Lawrence Economics Blog

Creative Instruction

Happy Valentine’s from The I & E Reading Group

Early in life I had three ambitions. I wanted to be the greatest economist in the world, the greatest horseman in Austria, and the best lover in Vienna. Well, I never became the greatest horseman in Austria.

That, of course, is from Joseph Schumpeter, the subject of the first book in the Innovation & Entrepreneurship Reading Group.

If you are interested in reading with us, let Professor Gerard know. You can usually catch him around the office, or at the Economics Tea, Mondays at 4 p.m. somewhere on Briggs 2nd.

We will begin blogging about the book this week and plan to meet and discuss it at the Bjorklunden weekend and in early March.

Watch this space.

The Fourth Branch: Coming to An Administration and A Classroom Near You

For those of you wondering what Economics 240, The Political Economy of Regulation is all about, it’s about stuff like this.

With much of his legislative agenda stalled in Congress, President Obama and his team are preparing an array of actions using his executive power to advance energy, environmental, fiscal and other domestic policy priorities…. Any president has vast authority to influence policy even without legislation, through executive orders, agency rule-making and administrative fiat.

Legislation gets all the attention, and regulation does all the dirty work.

In Econ 240, we will study “the fourth branch of government” (a.k.a., administrative agencies), including the continuing evolution and growth of the U.S. regulatory system, the process by which regulations are proposed, written, implemented, and enforced, and the tools used to evaluate the costs and benefits of regulations.

It’s designated writing intensive, and I couldn’t be more excited. See you in there.

This Saturday, LSB Banking Summit, One Day Only!!!

Don’t forget, tomorrow (Saturday) is the LSB banking summit. Looks like a solid lineup. Don’t worry if you haven’t already signed up, there should be plenty of space.

Banking Summit

The next Lawrence Scholars in Business event is the Commercial and Investment Banking Summit, and it will take place on Saturday, February 13th from 10:00 to 12:00 in the Hurvis room in the Campus Center. If you come for the event, join our guests for lunch right afterwards–just go through the line as usually, and then go to the Parrish/Perille dining room.

Our guests will be

Rob Bearman ’75 — managing director, Barclays Capital, Inc., (investment banking division of Barclays PLC); formerly at Goldman Sachs for 20 years;

Hugh McLean ’80 — former executive managing director and president, The PrivateBank & Trust Company (suburban Chicago offices);

Dave Naunheim ’77 — president and chief lending officer, United Missouri Bank (UMB)-St. Louis.

These three alumni have a deep knowledge of the banking world, so this is a great opportunity to learn about careers in banking, or just to learn about the financial world, the linchpin of the economy. Our panelists will specifically discuss the financial crisis from an insider’s perspective. In addition, they will talk about interviewing strategies generally and for banking jobs specifically. This is an opportunity to learn something about the economy that you don’t get in a course, and it is an opportunity to make connections with well-placed alumni who are ready to help you.

I strongly encourage you to attend, if you are on campus during reading period, and you might even change your plans for the weekend so that you are able to join us. Sign up in the career center or email careercenter@lawrence.edu.

Kudos to Professor Shober

This looks interesting. The best way to foment effective policy outcomes is to allow administrative agencies to do their thing unfettered. How do they solve the agency problem? I guess we’ll have to read the book and find out.

Order now!

Splintered Accountability: State Governance and Education Reform

Arnold F. Shober

The No Child Left Behind Act declared that improving education in every school in the United States was a top national priority. However, this act did not acknowledge how state departments of education have successfully constructed reforms for the past few decades, despite the power struggle between governors, legislators, school districts, and state boards of education. Drawing upon archival sources, state budget documents, interviews, and statistical analysis, Splintered Accountability amply demonstrates that sustained education reform is best left in the hands of the relatively autonomous state departments of education in order to maintain curriculum standards, school finance, and teacher licensure systems. Comprehensive and successful education reform originates from within state education agencies, propelled by savvy state superintendents.

Looking for a Talented Innovation Research Fellow

If you are interested in topics on innovation, let one of us know. The Skran Fellowship applies broadly to students with interests in innovation, including students of economics and policy. The deadline is right before we adjourn to Bjorklunden.

Here’s the announcement:

DALE L. SKRAN, SR., SUMMER RESEARCH FELLOWSHIPS IN SCIENCE, TECHNOLOGY AND INNOVATION

Two student research fellowships at Lawrence University, created in honor Mr. Dale L. Skran, Sr., reflect Mr. Skran’s strong endorsement of “hands-on” research and engineering involving faculty/student research collaboration. Mr. Skran was a graduate of the General Motors Institute and the Advanced Management Program at Harvard, and he enjoyed a 40-year engineering career in the auto industry, retiring in 1981 as the manager of Quality Assurance for Front End Brakes at Chevrolet Saginaw Manufacturing. During his tenure in this position, his factory won many awards for the safety of its brakes and other products.

