Thursday, September 29, 2016

For Class Session 9/30
Quote by George Orwell: “To see what is in front of one’s nose needs a c...” via kwout

The example below is meant to illustrate the alignment problem, which is the big issue in managing within large organizations.  

A photo of our class room taken from the back of the room

Contrast the above, with the following.

Quiz in Moodle

There is now a demo quiz in Moodle available for you to try.  It should take hardly any time for you to complete (under a minute is my guess).  Do try to get the question right.  You will get points for that.  A correct quiz gives 10 points.  You have only one try at it.  Your grade will not show till after the quiz closes (next Tuesday at 10 AM).  That is part of the experiment.  If you learn your score immediately, please let me know.

The purpose here is to feel confident that the quiz function works so that before we do the real quiz that issue will be put to rest.  In class today we'll discuss when to have that real quiz, given that I've postponed the deadline for the Excel homework on coordination till next Wednesday.

Wednesday, September 28, 2016

Late Blog Posts And Students Failing To Comment

Before I get to the topic in the subject line, let me acknowledge the good work of some students who are submitting their posts in a timely fashion, responding to my comments, and commenting on the posts of their team members.  This is how it should be done by all the students in the class.  The good work of these students shows that is possible.

This week many students submitted posts on Monday or Tuesday.  As my blog reader doesn't immediately get notified of your post, I saw these only after our class on Tuesday, where the posts were discussed.  The late posts defeat the mechanism we have for the class.  This is a warning.  I will not tolerate them at all in the future.  Students who continue to be that late posting will suffer the consequences grade-wise.

Likewise, many students don't seem to be responding to my comments and are not commenting on the posts of their teammates.  This too is a course requirement.  The comments are meant to be done before the class session, as preparation for the in class discussion.

Tuesday, September 27, 2016

Based on my monitoring - some ideas we'll talk about on Thursday

It seems to me students don't access PowerPoints when I post them as links to calendar entries.  So I will try to make it easier that way posting some stuff in the class site.  Here are a few things we will talk about on Thursday.  This is other than what is listed in the PowerPoint for today, which will also be on the agenda.

1.  More on management -
   a.  Managing up, managing down, managing out.  How does this vary with the size of the organization?  With the nature of the work?
   b.   We talked about building trust.  What destroys trust?
         i)  How should bad news be managed?   No surprises and taking one for the team.
         ii)  Is it ever right to betray a confidence?
  c.  Coordination on (large) committees
        i)  What are meetings of the full committee (good) for?
        ii)  What motivates members to participate vigorously in the committee?
        iii)  The role of the "whip."
        iv)  The of the the committee chair.

2.  More on the course projects.  What are the next couple of steps.  Why should teams do a better job than individuals in this case?  The value and the fun in arguing (in an intellectual sense).

3.  Budgeting as an introduction to transfer pricing.

Assignment of Teams to Papers They Will Review

Below is a reproduction of what we had on the blackboard in class today regarding team assignments.

An annotated listing of the papers is available at the link.  If you are on the campus network, all the papers should be freely available to you for download.  If you are not on the campus network, you can use VPN to attain access.

Recalibrating after Today's Class - Pushing Back the Deadline on the Excel Homework.

I was disappointed that I couldn't get the projector to work in class, so couldn't go through the PowerPoint I had planned to cover.

After class I decided that my jerry rigged solution on the blackboard was particularly bad, so rather than rely on that I am instead moving the deadline for the Excel homework to a week from tomorrow.  I trust that no student will object to that.  Will talk about what other adjustments in the class schedule that necessitates on Thursday.

Monday, September 26, 2016

Taking one for the team

Ron Hunt is probably a major league baseball player who is unknown to students in our class.  When you learn about him, it might give you a different sense of what teamwork is about.  In the table below, HBP stands for hit by pitch.  When you are hit be a major league fastball, it hurts, a lot.  Think of the mental resolve it takes for somebody to have such a record.

Saturday, September 24, 2016

About the Course Project - Process

The previous post described the format and length requirements for the paper.  In this post we will consider more about what you are to deliver and when.

There will be two drafts - a first draft and a subsequent revision.  The first draft needs to be an earnest effort.  I will then provide detailed feedback on that first draft within the body of the paper using the Track Changes feature of Word and the Comment tool.  I will provide a demo of how to use those tools in class.

When you submit your second draft, accompanying your revision you will included to me a memo of how you addressed each comment from what I sent in the first draft.  This memo is very helpful to me to understand what you did in response.  I will comment on your second draft, probably not inline only at the end, unless there are egregious errors that still need to be fixed.

