Category Archives: Interviews

CERGE-EI Interview: Inci Otker-Robe from the World Bank

Inci Otker-Robe is the Chief Technical Specialist in Finance for Development in the Financial and Private Sector Development Network (FPD), The World Bank. Dr. Otker-Robe recently visited CERGE-EI with other World Bank colleagues to present the major findings from the WB’s 2014 World Development Report. The report, titled Risk and Opportunity: Managing Risk for Development, examines how improving risk management can lead to large gains in development and poverty reduction.

Dr. Otker-Robe sat down with CERGE-EI PhD Student Liyou G. Borga to discuss the report. Watch the full interview here!:

The Challenges and Achievements of Labor Economics: An Interview with Professor Hank Farber (Princeton)

Henry Farber (Princeton University) is the Hughes-Rogers Professor of Economics and an Associate of the Industrial Relations Section at Princeton University. As an active member of CERGE-EI’s Executive and Supervisory Committee (ESC), he recently visited us in Prague.

In addition to his faculty position at Princeton, Prof. Farber is a Research Associate of the National Bureau of Economic Research (NBER) and a Research Fellow of the Institute for the Study of Labor (IZA).  He is also a Fellow of the Econometric Society, the Society of Labor Economists, and the Labor and Employment Relations Association. Prof. Farber’s current research interests include unemployment, liquidity constraints and labor supply, labor unions, worker mobility, wage dynamics, and analysis of the litigation process.

While at CERGE-EI, he sat down with 1st year PhD student Katka Kobylinski to discuss some of his research and policy ideas. Katka questioned him about the the challenges and achievements of labor economics. She also asked him for his thoughts about labor policy and austerity in US and Europe today, as well as his views about CERGE-EI and its evolution.

Check out the full interview in HD here!:

Economics in the Lab: An Interview with Dr. Peter Katuščák, CERGE-EI Assistant Professor

After presenting his recent working paper, ‘Does Anticipated Regret Really Matter? Revisiting the Role of Feedback in Auction Bidding’, Dr. Peter Katuščák (CERGE-EI Assistant Professor) sat down for an interview with PhD student Liyou G. Borga. In their conversation, Dr. Katuščák discusses his recent paper and other research projects, his view on the efficacy of experimental economics, and several other topics. As an adviser to CERGE-EI students, he also shares his advice about choosing a research topic. Check it out in HD!

Nobel Prize Laureate Eric Maskin Visits CERGE-EI

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

VIDEO INTERVIEW: Media Economics with Professor Simon Anderson

Media economics, the study of the macro and microeconomic aspects of media companies and industries, is an ever-changing field. With new mediums of consumption, new audiences, and changing forms of entertainment, the research agenda is constantly expanding. Professor Anderson (University of Virginia) researches many aspects of media economics. He recently visited CERGE-EI to present his most recent paper, Media Market Concentration, Advertising Levels, and Ad Prices.

While at CERGE-EI, Professor Anderson sat down for a brief interview with PhD student Liyou G. Borga. Check it out in HD on the CERGE-EI youtube channel:

African Development and Social Capital with Professor Marcel Fafchamps

Professor Marcel Fafchamps (Oxford University) researches development economics, with a particular interest in social networks, risk-coping strategies, and market institutions. With advanced degrees in law and economics, Professor Fafchamps is fascinated by the role of institutions (both formal and informal) in the development of productive economic exchange. His recent papers include work on markets, political economy, social networks, and link formation. He also serves as deputy director for the Center for the Study of African Economies.

Professor Fafchamps visited CERGE-EI recently to present a paper titled “Networks and Manufacturing Firms in Africa”. While here, he sat down for an interesting interview with two CERGE-EI PhD students, Liyou G. Borga and Dejan Kovac.

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Before you began doing economic research, you did some development work. Why did you choose to go back and get your PhD?

That’s correct. After completing my military service I went to work for the ILO in Ethiopia. I initially went for a year but ended up staying for four and a half years, and I even met my wife there. I became interested in research at that point, and I noticed that everyone around me who was doing interesting research already had a PhD… so I thought, I better get one of those!

You work on research and you design some policy recommendations for developing countries, but these countries and their government are not always fond of these recommendations and may not put them in to practice. Is it frustrating to do this kind of work?

I find it very rewarding. Even though I started in policy, over time I moved away from pure policy-oriented work and more into behavioral work, because I think that if you can understand some of the main drivers of human behavior, you can try to anticipate how they will respond to various policies, even policies we haven’t tested yet. That’s always been my personal approach.

