Tag: Nobel Prize in Economics

The Death of the Great Economists

The latest to pass away is Kenneth Arrow, who by any and all accounts was a genius.   A Fine Theorem tells us what we already know, that “Arrow is so influential, in some many areas of economics, that it is simply impossible to discuss his contributions in a single post.”

These contributions, of course, include work on social choice theory (Arrow’s Impossibility Theorem), general equilibrium theory, and innovation, and off the top of my head I can point to work on health care, organizational theory, quasi-option values, and a bunch of other stuff.   Truly remarkable.   Here is the New York Times obituary.

Meanwhile, the profession has also recently lost Thomas Schelling (2016), Douglass North (2015), John Nash (2015), Gary Becker (2014), Ronald Coase (2013), and Elinor Ostrom (2012).   You could learn a lot in a little while just reading the obits on these Nobel Prize winners.

Nobel Prize Agency

Simpsons
Oliver Williamson, Physicist?

This year’s Nobel Memorial Prize in Economic Sciences once again goes to some folks doing the heavy lifting on organizational theory.   You may recall that not too long ago, Elinor Ostrom and Oliver Williamson shared the award for their work on “governance mechanisms” — Ostrom on collective governance of natural resources, Williamson for organizational structure.

This year’s winners are Oliver Hart from Harvard and Bengt Holmström from MIT for their work on “contract theory”.    Contract theory is pretty encompassing, and includes the classic “principal-agent” problem, along with the “incomplete contracts” problem.

For the uninitiated, An agency problem arises when you as a principal delegate a task for some agent to carry out for you.  For example, you might own a business and hire someone (or someones) to work for you. That seems simple enough, except things can get all mucked up if output comes from a combination of effort and random factors, if you have several workers and can’t figure out who’s responsible for what (team production), if your workers have a bunch of things to do (multiple-task agency problem), and a host of other things.

Hart and Holmström have made fundamental contributions in getting to the heart of some of these matters, and were duly rewarded with the prize. Remarkably, Kevin Bryan from University of Toronto says that though Hart won the prize on the back of his contributions to “incomplete contracts,” he actually has not done much on incomplete contracts since two other Nobel winners — Eric Maskin and Jean Tirole, characterized the limitations of that approach:

Hart’s response, and this is both clear from his CV and from his recent papers and presentations, is to ditch incompleteness as the fundamental reason firms exist…. To my knowledge, Oliver Hart has written zero papers since Maskin-Tirole was published which attempt to explain any policy or empirical fact on the basis of residual control rights and their necessary incomplete contracts.

Professor Bryan has remarkably prescient characterizations of Hart and Holmström‘s work A Fine Theorem blog (incidentally, he often has excellent review and commentary on recent IO papers).   The post on Hart is essentially a short history of the economics of the firm and organizational economics, which many of you will be seeing next term in Econ 450.    There are a million other descriptions of their contributions (google it), including this critical piece by Arnold Kling.

And, congratulations to Milhouse!   Well done.

A grave note

Канторович
Photo by Tim Dahlstrom © 2015

I had coffee with Tim Dahlstrom ’16 a couple of days ago, which is not very unexpected, except that we had it in a cafe with a view on the Kremlin. I am here visiting family, and he is here practicing his Russian and prepping for the GRE. He shared with me afterwards this photo, which he recently took here in Moscow: It is the grave of a Nobel prize-winning mathematical economist, obviously from Russia. This should probably be enough for you to guess the name, but if you need more, here is a cogent Austrian perspective on his prize. Tim remembered him from the Red Plenty reading group from his freshman year.

Tirole wins Nobel; Galambos wins Nobel-Picking Contest

Jean Tirole is the sole winner of the 2014 Nobel Prize in Economics, for his work on industrial organization. He is certainly well-known among graduate students, as his industrial organization textbook was the industry standard for decades.  He is a favorite on Briggs 2nd for, among other things, his classic 1980s co-authored piece, “The Fat-Cat Effect,the Puppy-Dog Ploy, and the Lean and Hungry Look.”

Some of his more recent work is on platform markets, which is the subject of our ECON 495 course this term!   Here is Alex Tabarrok’s take:

Platform markets or two-sided markets are markets where a firm brings together two or more sides both of whom benefit by the existence of the platform and both of whom may (or may not) be charged. A trivial but telling example is the singles bar that brings together men and (usually) women. Other examples are the Xbox a platform for game players and game developers, credit cards bring together buyers and firms that accept that card, newspapers bring together readers and advertisers, mall brings together stores and customers.

