Results for “prizes” 225 found
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!
Oliver Hart, Nobel Laureate
Here is Hart’s most famous piece, with Sandy Grossman, 1986, “The Costs and Benefits of Ownership.” Think of it as an extension of Ronald Coase and Oliver Williamson, also two Nobel Laureates (hey, that’s a lot of prizes for one topic area…)
Why does one party ever purchase residual rights in the assets of another party? Say for instance there is a factory firm and a coal mining firm. The coal can be treated in a particular way to be more suitable for use in the factory. If the factory firm buys out the coal mining company, the incentives for coal treatment differ, that is the key insight behind this model. You can think of this as a very important modification of the Coase Theorem. It does matter who owns the asset. Why? If the coal mining company owns the coal, it has one set of incentives to make ex ante improvements in the values of those assets; if the factory firm owns the coal mine, it has another set of incentives. Part of the work in this paper is done by a bargaining axiom — if you own an asset outright, you keep a greater share of the proceeds from improving the value of that asset. Ownership should thus migrate to those parties who have the greatest ability to improve value.
And that is a very fundamental improvement on the Coase theorem, which suggests ownership won’t matter when there is ex post contractibility. This paper showed that for ownership not to matter there must also be ex ante contractibility about value-improving investments at earlier stages in the game, an unlikely assumption to hold.
This is a tricky paper to master. It has all kinds of assumptions built in about ownership, control, and residual claimancy, which do not move together in simple ways. Eventually Hart (working with others) cleaned up the assumptions and produced a more transparent model of this process. This paper is a — I should say the — starting point for thinking about mergers, vertical integration, and other questions of corporate ownership and contract and control. Bengt Holmström of all people wrote a very nice appreciation of the paper.
What about Grossman, I hear you wondering? I would have guessed he would have shared in the Prize, as he has other seminal papers about information and much of Hart’s key work is co-authored with him. On the bright side for him, he has made hundreds of millions of dollars running a hedge fund.
Hart is a true gentleman and he has a very nice British accent. He is very highly respected by his peers. Here is his Wikipedia page. Here is his home page, he is now at Harvard but spent part of his career at MIT. Here is his vita. Here is Hart on Google Scholar. Here is the Nobel survey essay from Sweden. Here is a video explanation.
His second best known piece is “Property Rights and the Nature of the Firm,” with John Moore, 1990. This is again a model and series of parables about ownership and the allocation of rights, but with some twists on the earlier Grossman and Hart piece. The key point is to not allow inessential agents to achieve blocking power of value creation. The authors tell a story about a venture with a tycoon, a boat owner, and a chef, all of whom might organize a voyage together. The tycoon and the boat owner are essential, so one of them should own the boat, and then they can split most of the surplus from the voyage and pay the chef his or her marginal product. Value creation then proceeds. Alternatively, if the chef owns the boat, he has potential blocking power and the surplus has to be split three ways. That may result in some loss of value, due to a tougher bargaining problem, higher transactions costs, and a chance there won’t be enough surplus to cover the most significant investments. Parties who create a lot of value should own things is the central message here, and this is another key paper for thinking about contracts, ownership, and what kind of business arrangements induce investment in idiosyncratic assets, yet another follow-up on the work of previous Laureates Coase and also Oliver Williamson.
In case you hadn’t figured it out by now, Oliver Hart is basically a theorist in his major lines of research.
Another famous paper by Grossman and Hart is “Takeover Bids, the Free Rider Problem, and the Theory of the Corporation.” One of Alex’s most interesting papers is an extension of this work, so I suspect he’ll be covering it in detail. In a nutshell, this model helps explain why a lot of value-maximizing takeover don’t happen, or why it is hard to buy up a whole city block and renovate it. Let’s for instance a corporation currently is valued at $80 a share, and a raider has a good plan to make the company worth $100 a share. The raider then comes along and offers you, a shareholder, $90 for each of your shares. Will you sell? Well, it depends what you think the other shareholders will do. But you might not sell, instead seeking to hold on for the ride. If others sell, you can get $100 in value instead of $90. But if everyone feels this way, then no one sells and the bid fails. Then you might sell at $90 after all, but then no one will sell after all…and so on. A tough problem, but this is a very important piece in understanding the limitations of various kinds of takeovers. Right now my security device won’t let me link to the paper but try googling the title.