So I don’t try to come to the government of Ghana and say ‘You should do X’. I never could see myself in that role.  For several reasons: One is that I don’t think I should be advising the government of Ghana. I don’t know enough about Ghana. They should be listening to their own people, they should have their own local capacity. I train people from a whole series of developing countries, and a lot of them go back to their country. So I try to give them the best possible grounding and training. In my view teaching is my most important policy work.

And the second is that politicians are on a different clock than we are. They are subject to pressure; they deal with crises and emergencies all the time. If the prime minister wants me to advise on what to do, they want an answer now. But research takes time—it will take at least two years before you get a meaningful result.  Politicians never have time to wait that long.

And the third thing is that policy research is impossible in the following sense: You can never do research on something that has not happened yet. Hence you cannot give a definitive answer to someone who wants to know the future effect a proposed policy. You can offer a prediction based on your understanding of the processes at work, and hopefully this opinion is an informed one so you can give a better prediction than other people. But at the end of the day it’s only a prediction. The politician should blend this prediction to their own predictions based on their own understanding of the various political dynamics at work, which they understand way better than you ever will. And of course, as a policy advisor I am not really responsible for my actions as an advisor. I can say ‘well you should do X, Y, and Z’— and then what? What if it costs millions, or kills people?  I think they should be the ones who make the decisions, not outsiders who are ultimately not responsible for the consequences of their advice.

You are involved in the Center for the Study of African Economics. Do you see a reason to be an optimist about African development? Are they on the right track?

You know the answer to that question is yes. There will be hiccups along the way, just like in Latin America (and if you want to find a part of the world that is most comparable, in terms of population pressure, types of resources, geographical location, and to some extent history, it’s Latin America). The way I see it, the main historical difference between Latin America and Africa is the pattern of colonization and pattern of settlement. America was colonized very early, from 1500 onward, and ended in the 1820s, roughly. And because the Europeans brought many diseases which the Native Americans were not immune to, there was a very large depopulation on the continent. So you have a lot of Latin American countries where big native populations were largely marginalized, and only now are they politically emerging after 200 years of independence.

That’s very different in Africa where it was the opposite. The settlers didn’t survive very well, and the native Africans were much better at surviving, so colonization started very late and lasted for a very short period of time. And it did not, except in South Africa,  generate a settler population. Whatever settler population was introduced as a result of colonization, a lot of them have left.

So then if you compare Latin America to Africa, you see that these settlers bring with them a lot of talent and human capital. They bring familiarity with business practices, with modes of contracting, and these get transplanted nearly immediately. You don’t have to wait for the local population to learn how to take advantage of innovations like supplier credit, banking, etc.

This explains why it took longer in Africa.  But now it’s happening ! I’m very optimistic. There’s no reason why it shouldn’t continue. It could have happened faster if there were more settlers, but then you would have the same problem we see in Latin America, where the native population gets side-lined. In Africa that is not taking place.

So in a sense, in a bizarre way, I am more optimistic for Africa; it was a bit harder to get started because there was a lot of learning to do about modern business practices and institutions, but once they have learned it, they’ll be in charge.

A lot of your research is based on Social Capital. So what is social capital, and how does it influence economic outcomes?

The way I think of social capital, the way the word is useful, is that it’s a flag behind a research agenda which looks at certain phenomena. There are three components: norms, networks, and outcomes (for example, the provision of public goods).

It’s funny that sometimes researchers will only look at the first and the third. For example, they look at certain types of social norms and how they influence outcomes, but do not focus on the networks, or do not even require network dimensions. Other researchers focus on networks and outcomes, but not on the norms. So in the first case, social capital will be the norms people have internalized, and in the second case social capital will be their networks, for example  how many friends they have, what kind of friends they have. In this sense it is a strange research agenda, because it doesn’t always use this phrase with the same meaning.

I think the provision of local public goods is absolutely essential for communities, and also for business communities. And this is what has particularly interested me. Because you don’t get very effective business communities without them using up-to-date organization forms and contractual forms between themselves. When you think about growth and development, if you try to explain the last two hundred years and the rapid increase in standards of living across much of the world, what you see is the spread of innovation. If you learn something about knowledge in one particular area it can spread and help you innovate in another area. But the innovations people typically focus on are things, like the steam engine or electrical power, or consumer goods like the computer and the telephone. But they forget about institutions and forms of organization. Yet that’s what we economists do. This is the kind of thing we study and where we offer innovations. For example: independent central banks, auction for cellphone airwaves, conditional cash transfers. We offer research on innovations in organizational forms and institutions.

But the thing is: if we discover that a computer is useful, you buy a computer. However, if you discover that trade credit is useful, it’s not so easy to introduce that on your own.  Everyone is going to suck you up, take your credit, and not pay you. It has to be a collective decision. So you get into this issue: how to respect other people’s trade credit practice so it becomes like a local public good within your community. But how do you generate that? That’s pretty interesting. It involves social norms, respect for social norms, it involves networking, coordination. Basically it involves the provision of local public goods.

