away.

4. The lost city of Cahokia.

5. Thomas Schelling’s Nobel Lecture on Hiroshima and the nuclear tabooHenry on Schelling.   The NYT obituaryKennedy School oral history from SchellingKlein on Schelling’s politics.  And Klein, Cowen, and Kuran, “Salute to Schelling.”

6. A six-clone photo.  And Christmas tree made out of books.

7. Elon Musk joins Trump advisory team.

Monday assorted links

1. Why it matters whether China is labeled “a market economy” in trade talks.

2. A guide to the new Progressive federalism.  And how do you describe a hockey game in Innu?

3. I am delighted that Joe Nocera is coming to Bloomberg View.

4. Bengt Holmstrom’s Nobel Lecture.

5. Classical musicians pick their favorite Mozart works.

6. Profile of George Borjas.

7. John Cochrane’s new and long paper (pdf) on interest rates and the fiscal theory of the price level.  I hope to read it soon.

8. Baltic stocks still doing fine.

Sunday assorted links

1. Good thread on Tillerson.  Steve Coll tries to make Tillerson sound bad, I am not sure he succeeds.  Here is Rob Stavins on Tillerson.  I disagree with what seems to be Trump’s intended Russia policy, but I’ve known plenty of businessmen who have done deals with unpleasant foreign powers and I have never doubted their loyalties to the United States.  I see those issues being blurred and smushed together in a new kind of odd reverse McCarthyism.

2. Redux of my earlier post “Modeling Vladimir Putin.”

3. Westworld and the American Civil War.

4. “A person born in 1940 was, by the time he was 30, close to his peak earning point. A person born in 1980, by the time he is 30, is further away from a higher peak earning point. Thus, you are not comparing the same type of birth cohorts.”  Link here, and a bit more here.

5. “”I put out early,” she says.”  (NYT)

6. Niall Ferguson switches to supporting Brexit.

7. Oliver Hart Nobel Prize lecture.

Tuesday assorted links

1. Luigi Zingales on the Laureates.  And the full 49-page report on the Laureates, from Sweden.  And David Warsh on Holmström on debt and bankingCardiff Garcia on Bengt on moneyKling on the prizeBoettke on the prize.  A Fine Theorem on Oliver Hart, and how he changed his mind, recommended.  And where Nobel Laureates come from.

2. The economics of Twitter.

3. Tim Harford on man-machine interaction, adopted from his new book Messy.

4. College chain from India expanding into the U.S.?

5. Paul Krugman on Brexit and the pound. I don’t agree with those arguments, but I think they are more consistently Krugmanian than his earlier posts on Brexit.  If an economy is in demand-side secular stagnation, and then a government taxes production and trade, and takes finance down a peg, but boosts exports through a lower currency, I am not sure the model will predict significantly negative consequences.  His arguments are also consistent with a more general New Old Keynesian neglect of wealth effects.

6. Why does the UK have such a radical Brexit strategy?

Bengt Holmström, Nobel Laureate

Again, I’ll be refreshing this post throughout the morning, keep on hitting refresh.  Here is Bengt Holmström’s home page, which includes a CV, short biography, and links to research papers.  Here is his Wikipedia page.  He has taught for a long time at MIT, was born in Finland, and is one of the most famous and influential economists in the field of contracts and industrial organization.  Here is the Swedish summary.  Here is a video explanation.  This is a nice short bio of how he was influenced by his private sector experience, recommended, not just the usual take on him.

One key question he has considered is when incentives should be high-powered or when they should be more blunt.  It is now well known that you get what you pay for; see Alex’s excellent summary on this and related points.

His most famous paper is his 1979 “Moral Hazard and Observability.”  What are the optimal sharing rules when the principal can observe outcomes but not efforts or inputs?  And how might those sharing rules lead to a less than optimal result?  This is probably the most elegant and most influential statement of how direct incentives and insurance value in a contract can conflict and hinder efficiency.  A simple example — what about deductibles in a health insurance contract?  Yes, they do encourage the customer to internalize the value of staying in better health.  But they also limit the insurance value of a contract.  That a first best outcome will not be created in this situation was part of what Holmstrom showed, and he showed it in a relatively tractable way.