Assuming your second draft is okay, I will let you know that.  From there you are to make a virtual elevator speech - an overview presentation of your project.  In form, those will be like the PowerPoint presentations I've made for the first few weeks of the class.  These will be posted in Moodle for the class to see.   I will give more instructions on the virtual elevator speech neared to when you will be working on it.

Please remember - in all communication with me about your project copy your teammates on your message.


First Draft Due - October 28 at 6 PM.  The October 28 part is a hard deadline.  I will not accept a paper turned in the next day.  I will process these as fast as I can so you can start on the revision asap.

Second Draft Due - Novemeber 18.  This is the Friday before the Thanksgiving break.  There is a soft deadline here because we don't have class the following week.  But you will enjoy your break more if you meet this deadline as well.

Virtual Elevator Speech Due - December 8 at 6 PM.  This is Reading Day.

Suggestions for Course Paper

The paper is meant to be formal writing, yet with the intended audience students who will take the class in the future.  I know much student to student communication is quite informal and full of abbreviations, driven by how texting has changed the way we communicate.  So what I mean here is that student readers should find your paper not too difficult to understand, if they put in the effort to read it.  This means that if you use jargon, you must define it in understandable terms.  It also means that you shouldn't take long excerpts from the paper you are reviewing and instead put the arguments in the paper into your own words.  Beyond that, here are several specific suggestions.

Chunk the paper and use section headings for each chunk.

Some specific sections that you should include are (You can have other sections as well and/or have multiple sections associated with any one of these.):

1.  What is the main issue that the paper deals with?  (You should come up with your one section heading for this and the remaining sections.)

2.  What is the contribution of the paper?  If others have also written on this issue how has this paper added to our understanding as compared to what came before?

3.  How do the issue of the paper tie into what we've done in the class?

4.  What are some lessons learned from the paper?

5.  Do you have your own views on the matter or some examples you can bring in that are not discussed in the paper but that might illustrate ideas in the paper?

6.  Conclusion

A big deal issue with formal writing is the sequencing of your presentation.  Even after you know what you are going to say, you need to order your presentation that will make it logical for the reader.  One thought that guides formal writing is that the authors do the work so the readers don't have to.

Each team member needs to own the whole paper.

This means, in particular, that if one team member writes a section of the paper, the other edits that section and makes changes to it in an effort to improve things.  It also means that each team member is concerned with whether one section flows into the next in a smooth way.  Abrupt transitions are to be avoided, because they confuse the reader.

Format of the paper

Please submit a Word document, preferably a docx file.  I may use Track Changes in giving my response.  I will try to give a demo in class of how to use Track Changes, as my prior experience is that some students are unfamiliar with it.

You need a title page.  It has the name of the paper, the team name, the date, and an abstract, which is a brief summary of what the paper is about.

Starting with the next page, the body of the paper should be between 6 and 10 pages, single space within paragraphs, line space between paragraphs.  Font size should be 11 or 12 point.  Margins should be 1 inch.  Since the paper this would be printed out on is 8.5 x 11 inches, this means the writing area is 6.5 x 9 inches.

Please use page numbers as it makes it easier to refer to parts of your paper in an email.  Do not number the title page.  I prefer page numbers to be on the bottom of the page.  If you start a New Section after the title page and you format page numbers so the new section begins with page 1, that will give you the desired result.

After the body of the paper you need a page for references, rather than put footnotes to references in the body of the paper.  My preferred way of doing this is that the first time you refer to the reference in your paper you list authors only, not the title of the piece.  If you make subsequent use of the references you can then repeat the authors names.  Then in the reference area, you can make a full reference.  I like to have those hyperlinked to the source if possible.  And if you are real slick, you can put in internal links in the paper from where you refer to the piece to the reference item.    That makes things quite convenient for the reader.

This Seemed An Apropos Piece Given Our Discussion on Effective Teams

Sometimes you can even learn real life lessons from the sports pages.

Thursday, September 22, 2016

Grades Uploaded Into Moodle

This should take you directly to the class site, after you log in.

In the grades area you should be able to see
(1) the economist whom your alias is based on
(2) two entries of Excel HW grades, one for the tutorial the other for the efficiency homework.  These are each worth 10 points.
(3) tracking of three blogposts - the one about your alias, the one about your experience in organizations, and the one about.  There are no points assigned now.  You just get an x in the comment field to indicate that your post was submitted.

I was told by tech support that this aspect of Moodle is finicky.  Though I navigated that, it did not instill confidence in me about the online quiz.  So I am still considering how that will be delivered.

Commenting on Other Students' Posts

Talking with a colleague over lunch today, it occurred to me that I may not have fully understood what students were asking about commenting on other students posts.