A key difficulty in these markets is that the price charged to one side of the market influences the demand on the other side of the market… [T]he cost of the technology that goes into an X-box console is often more than or not much less than the price of the console. So Microsoft sells the console at near cost and instead makes it money by charging game developers for the right to write games for the Xbox.  Antitrust and regulation issues come into play here because the two sets of prices may look discriminatory or unfair. In a mall, for example, it’s often the largest firm (the anchor) that gets the lowest price (sometimes even zero!). Does this represent an unfair advantage that a large firm has over smaller rivals or is it a rational consequence of the fact that the anchor store may bring the most customers to the other, smaller stores in the mall so that the total package is welfare maximizing? Is Microsoft engaging in predatory pricing if it prices the Xbox at or below cost?…  Platform markets mean that pricing at marginal cost can no longer be considered optimal in every market and pricing above marginal cost can no longer be considered as an indication of monopoly power.

Professor Galambos picks up the department prize for his selection.

The 4th or Possibly the 5th Predict the Nobel Prize in Economics Competition

Nobel
Any news?

Once again it’s time where I (sometimes) remember to post the Vegas odds on the Nobel Prize in Economics.  Here are the venerable Thomson Reuters predictions for the 2014 cycle:

  • Philippe M. Aghion and Peter W. Howitt for contributions to Schumpeterian growth theory
  • William J. Baumol and Israel M. Kirzner for their advancement of the study of entrepreneurism
  • Mark S. Granovetter for his pioneering research in economic sociology

Wow, if you had to pick three topics of interest at Lawrence economics, you could do worse than Schumpeterian growth theory, entrepreneurism, and economic sociology.

For my pick, I would probably  take Daron Acemoglu if he wasn’t so young.   Last year I picked Philippe Aghion, so maybe I should just go ahead and pick him again this year?

Professor Galambos is going with Paul Milgrom and/or Jean Tirole.

Professor Caruthers is picking Daniel Hamermesh

UPDATE:  Tyler Cowen goes with William Baumol and William Bowen for their work on the venerable cost disease.

Send me your picks or put them in the comments.

Must be 18 or older to enter, void where prohibited.

Nobel Prize Committee Covers Its Assets

The Nobel Prize in Economics goes to Eugene Fama, Robert Shillier, and Lars Peter Hansen for their work on asset pricing.   Fama is well-known for his empirical work on the Efficient Market Hypothesis, as well as work corporate finance (or any organizational finance, really).  He has a half dozen articles with north of 10,000 citations.  Zoinks.   Shiller is a well-known behavioral guy who writes about market volatility and asset bubbles (are those inconsistent with the EMH?).  You might know him from the Case-Shiller housing price index we’re always reading about.  I don’t know much about Hansen, beyond the generalized method of moments business.

I’m sure there’s no dearth of news reports on these guys.  Marginal Revolution has a thousand words on each today. 

Once again, there was no winner in the Pick the Nobel contest, meaning the fabulous prize package will roll over to next year.

The 3rd or 4th Predict the Nobel Prize in Economics Competition

Nobel
Any News?

It’s that time of year again, where I (sometimes) remember to post the Vegas odds on the Nobel Prize in Economics.  Here are the venerable Thomson Reuters predictions:

  • Joshua D. Angrist (MIT),  David Card (UC-Berkeley), and Alan Kreuger (Princeton) for their advancement of empirical microeconomics
  • Sir David F. Hendry (Oxford), M. Hashem Pesaran (Cambridge), Peter C.B. Phillips (Yale) for their contributions to economic time-series, including modeling, testing and forecasting
  • Sam Peltzman (Chicago) and Richard A. Posner (Chicago) for extending economic theories of regulation

 The Wall Street Journal fleshes out some of these predictions, and basically splashes a who’s who on the Large Guns in the profession.  Here is a taste: 

If the award is for work on financial crises, banks, liquidity and regulation,Douglas Diamond of the University of Chicago Booth School of Business andPhilip Dybvig, of the Olin School of Business at Washington University, St. Louis, are headliners. In 1983, the pair wrote a seminal paper spelling out why bank runs happen. The authors explained that deposit insurance could reassure customers and keep them from panicking and pulling their money out en masse.

Who knows?   I seriously doubt Peltzman and Posner would get it, though now that Posner has backed off some of his more severe positions, perhaps he’ll get a look.  Peltzman has been a very influential empirical economist, so it is conceivable that he would wind up in that first group.