Awards: The Dale L. Skran, Sr., Summer Research Fellowships at Lawrence are awarded on a competitive basis to two students each year who complete an application to conduct summer research in collaboration with a member of the Lawrence faculty. Each fellowship will consist of $5,000, $3,500 of which will constitute a stipend for a student, $500 will cover any ancillary costs of the project, and the remaining $1,000 of each fellowship will be awarded to the supervising faculty member either in the form of a stipend or reimbursement for costs associated with the fellowship.

Selection Criteria: All Lawrence University students are eligible for these fellowships with preference being given to rising seniors. These funds are awarded without consideration of race, gender, religion, sexual orientation, or international student status.

Guidelines and Selection Process: Possible areas of focus will relate in most cases to physics, applied physics, engineering, or innovation and entrepreneurship ventures. The selection committee for these fellowships will be chaired by Professor John Brandenberger or his designee. At least one member of the selection committee will represent the innovation and entrepreneurship program at Lawrence; another member is to represent the Department of Physics.

Applications: Interested students should consult with the chair of the selection committee (currently Mr. Brandenberger in Youngchild-116) to collect the application forms, part of which will call for a research proposal. The deadline for applications is February 26, 2010.

The Prisoners Dilemma and Corrupt Figure Skating Judges

The Olympics are upon us, and economists of many stripes are gathering to watch the figure skating, dish about the routines and outfits, and speculate which judges are corrupt. Fortunately, one of our own, Eric Zitzewitz of Dartmouth, has been gathering data to give us the low-down on the corruption problem. Ray Fisman discusses the research in a recent Slate piece.

The 2002 Winter Games in Salt Lake City were tainted by a figure skating scandal in which judges from five countries allegedly colluded to deliver victory to a Russian couple over a pair of Canadians…. [Economist Eric] Zitzewitz found that the “home judges bias” added nearly 0.2 points to skaters’ scores (on a six-point scale), often enough to boost their ranking by at least one position. [H]aving a countryman on the panel helped a skater not just through the direct effect of that one judge’s scoring–the home-country judge also convinced others on the panel to inflate their scores.

What was the solution? Well, perhaps paradoxically, it was to make judges anonymous and set up the classic prisoners dilemma situation. In other words, if we agree to give each other’s skaters inflated scores, then I need to be able to observe what score you give to ensure that you are keeping up your end of the bargain. Absent that, your strategy should be to “defect” from our agreement because your skater certainly benefits from the rival’s lower score.

Was that the effect? In a word: No.

The home-country bias gets even worse when anonymous judges can hide from a scrutinizing press and public, despite the barriers that anonymity may create for effective backroom deal-making. The home-judge advantage under the new system is about 20 percent higher than in the days of full disclosure. (Zitzewitz can’t say how much of this increase in bias is from the home-country judge himself, and how much from others he’s persuaded to go along with him; how each judge has scored a performance–and which judges’ scores are counted–are kept secret.)

Fascinating either way. Perhaps they should find figure skating judges from countries that don’t have any serious figure skaters?

On the Enforcement of Private Customs

Any economist with an understanding of institutions (the “rules of the game”) will tell you that a rule, even a public law, doesn’t mean anything if it isn’t enforced. So a big question concerns what it means to be a rule — are informal norms and customs legitimate?

I was thinking about this as I got this piece of news from my old stomping grounds:

Longtime Pittsburghers know the unwritten code of saving parking spaces with a chair, and the tradition is in full effect after a storm dumped 20 inches of snow on the city last weekend.

Neighborhood justice can be swift — like in Squirrel Hill, where someone cleared a spot on Hobart Street and left a chair, but the chair was later moved and another car parked there. That car somehow became buried in snow, and a sign left at the scene said, “Now yinz know not to break the rules.”

Here’s the story.

I disagree with the story on one front: you don’t have to be a longtime “yinzer” (a.k.a., a person with Pittsburgh roots) to know about the consequences of violating “the chair” rule. After my first few months there, I realized that people kept chairs specifically for the purpose of blocking off parking spaces.

Well, now yinz know.

Sex ratios, economics, and the campus

This interesting blog post by market designer Al Roth of Harvard University summarizes an economics paper that links the preponderance of boys in China to the high Chinese savings rate. On the other hand, women are clearly in the majority on US college campuses. (No, this doesn’t explain the US savings rate, but it has other interesting consequences.)

