First, I believe the link I gave you previously for the paper is now broken. You can get it from JSTOR. Note that you have to be on the Campus network for the link to give you full access and be able to download the PDF. From home use VPN for that purpose.
Next, let me try to sketch a little picture of "circular flow" that is going on in the background of this paper. Workers can be in one of two states, employed or unemployed. The equilibrium of the model is stationary - the level of employment stays fixed throughout as does the level of unemployment. But at each moment in time some workers separate from their jobs, which creates vacancies, and some unemployed workers find those jobs, filling those vacancies. That unemployed workers want good paying jobs is not surprising, so the filling the vacancies part makes sense intuitively. That workers with good jobs nonetheless separate makes less sense. In reality, some workers do retire or quit to move elsewhere and find other work. But here there is no retirement (everybody lives till infinity, an assumption to keep the modeling simple) and when the quit happens the worker becomes unemployed. So that doesn't seem to correspond with reality very much. The reason they need the quit rate, b, to be positive, is so that job vacancies do happen in equilibrium.
With that, the intuitions of the paper are not hard, once you get the drift of the asset equations. I've written up some notes for that, so you can see how those equations are derived. From the worker's point of view there are three asset equations to derive - the value of an employed worker that shirks, the value of an employed worker that doesn't shirk, and the value of of an unemployed worker. It seems intuitive enough that if the firm catches the worker shirking then the worker gets fired. (In reality there are steps of "progressive discipline" with firing the worker the last step. The aim of the intermediate steps is initially to turn the situation around and make the worker productive, then later to document the cause of dismissal.) However, in the model with all workers homogeneous, the firm is really indifferent to firing the worker or not. Again, this is a little fudge to keep the modeling simple.
The heart of the paper is the no-shirk condition and understanding the implications of that. A good job produces a surplus for the worker over what an unemployed worker gets. Its the desire to maintain that surplus in the future that motivates the worker to put in effort at present.
Wednesday, February 29, 2012
Monday, February 27, 2012
On the Relationship between Wealth and Greed
This piece seemed timely. (And for what it's worth, I drive a Civic and almost never take it to the car wash.)
Internship Possibility
From: Brooks, Alvina P. [mailto:abrooks1@ftc.gov]
Sent: Monday, February 27, 2012 11:25 AM
Subject: Seeking applications for summer econ internship at the FTC
Sent: Monday, February 27, 2012 11:25 AM
Subject: Seeking applications for summer econ internship at the FTC
Wednesday, February 22, 2012
Murphy's Laws of Teaching
This is a cute site. We'll use one of these tomorrow (from the category Laws of Applied Terror).
Tuesday, February 21, 2012
Prompt for this week
We've used the term opportunism, taking advantage of the a situation, and a different term, being a good citizen, doing the right thing even when there is a opportunity to do otherwise, as to different sorts of possible behavior at work (or at school). In this post we want to talk about environments that promote one or the other. And we will do so taking a bit of an interdisciplinary approach. To get the requisite background, I'd like you to read these two recent pieces from the NY Times
How to Get the Rich to Share the Marbles
How Companies Learn Your Secrets
The first piece is about cooperative activity that subsequently promotes sharing. The second is actually mainly about habits and habit formation. I would like you to transfer the lessons from these pieces to your own work or school experience. Can you give an example where cooperation has led to sharing? Can you give a different example, where what might seem to some observers as opportunism was really the consequence of a bad habit? Might there then be a solution in modifying the habit as in the second piece?
How to Get the Rich to Share the Marbles
How Companies Learn Your Secrets
The first piece is about cooperative activity that subsequently promotes sharing. The second is actually mainly about habits and habit formation. I would like you to transfer the lessons from these pieces to your own work or school experience. Can you give an example where cooperation has led to sharing? Can you give a different example, where what might seem to some observers as opportunism was really the consequence of a bad habit? Might there then be a solution in modifying the habit as in the second piece?
Monday, February 20, 2012
Reminder - Schedule meetings we me
This is just a quick reminder to set up a time for your team to discuss the presentation it will do (that is for teams A and C) and also for you to set up individual appointments for discussing your blog posts and online work (so far only one student has done that). Please do this via email, suggesting a preferred time and a couple of alternative slots too.
Thursday, February 16, 2012
Tips/Notes on Spence and Zeckhauser
There is a lot of notation in the paper that might get you bogged down. These suggestions are aimed at helping with that.