Daron Acemoglu seems a bit young, though he is a clear future favorite, so I will go with the indomitable Philippe Aghion

Send me your picks or put them in the comments.

 

More Principals of Economics

David Warsh of Economic Principals has a nice piece on the Nobel Prize winners, Al Roth and Lloyd Shapley.   You may have heard something about Roth, and Warsh describes him as immediately relevant to modern market making:

[H]e is surrounded by generations of students and researchers, some of them computer scientists, working on all kinds of cutting-edge topics.  These include circuit breakers (forced trading halts) in panicked markets, random assignments in long waiting lines, school choice, new wrinkles in the auction of broadcast spectrum rights, corporate restructuring refinements and all manner of other market processes, anything, in other words, that might be improved by a little engineering.

As for Shapley, I didn’t know much about him beyond my familiarity with the Shapley Value.  It turns out Shapley kept rather spectacular company, including the likes of John Von Neumann and John Nash.   Robert Aumann called him the “greatest mathematical game theorist.”  Wow.

You’ll definitely learn something from reading this piece.

More here.  Cool.

Nobel Winners: Game Set Match

The Nobels go to Alvin Roth and Lloyd Shapley for their work on matching and/or market design; that is, markets without prices.

Professor Galambos was talking about Roth’s work in our community read this last week, and Alex Tabarrok has a lot more here.  Here’s an accessible piece on matching kids to schools. Here’s the famous Gale-Shapley piece on college admissions and marriage.

In a related note, I often use Roth’s JEP excellent repugnance piece in my public policy classes.

Here’s Al Roth’s excellent blog.

A complement, not a substitute, we hope.

Well, no winners in our guess the Nobel contest, so the prizes will be rolled over into next year’s contest.

Pick the Nobel Update

Here is some more information on the possible Nobel winners in economics from Tyler Cowen and the guys at the Cheap Talk blog.   Cowen picks the trifecta of Fama, Shiller, and Richard Thaler.

The Cheap Talkers show us the picks from the Kellogg School’s annual pool, which has Oliver Hart (of Grossman & Hart and Hart & Moore fame) and Jean Tirole (of Tirole fame) as odds-on favorites.  However, the bloggers note the IO bias at Kellogg, and provide a far more sophisticated assessment:

While I think all these researchers will get this prize eventually, their age works against them – they are too young.  they did seminal work at a time when Duran Duran ruled the airwaves or perhaps the Smiths in the case of Tirole.  The Nobel Committee is still sorting out the time when ABBA was Number One and Bjorn Borg won Wimbledon. (Note Swedish influence on pop culture was high in the 1970s!)

Indeed.

Though, I don’t think The Smiths ever “ruled” the airwaves.

Here’s the previous post.  Make your picks in the comments thread or yell them at me as I walk by you at the WCC.

Predict the Economics Nobel Prize

UPDATE: Professor Gerard picks Paul Romer,  Professor Finkler picks Romer and William Baumol (both at Stern!), Professor Galambos still undecided, see comments for additional picks.

Anxiously Awaiting the Announcement

The 2012 Nobel Prize in Economic Sciences will be announced on Monday 15 October, and once again all the world is riveted in anticipation. The riveted parties include those residing on Briggs 2nd, where we will once again sponsor a Predict the Nobel Prize Contest, with the winner to take home some fabulous prizes.

I don’t see any formal odds online yet, but Thomson Reuters provides some thoughts on Steven Ross for arbitrage pricing theory, Robert Schiller for work on market volatility, and Anthony Atkinson & Angus Deaton for the famous Atkinson & Deaton work on income, consumption, and well-being.

So, submit your pick to Prof Gerard prior to October 15, keeping in mind that the Nobel winner will not necessarily come from that draw (Of course, I’m still partial to Armen Alchian, and I have to believe Jerry Hausman will win sooner or later).  You can also post them in the comments, first come, first serve.

 

For further reading:

Robert J. Shiller 2003. “From Efficient Markets Theory to Behavioral Finance,” Journal of Economic Perspectives, 17(1): 83–104.

Stephen A.  Ross, 2004 “Review of The New Financial Order by Shiller,” Journal of Economic Literature, 42(4): 1098–1101.

Angus Deaton 2008. “Income, Health, and Well-Being around the World: Evidence from the Gallup World Poll,” Journal of Economic Perspectives, 22(2): 53–72.