Schumpeter Day Tea, That Is

The folks over at Organizations & Markets remind us that it’s Schumpeter Day again (where does the time go?). The nation-wide celebrations commemorate the birthday of the prominent economist, who plied us with such memorable lines as this:

The process of Creative Destruction is the essential fact about capitalism … it is not [price] competition which counts but the competition from . . . new technology . . . competition which strikes not at the margins of profits . . . of existing firms but at their foundations and their very lives.

The Economics TBA / Schumpeter Day High Tea at 4 p.m. today (along with “Reading Days”) will serve as a kick off for the Innovation and Entrepreneurship Reading Group. We will begin blogging the text later this week.

See you at 4

Update: The tea was once again a resounding success, with the student faculty ratio of better than 3:1. I still think offering caffeine could boost our numbers.

Don’t Forget the Monday Economics Tea, 4 p.m.

Following the success of the inaugural Economics TBA, we will be breaking out the hot beverages and cookies once again this coming Monday at 4 p.m. (Caffeine available upon request).

This should work out splendidly for you with classes running until 4:20, as I’m certain that both the water and the conversation will be heated by that point.

See you there!

Revisiting the Amazon-Macmillian Fracas

The dust is settling on the, well, the dust up between Amazon and Macmillian over eBook prices. There are some excellent posts from Virginia Postrel, Lynne Kiesling, and Megan McCardle. Some great Industrial Organization topics here, like price discrimination, resale price maintenance, and why entry by Apple here is leading to higher retail prices. (Did he just say entry is leading to higher prices? Yes, he did).

Well, as we try to sort that out, it appears the dust is on the rise again, as a third publisher is demanding the “agency model” in the pricing of e-Books.

The future of the $9.99 e-book is in danger. A third major publisher, Hachette, is going for Apple’s agency model in order to sell e-books for up to $14.99 apiece, the company revealed in a memo to agents.

Following Amazon’s public dispute over e-book prices with Macmillan early this week, Hachette is also seeking a shift to the agency model, which allows the publisher to set the price for the e-book, while the retailer keeps 30 percent of the sales.

I wonder if that “agency model” bears any relationship to the “principal-agent” problem we will be covering in 450 after the break?

Stay tuned.

Microsoft’s Self-Destruction

It isn’t news that innovation at Microsoft has been lackluster, as this article from Fast Company put it in 2007. Alumni of the In Pursuit of Innovation course know Clayton Christensen’s teaching: large companies are in danger of suppressing innovation just by trying to do well what made them successful in the first place. This op-ed piece from the New York Times by a former VP gives a few startling examples of a corporate organization that seems to strangle innovation. Where did the 9.5 billion dollars go that Microsoft spent on research and innovation last year?

Shine a Light… Life After Lawrence Edition

It’s never too early to think about what you are going to do after you leave Lawrence. In fact, thinking about what you might do after graduation could well open up some exciting opportunities whilst you are still here in the friendly confines of Appleton.

A week from Sunday, February 14, St. Valentine’s Day, and the last day of the reading period, 25 alumni will be on campus for the Shine Light, More Light on Your Future conference. I strongly recommend that you seize the opportunity to meet our alumni and discuss their career paths and experiences. They are here because they love Lawrence and want to help folks just like you.

Looks like a really solid lineup, including my mentor, Alan Parks! And, there’s probably free food, too.

Continue reading Shine a Light… Life After Lawrence Edition

This Time is Different (NOT)

Last year, economists Ken Rogoff and Carmen Reinhardt published what will become (and may be already if that were possible) a classic. The book is entitled, This Time is Different: Eight Centuries of Financial Folly. It traces the history (both recent and ancient) of a plethora of failed attempts by countries to borrow their way to prosperity.

In his January 29th newsletter, John Mauldin selects some of the juicier pieces for citation. They make for sobering reading. Enjoy (or maybe not.)

http://frontlinethoughts.com/gateway.asp

McOutsourcing in Moscow

Solid New York Times piece on McDonald’s in Russia. To wit:

The company celebrated a different milestone earlier this year by outsourcing the last product — hamburger buns — it had made at a proprietary factory outside Moscow called McComplex. It was built before the chain opened its first restaurant. Nearly everywhere else, McDonald’s buys ingredients, rather than making its own. But in the Soviet Union, there simply were no private businesses to supply the 300 or so distinct ingredients needed by a McDonald’s outlet.

Everything — from frozen French fries to pie filling — had to be made from scratch at a sprawling factory.

McDonald’s is always a good lens through which to view the 118 or so countries where it operates. In the 20 years since McDonald’s arrived in Russia, enough private enterprises have sprung up to supply nearly every ingredient needed to operate one of its restaurants.

Today, private businesses in Russia supply 80 percent of the ingredients in a McDonald’s, a reversal from the ratio when it opened in 1990 and 80 percent of ingredients were imported.

Fascinating stuff. I could probably write an entire final exam around that passage.