Hart’s 1983 paper with Sandy Grossman was at the time a breakthrough and highly rigorous means of modeling the principal-agent problem. It is in Econometrica and quite hard for many people to read. Economists had been modeling principal-agent problems through the notion of a participation constraint. Have the contract give incentives, subject to the proviso that it is still worthwhile for the agents to be involved in the trades. But Mirrlees had pointed out this can give misleading results when there is not automatically a unique solution to the problem at hand. Grossman and Hart reconceptualized the math into a convex programming problem. Theorists love the paper, and it was highly influential when it came out.
Here is Hart and Moore on incomplete contracts and renegotiation. This paper is connected to the Nobel Prize for Jean Tirole two years ago. How can you write a contract so a) parties will make the appropriate relationship-specific investments, and b) it doesn’t have to be renegotiated all of the time? Again, Hart’s work is obsessed with this idea of value maximization within corporate endeavors and possible obstacles to such value maximization.
By the way, here is Hart, with Shleifer and Vishny, on why the private sector probably should not be allowed to own and run prisons. The incentive to cut costs is too strong! Government ownership will instead, in their view, create more value maximization because the government won’t have the same profit incentive to skimp on quality along various margins. This paper has been highly influential in recent debates over private ownership of prisons, which recently was countermanded at the federal level at least. You also probably wouldn’t want Air Force One owned by the private sector, though you do want it to be designed and produced by the private sector. This paper helped produce a framework for understanding the reasons why.
Hart’s 1979 piece on shareholder unanimity asks the important theory question of whether all shareholders will desire that firms maximize profits if markets are incomplete and some firm shares also serves secondary “insurance” purposes of helping protect against adverse states of the world. For instance, say there is no insurance market in wheat. You might use the shares of a wheat-producing firm for that purpose, and desire, for insurance purposes that the value of the firm covary with the value of wheat in ways that differ from simple firm profit-maximization. The upshot of this literature is that firm profit maximization is not as simple or as self-evident an assumption as people used to think.
By the way, here are the two Laureates together, on “A Theory of Firm Scope.” Here is their long, joint survey on theory of contracts.
Congratulations to Oliver Hart!
Oliver Hart and Bengt Holmstrom win the Nobel Prize
Hey, they announced it early this year! Good thing I got up. I’ll be revising a few (separate) posts throughout the morning, they will start out small and grow, so keep on hitting refresh.
These are theory choices in Industrial Organization, two very famous, well-deserving economists at the top of the field. They focused on “theory of the firm,” internal organization, incentives,, and principal-agent problems. More to come!
Here is the announcement. After Jean Tirole two years ago, I wasn’t expecting another IO prize so soon…
Which part of the world is most underrated in literary terms?
I asked that question of Michael Orthofer, and his answer was this:
Underrated, I would absolutely think the regional language and literature of India. I think surprisingly, even though, perhaps, English is the main literary language of India and a great deal is locally translated, even there much of the vernacular literature still isn’t available in English.
What one can see of it and also in part hear about it — we’re missing an awful lot. There is a literary culture there, especially, for example, in Bengali, but we’ve had that since Tagore. One of the remarkable things is Tagore won his Nobel prize over a hundred years ago, and there are still novels by him which haven’t been translated into English. He is really a very good novelist.
It’s truly worthwhile, and this goes for many regions. The southern region of Kerala where they write in Malayalam — there’s remarkable literary production there, and we just see so little of it.
