Category Archives: Visiting Lecturers

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Do Women Receive Lighter Prison Sentences?: An Interview with Professor Ronald Oaxaca

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Let’s start in your early years. You finished your BA at California State University. How did you come to study economics?

That’s a good question. I originally planned to major in history and I made an appointment with the chairmen of the Department of History to talk about it, but he happened to be out of town. And I never rescheduled. In the meantime I had a friend who said, “I took a really interesting course called Principles of Economics. You might want to take it.’ And so I took it the next semester and I loved it. It was a discipline that had mathematics and business. It had everything. After that I was captivated.

What motivated you to focus on the gender gap?

I took graduate labor economics and I had an interest in racial discrimination. And I knew a lot of people had done work in that field. But I thought that there had not been a lot of work done on gender discrimination—at least not by economists—and I was right.

So I started thinking about how to apply a model by Gary Becker, that he originally intended to be used to look at racial differences in labor market outcomes, and I decided that that could be applied to research on gender.

So after you graduated, it took you two years to publish your most famous papers, and you got famous for this ‘Oaxaca-Blinder decomposition.’  The decomposition has become so famous that there is now even a Stata command. How did you feel that someone had made this ?

I found out from one of my graduate students. He rushed to my office and said ‘There is a Stata command with your name on it!’. So he downloaded it on my computer, and I was amazed. In fact, it really made doing the work easier!

Beyond the gender gap, what are your other research interests? I see you are going towards crime economics?

There is still a story about decompositions in the paper I presented at CERGE-EI, but instead of looking at labor market outcomes between men and women, this paper looks at differences in prison sentences between men and women. It tries to understand how much of the gap we observe can be explained by circumstances such as women committing less serious crimes, and how much of it is unexplained, and thus may be the contribution of judges’ preferences.

So what are the conclusions from this research?

 We show that, unlike in the labor market, in prison sentences women are in fact favored. There is an unexplained gap. If we look at the majority group, white males and white females, we find that male prison sentences are on average 20 months longer. When you control for the nature of crimes committed, then we can explain 14 months of that gap. But there are still six months that you cannot explain by anything other than judges having a preference in favor of women.

It is very interesting, and one can conjecture as to why that is the case. Some have said, ‘what if judges believe that women learn their lesson faster than men, so then it would be socially inefficient to put them in prison as long as men?’ There are two problems with that idea: one is that we already control for their past criminal history. If they learn their lesson quicker, they wouldn’t have a criminal history as severe as men, so we already controlled for that. The other problem is that even if we really believe that’s true, there is no way you can implement that as part of the legal system. Because where does that end?

Continue reading Do Women Receive Lighter Prison Sentences?: An Interview with Professor Ronald Oaxaca →

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Man Bites Dog – An Interview with Dr. Kristoffer Nimark

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A dog bites a man… no one cares. But how about a man biting a dog? That’s news. Dr. Kristoffer Nimark explores economic events that make news, and how media focus can exacerbate the impact of those events. Dr. Nimark lectured at CERGE-EI this fall about his research, and also sat down for a brief interview. Check it out:   

 Why did you choose to become an economist? 

I started to become interested in economics in the 90s. When I was in high school we had a big economic crisis in Sweden, not unlike the crisis we have now in Spain. And I saw the public debate where people had differing views that were irreconcilable with each other. I wanted to learn economics so I could understand it myself and see which arguments were valid. So I started my undergrad studies in Sweden and later I continued with my PhD at the EUI (The European University Institute) in Florence.

What is your current research?

Mostly my research is about methodological issues about how to model economies where individual agents know different things about things that all the agents care about. So you can think about how a lot of economic decisions depend on the actions of other agents in an economy. For example, if you’re a firm that wants to invest, you would like to know how much your competitors are investing; or if you’re a trader in the stock market or bond market you might be interested in knowing what other traders are willing to pay for a bond at the next trading opportunity.

Once agents have different information, predicting other peoples’ actions becomes more difficult, because you don’t know the same things anymore. And I’m trying to solve these models on how to predict the actions of others. I may want to predict the actions that other agents are taking, and they are trying to predict the actions that I am taking. And since their actions will depend on their expectations of my actions, I need to form predictions about their predictions of my expectations. So we run into methodological issues and try to understand how to solve these dilemma models.

