Read our short interview with professor Stephen Morris (Princeton University), who gave a research seminar at CERGE-EI on May 9, 2019. The interview was prepared by our PhD student, Vladimír Novák.
On 26 March 2019, Clemens Fuest of the ifo Institute at the University of Munich came to CERGE-EI for the second year in succession to present the latest EEAG report to a full audience. Prof. Fuest started by defining the fragmenting aspect in the title of this year’s report, explaining that the new Italian government that went against many of the EU rules when defining their budget last year and the ongoing Brexit negotiations have contributed to a destabilization of the EU.Continue reading A Fragmenting Europe in a Changing World
Professor Gérard Roland (University of California, Berkeley), Visiting Professor at CERGE-EI, has been recently awarded the highest honor from the Czech Academy of Sciences. One of the most influential and successful European economists, admired among CERGE-EI community for his striking humbleness and inspiring thoughts, spoke with us about some of his recent works on China, but also about his first meeting with the co-founder of CERGE-EI, Professor Jan Svejnar. Continue reading Those who believe in science must also fight for its values
The recent Restud Tour turned out, in many respects, to be the research event of the year for us, and we hope to keep the inspiration and ambience it created going for some time. Here is a short summary for those who could not come, including a short joint interview.
On 24th of February CERGE-EI hosted a presentation, Perspectives on the European Economy, provided by the European Economic Advisory Group at CESifo. The conference explored a variety of hot topics that are examined in the EEAG Report on the European Economy 2016, which was released earlier in the week. The session included two co-authors of the report, John Driffill and Jan-Egbert Sturm, plus special guest, Kamil Galuščák of the Czech National Bank, and was chaired by Danial Münich of IDEA think-tank at CERGE-EI. Continue reading Perspectives on the European Economy: An Overview
This post was prepared by Geghetsik Afunts, a second year PhD student at CERGE-EI.
Do governments need a “Personal Trainer or Watchdog” to achieve objectives such as long-term sustainability of public finances, economic growth or surplus targets? Fiscal watchdogs have existed for a long time in some countries and one of the first European countries was Sweden. But the Chairman of the Swedish Fiscal Policy Council John Hassler says that in practice such institutions are considered more as personal trainers than watchdogs. Continue reading Fiscal Policy Council: Personal Trainer or Watchdog?
Over the course of his long career, George Psacharopoulos has made a deep impact on the way education is viewed from the perspective of economics. During his CERGE-EI Public Lecture on November 4th, Prof Psacharopoulos gave an interesting overview of the evolution of this research. He walked the audience through years of evolving theories and empirical evidence on the importance of education as both a personal and public investment, sharing a number of revealing facts and thoughtful insights.
See the full lecture with accompanying slides here:
Unemployment is a major source of misery in modern society. It is also plainly a waste of resources. So it is perhaps no surprise that macro and labor economists are obsessed with explaining the phenomenon. But are they searching in the wrong place for answers? Professor Andrew Oswald (Warwick University) said at his public lecture at CERGE-EI that he thinks they are, and that he may have found a key.
According to Oswald, economists have typically looked for answers “too close to the source.” Standard explanations have focused on the impact of trade unions, over-generous unemployment benefits, and inflexible labor markets. Yet policies meant to address these issues have made only minor dents on unemployment levels.
Professor Oswald ventured to propose a radically different explanation for the persistent unemployment we observe across developed countries. According to his research, the level of homeownership within an economic area can largely explain the level of unemployment. Few economists have explored this rather unintuitive notion, but as Oswald noted, it is typical for experts to overlook deep structural forces in favor of more immediate explanations.
But how does homeownership negatively impact employment? Oswald considers three possibilities. The first is that higher homeownership lowers geographical mobility. By reducing the flexibility to move between locations, homeownership reduces workers ability to relocate to places where their knowledge and skills may be put to better use. The second possibility is that homeownership contributes to urban sprawl and lower-density housing. Long commuting times and congestion hamper economic activity and efficiency.
Finally, Oswald points out that homeownership directly relates to the ‘Not in My Back Yard’ problem (NIMBY). Homeowners often oppose new productive development projects because they perceive the projects as having negative external effects on their neighborhood. Residents can often team up in homeowners’ unions to block projects from being realized. Even though they often agree that those developments are needed in society, they do not want the development to take place in their ‘back yard.’ As such, NIMBY blocks productive economic activity and development from taking root.
Pondering how a lake becomes filled with water, primitive man would have concluded that it collects the rain falling from the sky. He could not have imagined that hidden streams of water deep underground are the true source. Andrew Oswald’s proposition—that homeownership is the underlying cause of long-term unemployment—is also hidden from sight, but that certainly doesn’t mean it’s not there.