So let me say something about the length of the comment, which I did not remark on in class.  One decent paragraph should suffice.  Your comments don't have to be as long as mine.  One short sentence is not sufficient.  I am not going to do a word minimum like with the blog posts themselves. I hope there enough here to address that concern.

Your big picture goal in offering up a comment is to help make the students next post better.  I am not going to try to measure on delivery of that goal, but that is what you are aiming for.

VPN for Connecting to the Campus Network From Home

This is the Technology Services Web page for VPN. If you don't already have it installed on your computer, download the client and use TunnelAll to access journal articles that are made available through the UofI Library.

Papers for Class Projects

1. Ronald Coase - The Nature of the Firm
This is where the subject matter all started.  Coase, who won the Nobel prize for Economics though he actually was a Law professor at the University of Chicago, asks a very elemental question.  Why are there firms?  Whey don't all transactions happen within markets?  '

2. Oliver Williamson - Transaction Cost Economics: An Introduction
Williamson is another Nobel Prize winner and the person who took the baton from Coase and advanced the field.  He is most known for his work on governance of contracts and this paper gives a nice overview of how that works and helps to keep transaction costs under control.

3. Alchian and  Demsetz - Production, Information Costs, and Economic Organization
This paper gives an answer to the question of why there are firms - team production.  It also explains why the owner/entrepreneur should be the manager of the other team members  as well as the residual claimant on the profit the firm generates.  It offers a very good theory of the capitalism of small businesses.

4. Alfred Chandler - Organizational Capabilities and the Economic History of the Industrial Enterprise
While we have been emphasizing transaction costs in class, this paper takes a comparative view of various possible explanations of the firm and notes that the evidence doesn't really favor the transactions cost approach.  It is interesting to see the implications of the different approaches when contrasted side by side.

5. Klein, Crawford, and Alchian - Vertical Integration, Appropriable Rents, and the Competitive Contracting Process
This is the most famous paper on the holdup problem.  It gives a very general description of the issue and then uses some historical examples to illustrate.  One of those examples we will discuss in class, the case of Fisher Body and General Motors.

6. Arthur Okun - The Invisible Handshake and the Inflationary Process
NOTE: This paper is freely available to you if either (1) you are on the campus network or (2) you use VPN (TunnelAll) when you are on the commercial Internet.  Otherwise you see it costs $45 to download.  Don't pay that.
This paper offers an excellent discussion of implicit contracts (the invisible handshake) and explains how they govern the employment relationship.  It then talks about the macroeconomic implications of such implicit contracts and, in particular, explains why inflation was persistent in the late 1970s long after the sources that caused the inflation had been removed.

7. Gompers and Lerner - The Venture Capital Revolution
Normal capital markets require collateral from the borrower to secure a loan.  This requirement is no big deal for established firms but it is an effective block for startups who are then constrained financially.  While most startups fail, some succeed fabulously.  There is then reason to have a market for high risk/high reward capital investment.  While we won't otherwise spend much time talking about finance issues in the class, this particular type of firm should be considered, and separately from the way we consider other firms that produce goods or services.

8. Richard Freeman - When Workers Share in the Profits
Shared capitalism has been touted as a solution to (1) address the employee moral hazard problem and (2) address income inequality.  This paper gives an overview of the various possible ways for shared capitalism to manifest and then offers up a critique of the effectiveness of the various approaches.

9. Akerlof and Kranton - Identity and the Economics of Organizations
As we have tried to stress in the class, there are limits to how much cash incentives can accomplish and indeed those incentives may have pernicious consequences.  This paper looks at alternative ways to motivate employees - via Identity, clearly not a pure economics concept but surely an interesting one.  This paper represents another of those that meld economics with other social sciences, which really is the direction the discipline should be taking.

Tuesday, September 20, 2016

Tips for Excel Homework Due 9/28

Please remember to use cell references when entering parameter values.  You will save yourself a lot of time that way, even if it is a bit of effort to identify the appropriate cell to use.  Also, remember to use the Split menu item which is in the Window menu.  You can delete the left right split by double clicking on that bar and you move the up down split to a position that is most useful for you.  You do this by dragging on the bar.  You should do this to keep the parameters you need in plain view and/or to be able to see the graph and fill in the answer to the next question at the same time.   Otherwise, you will find yourself scrolling up and down repeatedly and that can be annoying. If you scroll in one pane but leave the other pane fixed, that is the best approach.