The model has a random variable, n, with a probability density function, f(n). This random variable is the random component of wealth. As stated in the paper, n is a continuous random variable. This assumption is for slickness in the notation only. It doesn't materially impact the results at all. It might help you to understand the economics if instead n is a discrete random variable with a two point support, nL and nH. In other words, nL denotes a low income shock and nH denotes a high income shock. Then let pL and pH denote the corresponding probabilities. The expectation of n is given by E(n) = pLnL + pHnH. Also for simplicity, treat the agent's action, a, as a scaler.
Once you've done these substitutions, you can try to derive the solution via the method of Lagrange multipliers. Use the separable form of the utility function that is in equation (10) in the paper. It is the easiest to interpret. I've written up some notes for you so that it is not too hard to reproduce the results. The essence of the article is in contrasting the solution to Case I (No Individual Choice) to Case III (Individual Chooses Before Nature - Insurer Monitors Only R). Time willing, we'll then relate the other cases to these two.
Also note that there is a typo in equation (3). At present it say the utility, u, equals the Lagrange multiplier, lambda. It should say the the marginal utility of income equals lambda.
The model has a random variable, n, with a probability density function, f(n). This random variable is the random component of wealth. As stated in the paper, n is a continuous random variable. This assumption is for slickness in the notation only. It doesn't materially impact the results at all. It might help you to understand the economics if instead n is a discrete random variable with a two point support, nL and nH. In other words, nL denotes a low income shock and nH denotes a high income shock. Then let pL and pH denote the corresponding probabilities. The expectation of n is given by E(n) = pLnL + pHnH. Also for simplicity, treat the agent's action, a, as a scaler.
Once you've done these substitutions, you can try to derive the solution via the method of Lagrange multipliers. Use the separable form of the utility function that is in equation (10) in the paper. It is the easiest to interpret. I've written up some notes for you so that it is not too hard to reproduce the results. The essence of the article is in contrasting the solution to Case I (No Individual Choice) to Case III (Individual Chooses Before Nature - Insurer Monitors Only R). Time willing, we'll then relate the other cases to these two.
Also note that there is a typo in equation (3). At present it say the utility, u, equals the Lagrange multiplier, lambda. It should say the the marginal utility of income equals lambda.
Presentation Schedule
These are the dates for the three presentations:
Tuesday March 6 - Spence and Zeckhauser
Tuesday March 13 - Shapiro and Stiglitz
Thursday March 29 - Alchian and Demsetz
Teams need to be be prepared for these presentations for them to be worthwhile. I hope non-presenters have also tried to work their way through these papers. It will help with the class discussion. I will be posting tips/notes for reading the paper so you can make headway into them.
Tuesday March 6 - Spence and Zeckhauser
Tuesday March 13 - Shapiro and Stiglitz
Thursday March 29 - Alchian and Demsetz
Teams need to be be prepared for these presentations for them to be worthwhile. I hope non-presenters have also tried to work their way through these papers. It will help with the class discussion. I will be posting tips/notes for reading the paper so you can make headway into them.
Tuesday, February 14, 2012
Card Playing
Though the title of the post may seem frivolous, this is meant as a serious message. I'm guessing that several of you have played poker, and not just penny ante. I wonder if any of you have played bridge. It is the ideal card game for talking about the issues in chapter 5.
In all card games each player is dealt some cards that they see and the other players do not. This is an example of private information. After the deal has concluded but the play hasn't yet started, each player knows what is in their own hand, but not what is in the hands of the other players. In some card games those cards are then revealed sequentially during the play. The play of the cards can communicate not just what has happened, but what cards remain as private information. In poker, it is the betting that offers the possibility of communicating.
Bridge is interesting here because it is a team game and the effectiveness of the team depends in part on how well messages that are sent are understood by the partner. There is also usually a logic to the sequencing of the play of the cards. Effective teams find the right sequence.
If you have trouble coming up with examples for the prompt this week, it's okay to use card playing as one such example.
In all card games each player is dealt some cards that they see and the other players do not. This is an example of private information. After the deal has concluded but the play hasn't yet started, each player knows what is in their own hand, but not what is in the hands of the other players. In some card games those cards are then revealed sequentially during the play. The play of the cards can communicate not just what has happened, but what cards remain as private information. In poker, it is the betting that offers the possibility of communicating.
Bridge is interesting here because it is a team game and the effectiveness of the team depends in part on how well messages that are sent are understood by the partner. There is also usually a logic to the sequencing of the play of the cards. Effective teams find the right sequence.
If you have trouble coming up with examples for the prompt this week, it's okay to use card playing as one such example.