In the paper you presented at CERGE-EI (‘Man-Bites-Dog Business Cycles’) you proposed some information structures which are different from the existing literature on ‘rational inattention.’ Can you tell us about it?

So my paper “Man-Bites-Dog Business Cycles” features one specific feature of news media: unusual events are considered more ‘newsworthy’ than more common events. The title of the paper refers to how when a dog bites a man it is normal, but it is unusual when a man bites a dog. It is only the latter event that will make news.

In the context of the paper, this means that when you have unusual macroeconomic developments like a crisis or a boom, the mainstream media is more likely to focus on the economy. Since the news media is more likely to focus on the economy when we have a recession or a boom, it influences the business cycle. In particular, I show that this intense media focus can exacerbate things—you get stronger booms and recessions than you would otherwise.

Very interesting. What are your main conclusions?

My main finding is that the economy appears to respond strongly to shocks that don’t seem large enough to really justify the types of crises we observe. The model shows how we have sometimes extremely strong responses to only small changes in fundamentals. So even if there is only a small change in productivity, you have a very large change in output, and vice-versa. And this can be partly explained by the intense media focus.

So in this sense, the media focus on the economy is a bad thing?

I don’t show in the paper that this is suboptimal. It’s still possible that this media response is good, that a strong response is appropriate. I don’t really discuss this.

We students are making decisions about our topics for our PhD thesis. Where is the gap in economic research today?

You shouldn’t think too much about it. When you choose a topic as a PhD student you should choose something that you find interesting enough to work on—something you are willing to spend 60-70 hours a week on it for three years. Some people find it’s interesting to work on new things and they’ve identified some gaps in economic thinking they think are important. And I think that’s great, and that’s often very good research. But you shouldn’t artificially look for gaps, especially if you don’t find it interesting—and you won’t be able to convince other people that it’s interesting!

The most important thing is to work on something you find interesting yourself. Most people don’t think it’s interesting to repeat other people’s work, so in one sense it always means plugging some gap somewhere.

Dr. Nimark is a researcher at CREI  (Centre de Recerca en Economia Internacional), adjunct professor at Universitat Pompeu Fabra, and affiliated professor at Barcelona GSE.

Read the paper Man-Bites-Dog Business Cycles

Interviewer: Sophio Khozrevanidze, 2nd Year PhD Student

Friday, 5 October 2012


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general, Interviews, Visiting Lecturers

Going Once, Going Twice, and Gone! Auction Theory with Professor Paul Milgrom

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 httpv://www.youtube.com/watch?v=bErO0-ujMQg

Fall semester in CERGE –EI was full of interesting events for researchers and students. One of the most memorable is surely the Market Design Conference in October, and in particular the visit of Professor Paul Milgrom from Stanford University.

While serving as a professor in Yale and Northwestern Universities, Paul Milgrom received wide recognition for his revolutionary innovations in practical market design. Currently Dr. Milgrom holds a position as the Shirley and Leonard Ely Professor of Humanities and Sciences in the Department of Economics at Stanford University.

Professor MIlgrom is widely recognized by economists to be the father of the celebrated “linkage principle,” which is extensively used as a valuable strategic tool in market design, particularly multi-unit auctions and procurement. One of Milgrom’s stellar academic contributions was in designing and conducting the first spectrum auctions for US Federal Communication Commission (FCC), which allowed the government to raise enormous amounts of money for spectrum licenses. Modifications of Milgroms’ auction rules for spectrums have been employed all over the world, and now most spectrum licenses are sold through these types of auctions.

At the conference at CERGE-EI, Professor Milgrom gave a public lecture about his recent work for the FCC on the ‘Incentive Auction in the US’. In particular, these types of auctions serve to redistribute efficiently existing 3G licenses. The main challenge in this type of market situation is to achieve satisfaction from both sides: consumers and suppliers (license holders) of 3G services.

During his lecture, Professor Milgrom discussed all possible drawbacks of the ongoing redistribution of the licenses, and showed that one can overcome existing problems by applying “incentive auction” rules. The main intuition is that smaller licenses will be redistributed to bigger providers and hence bigger providers will receive more market power and they will be willing to pay for these licenses. Incentive auction rules develop a unique efficient matching mechanism where first the FCC buys broadcast licenses from providers, and then it repackages them in an efficient way and sells them through the auction again.