If you are thinking about CEO compensation, you might turn to the work of Holmström,  the Swedes have a good summary of this paper and point:

…an optimal contract should link payment to all outcomes that can potentially provide information about actions that have been taken. This informativeness principle does not merely say that payments should depend on outcomes that can be affected by agents. For example, suppose the agent is a manager whose actions influence her own firm’s share price, but not share prices of other firms. Does that mean that the manager’s pay should depend only on her firm’s share price? The answer is no. Since share prices reflect other factors in the economy – outside the manager’s control – simply linking compensation to the firm’s share price will reward the manager for good luck and punish her for bad luck. It is better to link the manager’s pay to her firm’s share price relative to those of other, similar firms (such as those in the same industry).

That is again a result about how incentives and insurance interact.  When do you pay based on perceived effort, and when on the basis of observed outcomes, such as profits or share price?  Holmström has been the number one theorist in helping to address issues of this kind.

“Moral Hazard in Teams,”1982, is a very famous and influential paper, here is the working paper version.  Holmström showed that the optimal incentive scheme has to consider time consistency.  Sometimes good incentive schemes impose penalties on the workers/agents to get them to work harder.  But let’s say you had a worker-owned and worker-run firm.  If the workers fail, will the workers/owner impose punishments on themselves?  Maybe not.  Thus in a fairly general class of situations you need an outside residual claimant to impose and receive the penalty.  This is Holmström trying to justify one feature of the capitalist system against socialists and Marxists.

A Fine Theorem has an excellent post on his work.

Managerial Incentive Problems: A Dynamic Perspective” is another goodie, this one from 1999.  The key point is that repeated interactions, for instance with a manager, can make incentive problems worse rather than better.  The more the shareholders monitor a manager, for instance, and the more that is over a longer period of time, perhaps the manager has a greater incentive to manipulate signals of value.  When are career incentives beneficial or harmful?  This paper is the starting point in thinking through this problem.  Here is one of the possible traps: if a worker fully reveals his or her quality to the boss, the boss will use that information to capture more surplus from the worker.  So many workers don’t let on just how talented they are, so they can slack more, rather than being caught up in the dragnet of a ‘super-efficient” incentives scheme.  I have long found this to be a very important paper, it is probably my favorite by Holmström.

This 1994 investigation, based on personnel data from within firms, is actually way ahead of its time in terms of empirical methods.  It is certainly known but he never received full credit for it.

Holmström and Hart together have a very nice piece surveying the theory of contracts and theories of the firm.  With John Roberts, he has a very nice (and highly readable!) survey of economic work on theories of the boundary of the firm, recommended on the field more generally.  Not his most famous piece, but if you are looking in the applied direction, here is his survey piece with Steven Kaplan on mergers.

With Jean Tirole has has a 1997 paper “Financial Intermediation, Loanable Funds, and the Real Sector.”  This was an important precursor of the later point about how collateral constraints really can matter.  Firms and banks should be well-capitalized!  This piece was significantly influenced by the Nordic financial crises of the 1990s and it was prescient regarding later events in the United States and elsewhere.

His liquidity-based asset pricing model, with Jean Tirole, did not in its published form “take off” in the world of finance, but it is an excellent and important piece, worth revisiting as part of the puzzle of why the world has so many super-low interest rates today.

Holmström has since written much more about banking and agency problems.  His very latest piece is on banks as secret keepers, and it tries to model and explain the fundamental nature of banking and its fixed value liabilities.  Here is his piece on why financial panics are so likely to involve debt.  With Jean Tirole, he wrote a well-known paper on why government supply of liquidity services sometimes may be justified.

Here is his 2003 survey paper, with Steven Kaplan, on what is right and wrong in U.S. corporate governance.  It is a more applied side than what you often see from him.  The piece claims that, even in light of the scandals of that time, American corporate governance is not broken and will probably become better yet, though it could stand some improvement, including on the regulatory side.  Overall I view his co-authorships with Kaplan as suggesting that his overall stance toward corporations is more influenced by Chicago-style thinking than is oftetn the case at MIT.  Read his defense of asset securitization for instance.

Congratulations to Bengt Holmström!