Monday, February 13, 2012
Misgivings about information efficiency - what management does and what it should do.
Let me start with some of my own shopping behavior. I occasionally do grocery shopping for the family My store of choice is Schnucks, mainly because I understand their layout. One curiosity I've noticed is that in the aisle with cocktail olives (for martinis) you can also find peanut butter. I consume both of those items but in my view of the world, they don't go together and I don't consumr them at the same time. Cocktail peanuts do go with cocktail olives (the appropriate munchie to accompany the martini) but you won't find cocktail peanuts in this aisle. They are in the aisle with the potato chips and other snacks. Cocktail olives also go with whatever liquor is used to make the martini. So you might envision the olives in that section. But you'd be wrong. Some people do put cocktail olives into salads, so conceivably you'd find them in that part of the store, but that too is not the case. For me its a mystery why they are with peanut butter in the same aisle, one I'm not likely to solve soon.
Stores like Schucks now generate a huge amount of data via the checkout process. Every item has a bar code on it. Every item gets scanned at checkout. This is an incredible boon, not just to getting through the line quicker, but also for inventory management. The store gets a much better sense of what merchandise it is moving and what remains on the shelves. So for restocking standard items, this is fantastic. Does it help the store think through where items should be located? I know from the little I've read about marketing in grocery stores, that the buyer should see fresh produce when he first walks in and that milk and fresh meats should be in the back of the store. There are known buyer behaviors that support these product location choices. What about other such choices? Are those choices driven by data - let the numbers do the talking? Are they driven by some conception of the shopper that may or may not be supported by the data? Or is it something else?
More generally, with this shopping as only one example of the bigger picture, are we talking only about making small tweaks in an already well defined model? If we are, does that really require human discretion, or can it all be computerized and run by algorithm? If it can be done by computer, it would seem more information is better, in contrast to what the book says about information efficiency. With a higher dimensionality of information, one can be more precise about the actions that need to be taken. That is one way to think of what's going on.
Now I want to give a completely different perspective. For this one, you can imagine you are a medical doctor who has a patient come in to see you with a variety of complaints. One of the things you need to determine is whether it's all minor stuff, some topical treatments and perhaps an inexpensive prescription will do the trick, or if it is a major illness, requiring either substantial surgery or a very invasive treatment regimen. Further, if it is the latter, you may have to come to a decision rather quickly, because long delay can cause the situation to deteriorate further. In this same manner you can imagine you are a different type of doctor, the Chairman of the Federal Reserve, with the patient being the entire U.S. economy. You need to determine again whether the economy is basically healthy or if there are some serious underlying issues that need fixing.
Suppose in particular that you are Alan Greenspan and it is back in late 2004 or early 2005. If you thought the economy had a serious illness in it back then, could you have prevented the meltdown from happening a couple of years later?
This diagnostician has a huge amount of information at his fingertips. Much of it is digital in nature but - financial information about prices and quantities regarding bank balance sheets. But you also have a huge amount of analog information - reflecting the attitudes of the circle you trust and the information that is shared within that circle.
In retrospect, where vision is always 20-20, Greenspan blew it completely on the economy. According to the macro economist John Taylor of Stanford - the Fed held down interest rates for too long. That induced the bubble. The Fed also had regulatory authority it didn't exercise about the subprime market. Greenspan didn't see the need to change what he was doing, because he thought it was working well.
It turns out that on making the judgment of how the patient is doing, a big part of the issue is the framework that is used to process the available information. In Greenspan's framework (you can call it a mental model), the higher ups in the big financial houses had a strong self-preservation instinct, not just for themselves but also for the organizations where they worked. This self-preservation instinct meant these people would self-regulate their own organizations to keep them healthy. Greenspan therefore couldn't imagine taking on bad debt for near term gain. He therefore so no reason to sound the alarms.
I call this type of behavior believing in myth. I think we all do this to some extent. The issue arises when the myth comes into conflict with some available evidence. Then something must go. When it is the myth that goes, I call that behavior being empirical. One then needs to come up with a different framework to explain what is going on. You'd like to believe that science works that way. However, it sometimes happens that what gives is the evidence, and the myth survives. In this case, you have to wait for a catastrophe to see what is happening, and then you can go back to the evidence earlier and note you might have seen it earlier too, had you not been blocked by an erroneous framework.
The Lessons from Tal Afar has this aspect as well. The crucial question there was whether there was an insurgency or not. One gets a completely different military strategy when there is no insurgency than when there is an insurgency. The latter seemed to produce much better results.