The most fascinating thing for CERGE-EI students was to see an immediate application of the economic theory into practice.  Professor Milgrom’s presentation motivated a great deal of discussion on further improvements and modifications on the incentive auction rules. After the lecture, Milgrom kindly agreed to a brief interview, which you can see on our Youtube page. From our side, we want to sincerely thank professor Milgrom for his participation in the conference and his openness to discussing new ideas from CERGE-EI students!

Author: Oksana Oryshchyn

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Nobel Pursuits: CERGE-EI Interviews Nobel Prize Winner Christopher Sims

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Christopher Sims won the Nobel Prize in Economic Sciences in 2011. When he came to CERGE-EI this summer to lecture about his research, we knew we had to sit down with Professor Sims for a more intimate interview. Take a look at the conversation between this brilliant laureate and some of our PhD students at CERGE-EI:

What can you tell us about the journey to winning the Nobel Prize? Where you got your ideas, who influenced you the most, the evolution of the research?

My Nobel Prize is focused on the empirical econometric work I did on monetary policy. My ‘Noble lecture’ kind of goes through that, but I can summarize it: In the 1950s and early 1960s, Keynesian Economics was dominant. And in the 50s, which was very close to the Great Depression, the Keynesian consensus was that monetary policy was not very important and fiscal policy was. And this was a legacy of the period of the Liquidity Trap in the 1930s, when monetary policy indeed was not very effective—a period much like the present, in that respect.

Back then, econometricians developed large statistical models, based on Keysian Theory. They built on the insights of Trygve Haavelmo and Jan Tinbergen, two earlier Nobel Prize winners. And they ended up with very large unwieldy models, for which the statistical methods proposed by Haavelmo didn’t really work very well.

So into this scene came the monetarists led by Milton Friedman, and they used much simpler statistical models and focused on just a few variables. They argued that the connection between the money stock and income was the central, most important fact in macroeconomics. But this factor didn’t emerge as central and important from the perspective of those big Keynesian models.

There was really no way for these two schools to resolve their differences with the econometric methods that were available at the time. But in the big Keynesian models, everyone knew they made assumptions that weren’t believable.

So what I did was first I validated the monetarists. They were running regressions of nominal GDP on current and past money stock, and interpreting them as policy-exploitable relationships. They interpreted them as if changing the money stock would change nominal GDP according to the coefficients they estimated in those models. I argued that if that were true, there was a testable implication. This was a causal model. In this logic, future money should not be correlated with income, given past money. So I checked that implication and it turned out that the implication was satisfied by the data.

And so something that both Keynesians and I would have predicted would show that the monetarists were wrong, actually showed they were probably right.

But then a student of mine, Yash Mehra, did a study of so-called ‘Money Demand Equations’. Because at the same time that Friedman was estimating these income-on-money regressions, other people were putting money on the left side and income and interest rates on the right. They were calling this ‘money demand’, and it was another similar equation regression. So I said to Mehra: ‘this looks like a good thing to check, because If money is causing income, than these money demand equations must be nonsense. Money doesn’t belong on the left-hand side.’

But Mahra did the tests and it turned out they passed. He showed that with money on the left and income and interest rates on the right, it looked like everything on the right-hand side satisfied this condition that the future size of the variables shouldn’t matter.

I was puzzled by these results and decided that I wasn’t going to make sense of them unless I put together a model with more than one equation. So I estimated a small, vector regression with several equations, and once I did that I could see that interest rates predict money, and if that’s right, then the usual ‘monetarist’ interpretation of this system didn’t really hold up.

So there is a kind of consensus now on how the economy dynamically responds to monetary expansion or tightening. It’s not really precise, but GDP tends to respond a little quicker than prices, and they both tend to go down when money is tightened. These come right out of quantitative statistical estimates, and there are different ways to do the identification, to separate these two influences. And they give consistent results. That was what the prize was for, that sequence of developments.