The CERGE-EI Public Speaker Series invites leading international scholars to Prague to present their ideas and engage in public discussion. Learn about upcoming CERGE-EI events here.
“Economic growth is a function of education, period.” During his public lecture at CERGE-EI, Professor Eric Hanushek emphasized the enormous impact that human capital (i.e. education) has on long-term economic development. A renowned scholar in educational research, Professor Hanushek (Stanford University) used this link between education and development to make a compelling argument for improving the quality of instructors.
Prof. Hanushek began his lecture from a distance and gradually brought the audience ‘closer to earth.’ From the furthest vantage point, he established the unambiguous link between economic growth and test scores (i.e. what students know). A graph plotting test scores and economic growth revealed a nearly perfect correlation for a wide sample of countries over the past five decades. To Prof. Hanushek, the data screams loud and clear that imparting knowledge and skills through the educational system is the most potent means by which countries successfully grow.
Unfortunately, raising test scores is not so simple. Students may be required to attend school, and governments spend a great deal to make this happen, but merely sitting in a classroom with a teacher is not enough to guarantee meaningful learning. The question, then, is how to ensure that students learn while they sit in those classrooms.
According to Prof. Hanushek, research on student achievement has identified that good teachers play the essential role. In economic terms, how much can a good teacher contribute to economic growth? He showed that a top teacher with a class of 30 students will boost the cumulative lifetime income of that classroom group by over $800,000. Of course the inverse of this relationship also exists: lousy instruction from the worst teachers will damage their students’ earnings by a similar magnitude.
Removing the worst teachers and replacing them with average ones could contribute to large gains in test scores—and as Hanushek already demonstrated, higher test scores should directly contribute to long-term economic growth. Analyzing the Czech Republic and making conservative assumptions about teacher quality, he showed that removing the bottom 5% of teachers and replacing them with average instructors could lift the country’s test scores to the level of Finland. This in turn would add 110 trillion euros to the Czech Republic’s GDP over the next 80 years (in present value worth).
Considering the enormous impact that good teachers can have on student achievement and economic growth, the focus on improving teacher quality should be paramount. Unfortunately, solutions to improve teacher quality are often misguided and ineffective.
Rather than focus on a teacher’s educational credentials, experience, or training, Prof. Hanushek proposed solutions that work with incentives and focus on outcomes. He suggested methodically measuring testing outcomes and rewarding teachers for achieving defined objectives. He was also dismissive of those who see technology as a silver bullet. Accountability and performance rewards can be far more effective than giving students iPads.
Check out the full lecture below:
At the end of April 2013, we had the honor to welcome Prof. Eric Maskin (Harvard University) to CERGE-EI in Prague. On April 29, Prof. Maskin gave a public lecture titled “How to Make the Right Decisions without Knowing People’s Preferences: An Introduction to Mechanism Design”.
To begin his lecture, Prof. Maskin contrasted the field of ‘mechanism design’ with other more familiar parts of economic theory. Whereas the bulk of economics takes existing institutions as a given and aims to understand and explain outcomes delivered by those institutions, mechanism design reverses the direction. It starts by identifying outcomes one wishes to achieve and asks whether institutions are able to be designed to achieve the desired outcome(s) and, if so, what these institutions ought to look like. In this sense, mechanism design can be called an “engineering” component of economic theory.
To further illustrate the concept, Professor Maskin offered three concrete applications of mechanism design theory. They were, in the order presented, (1) how can you divide a plot between two people in a way that neither of them envies the share of the other?, (2) how can a government sell a license to allow transmission over a band of radio frequencies to a company which values it most?, and (3) how to choose a public energy source when individual preferences are different and optimal choice depends on the unknown state of the world? Professor Maskin explained how insights from mechanism design theory can provide answers to these intractable questions.
Simple as they are, these examples illustrate key features of mechanism design. First, a designer of the mechanism does not know what the optimal outcomes should be. Secondly, the designer must proceed to indirectly convince participants to reveal necessary information. Finally, participants have their own goals and motivations which may not coincide with those of the designer. Therefore, the mechanism must be ‘incentive compatible’—in other words, it should recognize those goals and reconcile them with those of the designer.
The examples presented during the lecture displayed transparent mechanisms that are implemented to achieve the designer’s goals. For those interested in a general way to understand whether a goal is implementable and, if it is, how to find a mechanism to implement it, Professor Maskin referred to his seminal paper, “Nash Equilibrium and Welfare Optimality.” Professor Maskin concluded with some further examples of possible future applications of mechanism design theory, namely the development of an international treaty on greenhouse gas emissions and the design of policies to prevent financial crises.
While here, Professor Maskin also sat down with CERGE-EI student Maxim Guryunov for a brief interview. Check out the highlights on our CERGE-EI Youtube Channel:
Find the full list of Distinguished Speaker Series at CERGE-EI here