It may be that the big thing senior management does is communicate a framework on which to hang all other decisions. Then information flow from the spokes back to the center can be seen in part as a way to support the effectiveness of the framework or to demonstrate the flaws in it. If this is right, then a further management task is to make adaptations in the framework or wholesale changes in it, when those flaws become apparent.
Armed with a reasonable framework, then one should be able to determine what resources are necessary and what actions need to be taken to be successful. There may have to be lots of minor tweaks to the recommendation, to match the situation on the ground, which is likely in flux. Those tweak things are not the focus of the senior management. It is middle management that does the tweaking, or the task is automated.
Does the information efficiency concept in the book survive if we're talking about management by selection of a framework? Perhaps it does, but here the arena is the verification part. If the complexity is too great, one can't tell whether the framework is useful or not. In a simpler environment one can tell. Information efficiency then says to get the simplest framework possible that will really test the whether the framework is applicable.
Stores like Schucks now generate a huge amount of data via the checkout process. Every item has a bar code on it. Every item gets scanned at checkout. This is an incredible boon, not just to getting through the line quicker, but also for inventory management. The store gets a much better sense of what merchandise it is moving and what remains on the shelves. So for restocking standard items, this is fantastic. Does it help the store think through where items should be located? I know from the little I've read about marketing in grocery stores, that the buyer should see fresh produce when he first walks in and that milk and fresh meats should be in the back of the store. There are known buyer behaviors that support these product location choices. What about other such choices? Are those choices driven by data - let the numbers do the talking? Are they driven by some conception of the shopper that may or may not be supported by the data? Or is it something else?
More generally, with this shopping as only one example of the bigger picture, are we talking only about making small tweaks in an already well defined model? If we are, does that really require human discretion, or can it all be computerized and run by algorithm? If it can be done by computer, it would seem more information is better, in contrast to what the book says about information efficiency. With a higher dimensionality of information, one can be more precise about the actions that need to be taken. That is one way to think of what's going on.
Now I want to give a completely different perspective. For this one, you can imagine you are a medical doctor who has a patient come in to see you with a variety of complaints. One of the things you need to determine is whether it's all minor stuff, some topical treatments and perhaps an inexpensive prescription will do the trick, or if it is a major illness, requiring either substantial surgery or a very invasive treatment regimen. Further, if it is the latter, you may have to come to a decision rather quickly, because long delay can cause the situation to deteriorate further. In this same manner you can imagine you are a different type of doctor, the Chairman of the Federal Reserve, with the patient being the entire U.S. economy. You need to determine again whether the economy is basically healthy or if there are some serious underlying issues that need fixing.
Suppose in particular that you are Alan Greenspan and it is back in late 2004 or early 2005. If you thought the economy had a serious illness in it back then, could you have prevented the meltdown from happening a couple of years later?
This diagnostician has a huge amount of information at his fingertips. Much of it is digital in nature but - financial information about prices and quantities regarding bank balance sheets. But you also have a huge amount of analog information - reflecting the attitudes of the circle you trust and the information that is shared within that circle.
In retrospect, where vision is always 20-20, Greenspan blew it completely on the economy. According to the macro economist John Taylor of Stanford - the Fed held down interest rates for too long. That induced the bubble. The Fed also had regulatory authority it didn't exercise about the subprime market. Greenspan didn't see the need to change what he was doing, because he thought it was working well.
It turns out that on making the judgment of how the patient is doing, a big part of the issue is the framework that is used to process the available information. In Greenspan's framework (you can call it a mental model), the higher ups in the big financial houses had a strong self-preservation instinct, not just for themselves but also for the organizations where they worked. This self-preservation instinct meant these people would self-regulate their own organizations to keep them healthy. Greenspan therefore couldn't imagine taking on bad debt for near term gain. He therefore so no reason to sound the alarms.
I call this type of behavior believing in myth. I think we all do this to some extent. The issue arises when the myth comes into conflict with some available evidence. Then something must go. When it is the myth that goes, I call that behavior being empirical. One then needs to come up with a different framework to explain what is going on. You'd like to believe that science works that way. However, it sometimes happens that what gives is the evidence, and the myth survives. In this case, you have to wait for a catastrophe to see what is happening, and then you can go back to the evidence earlier and note you might have seen it earlier too, had you not been blocked by an erroneous framework.
The Lessons from Tal Afar has this aspect as well. The crucial question there was whether there was an insurgency or not. One gets a completely different military strategy when there is no insurgency than when there is an insurgency. The latter seemed to produce much better results.