Continue reading Nobel Pursuits: CERGE-EI Interviews Nobel Prize Winner Christopher Sims →

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What’s Really Hidden in the Hidden Economy? CERGE-EI Interviews Professor Dilip Bhattacharyya

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Could we have predicted the crisis? Were there hidden clues and we just didn’t know where to look? Professor Bhattacharyya (University of Essex) is on a mission to measure the hidden economy and understand what it can tell us about macroeconomic instability.

Dr. Bhattacharyya’s guest lecture at CERGE-EI, titled “Predicting the 2008 Financial Crises from the Hidden Economy Estimates,” outlined how hidden economy estimates and the methodology used in the estimation procedure allow us to produce an indirect measure of ‘excessive money.’ Previous scholars, notably Raghuram Rajan, have noted that ‘excessive money’ in the economy was a primary cause of the 2008 financial crisis. Dr. Bhattacharyya paper notes that even as early as 1995 there were hidden signals suggesting a possible impending crisis for the UK economy.

Could we have predicted the 2008 financial crisis13 years earlier if the authorities had cared to consider this research?

 

Check out CERGE-EI’s brief interview with Dr. Bhattacharyya:

What is the most important insight from your research?

The most important insight, which is often missed, is that there are signals in this world which are mostly ignored by mainstream economists, and which can predict a lot of things which mainstream economics cannot. More importantly, it highlights the changing economic structure—the informal economy is taking a more important role, so learning about it and how it is interrelated with the normal ‘recorded’ economy is an important part for the future of the world. We hear now that there is 10% unemployment. But how these people can be absorbed into the system is not always necessarily through the process of formal employment—there might be informal employment structures growing. These are very fundamental questions in economic analysis. I don’t know when and how long it will take for this type of research to be taken up in a very deep way—but I won’t be surprised if one day someone working in this area becomes a Noble Prize winner Continue reading What’s Really Hidden in the Hidden Economy? CERGE-EI Interviews Professor Dilip Bhattacharyya →

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Interviews, Visiting Lecturers

CERGE-EI Interviews Professor Dirk Engelmann

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During Professor Engelmann’s visit to CERGE-EI, he sat down to speak with two PhD students for a brief interview. They discussed the direction of experimental economics, tips for getting a paper published, and the inspiration for research. Have a look at their interesting discussion:

On your CV we saw that you originally did a Masters in mathematics. Why did you decide to switch to economics?

I wanted to do something with somewhat more direct meaning towards life. Math was nice, but quite empty in some ways. Originally I planned to do my PhD in psychology. But I realized that the economists were a bit more open to introducing psychological ideas into experiments than psychologists were open to, for example, game theoretical modeling. If you do research with both psychology and economics, it seems easier to do it within economics, at least if you want to do it a bit more formally.

How do you get inspiration for your research?

There are three ways. One, I see some kind of theoretical or empirical paper, and I think ‘that’s worth testing’. Two, I see other experiments where I don’t quite trust results, and I want to do robustness checks. As for the third thing: I like to talk to people who don’t do experiments, because they often have questions that they’d like to test experimentally. If you talk to people who don’t do experiments, you are usually exposed to unusual questions, and you have to think about relatively innovative experiment designs.

Can you tell us what you think are the economic topics today which provide for ‘low hanging fruits’?

I think it’s hard to find ‘low hanging fruits’, because there are so many people doing experiments now. It is very attractive to start doing experiments, because it is a bit more entertaining than theoretical or empirical stuff. You can avoid some of the problems there. And you can be sure to get some kind of results. So I think that everything that looks like low hanging fruit is being constantly picked by these armies of experimentalists. Of course there are always some obvious questions that are not explored.

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The Economics of Voting with Professor Dirk Engelmann

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Professor Dirk Engelmann was back at CERGE-EI; this time to share his latest research on the intriguing behavioral science of voting. Now a Professor at the University of Mannheim and Director of the Experimental Economics Laboratory, Engelmann was a Reader and Professor of Economics at Royal Holloway, University of London and an Assistant Professor here at CERGE-EI before limiting that role to a senior researcher. He is currently a member of the editorial board of the American Economic Review, associate editor of The Economic Journal and co-editor of the Journal of Economic Behavior and Organization.