What do you think of bonding capital becoming a negative influence, for example the Mafia in Southern Italy? Is this type of thing possible to empirically investigate?

I think this point has been made before. I would say it’s worse than that, in the following sense: if you tell me that people with a bigger interpersonal network derive advantages from it (e.g. getting a job, doing more business, easier access to credit, ability to deliver public goods within their group), then by definition you are saying there are other people out there who don’t have these benefits. So I would say that every time that interpersonal social capital is helpful, it is also creating inequality. For that reason, I am very skeptical of interpersonal social capital, and why I prefer generalized trust and generalized norms; I prefer things that are the same for everyone and don’t exclude anyone.

VIDEO INTERVIEW: Professor Ester Faia Discusses Systematic Risk in the Banking Sector

“One of the major legacies of the recent financial crisis is the quest for measuring, assessing and monitoring systemic risk.” Professor Ester Faia (Goethe University Frankfurt) writes this in her recent working paper, which she presented at CERGE-EI in February. Professor Faia is interested in myriad aspects of understanding monetary and fiscal economics. Her research explores, among other things, financial regulation, optimal monetary policies, and systemic risks. In her recent working paper, “Endogenous Banks’ Networks, Cascades and Systemic Risk”, she and her co-authors develop a dynamic network model to assess the diffusion of risk in response to financial shocks and different prudential policy regimes.

During her visit to CERGE-EI, she sat down for a brief interview with PhD student Dejan Kovac. Watch the highlights of the interview on the CERGE-EI Youtube Chennel, in HD!:

VIDEO INTERVIEW: Monetary-Fiscal Interaction, the Euro Crisis, and More with Dr. Jan Libich

What is the connection between monetary and fiscal policy? How do the interactions between them explain the global financial crisis and its aftermath? Dr. Jan Libich, senior lecturer at La Trobe University in Melbourne, is deeply interested in questions of monetary and fiscal interaction and how an understanding of them may provide solutions to today’s difficult global economic problems.

Dr. Libich visited CERGE-EI in January to discuss his paper, ‘Monetary Exit Strategy and Fiscal Spillovers’. While here in Prague, Dr. Libich sat down for an interview with CERGE-EI student Dejan Kovac to discuss his economic research and policy suggestions. Topics of discussion included: interactions between government’s fiscal policy, the central bank’s monetary policy, the prospects of the European monetary union, sustainability of public finances, the global financial crisis, the future of inflation targeting, and aging populations.Watch the full video interview (in HD) here!:

Dr. Jan Libich is a senior lecturer at La Trobe University in Melbourne and the School of Economics, VŠB-TU Ostrava.

 

Searching for Answers with Dr. Adam Sanjurjo

Dr. Adam Sanjurjo (University of Alicante) researches search behavior in ‘rich search environments.’ As he writes in a recent paper, “we consider much more than wage when choosing a job, and much more than price when purchasing a home.” How to optimize the way we search and the ultimate decisions we make is still not well understood, but Dr. Sanjurjo is searching for answers. Check out Dr. Sanjurjo’s brief interview during his visit to CERGE-EI in Prague:

Who is someone who influenced your decision to become an economist?

Well maybe I shouldn’t say this, but I think it was more of a compromise. For a lot of people who do economics, it’s a compromise, because they like math and they also like psychology. And that was the case for me. As an undergrad I wasn’t as enthusiastic about my economics classes as my math classes. But economics allows the whole continuum between pure math and pure psychology. I felt that I could have that whole continuum to work with, and I think it was a pretty good strategy.

What are you working on now?

Many things, but my main line of research is search behavior in rich search environments. So for example you want to choose a house, so you’re going to evaluate a bunch of different houses on a bunch of different dimensions.  How do you search that information, what information do you search, and in what order do you search that information? And how does the order that you search in affect the choices you are going to make?

I’d say a lot of my work falls under the veil of heuristics and biases, relating to the original work of Kahneman and Tversky in their 1973 paper. It has a lot to do with how people think about probabilities, and how they have systematic biases in the way they evaluate subjective probability.

Where do you get inspiration to start doing your research?

Well that’s pretty clear. The reason I went to do PhD in economics is because I was kind of obsessed with the idea of modeling first impressions. Somehow that quickly turned into the study of information overload.  I felt like information overload was affecting me in my life and a lot of people around me. It was very salient for me. And actually the rich search stuff I’m doing now stays true to that. I think I’m approaching it in a slightly more responsible way than when I first started. So now I’m trying to find concrete mechanisms that cause people to get confused or overwhelmed in complicated decisions, and even in decisions that aren’t so complicated.  We get confused.