It may be that the big thing senior management does is communicate a framework on which to hang all other decisions. Then information flow from the spokes back to the center can be seen in part as a way to support the effectiveness of the framework or to demonstrate the flaws in it. If this is right, then a further management task is to make adaptations in the framework or wholesale changes in it, when those flaws become apparent.
Armed with a reasonable framework, then one should be able to determine what resources are necessary and what actions need to be taken to be successful. There may have to be lots of minor tweaks to the recommendation, to match the situation on the ground, which is likely in flux. Those tweak things are not the focus of the senior management. It is middle management that does the tweaking, or the task is automated.
Does the information efficiency concept in the book survive if we're talking about management by selection of a framework? Perhaps it does, but here the arena is the verification part. If the complexity is too great, one can't tell whether the framework is useful or not. In a simpler environment one can tell. Information efficiency then says to get the simplest framework possible that will really test the whether the framework is applicable.
Where we are this week
Tomorrow my aim is to begin with the PowerPoint from the seventh class session in the middle. We did the early part on transfer pricing last Thursday. So we'll start with Management and Coordination by other means than price. You'll note that price creeps back into the the discussion. This covers the first part of chapter 4 in M&R. The inspiration is a paper by Weitzman called Prices and Quantities. I will also spend a little time here talking about what I know regarding "project management" which I hope will make the discussion a bit more realistic.
After that I'd like to have a conversation based on your posts for this week - about possibly bringing price in to partially alleviate situations where students have to wait to get something on campus.
Time willing, we'll then go onto the PowerPoint for the eighth class session, the bulk of which is on B&D chapter 3, which introduces the structural frame. What we don't get to tomorrow we'll get to on Thursday.
I've been having a hard time trying to produce something reasonable on the second half of chapter 4 in M&R particularly the part on information efficiency in selecting the type of controls. So I will write up my reflection later this evening, to indicate the source of my misgivings. We'll discuss that on Thursday as well. Incidentally, the reasons I suggested you read that piece on the Lessons from Tal Afar are tied to the misgivings. The issues are quite similar to what I wrote about in my Uncertainty paper that is linked on the Useful Links Tab.
The last part of chapter 4 on increasing returns, core competency and complementarities, all of which you can describe with one term, "positioning," should be straightforward enough in conception. We'll spend some time getting the jargon right and making sure we understand what is at issue. At the moment there are no slides for that part. I'm guessing we won't get to that till next Tuesday, but if it seems likely we'll do it this Thursday, I'll produce some slides tomorrow.
Also, I promised to have for you the schedule of your presentations. We'll do that on Thursday.
I'm hoping the weather is not too bad tomorrow. I hate being out in freezing rain!
After that I'd like to have a conversation based on your posts for this week - about possibly bringing price in to partially alleviate situations where students have to wait to get something on campus.
Time willing, we'll then go onto the PowerPoint for the eighth class session, the bulk of which is on B&D chapter 3, which introduces the structural frame. What we don't get to tomorrow we'll get to on Thursday.
I've been having a hard time trying to produce something reasonable on the second half of chapter 4 in M&R particularly the part on information efficiency in selecting the type of controls. So I will write up my reflection later this evening, to indicate the source of my misgivings. We'll discuss that on Thursday as well. Incidentally, the reasons I suggested you read that piece on the Lessons from Tal Afar are tied to the misgivings. The issues are quite similar to what I wrote about in my Uncertainty paper that is linked on the Useful Links Tab.
The last part of chapter 4 on increasing returns, core competency and complementarities, all of which you can describe with one term, "positioning," should be straightforward enough in conception. We'll spend some time getting the jargon right and making sure we understand what is at issue. At the moment there are no slides for that part. I'm guessing we won't get to that till next Tuesday, but if it seems likely we'll do it this Thursday, I'll produce some slides tomorrow.
Also, I promised to have for you the schedule of your presentations. We'll do that on Thursday.
I'm hoping the weather is not too bad tomorrow. I hate being out in freezing rain!
Saturday, February 11, 2012
A different type of reading for Tuesday
While we will continue on the issue of coordination from an economics perspective, I also want to cover this piece, The Lesson from Tal Afar, a piece from about six years ago in the New Yorker. It is about the Iraq War, but I believe it shows the management dilemma very well, which is why we will discuss it. It also happens to be a terrific read, so you should enjoy it, just for that.