My inclination was to suggest Chile. Here’s why this country of below 18 million people is nonetheless a fierce literary contender:
1. Pablo Neruda was one of the two or three best poets of the latter part of the twentieth century. His Canto general is not his best poetic work but as a general statement of the history and underlying unity of the New World it is unparalleled. Gabriela Mistral is noteworthy too.
2. José Donoso’s The Obscene Bird of the Night is one of the very best Latin novels, yet it is hardly read these days, I am not sure why. I think it is clearly better than say One Hundred Years of Solitude.
3. Roberto Bolaño is probably the most important Latin author post-García Márquez, and he is from Chile, though he wrote much more about Mexico.
4. Antonio Skármeta isn’t even a top figure in this lineage yet he is still quite good, the same holds for Ariel Dorfman (born in Argentina, moved to Chile shortly afterwards), Alejandro Zambra, and yes Isabel Allende, who is the Chilean author most in the public eye in the United States. She is usually too sentimental for my taste but some of it I enjoy nonetheless.
And why is Chile underrated? Well, when you are there it feels fairly provincial — just ask a Porteño. Bolaño didn’t stick around and more generally exile from Pinochet prevented the creation of any well-defined group or movement. The Pinochet years also gave Chile a…shall we say…non-artistic reputation, and finally both Neruda and Doñoso don’t translate so well out of the Spanish.
Do you have an alternative choice?
A Skeptical View of the NSF
Tyler and I have a piece in the latest Journal of Economic Perspectives, A Skeptical View of the NSF’s Role in Economic Research. Here is one bit:
In considering the case for grant-based funding of economics research by the National Science Foundation, we find that a number of pertinent questions are rarely asked, let alone clearly answered. Instead, economists often put forward relatively weak arguments that they would likely dismiss if applied to government subsidies not reserved for economists.
For example, one common approach to defending NSF grants for economists is to list the prestigious individuals with whom the program has been associated. In his paper in this journal, Moffitt notes: “The program has supported every Nobel Prize winner in Economics since 1998 and almost every John Bates Clark medal winner since 1961.” (NSF economics funding started in 1960). Indeed, the list of grant recipients from NSF Economics is a literal “Who’s Who” of the top economists over the last half-century. But we don’t find the prestige of NSF recipients to be a good substitute for an estimate of the public benefits of research. Imagine a group of chefs who defended a hypothetical “National Food Foundation” on the grounds that it had provided grants to Alice Waters, Thomas Keller, Grant Achatz, and every winner of a James Beard Award since 1990. If these names are not familiar, rest assured that their published research output and training of students is very impressive. While we would not consider this information irrelevant (better to fund good chefs than bad ones), as economists we would be unimpressed by this case for government funding of chefs. Talk of how these grants brought about innovations in the culinary arts—such as sous vide, molecular gastronomy, and the introduction of quinoa to the American diet—would also not swing the argument. Instead, as economists, we would focus on how food markets would have operated without such grants and what else might have been done with the money.
We are not against any role for the NSF, however, but instead suggest that funds would be better spent on replication, public-use datasets and “far-out”, high-risk research. We also suggest other funding mechanisms such as prizes.
Here is one bit on replication:
Instead of pointing to the prestigious economists whose research they have funded, perhaps the NSF might point to the prestigious research that has been convincingly replicated—or not replicated.
Read the whole thing.
By the way, this entire issue of the JEP is excellent with important reviews of the research on charter schools and four papers on motivated reasoning.
The demand for religious beliefs and the economics of faith
It seems Millennarian cults really mean it, at least in the experimental context:
We model religious faith as a “demand for beliefs,” following the logic of the Pascalian wager. We show how standard experimental interventions linking financial consequences to falsifiable religious statements can elicit and characterize beliefs. We implemented this approach with members of a group that expected the “End of the World” to occur on May 21, 2011 by varying monetary prizes payable before and after May 21st. To our knowledge, this is the first incentivized elicitation of religious beliefs ever conducted. The results suggest that the members held extreme, sincere beliefs that were unresponsive to experimental manipulations in price.