Knowing his academic and research competence first hand, the CERGE-EI community was eager to listen to his insightful lecture on a very interesting area. And they were rewarded with a fascinating talk on how to model the efficiency aspects of democracy, elections, and majority voting. The seminar was entitled “Choosing How to Choose: Efficiency Concerns and Constitutional Choice”, and it was based on an experimental study of group decision-making to document the (in)efficiency of majority voting.

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Understanding Development in Africa: An Interview with Dr. Nathan Fiala

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Earlier this month, Dr. Nathan Fiala came to CERGE-EI to lecture about his research in Africa. The lecture was titled “Employment Generation in Rural Africa: Mid-term Results from an Experimental Evaluation of the Youth Opportunities Program in Northern Uganda.” Dr. Fiala sat down with CERGE-EI for a brief interview where he discussed his current research, the morals of sustainable development, and the expedience of experimental methods. Have a look!:

 

What research are you currently working on?

Right now I am doing randomized control trials. This is a big, new, exciting field.  In the last ten years it has become a special interest to a lot of developmental economists. I am conducting experiments in Africa, mostly in Uganda, but also India, and hopefully a few coming up in Kenya.

One that I’m working on right now is a ‘Cash Grant’ program, geared toward young men and women who are unemployed or underemployed in Uganda. The government has transferred money to them in order to help them set up businesses and gain some kind of employment and income generation.

There is a lot of unemployment and underemployment in Uganda, and very little formal sector employment. So for a lot of young people there, setting up their own business is basically the only option that they have. But there is doubt whether these types of ‘Cash Grant’ programs have any real impact, whether they provide any kind of meaningful help for individuals.

In order to explore this, we randomized who received the cash grant and who did not receive the cash grant. We did that because we wanted to try to compare those that received the cash grant with some kind of comparison group. It has to be a very well thought out comparison group, and randomization gives you the opportunity to basically ensure that with a large enough sample size. The people who receive the program versus those who do not receive it still have the same characteristics.  They’re about the same age on average, the same ratio of gender, the same education levels, etc. But most importantly they have the same level of excitement and interest in starting their own businesses.

Is there anything unique about doing research in Uganda?

Well one of the unique things about this is that it’s a program being conducted in a post-conflict area. It’s in Northern Uganda, which just finished a 20-year civil war. The government is interested in how to decrease the likelihood of civil unrest, violence, and proclivity to anti-social behavior. They hope these cash grant programs will cause citizens to become more productive citizens and less likely to engage in negative social behavior.

Continue reading Understanding Development in Africa: An Interview with Dr. Nathan Fiala →

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‘Going Global’ with Professor Vega-Redondo

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On October 18th, Professor Fernando Vega-Redondo visited CERGE-EI to present his paper ‘Social Networks and the Process of Globalization.’ Professor Vega-Redondo specializes in Game Theory, Evolutionary Theory, and Social Networks. A graduate from University of Minnesota, he is currently on faculty at the European University Institute in Florence.

In the beautiful interior of CERGE-EI, Dr. Vega-Redondo gave an interesting and thought-provoking lecture on his most recent research on globalization (which he did in collaboration with Georg Duernecker). In the paper, the authors propose a dynamic model to understand the role of social networks in the process of globalization. They define globalization as the process when distant agents interact, and they use this ‘spatial’ theoretical framework to understand the relationship between globalization and economic growth. Their model allows for the existence of social networks – the only channel through which geographically-distant agents can cooperate in economic activity. Without the phenomenon of ‘global social networks,’ economic activity will stagnate.

To shed light on the main objective of the paper, the lecturer started by answering two important questions related to the paper – ‘What is globalization?’, and ‘Why is globalization important?’  He then continued on to the main focus of the paper – the dynamic model itself.  The model incorporates the idea that ‘connections breed connections’ by providing linking opportunities and building trust between agents.

Presentation of the model was divided in two parts: the first part covered the setup of the model with social networks included; the second part described the evolution of the social network itself. He explained how ‘going global’ can in fact be an abrupt occurrence in a social network, and how the right level of a local economy’s ‘geographical cohesion’ is crucial in this process.

Dr. Vega-Redondo’s visit to CERGE-EI provided for stimulating discussion about the global changes happening in the world economy. His research provides a much-needed theoretical contribution to the predominantly empirically-based literature on globalization processes. CERGE-EI would like to sincerely thank him for his visit!

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