I would not watch this movie below till after you have finished the Excel Homework.  It works through the algebra that is behind the graphs and explains the quality choice part in greater depth.  I will not do this in class, because I've learned the extensive algebraic derivations tend to stupefy the students and their eyes glaze over.  But you should watch this eventually and see if you can work through the algebra yourself.  One advantage of the video is that you can stop it at any point to do some calculations with pencil and paper to test your own understanding.  If you have questions about the video, please post them here as a comment.

Excel Homework Due 9/28 at 11 PM.

This homework is about coordination failure and coordination mechanisms. The last two worksheets coincide with material from M&R. Chapter 2 pages 43 - end of chapter on the medical intern matching program.  And all of Chapter 3.  Transfer pricing starts on page 79.

If you have a question about the homework, please post it as a comment to this post.

Opportunism and New Markets - Sometimes the Combination Lowers Social Welfare

Given our discussion in class today, I thought students might find it interesting to consider the market for cheating on college courses, which has always been there, but which has been going through some innovation as of late.  Consider this little thread from a chat session with an agent at  (I got this off a thread on a listserv I participate in on campus.  The person who was in this thread used to be a colleague of mine.)

And here is a full article about the general issue from the Chronicle on Higher Education.  This piece hits where it hurts.

Monday, September 19, 2016

I thought this was interesting - it's written by a student at UNC.

This piece is pretty frank and it is written by a student at a peer institution.  Perhaps there is nothing new there for you, but I will ask tomorrow if the undue stress that students are under is at least partially at root regarding the performance problems in class I have described in the last couple of posts.

Sunday, September 18, 2016

Opportunism and Economic Inefficiency In Econ 490

This Monday marks the start of the fifth week of the semester.  A student who is doing well in the class should begin to have a good picture of what the class is about.  I am afraid, however, that most of the students do not because so far they have been merely going through the motions.  These failures are a shared responsibility to correct.  For my part I need to alert you to the issues, encourage you to adjust your behavior for the rest of the semester so the course is more meaningful, and provide whatever motivation I can for you to up your game so you can get into taking a mindful approach to the coursework.  For your part I hope that you rise to this challenge and encourage your classmates to do likewise.

Let me review the recent past that prompted this post.  I will make reference to three things where the under performance was considerable:  (1) The blog posts on opportunism.   (I have now read through all that have been submitted so far.  If you haven't done so yet but get your post in today I will read that as well and comment on it.)  Below I will describe the issue with these.   (2) The in class experiment done last Thursday.   I've written a previous post about that so won't discuss it further here.  (3) Class attendance.  Last Thursday we fell below 50%, with 12 students out of 31 when the class started and one more student arriving about a half hour later.  I will offer up some conjectures about why attendance has never been very good and has fallen off as of late.

I do plan to discuss these issues in class on Tuesday.  If you would prefer to comment online about what I say in this post or do so as a way to move the in-class discussion along on Tuesday, that would be very good.  I am striving to keep this post at a high level with a positive tone, in spite of the recent subpar performance.  I hope you can do likewise.


Here is the definition of opportunism:

The definition includes an ethical dimension.  The opportunistic individual benefits at somebody else's expense.  If your blog post didn't include the ethical dimension in some way, shape, or form then you weren't writing to the prompt.  Many students wrote about opportunities foregone, perhaps an interesting reflection in itself, but otherwise not related to the course.

Just to give one concrete example of such opportunistic behavior, so there isn't any doubt as to what we're talking about, consider this piece from 5 years ago about a Law School Dean at the the U of I misreporting test scores of entering students to boost how the U of I did in the Law School ratings.  Other examples of opportunistic behavior, which are definitely not as egregious but are opportunistic nonetheless include: cutting in line in front of a person who is waiting but not paying attention, not reporting cash income on your income tax form because there is no record associated with the transaction,  and driving over the speed limit but then slowing down when a police car comes into view to avoid getting a ticket.   To a certain extent we are all opportunistic in some of these ways.  The real issue is how egregious is the ethical failure and what might be done when that failure is rather serious.

In the case where you don't write to the prompt but then produce a blog post that requires some effort, this is clearly inefficient as far as advancing course goals.  But if it was only the author who was harmed there wouldn't be an ethical dimension.  Our process, however, has others read your posts and comment on them.  Those others are me and your teammates.  It is causing these others to dissipate effort in an essentially unproductive activity where the ethical dimension lies.  So each student has responsibility to write to the prompt or, if they choose to write something else, which is their prerogative to do, then to establish a connection between what they write about and course themes.

There is then the matter why so many students made the error of confounding opportunities with opportunism and whose responsibility it is to prevent such an error from happening.  It may occur to some of you, for example, that I should have posted the definition of opportunism in the prompt.  This would get the students off the hook and put the ball squarely in my court.