So this research can be applied quite generally?

With the multiple attribute search stuff, I think this is a framework that applies to all decision making. So we’re not aware of the fact that we’re evaluating choices on multiple dimensions, and yet we’re doing it all the time. We’re integrating multiple dimensions in evaluating what decision to make, for every decision we make, and we’re making decisions constantly. I’m making decisions right now; I’m choosing which words to use, which sentences to string together, which topics to talk about

And what are your main concerns?

Sometimes I get the feeling when I present this material that it’s very interesting, but it’s also very eclectic for many economists. I personally don’t think it’s eclectic at all, because I think it applies to all decision making. But it’s eclectic in the sense that not much formal work has been done on it, because they’re very rich search problems and thus hard to study. So people have steered away from them because they’re hard problems to work with. But that doesn’t mean they’re not important problems to study.

How do you think your field will look in ten years?

I don’t think it will look very different. There’s kind of a ‘holy grail’ in my field, which is to be able to analytically solve what’s the best way of searching in these rich search problems. I don’t think that’s going to happen any time soon. However I think the ability to numerically solve for what’s the best way to search in these environments is going to get better. People are going to do impressive things in terms of having these very rich search problems that are similar to the way that people search for information on the internet. So you’re not only going to be able to see how people search, but also ‘how they ought to search’. I think that will be an exciting advancement.

What do you think of CERGE-EI?

From what I’ve seen, it’s a beautiful place, and I’m very excited with the faculty here. There are a lot of people who are interested in search and bounded rationality. I’m looking forward to meeting everyone else.

Interviewer: Tamta Bakhtadze

21 January 2013

The Rich and the Rest: Dr. Martí Mestieri Discusses Income Disparity

Dr. Martí Mestieri (Toulouse School of Economics) researches the dynamics of new technology adoption in developing countries in order to explore the patterns of convergence and divergence between rich and poor countries. The models he uses show that changes in the pattern of technology diffusion account for at least two thirds of the Great Income Divergence between rich and poor countries since 1800. During his visit to CERGE-EI in December, we sat down with him for a brief chat.

Tell us about the paper you are presenting at CERGE-EI

Before the industrial revolution, the income disparity between countries was not that high. The richest country was maybe twice as rich as the poorest. Now there are much great magnitudes of difference between rich and poor countries. With the industrial revolution, growth has become very uneven. Some countries have experienced sustained growth while others have stagnated. Economists of course have been puzzling with this question for a very long time.

What we do in this project is we try to isolate the channel of technology adoption. Even though there are methods of production that make labor much more productive, it seems that many countries are not adopting the best technologies that are out there. So we collect data for many technologies and many countries and we are trying to understand how much technology adoption (or lack thereof) explains the differences between growth performances in the last 200 years.

This is what they call the ‘Great Divergence’, right?

Exactly. Especially in the 19th century you observed a handful of western countries starting to take off, while others didn’t grow at all. So over 100 years, you develop a huge gap in income per capita.

So how much does this technology adoption channel explain differences?

I wouldn’t say ‘explain’, I would say ‘account’, because we don’t have a fundamental theory for why these differences in technology adoption exist. But we find it accounts for a lot, almost 70%. Indeed the question that lies ahead is what are the drivers of technology adoption. In order to explain this, you have to confront a couple of facts. The first is that adoption lags have been declining over time—poor countries are adopting new technologies relatively faster over time. This means the poor countries are relatively more productive because they are catching up.

But what we find as well is that the rate at which technology diffuses within poor countries is actually slower. So even though they are importing technology faster, they are not diffusing it well within their borders. I think this is a set of interesting facts, and if you want to have a big theory, you need to have a theory that predicts these two things, and this is not entirely obvious.

Can you try to explain some reasons why?

This is the most interesting question, and the one we are after. But just building a consistent methodology to assess differences in technology adoption has been keeping us busy. We have some theories that we are exploring. One idea is that some of the early technologies that were produced in the industrial revolution are important inputs for future technology. We see that emerging economies have been lagging behind because they lack this ‘infrastructure technology.’ We think that the diffusion of new technologies is actually being prevented in these emerging economies because perhaps they don’t have the stock of old technology infrastructure necessary for the new technology. So these lack of old technologies are a bottleneck for the new technologies to diffuse.

Another idea is that income inequality may play a role. This means that new technologies are only adopted by a small and elite fraction of the population, and this fraction is not enough to generate spillover to the wider public. But these are only partial explanations. To get more depth, we have to dig much deeper.

Interviewer: Liyousew G. Borga

7 December 2012