That is from Ned Augenblick, et.al., forthcoming in the Journal of Public Economics. Here are ungated copies.
The original pointer was from Robin Hanson.
My Fall 2016 Industrial Organization reading list, Ph.d class
This is tentative, and I still will make further changes, so by all means please leave your suggestions in the comments. The list is long, so I am putting it under the fold…
- 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.
Bresnahan, Timothy and Reiss, Peter C. “Entry and Competition in Concentrated Markets,” Journal of Political Economy, (1991), 99(5), 977-1009.
Berry, Steven and Reiss, Peter, “Empirical Models of Entry and Market Structure,” Handbook of Industrial Organization, vol.III, chapter 29.
Asker, John, “A Study of the Internal Organization of a Bidding Cartel,” American Economic Review, (June 2010), 724-762.
Fontanella-Khan, James and Arash Massoudi. “Megadeals for 2015 hit record high.” The Financial Times, September 18, 2015.
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.
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. Read about some current cases and also read the merger guidelines. You’ll also find four antitrust cases discussed at the top here: http://business.fullerton.edu/economics/rmichaels/Econ410/Econ%20410.htm
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.
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
Mandel, Michael and Houseman, Susan, “Not all Productivity Gains are the Same,” http://whatmatters.mckinseydigital.com/growth_and_productivity/not-all-productivity-gains-are-the-same-here-s-why
Michael Spence and Sandile Hlatshwayo, “The Evolving Structure of the American Economy and the Employment Challenge,” Council on Foreign Relations working paper, March 2011, http://www.cfr.org/industrial-policy/evolving-structure-american-economy-employment-challenge/p24366
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.
New firms and an employment puzzle, http://macroblog.typepad.com/macroblog/2011/08/new-firm-employment-puzzle.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+typepad%2FRUQt+%28macroblog%29
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.
Furman, Jason and Peter Orszag. “A Firm-Level Perspective on the Role of rents in the Rise in Inequality.” October 16, 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.
http://evansoltas.com/2016/05/07/pro-business-reform-pro-growth/
Berger, David W. “Countercyclical Restructuring and Jobless Recoveries.” Yale University working paper, 2012.
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.
4. Incentives
Carola Frydman and Dirk Jenter, “CEO Compensation,” NBER Working Paper 16585.
Conyon, Martin J. “Executive Compensation and Incentives.” Academy of Management Perspectivse, 2006.
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
Acemoglu, Daron and Autor, David, “Skills, Tasks, and Technologies: Implications for Employment and Earnings,” http://econ-www.mit.edu/files/5607
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.
Glenn Ellison, “Bounded rationality in Industrial Organization,” http://cemmap.ifs.org.uk/papers/vol2_chap5.pdf
5. Sectors: finance, health care, 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.
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
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
Kotchen, Matthew J. and Moon, Jon Jungbien, “Corporate Social Responsibility for Irresponsibility,” NBER working paper 17254, July 2011.
Healy, Kieran. “The Persistence of the Old Regime.” Crooked Timber blog, August 6, 2014.
The culture that is China
A Chinese man was recently in the news for not only winning millions of yuan in a lottery, but also for the bizarre costume he wore while collecting his prize. The man, believed to be about 40 years old, was so worried about revealing his identity that he actually turned up dressed as the popular Disney character Baymax!
Speaking to reporters, the man revealed that he had won 170 million yuan (approximately $27 million) even though he rarely buys lottery tickets. As for the strange costume, the man revealed that his wife forced him into wearing it, fearing that old friends and long-lost relatives might suddenly show up expecting a small share of the prize. But no costume can actually help him evade the mandatory 20 percent tax on lottery winnings, which means he will have to cough up about 34 million yuan to give back to the state.
As it turns out, this man isn’t the first lottery winner to adopt the eccentric practice of accepting winnings in disguise. Lots of Chinese winners tend to be very cautious about protecting their identity, to dodge thieves and relatives. So they turn up wearing superhero masks or costumes. In fact the tradition dates back to about 25 years or so.