In fact, this is what I did.  During the first few minutes on Thursday, before we ran the experiment, I finished up our overview of transaction costs by giving a pretty hokie demonstration of the holdup problem, followed by a brief discussion of the problem more generally.  I then described this week's blog post as getting at some of the issues with the holdup problem from the prior experiences students have actually had.  Whatever can be done to prevent holdup from occurring is a transaction cost, maybe the most important type of transaction cost.  I discussed this in the context of vertical integration, where a firm would be merged with its own input supplier.

So I gave a fairly rich explanation of opportunism as it applies in the context of our course, but did this in class.  Some of you seem to be operating as if this is a totally online course with optional face to face sessions.   That's not how I see it.   In any event, if you choose to miss class, for whatever reason, it is your responsibility to make that up.  So the responsibility of understanding the difference between opportunism and opportunities, an important distinction, is on those students who missed last Thursday.


Let me turn to the attendance issue itself and my diagnosis of what is at root here.  It speaks directly to course themes.   The core issue issue is that rather than view their job as making good meaning of course themes, many students take an accountability approach, not just to my class but to all their classes.  By this I mean that students pay attention to where course credit is earned (in our class that's Excel homework, blog posts, etc.) but ignore everything else that comes in between, especially where the connection between the course credit stuff and the other stuff is not self-evident.  And with the course credit stuff the students then satisfice in a way to get through the course.  I'm afraid this a learned behavior that has hardened into habit and is largely a consequence of the excessive testing that students in your generation have had to go through.  I truly regret that my generation opted for that approach instead of an alternative type of education that is more nurturing of learning.

The accountability approach can't work in our class and I believe it largely doesn't work in most college courses.  One clear reason why it can't work is that I can't assess you nearly enough for you to produce a meaningful understanding of course content.  I'm already maxed out with the way we are doing things now and there would need to be a lot more work that is assessed if it all came through that door.  The other reason, equally or even more important, is that you must keep a skeptical eye to what you are learning.  If what we cover doesn't jive with your experience, you should push back at it.  You need to become an independent learner on your own and not be my stooge just because I'm the professor and you are the student.  But to be an independent learner, you have to drive your own learning to a great extent.

There is then that following the accountability approach in this way tends to promote mindlessness, which is what we've been experiencing recently.  We want you to make a mindful approach to the subject matter and indeed to all your studies.  I strongly encourage you to read this essay by Ellen Langer on Mindful Learning.  Among other things, it will show that what I am encouraging you to do has a strong basis in psychology research.

And then there is that my absolute favorite model for our course is Akerlof's model of Labor Contracts as Partial Gift Exchange, which I covered on the second day of class and which I've mentioned multiple times since.   I believe you have to walk the walk if you are going to talk the talk.  So I really would like students to experience gift exchange in our course.  I've already discussed this above with regard to the blogging.  There is a section of the Syllabus about attendance.  You might look at that again from the point of view of gift exchange and commitment to work.  This is a different sense about walking the walk, one that might not have previously occurred to you.  In contrast, if you follow the accountability approach in all your classes, then your effort from class to class bounces up and down based on wherever the next deadline is coming from.  And as we near midterms you have to stop paying attention in those classes that don't have pending obligations.


Let me wrap up.  As I said at the outset, my intention with this post is to encourage students to up their game.  Nevertheless, I can imagine that many students reading this will want to know, what will be the consequences for me grade-wise if I don't do that and just continue as I've been doing?  Can I still pass the course by doing that?

Please understand that there is moral hazard for me in addressing this question, because this is an outcome I really don't want to see.  But I will try to give a straightforward answer here.  You definitely can't earn and A or B that way.  The syllabus says I don't like to give a grade of D, which is true.  So there is the issue of where to draw the line between a C- and and an F.  That's a judgment call.  I will make the judgment as I see the overall class performance.  However, I encourage you now not to flirt with that boundary and indeed to take the full message of this post to heart and then act accordingly.

Thursday, September 15, 2016

An Analysis of the Bargaining Experiment We Did in Class Today

In part because I was perplexed by the outcome, I did an analysis of what happened.  This is for the first round, which I called incomplete information, where buyers had the information about their values but not about the sellers' costs, and likewise sellers had the information about their costs but not about the buyers' values.  One team did share that information, but they said they did that only after they were done bargaining, to check that they had done okay.

