This one is from the Washington Post. It's interesting, tongue in cheek, and a quick read.
On a separate point, sorry to be late with the PowerPoint or tomorrow. It is up now.
Wednesday, March 7, 2012
Tuesday, March 6, 2012
Wednesday, February 29, 2012
Notes on Shapiro and Stiglitz
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.
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.
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.
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