 

Third Annual Predict the Economics Nobel Contest… Wait, what?

Falling off the Cliffs?

Well, I didn’t manage to get the contest running this year and, lo!, the Nobel Prize in Economics committee met anyway and made its awards.

I’m no macro guy (who is these days?), but the Nobel Committee saw fit to award this year’s prize to Thomas Sargent and Christopher Sims for their work in empirical macroeconomics.  As per usual, Tyler Cowen at Marginal Revolution is all over it.

Sims here and Sargent here.

Though I disavow any knowledge of it now, I had Sargent for my macro texts back in grad school — known as  black Sargent and red Sargent because one was black and one was red (I forget which was which).  For some of us, the mathematics was on the challenging side, and we had to spend a lot of time solving those spectral analysis problems.  I remember this like it was yesterday, one of my classmates asked if there was a “Cliffs Notes” version of black Sargent.

The professor replied, “Black Sargent is the Cliffs Notes.”

UPDATE: Tim Taylor has a very readable, conversable even, commentary at his new blog.

Nobel prize

Though this year’s winners of the Bank of Sweden’s prize in memory of Alfred Nobel may not have been on the radar screens of many, at least two of the three were predicted by a very prominent group of economists. As reported on the Cheap Talk blog,

Northwestern Econ and Kellogg Nobel predictions

Northwestern’s economists and those in several departments at the neighboring Kellogg School of Management put Dale Mortensen as their top prediction, with Peter Diamond in third place. Well, perhaps I should mention that Dale Mortensen is at Northwestern… Anyways, Jean Tirole was also highly favored, really by everyone except the Nobel committee. The only rational conclusion can be that the Nobel committee has good reasons to believe that Monsieur Tirole will have a long life. Though he did not get the Nobel (again) this year, he should be able to use this to get a lower life insurance rate. Anyways, take a look at Jeff Ely’s “live blogging” of the Nobel at Cheap Talk. By the way, In spite of 12 faculty members in the relevant disciplines believing that Mortensen was getting the big prize, apparently this news caught the Northwestern PR people by surprise, too. Almost three hours after the prize was announced, the top news on the Northwestern homepage is still the refurbishing of Evans House:

Nobel for Search Theory

In what I’d have to say is a surprise, Peter Diamond, Dale Mortensen, and Christopher Pissarides picked up this year’s Nobel in economics for their work on search theory in labor markets. That means, for the second year in a row, the Lawrence University prize for picking the winner will roll over to the next year.

Tyler Cowen on Mortensen.

Tyler Cowen on Diamond.

I was chatting with Professor LaRocque on Saturday, and he felt that we were due for some theorists, so here you go.

Yet Another Update on the Economics Nobel

Some wagering odds have arrived on the scene. UPDATE: And here.

Looks like my picks of Thaler and Shiller are leading the way, followed by Weitzman, Hart, Nordhaus, and Tirole.

This time of year, there are typically grumblings about the lack of sufficient talent to justify a yearly Nobel in economics, but that is certainly an impressive list.  Weitzman wrote a paper 30 years ago that still defines the core idea of environmental economics.  No one has done more on the empirical cost-benefit modeling of climate change than Nordhaus.

Tirole is a co-author of a standard graduate industrial organization text,  as well as several highly-influential pieces on the economics of innovation.  This title alone should merit consideration for Tirole — “The Fat Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look.” Is there a more effective title to help teach strategic behavior?

Oliver Hart helped to push agency theory forward, developed a formal theory of the firm that is still being hashed out (in Economics 450 among other places), and probably has substantially expanded our understanding of corporate governance.

It’s probably worth noting that last year’s odds-on favorite, Eugene Fama, is not even among the leaders (UPDATE: The Ladbrokes odds have him 5:1).  Not to mention Armen Alchian.  No, I don’t think there is an absence of talent.

Of course, I’ll write about Shiller and Thaler next week after they win the prize.

UPDATE: Professor LaRocque has predicted Jeffrey Williamson.

Nobel Prize Contest Update

The picks are pouring in for our Second Annual Pick the Economics Nobel Prize contest (see here).  The consensus pick around the department seems to be Paul Romer, so we might be dividing up that bag of M&Ms pretty thin if he wins.