Tuesday, February 7, 2012
Getting rhythm - Control by folks at the edge
I thought today's class session had a better feel than previous sessions, especially the early discussion where we just talked without the PowerPoint. The basis for that was your blog posts, which allowed a launch point from which we could push the conversation further. I will spend some time thinking about this week's prompt with an attempt to sustain and improve on that for next week. I hope you can also give some thought to how the discussions would increase in value and get the students to do more of the driving of the conversation.
I do want to reiterate here that for students who hadn't commented on other student posts, please do so before Thursday's class. The expectation is that you will comment on a team member's post and then one other post by a student not on your team. I'm sure each of you will like receiving comments on what you have written. And if you do enjoy getting them, it should help you in writing interesting comments. As with the in class conversation, the goal is push the discussion forward, get the writer to reflect a bit on what they wrote - did he or she really mean what was said, can more context be given to make the point sharper - and if there is an area either of consensus or disagreement to accentuate that. Perhaps some of it should be brought into the in class discussion.
I next want to give my perspective on the undergraduate student research issue. Please note this is only my view. I don't speak for the Econ department on this. But I do have rather strong views on this matter. Let's first look at the demand side of this and peel it a bit. Why do students want to do research projects with faculty members? Possible reasons are because they expect to do other econ research in the future and this is a way to get started with that, because they would like to engage with a faculty member in a one-on-one basis outside of the class setting, or to earn a credential that presumably will be of some benefit for the student. All three of these make sense if the student wants to go to Econ grad school. In our class, I don't believe anyone is in that category. I can see the second one continuing to make sense otherwise, but if the first one doesn't make sense I don't really understand why the third should. I'll get to that second one a little more in a bit.
On the supply side there is first the question of whether doctoral students in Econ who want to do research get well matched with faculty. When I was an active Econ faculty member, this matching was imperfect, with some students not finding a research opportunity. (Indeed, many students are TAs to pay the bills. Even if they would find being an RA more rewarding, there weren't enough of those to go around. Prior to the writing of the dissertation, I believe that being involved in a research project without being an RA is kind of rare.) There is a different issue about whether the student is well prepared to engage in the research and what training provides good preparation. I don't have a good general answer for this but for me as the researcher, I'd want the student to have had a course from me already that is relevant for the research and then I'd want the student to have shown me something in the course. This should be a two-way street. Each party needs to benefit from the relationship.
Related to that benefit, there is the question of whether incentives are put in place for the faculty member to support the activity. I'm not current on this so what I say is dated, but when I was fully involved in the department, the metric that one reported on the CV for salary increases or for promotion was dissertation committees involved in and in particular being the student's main adviser. That did matter. I don't know if the practice has changed since, but having undergraduate students as research assistants didn't count. If it doesn't count, then from the faculty member's perspective this is burden without reward. I know I've talked a lot about being a good citizen in class, but there are limits to that, particularly if the function otherwise doesn't seem to have value. Doing the activity so the student has a credential and that being the sum total of the benefit, why bother? You're a good citizen because you agree with the goal the good citizenship is supposed to promote.
I believe these issues are quite different in the laboratory sciences, where the research lab may have some jobs that are suitable for undergraduates, so they can begin their apprenticeship that way. In Econ, however, I really believe that it would be better to have undergraduates involved with the teaching. In the 1990s, I heavily relied on undergraduate TAs, who conducted online office hours. The institution didn't have a credentialing way of rewarding the behavior, so the students earned an hourly wage for doing the activity. The students treated the activity as a reward, took it seriously, and were effective in that role. I believe many of the students currently taking the class benefited from the approach. And they were able to have regular interactions with me. Further, I only needed to do a modest amount of training for them, because each of them had previously taken the class, so they could see how the model worked from that experience.
I think the institution as a whole should move that model in a big way, but currently it is esoteric. I could do it in intermediate micro, because that course didn't have graduate TAs. By teaching a larger lecture (180 students instead of 60 students) I could free up enough resources to pay the undergrads (and have the department net some dollars in addition)! The practice, however, didn't persist after I became a full time administrator.
One general lesson from this, applicable to our course, is that there are many institutional arrangements, such as the undergraduate research project, that aren't fully engineered to make it work for all parties involve. When that happens, the organization looks dysfunctional and unfeeling. I think you're seeing some of that.