That is from Sumitra, via Michael P. Gibson and Dan Wang. There are other good photos at the link.
Saturday assorted links
1. “How North Korean’s biggest export is giant sculptures of African despots” (TC: that probably is not literally true).
2. Raghu Rajan and Rodney Ramcharan on the long-lasting effects of financial regulation.
3. Jeremy Bentham’s prison cooking.
4. How one Chinese entrepreneur guarantees milk safety.
5. Town hall meetings markets in everything.
The minimum wage and the Great Recession
I believe Card and Krueger will and should win Nobel Prizes, but their work is also not the last word on the minimum wage, especially during weak labor markets. Here is the most recent study, by Jeffrey Clemens:
I analyze recent federal minimum wage increases using the Current Population Survey. The relevant minimum wage increases were differentially binding across states, generating natural comparison groups. I first estimate a standard difference-in-differences model on samples restricted to relatively low-skilled individuals, as described by their ages and education levels. I also employ a triple-difference framework that utilizes continuous variation in the minimum wage’s bite across skill groups. In both frameworks, estimates are robust to adopting a range of alternative strategies, including matching on the size of states’ housing declines, to account for variation in the Great Recession’s severity across states. My baseline estimate is that this period’s full set of minimum wage increases reduced employment among individuals ages 16 to 30 with less than a high school education by 5.6 percentage points. This estimate accounts for 43 percent of the sustained, 13 percentage point decline in this skill group’s employment rate and a 0.49 percentage point decline in employment across the full population ages 16 to 64.
Do any of you see an ungated version? In any case I hope this receives the media attention it deserves. Will it?
Friday assorted links
1. Why does political gridlock seem to be over for now?
2. Interesting NYT piece on how Israel is trying to restore domestic safety. It’s not even a lead or main article, but an excellent example of insightful reporting, analytics, behavioral understanding, and real world relevance, all rolled up into one piece. Hardly a day goes by on MR that I don’t like to something from the NYT,and this is one good illustration why.
3. Is California overregulating driverless cars?
4. Gifting a mountain to Finland isn’t as easy as it might sound. And five intentionally missed free throws, also on that side of the Atlantic.
The Economics Nobel Prize winner is Angus Deaton
A brilliant selection. Deaton works closely with numbers, and his preferred topics are consumption, poverty, and welfare. “Understanding what economic progress really means” I would describe as his core contribution, and analyzing development from the starting point of consumption rather than income is part of his vision. That includes looking at calories, life expectancy, health, and education as part of living standards in a fundamental way. I think of this as a prize about empirics, the importance of economic development, and indirectly a prize about economic history.
Think of Deaton as an economist who looks more closely at what poor households consume to get a better sense of their living standards and possible paths for economic development. He truly, deeply understands the implications of economic growth, the benefits of modernity, and political economy. Here is a very good non-technical account of his work on measuring poverty (pdf), one of the best introductions to his thought.
He brought a good deal of methodological individualism to the field of consumption studies, most of all by using household surveys more than macroeconomic data.
I think of this as a prize for “a whole body of work” rather than for one or two key papers. David Leonhardt has a good NYT summary of some his work and its deep underlying optimism about the situation of the poor in the global economy.
Here is the popular version of the Committee statement, here is the more detailed version (pdf), an excellent overview.
Deaton was born in Scotland but has taught at Princeton for some time. Here is Deaton on Wikipedia. Here is Deaton’s home page. Here are some recent working papers, he even has published in Review of Austrian Economics, an interesting review of Bill Easterly on experts. Here are previous MR mentions of Deaton, there are many of them. Here is Deaton on Google Scholar. Here is a Russ Roberts EconTalk with Angus Deaton. I think of Deaton as someone who is relatively willing to share himself with the world, let’s hope the Prize doesn’t ruin that openness. Here is 21 minutes of Angus on YouTube, on his core ideas.