There were 12 students who participated in these experiments (6 pairs of buyers and sellers).  I had planned for 18.  So some of the scenarios that I had planned for were not used.  That helps to explain the numbering in what was reported.  The scenarios we did use were: Cases 1 and 2, which are essentially the same but where in Case 2 demand and supply have been shifted up by $5, Cases 4 and 5, where demand was downward sloping but  now supply was taken to be perfectly elastic and the same sort of shifting between Case 4 and Case 5 by shifting everything up by $5 occurred, and finally Cases 7 and 8, where it is now demand that was perfectly elastic.

You can see the analysis here.  The preview is sufficiently good that you don't have to download the spreadsheet.  I color coded things so that as long as you are not colorblind you should readily recognize everything in the table.  Focusing on the column called Social Surplus, all the scenarios had social surplus maximized with 3 units being traded.  The puzzle that the experiments provided is that only one group reached this outcome, and no group had fewer than 3 units traded.  All the other groups had excess trading, where trade produced negative surplus and one or both of the parties were harmed by the trade.

My prior going in is that many groups would have only 2 units traded.  There was ample surplus to get that far, but not much surplus for the third unit, so I thought in haggling over that students might reach an impasse.  This is especially true under incomplete information where it was not possible to tell whether the other side was bluffing or not, unless the two sides did share their information.

But this prior intuition didn't predict what happened at all, so in looking back at this I want to focus on those possible explanations of what happened.

The first possibility is that students didn't understand what they were asked to do.  I did say at the outset that consumer surplus was such and such and likewise for producer surplus and your goal was to maximize your own surplus.  But just because I gave the instructions doesn't mean they were understood.  This parallels something we talked about in the last class when boots on the ground communicates with command and control, though in this case it is command and control sending the message.  It may be the message gets garbled.

The other possibility is that students didn't care so they didn't act to maximize the surplus even though they understood the message.  If you look at the results, there are a couple instances where each trade netted zero surplus to one side of the bargain.  Doing this made it easy to conclude the negotiation, but it surely didn't show effort in trying to attain surplus produced by that negotiation.  Students sandbag in a variety of circumstances.  If that was happening here, the results don't tell us anything about what would happen in a real negotiation.

The one team who produced the efficient outcome are the students who negotiated Case 2.  Let's give a hand to them.  And if I were giving a prize for the top negotiator, that would have to go to the seller in Case 2, who earned the lion's share of the surplus.  Absent any other information about student's bargaining skills, we'd predict an even division of the surplus.  Even in those cases where there were more trades than were efficient, it doesn't look like splitting the surplus happened.  If people didn't care, that's an easy explanation for the outcome.  But if they did care, that would pose a puzzle.

For those with iPhones...

1.  When did you get your first cell phone?  Did you have a phone before Apple came out with the iPhone?

2.  Are you happy or unhappy with the new way to unlock your phone?

3.  Does anyone know what year Apple came out with the iPhone?  What about the carrier that had the exclusive contract at the time?

Wednesday, September 14, 2016

Excel Homework Due 9/21 at 11 PM

This homework tries to get a little deeper at the Efficiency Principle that is articulated in Milgrom and Roberts.  In particular, if two parties acting independently would produce a joint outcome that is not efficient, and they both know that so they have an incentive to negotiate a deal that would be efficient, does that mean a deal will get done?    The homework looks at some simple game theory to consider this question.

Note that we only consider the issue when there are two parties.  We don't model what happens when there are 3 or more people who must agree to the bargain.  Coordination becomes an issue with larger numbers of people.  We will consider coordination question separately in the next homework.

As always, if you have questions about the homework, please post them as a comment to this post.

Monday, September 12, 2016

How Not To Promote Gift Exchange In The Classroom

Adam Grant is a psychologist and a professor at Wharton, the famous business school at the University of Pennsylvania.  He occasionally writes pieces for the NY Times that are about acts of kindness which promote productivity.  You will like find this one quite interesting and relevant to our class.

Thursday, September 8, 2016

More on Teams

If you were in class today you were assigned to a team of 2 or 3 students.  I had planned on noting who was on what team.  If you can please have one team member email me with the the full team membership and copy your teammates on the message.  Indeed on all messages about team matters that are sent to me, please copy your teammates.  You might think that people would know to do that.  But my experience is that many don't.

If you have not been assigned to a team yet, but you've already set up your blog, I will be assigning you to a team later today.  Because I failed to record whom I assigned to teams yesterday, I will wait to assign others to teams till I have the requisite information. 

If you haven't yet set up your blog, please do so asap and then I will assign you to a team.

Team members are commenting on the posts of other members on the team.

Wednesday, September 7, 2016

Excel Homework Due 9/14 at 11 PM

This is the homework on Efficiency and Equity Concepts.  It is crucial to understand this stuff as background on the Economics of Organizations.  M&R discuss the Efficiency Principle in Chapter 2.  It guides economic thinking about organizations.  You need to understand what is implied by that principle.