I do want to reiterate here that for students who hadn't commented on other student posts, please do so before Thursday's class. The expectation is that you will comment on a team member's post and then one other post by a student not on your team. I'm sure each of you will like receiving comments on what you have written. And if you do enjoy getting them, it should help you in writing interesting comments. As with the in class conversation, the goal is push the discussion forward, get the writer to reflect a bit on what they wrote - did he or she really mean what was said, can more context be given to make the point sharper - and if there is an area either of consensus or disagreement to accentuate that. Perhaps some of it should be brought into the in class discussion.
I next want to give my perspective on the undergraduate student research issue. Please note this is only my view. I don't speak for the Econ department on this. But I do have rather strong views on this matter. Let's first look at the demand side of this and peel it a bit. Why do students want to do research projects with faculty members? Possible reasons are because they expect to do other econ research in the future and this is a way to get started with that, because they would like to engage with a faculty member in a one-on-one basis outside of the class setting, or to earn a credential that presumably will be of some benefit for the student. All three of these make sense if the student wants to go to Econ grad school. In our class, I don't believe anyone is in that category. I can see the second one continuing to make sense otherwise, but if the first one doesn't make sense I don't really understand why the third should. I'll get to that second one a little more in a bit.
On the supply side there is first the question of whether doctoral students in Econ who want to do research get well matched with faculty. When I was an active Econ faculty member, this matching was imperfect, with some students not finding a research opportunity. (Indeed, many students are TAs to pay the bills. Even if they would find being an RA more rewarding, there weren't enough of those to go around. Prior to the writing of the dissertation, I believe that being involved in a research project without being an RA is kind of rare.) There is a different issue about whether the student is well prepared to engage in the research and what training provides good preparation. I don't have a good general answer for this but for me as the researcher, I'd want the student to have had a course from me already that is relevant for the research and then I'd want the student to have shown me something in the course. This should be a two-way street. Each party needs to benefit from the relationship.
Related to that benefit, there is the question of whether incentives are put in place for the faculty member to support the activity. I'm not current on this so what I say is dated, but when I was fully involved in the department, the metric that one reported on the CV for salary increases or for promotion was dissertation committees involved in and in particular being the student's main adviser. That did matter. I don't know if the practice has changed since, but having undergraduate students as research assistants didn't count. If it doesn't count, then from the faculty member's perspective this is burden without reward. I know I've talked a lot about being a good citizen in class, but there are limits to that, particularly if the function otherwise doesn't seem to have value. Doing the activity so the student has a credential and that being the sum total of the benefit, why bother? You're a good citizen because you agree with the goal the good citizenship is supposed to promote.
I believe these issues are quite different in the laboratory sciences, where the research lab may have some jobs that are suitable for undergraduates, so they can begin their apprenticeship that way. In Econ, however, I really believe that it would be better to have undergraduates involved with the teaching. In the 1990s, I heavily relied on undergraduate TAs, who conducted online office hours. The institution didn't have a credentialing way of rewarding the behavior, so the students earned an hourly wage for doing the activity. The students treated the activity as a reward, took it seriously, and were effective in that role. I believe many of the students currently taking the class benefited from the approach. And they were able to have regular interactions with me. Further, I only needed to do a modest amount of training for them, because each of them had previously taken the class, so they could see how the model worked from that experience.
I think the institution as a whole should move that model in a big way, but currently it is esoteric. I could do it in intermediate micro, because that course didn't have graduate TAs. By teaching a larger lecture (180 students instead of 60 students) I could free up enough resources to pay the undergrads (and have the department net some dollars in addition)! The practice, however, didn't persist after I became a full time administrator.
One general lesson from this, applicable to our course, is that there are many institutional arrangements, such as the undergraduate research project, that aren't fully engineered to make it work for all parties involve. When that happens, the organization looks dysfunctional and unfeeling. I think you're seeing some of that.
Monday, February 6, 2012
Blog Posts and Comments
I heard from one student who was having trouble getting Blogger to post what had already been written. There are a couple of other posts missing from some students.
Do note this is the first week where comments by students are expected. They can't comment if they have a post to comment on.
Do note this is the first week where comments by students are expected. They can't comment if they have a post to comment on.
Facebook and Data Mining
This piece is a bit frightening. I wonder how many of you had to read 1984 when in high school. It does seem that Big Brother is watching. Personally, what concerns me is the re-use of these data. If only Facebook and Google have this sort of information, one might rely on their intense popularity as a means of assuring the data are not mis-applied. But other companies may not have the same incentive. The stereotyping and out and out discrimination are also rather frightening. Perhaps we should have some discussion of when it is appropriate for a vendor to use buyer characteristics as a way to price and when it isn't.