He is married to Princeton economist Anne Case, a notable scholar in her own right and sometimes a co-author with Deaton. Here are their co-authored papers, many dealing with South Africa.
Deaton has long had a special working relationship with India and South Africa. Here are his key pieces on measuring poverty and poverty reduction in India. Here is his work on the Indian health survey. Here is his 2010 AER piece on how to measure poverty globally in a consistent manner, by the way he suggests that asking people should be part of the answer.
He also has written on gender discrimination within the family in developing nations. Some of his work has helped direct our attention to the viability of cash transfers as a way of fighting poverty.
At first, say circa 1980, he was known for his work in developing Almost Ideal Demand Systems for analyzing consumer expenditures; much of this early work was with Muellbauer. That made a big splash, but it was more of a theoretical and technical advance than what was to follow. One message was that studies based on the idea of a “representative consumer” were likely to prove misleading.
It is interesting to note the trajectory of his career, as Alex noted on Twitter. He first did theory, then filled in the numbers and did empirics, applying the theory. Eventually he took theory + empirics and used it to tackle some of the big issues of poverty and development.
Here is his long survey piece on foreign aid and growth. He favors the move away from project evaluation, is skeptical of instrumental variable methods, and believes that RCTs need to be supplemented with a better theoretical understanding of mechanisms. He knows a lot about many, many topics.
I do not know him, but he is described by many as a colorful character. Dani Rodrik has strong praise for Deaton as a teacher.
Here are short, popular essays by Angus Deaton; you can call that the “what he really thinks page.” He is critical of the Republican war against ACA and connects that topic to Downton Abbey. He argues for regional price indices for the United States. He discusses American inequality and why it is often ignored as an issue. He warns against the creeping regulation of science. And he considers why the Stern report had a greater impact in the UK than in America.
I very much liked Deaton’s recent book The Great Escape, which focuses on how modernity revolutionized standards for consumption.
This award is no surprise at all and he has been on the short list for a while. Is it a slight surprise that Deaton won this prize on his own? Many thought he would be paired with Anthony Atkinson, but I see Deaton as worthy of a stand-alone prize and Atkinson’s chance has not passed him by. In any case, Tirole was a stand-alone prize too, so maybe in that regard there has been a shift in the Swedish regime.
Last but not least here is Alex’s post on Deaton.
Economist Heidi Williams has won a MacArthur fellowship
The award announcement includes a description of her work (with further links), basically she does health care economics at MIT. In particular she considers when IP restrictions might hinder rather than support further innovation. Here is her home page, she also has interesting papers on prizes. Here is her research statement (pdf), interesting throughout, a very good selection from the committee.
Elsewhere, Matthew Desmond works on eviction as a cause and not just a symptom of poverty.
Stanford is the top producer of Nobel Laureates in this century
And that is by a clear margin. Columbia is number two. Harvard is number eleven. UCSB > MIT. None for Oxford.
The list is here, excluding literature and peace prizes.
As for countries, the United States is a very clear number one and the UK is number two. Other than Japan, Asia barely has any at all.
The pointer is from Michelle Dawson. Here is my previous post on Stanford.
Yes, there is a great Singaporean novel
Or is it a novella? The Widower, by Mohamed Latiff Mohamed, was not recommended to me by anyone, but I found it during my recent browse in Singapore Kinokuniya. It starts with the meditations of a man whose wife has passed away and who then delves into his obsessions.
Although the book was published in the 1990s, it was translated into English only this year; I hope Michael Orthofer at Literary Saloon is paying attention. But alas it is not for sale on U.S. Amazon.
Here is a recent article about the hand-wringing of Singaporeans over their failure to win major literary prizes. Not long ago, Mohamed moved to Australia, proclaiming “Singapore is still my home.”
Here is my earlier post on what are the Singaporean literary classics, there were a few good answers in the comments.