Lawrence Economics Blog

The Center for Teaching and Learning will sponsor workshops to provide students with an opportunity for a review of quantitative concepts. Each workshop will be held in Briggs 420 and is approximately 90 minutes long.

Workshop 7:00 PM on Monday, January 11, 2010

The goal of the algebra workshop is to share information on an algebra reference sheet that should empower students with a resource to help answer common algebraic questions. The algebra reference sheet will include information on fractions, exponents, algebraic properties, the order of algebraic operations and the FOIL method of multiplying binomials.

Workshop 7:00 PM on Tuesday, January 12, 2010

The goal of the graph workshop is to share information on a graph reference sheet that should empower students with a resource to help answer common graphing questions. The graph reference sheet will include information on the Cartesian Coordinate System, linear equations in two variables, the slope of a straight line, axis intercepts of a straight line and reading data from a graph.

Workshop 7:00 PM on Wednesday, January 13, 2010

The goal of the word problem workshop is to share information on a word problem reference sheet that should empower students with a resource outlining strategies for approaching word problems. The word problem reference sheet will include information on general strategies that encourage students to extract relevant information, organize the information into patterns and work toward the successful completion of word problems.

Happy new year to you Lawrentians and other fellow travelers. The Dow was up nearly 20% over the past 12 months, so perhaps our collective fortunes are on an upward trajectory. Unless, of course, you were holding “The Tiger Fund.”

Shareholder Value Destruction following the Tiger Woods Scandal

Christopher Knittel & Victor Stango

University of California Working Paper

December 2009

Abstract: We estimate that in the days beginning with Tiger Woods’ recent car accident and ending with his announced “indefinite leave” from golf, shareholders of companies that Mr. Woods endorses lost $5-12 billion in wealth. We measure the losses relative to both the entire stock market and a set of competitor firms. Because most of the firms that Mr. Woods endorses are either large or owned by large parent companies, the losses are extremely widespread. Mr. Woods’ top five sponsors (Accenture, Nike, Gillette, Electronic Arts and Gatorade) lost 2-3 percent of their aggregate market value after the accident, and his core sports related sponsors EA, Nike and PepsiCo (Gatorade) lost over four percent. The pace of losses slowed by December 11, the date on which Mr. Woods announced his leave from golf, but as late as December 17 shareholders had not recovered their losses.

See you in 2010.

The Economists’ Voice has added several more articles to its special issue on financial markets reform. There is a piece by Charlie Calomiris on ratings agencies, a back-and-forth on bankers’ pay, and a discussion of the whens and wherefores of financial regulatory reform by Robert Litan.

There is a very interesting post over at the Organizations and Markets blog about the relationship between Josef Schumpeter and Paul Samuelson. Samuelson, who died Sunday at the age of 94, is the Nobel Prize winning economist who shaped and then dominated the introductory textbook market for decades. In one of his more audacious moments, he famously proclaimed, “Let those who will, write the nation’s laws if I can write its textbooks.” He also was the driving force behind formal economics modeling (read: mathematical models).

His dissertation advisor, Josef Schumpeter, was also an amazing and amazingly-influential economist of a different stripe. Even without the formal modeling (and perhaps due to the absence), his work has become central to the recent revival of the economics of innovation and entrepreneurship. You could do worse over the break than to pick up a copy of the recent biography, Prophet of Innovation.

I know I did.

From Adam Smith on, we expect rivals to get together to conspire against consumers. But this shopping season, we have Amazon and Walmart engaging in cutthroat price competition.

The effect should be good for consumers in the short run, but bad for retailers generally. As the price war expands, however, it is almost prohibitively difficult to think of all of the general equilibrium effects of this, so it is a shame that we won’t be offering Industrial Organization until next year. Look for this example ad naseum in ECON 300 next term.

Efficient Market Theory is Dead! Long Live Efficient Market Theory!

Many pundits believe that the efficient market hypothesis as a way to describe financial market behavior has suffered a fatal blow from the recent financial crisis. These advocates have attempted to nail the coffin on the EMH. Jeremy Siegel, author of Stocks for the Long Run, begs to differ. Read his October 27th piece in the Wall Street Journal which I have posted on my website.

Efficient Market Theory and the Crisis

Is US health care more expensive because we have higher costs of provision, or is it simply that providers charge higher prices? Blogging wunderkind Ezra Klein at the WaPo gives us some insight into what appear to be exorbitant US prices. He also provides a link to the full pack of charts with the international price comparisons. Yowza.

I can think of reasons why the US might have higher costs and hence higher prices. For example, I’m told that Allegheny County in Pennsylvania has as many medical helicopters at the ready as the entire country of Canada. I will not stake my name on whether that is true or not, but it certainly could be the case that higher average costs lead to higher prices, even with robust competition. There are also arguments of waste, fraud, abuse, exorbitant overhead, what have you that could also contribute.

On the other hand, maybe it’s (just) the prices, stupid.

The debate over the utility of daylight savings comes up about twice a year, usually around the time the clocks change. This post at Tree Hugger takes on some of these issues, with a hat tip to yours truly. Watch your step, indeed!

The original intent of daylight savings was to save energy. Daniel Engber at Slate reviews some of the evidence on this front.

If the policy isn’t meeting its objective, why don’t we just repeal it? That’s not a rhetorical question.

The folks at Brookings have a consistently-interesting research agenda addressing questions that seem pretty central to economic growth and social welfare. Students have really enjoyed (and been disturbed by) Alesina, Glaeser, and Sacerdote’s Why Doesn’t the US Have a European-Style Welfare State published in Brookings Papers on Economic Activity. Gary Burtless’ work on the sources of American inequality is quite revealing.

And, most recently, Isabel Sawhill and Ron Haskins have identified Five Myths about Our Land of Opportunity. I particularly liked the discussion of Myth #4.

4. If we want to increase opportunities for children, we should give their families more income.

Of course money is a factor in upward mobility, but it isn’t the only one; it may not even be the most important. Our research shows that if you want to avoid poverty and join the middle class in the United States, you need to complete high school (at a minimum), work full time and marry before you have children. If you do all three, your chances of being poor fall from 12 percent to 2 percent, and your chances of joining the middle class or above rise from 56 to 74 percent. (We define middle class as having an income of at least $50,000 a year for a family of three.)

From the Wall Street Journal we have a story tallying up the winners and losers from proposed health care reform. It looks like the drug makers are in for a bonanza, though things might not be so cheery for hospitals and insurers.

Meanwhile, the Department of Justice has decided against prosecuting growers and shops that sell state-sanctioned medical marijuana. Certainly, one of the big costs of being an illicit drug producer is the threat of legal sanctions, which is why organized crime often weighs in. With the liberalization of drug enforcement, will mom & pop producers run the Mexican cartels out of business?

Stay tuned.

Professor Gerard (that’s me) will be talking about the Economics Nobel Prize winners at 6:30 p.m. tonight on WLFM.net. (That’s 6:30 cst for our readers outside the Lawrence area).

The program is Page 404 and my host is Avi Steiner.

We will be taking the lid off the economics of organization (with guile), taking on topics from the assumption of rationality in economics to grazing rights in Switzerland to who (probably) owns the McDonalds up the street. It should be a fun half hour.

Sometimes it important not trying to read too much into what one hears. Krugman draws an intriguing or at least amusing relationship between the Fed chair’s statements and statements made by Peter Sellers character in Being There. Enjoy.