Here are some more thoughts today from Tyler Cowen:

  1. Richard Thaler joint with Robert Schiller.
  2. Martin Weitzman and William Nordhaus, for their work on environmental economics
  3. Three prominent econometricians of your choice, bundled.
  4. Jean Tirole, possibly bundled with Oliver Hart and other game theorists/principle agent theorists.  But last year the prize was in a similar field so the chances here have gone down for the time being.
  5. Doug Diamond, bundled with another theorist or two of financial intermediation, such as John Geanakopolos.  Bernanke probably has to wait, although that may militate against the entire idea of such a prize right now.
  6. Dale Jorgenson plus ???? (Baumol?) for a productivity prize.

Thaler was my original (anomalous?) pick, though yesterday I hedged and went with Shiller.  So this might be a case of great minds thinking alike, or of me being brainwashed by reading Marginal Revolution too often.

I like the Marty Weitzman pick better.  Economics hasn’t given a prize for global climate change or for environmental work in general, and Weitzman has been a big deal forever for his canonical “prices versus quantities” paper, as well as for some more recent work on the “fat tail.” I’m not so sure about Nordhaus paired with him, however.

Professor Finkler has Paul Romer.  I have yet to hear from my other colleagues, who are no doubt strategically plotting their picks as I type here.

Second Annual Predict the Nobel Prize in Economics

As Professor Finkler points out, the Nobel Prize in economics will be awarded on October 11. That must mean that it’s time for the Second Annual LU Pick the Nobel contest.

So, who should you pick? Well, one strategy is to check out the Thomson Reuters picks from Science (Alesini, Kiyotaki, Moore, Murphy). If you don’t like any of those to win, you might peruse the “Vegas” odds and see who you like there. As of me typing this, these odds do not appear to be out yet, but keep an eye out here and check here are last year’s odds. The same favorites from last year are obviously in play for this year — Eugene Fama for his efficient markets and Paul Romer for endogenous growth theory, Aplia, and charter cities.

Another good choice might be Emmanuel Saez, who is fresh off winning a MacArthur “Genius” Grant. As a dark horse, you might pick the prolific blogging superstar, Tyler Cowen, for his work on the economics of culture.

Or, you can always defer to The Simpsons for your pick (Bhagwati).

A sentimental favorite, at least for me, is Armen Alchian. Don Boudreux points us to this essay and says that in a just world he would have already won the prize.

My pick, which I forgot to pick in the original post, is Richard Thaler.  I just hope that pick doesn’t somehow curse me.

To enter the contest, submit a pick in the comments or via email to me. One entry per person, need not be present in Sweden to win. This year’s winner will take home an authentic piece of Schumptoberfest merchandise. Ties will be decided by Random.org at the Economics Tea.

Lawrence’s First Annual Pick the Nobel Contest

The Nobel Prize in economics will be awarded next week, and this kicks off the Official Lawrence University Pick the Economics Nobel Winner competition.* You should e-mail your picks to me. One entry per person.

So you might be asking yourself who is even in the running. Well, you can find the latest odds here.

At this point, you might be saying to yourself, “hold the phone, you can bet on stuff like that?” Indeed, you can bet on just about anything now, though in the polite academic ease we call these “prediction markets.” There is very much a burgeoning field of study here, and these markets generally do a better job than polls or pundits at forecasting the future. One point that I find particularly interesting is that these tend to work pretty well even if people are just playing for fun and not real money.

Outside of the wagering angle, it might be interesting to take a look up and down that list and see who you recognize and why. Most of these guys have advanced the field in some way, and understanding their contributions might help you to understand different areas of economics exploration. The odds-on favorite, Eugene Fama, is the man behind the “efficient markets hypothesis,” which arouses passions of all sorts. Can you beat the market? Do prices really convey useful information? What exactly is an “efficient market.” The irony here is that if you believe in efficient markets, you should go ahead and enter Fama in the contest.

Second on the list is Paul Romer, who is a pioneer of endogenous growth theory and the hero of the excellent Knowledge and the Growth of Nations, but he might be better-known to you as the guy who developed Aplia.

There are many others that have made their mark on my thinking. If you take an environmental course, you will learn about Marty Weitzman (prices v. quantities) and Bill Nordhaus (climate change). Paul Milgrom and Oliver Williamson are both central figures in the theory of the firm. The list goes on.

So, email your picks to me. The prize will be awarded at the next Economics Club meeting.

*First prize will be a large sack of pears. Multiple winners will be sorted out by who chose the candidate first. My pick is Ben Bernanke, but I would be happy to cede my pears to anyone else who selects the Fed chair.