As always, if you have any questions on this assignment, please post them as a comment to this post.

Last year students expressed interest in having some background materials on these matters, either for viewing ahead of time before looking at this homework, or afterward, to see if you were making good sense of the assignment.  I last taught intermediate micro in spring 2011.  For that offering I did make a lot of content that you are welcome to peruse.  If you do access this stuff, I would be interested in learning whether you found it useful.

Partial Equilibrium Approach - Social Surplus

YouTube Videos
Social Surplus Basics
Allocating Surplus in the Presence of a Unit Tax
Allocating Surplus - Monopoly

Excel Workbook
Cost-Benefit Analysis.xlsx

General Equilibrium/Edgeworth Box Approach

YouTube Videos
Welcome and Deconstruction
Consumer A's Choice
Existence and Uniqueness of Competitive Equilibrium
Pareto Improvement
First and Second Welfare Theorems

Excel Workbook
Edgeworth Box.xlsx

Word Document
Notes on General Equilibrium.docx

Tuesday, September 6, 2016

Students Who Have Yet To Set Up Their Blogs - The Weakness of Gift Exchange

As of 8 AM this morning, 22 students have their blogs linked from the class site.  There are 9 students who don't.  I encourage all students to have their blogs set up and linked from the class site by our session Thursday, when I will be assigning students to teams that will endure for the remainder of the semester.

The gift exchange model that we discussed does include a punishment for non-performance....separation.  In reality, that is a very drastic punishment.  There is no discussion in the model of lesser punishments that might be suitable for more minor offenses.  At issue is whether that is a weakness to the approach or if such punishments should be necessarily ad hoc, because the focus is on gifting and collegiality, not on poor performance and punishment.

In this case what we'll do is this.  If students have their blogs linked by Thursday (having emailed me with the link and a post about your economist on your site) then they will be part of the ordinary team forming process.  If there are students who still don't have a blog at that point, those students will be put on the same team(s) and deal with the consequences of that.   This seems fair to me and a way for the slackers not to distract (too much) from the other students who are giving the course a go.

Sunday, September 4, 2016

The Economics of the EpiPen

Since we talked about this in class a bit on Thursday, I thought students would find this post interesting.  The article argues there are possible solutions, but nothing really attractive.

My own view on this is that our intellectual property laws are now too skewed in favor of the patent (or copyright) holder.  One way to change things would be to shorten the term for which the intellectual property protection applies.  That solution is not suggested in the piece, but it is something to consider.  Presumably after the device is out of patent, there can be effective competition from generic alternatives.  At that point, it is the responsibility of the generic manufacturers to convince doctors that their product is as good as the original.  Maybe that's a tough sell, but that's what needs to happen.

Friday, September 2, 2016

A few comments based on the blogs people are submitting

It would be really good if everyone's blog has their famous economist appearing in the blog title.   Right now some people are submitting their blogs without that.  You can edit the title to get this done.  In your blog dashboard go to Settings.  In the Basic tab, your should see Blog Title and a link to Edit that.

Next, it would be good if your blog description had a disclaimer like - I am a student in Professor Arvan's Econ 490 class.  I am blogging under an alias to protect my true identity using the name of a famous economist for that purpose.

I doubt anyone reading this would think you really are the famous economist, but if somebody stumbles onto your site then they might make an inference about you that they shouldn't make.  So the disclaimer is there to prevent that.

Third, some of you are posting links to references, a good thing.  However, those links are not live like they would be in a Facebook status update.  You should see a Link tool in the Blogger editor.  It works by highlighting the text you want to link and then pasting the link into the dialog box in the appropriate place.  I hope that in the future you can use that linking tool.

Fourth, please give a title to each of your posts.  It is much easier to make a reference to the post if it has a title to go with it.

Finally, please use line spaces between paragraphs.  (And please use paragraphs rather than write one big block of text.)  It is much easier to read if there is a lot of white space to accompany the writing.  Further, since we're not printing these posts out, there is no need to conserve on the length of what you write.

I thank you in advance for adhering to these suggestions.  It will improve my life, for sure, and likely improve yours as well.

Thursday, September 1, 2016

Some follow up to today's class session

Food Preference

It is interesting what one learns from asking for frivolous information.  I was surprised by how popular Chipotle was as a food preference, so I did a stock lookup for them.  Their price was much higher a year ago.  I wonder why.  In any event, if the popularity within the class is indicative of a broader based strong demand, perhaps there is an investment opportunity there for those of you who do that sort of thing.