Sunday, February 5, 2012
PowerPoint for seventh class session posted
We will cover this stuff on Tuesday after we conclude our discussion about market failure, which is from the PowerPoint on the sixth class session.
I will try to get the PowerPoint for Thursday up later today. If it is not up by the time the Super Bowl starts, expect it to be available before noon tomorrow.
I will try to get the PowerPoint for Thursday up later today. If it is not up by the time the Super Bowl starts, expect it to be available before noon tomorrow.
Thursday, February 2, 2012
Suggested Papers for Class Presentations
As I mentioned in class today, I believe we should start on student presentations when get to chapter 7 in M&R and then have one presentation for each of the chapters - 7, 8, 9. As I hope you can already tell, we are taking a zooming in and then zooming out approach. When we zoom in, we focus on a specific topic in some section of the chapter. When we zoom out we do a more broad brush approach that tries to connect those topics.
The zoom in requires doing reading (or viewing) beyond the textbook. Below are the particular papers I suggest we do along with a little context.
Chapter 7 - Spence and Zeckhauser, Insurance, Information, and Individual Action. This is an early paper on insurance when there might be moral hazard. It is good for delineating the issues and seeing how the results change depending on what can be verified and when. A note here is why this is relevant to the firm. In an employment relationship there is productivity risk and revenue risk. So there is a question of who bears that, employer or employee. The employment relationship is different from the insurance situation in that in the former there is team production. That's not discussed here. We'll get to it later. So here were think of the employment contract like insurance.
Chapter 8 - Shapiro and Stiglitz, Equilibrium Unemployment as a Worker Discipline Device. If there is such a thing as involuntary unemployment, that means the workers must strictly prefer having their current job to getting laid off and then looking for another job. They can't be indifferent between the two. If that is true, then economists would say the workers earn a job rent. There is a puzzle about job rents - why doesn't the employer reduce the wage? This paper says it is counter productive to reduce wages. There is something called an efficiency wage, paying the worker more than the opportunity cost, because the worker will be more productive then, sufficiently so to justify the wage differential. But if there are efficiency wages like this, the worker must suffer some duration of unemployment if laid off.
Chapter 9 - Alchian and Demsetz, Production, Information Costs, and Economic Organization. (You need the Campus VPN to access this paper.) This paper argues that the firm exists because of team production rather than reduce transaction costs. It then elaborates on the team production point of view.
Students may find each of these papers challenging, but I believe with some persistence and a little help you can make good meaning from them. Have a look when you can and discuss with your teammates. Next week we'll try to assign teams to presentations.
I'll do something similar in a few weeks with regard to chapters in B&D.
The zoom in requires doing reading (or viewing) beyond the textbook. Below are the particular papers I suggest we do along with a little context.
Chapter 7 - Spence and Zeckhauser, Insurance, Information, and Individual Action. This is an early paper on insurance when there might be moral hazard. It is good for delineating the issues and seeing how the results change depending on what can be verified and when. A note here is why this is relevant to the firm. In an employment relationship there is productivity risk and revenue risk. So there is a question of who bears that, employer or employee. The employment relationship is different from the insurance situation in that in the former there is team production. That's not discussed here. We'll get to it later. So here were think of the employment contract like insurance.
Chapter 8 - Shapiro and Stiglitz, Equilibrium Unemployment as a Worker Discipline Device. If there is such a thing as involuntary unemployment, that means the workers must strictly prefer having their current job to getting laid off and then looking for another job. They can't be indifferent between the two. If that is true, then economists would say the workers earn a job rent. There is a puzzle about job rents - why doesn't the employer reduce the wage? This paper says it is counter productive to reduce wages. There is something called an efficiency wage, paying the worker more than the opportunity cost, because the worker will be more productive then, sufficiently so to justify the wage differential. But if there are efficiency wages like this, the worker must suffer some duration of unemployment if laid off.
Chapter 9 - Alchian and Demsetz, Production, Information Costs, and Economic Organization. (You need the Campus VPN to access this paper.) This paper argues that the firm exists because of team production rather than reduce transaction costs. It then elaborates on the team production point of view.
Students may find each of these papers challenging, but I believe with some persistence and a little help you can make good meaning from them. Have a look when you can and discuss with your teammates. Next week we'll try to assign teams to presentations.
I'll do something similar in a few weeks with regard to chapters in B&D.
New Version of PowerPoint for Sixth Session
I made an amended version of the PowerPoint today, with some additional slides and with all those omitted symbols included. You can see the slides at the link, but to get the speaker notes, you have to download the original.
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