Decisions for Tuesday

There are two issues pending for the class to decide by next Tuesday.  One is about the seating and along with it the mode in which we interact.  I did realize about an hour into the session today that if we stay with the horseshoe seating and keep to discussion mode that I need some crib sheet to remind me how to steer the conversation.   The other issue is about whether electronic devices should be put away or available during class.  If you'd like to indicate your preference to me electronically, you can email me that.  Otherwise I'll poll the class about it on Tuesday.

Student Blogs

Also note that you are supposed to be sending me the link to your blog in the next day or so and that you should have a post up about the economist who is the basis for your alias.

The Economics in Today's Discussion

Now I want to turn to the economics in our discussion today by considering two different things.  The first is to view Simon's research as providing a gateway for behavioral economics and to better understand the psychological underpinnings of decision making.  There has been much written on this by now, but I wonder how much students have been exposed to these ideas.  Here I will content myself with just one concept, which is kind of the obverse for search.  It is called WYSIATI (What you see is all there is).  The decision maker (mistakenly) assumes there is nothing to learn by gathering more information so goes with his gut.  Once in a while this is actually right because a real search would be unproductive.  But many times people decide too quickly and would be better off getting more information.  Such people need to be educated to be less impulsive in making a choice.  That's a long process.

The other thing is to reconsider the student moral hazard and use that as an example for our upcoming topic - transaction costs.  In this case, the issue is that while I am posting PowerPoint slides which have quite a bit of discussion in them in the notes area, that students could access before class so they are ready for the live class session, students don't seem to be doing that.  This became obvious today when I asked about whether students had heard the term satisficing.  (I've checked and there is no "y" in the spelling of that word.)  Most indicated it was new to them, but in fact it is mentioned and discussed in the PowerPoint for the session.

Further, provides me with access data.  Here is the information for the pptx file.  Note that the two downloads at 12:22 today were by me in the classroom, as I was giving a demo to a student who had just added the class, and I accidentally clicked the download button a second time.

And here is the analogous information for the pdf file.

In the future I will not look at this sort of information.  I've done it here only to confirm a general impression that most students in the class are not getting at this content that I'm providing.  

Taking that as a fact, there are probably three questions to ask as follow up.  First, does it matter?  Second, if it does matter what can be done to encourage greater actual access to the content in the future?  And third, why is it happening now?   

My conjecture on the third one is that students have become accustomed to using their classes (which are mainly lecture) as gateways to the subject matter.  They make their initial foray into the topic via the professor's discussion of it.  If that is right, then this is happening as a consequence of a previously formed habit, which most students in the class seem to possess.  

Let me offer up an alternative hypothesis for you to consider.  That would be that the answer to the first question is that it doesn't matter, so why put in needless effort.  I wonder if any students actually have thought it through enough to believe that, but it is clear that if that were the majority belief it would be largely self-enforcing.  If one or two students came prepared but everyone else did not, either the others wouldn't talk up much at all or most of the conversations would be conducted by those who weren't yet informed on the matter.  Either way, that would not encourage others to be informed in the future.  Encouragement would be more likely if the conversation seemed interesting so students wanted to be a part of it.

I do think that if most of the class were better prepared then it would matter, a lot.  It might take a while for the class to find its rhythm that way, but the conversations would be far richer because people would be ready for that.  Rich conversation in class is my own aspiration level. 

So, finally, let me talk about encouraging your preparation in the future.  And if you think about this some, you will begin to understand what really is at root in considering transaction costs.  This post is meant to alert you to the issue, so you can consider it on your own.  You do need to ask yourself, what is it that you want and why do you want it?  

Perhaps the answer to that is, you don't really know.  We mentioned in class the notion of experimental consumption.  You might consider experimenting with your preparation, as a way for you to learn about how the works for you.  Incidentally, if you do that, I'd expect you to have questions about what is in the PowerPoint.  Having those questions is part of what it means to get ready.  You might try to answer some of them yourself. And then you might compare that with how they get addressed in the class discussion.  That could be engaging for you and you would surely learn more that way.

In any event, thinking it through this way is my approach to providing encouragement.  Some of you might react that instead I should provide class participation credit for your performance in the course.  I can understand that thought, but I will not do that.  Here are two reasons why.  First, it is somewhat stressful to try to keep the flow of the discussion going.  To burden that further with noting student performance is just too much for me.  Second, as I've now said repeatedly, I want to work in a collegial environment where there is gift exchange.  You can then think of your preparation as a gift to the class.  I think that's the way it should be.  You benefit as part of the class because the overall level of discussion is higher.  But you don't get a private benefit because your own performance shines compared to others in the course.  This is not meant to be a competition.  It is meant to be a community.