Thursday, December 20, 2012

Grades Posted in Moodle

I put the scores of the final and your course grade in Moodle.  I will post the grades in Banner later today.

One point on the economics.  You cannot be captured by your boss.  You can be captured by the client.  Likewise, Congress can't be captured by the American people.  It can be captured by special interests.  I perhaps didn't explain that well so I didn't punish anyone in the grading for saying that.  If you ever discuss these ideas outside our class, I hope you do so properly.

Happy Holidays to each of you.

Tuesday, December 11, 2012

Some Reading For After the Course Concludes

Here is a brief annotated list of things you might look at.  Only the last one is specifically economics.

1.  Finish reading B&D.  It is a good and interesting book.  The second half is on leadership, which we didn't mention at all.  Perhaps we should have spent more time on other parts of the book than Chapter 8.  Particularly, the parts on politics and on the symbolic frame are interesting and perhaps things outside your current experience.

2.  Schon The Reflective Practitioner - I think of teaching as reflective practice.  Nobody mentioned this in their comments but the blogging could very well have been about things after we covered them in class.  Your learning should be reflective practice too.  Sometimes this is called metacognition.

3.  NAS How People Learn - The first few chapters are very useful, particularly the one on the expert-novice distinction and the next one on transfer.

4. Ericsson et. al.  The Role of Deliberate Practice - The issue of why some people plateau while others keep on learning has to do with deliberate practice, which means on an ongoing basis trying things that are a little bit out of reach but not totally impossible.  It takes a lot of determination to do that or it takes turning the activity into something fun so you persist at it.

5.  Herbert Simon's Nobel Lecture - While this essay was mentioned in the Syllabus at the outset, we didn't spend any time on it.  Now you may be ready to appreciate the ideas that are in it.

6.  Alchian and Demzetz on Economic Organization - This is the definitive piece on the firm as arising from team production and the need for a "residual claimant" to address the monitoring and incentive issues. This is a scholarly paper published in the American Economic Review, one of the very top journals.  But there is no math.  You might find the writing style a bit hard at first because they are writing for academics, not a general audience.

Blog Post Grades And Comments Uploaded

You should now be able to see grades for Blog Posts 2 as well as comments on those.  In the process of trying to import those grades from my computer to Moodle, I discovered that the comments didn't import well at all.  So I did those manually.  I have also redone the comments for Blog Posts 1, since those too didn't import well.  I'm very sorry about that.  I'm sure it would have been useful to you to get the full comments earlier.  I didn't realize the problem until this afternoon.

Sunday, December 9, 2012

Candidate Essay Questions For Final

There will be six candidate questions below and three will be chosen from the six.  Two are new to you.  You haven't seen them before and are on the last portion of the course.  The other four you have seen.  These are the unassigned candidate questions from Midterm 1 and Midterm 2.
The New Questions:

A.  This concerns turnover, quite possibly efficient, in the setting of the repeated Prisoner's Dilemma.  One example can be seen in major college sports where the players have 4 years of eligibility.  They can play at most 4 years after which new players take their place.  For the very best players, who have the potential to play professionally, they may face a choice of foregoing a year or two of their college eligibility and turning pro early.  Consider this from the perspective of the coach.  Having such an excellent player on the roster increases the likelihood that the coach's team will win its games.  Discuss the incentives for the coach in advising the player to turn pro or not and in utilizing the player to showcase his skills in game situations to pro scouts.  Does the coach try to retain the player in making these decisions?  Why or why not?

Now consider a similar situation of how upper level management considers the professional development of rising middle management.  It is not unusual for middle management members to attend formal education aimed at executives, such as an Executive MBA program.  We think of such formal education as providing "general human capital."  Thus the education raises the productivity with the current employer but also increases the value of the employees outside option.  What criteria will upper level management use for selecting candidates for such formal education?  Will they be reluctant to send the very best middle managers to such programs for fear that they will lose these good personnel to other companies?  Why or why not?

B.  This question concerns innovative practice in the the setting of the repeated Prisoner's Dilemma.  Employees with some responsibility allocated to them may be quite diligent in doing their established work, so shirking per se is not an issue at all, but they may be very reluctant to try out new approaches for fear of being blamed when an experiment along those lines blows up in their faces.  There are various possible solutions to this issue:
     (i) provide large rewards for experiments that succeed,
     (ii) pool experiments across several employees each with some responsibility so responsibility is shared,
    (iii) punish work groups if they don't show innovation over time.
     (iv) possibly other mechanisms that might occur to you.

Discuss the pros and cons of each of these and discuss how the organization might come to a particular approach in trying to encourage organization members to be innovative.

Candidate Questions from Midterm 1

C.  This question concerns transfer prices.  Provide a working definition for what a transfer price is.  In a for-profit organization how should ownership (shareholders) want the transfer price to be set?  Explain why others in the organization might want the transfer price to be set differently.  What transfer price would these others like to see?  When service quality is jointly set with the transfer price, what service quality would ownership like to see?  Explain why this is the case.  Others may want a different service quality level.  Explain how their preferred service quality level differs from what ownership wants.

D.  This question concerns economic efficiency concepts.  There is a partial equilibrium concept and a general equilibrium concept.  Describe each of these.  Do the two concepts always coincide?  If not, under what additional assumptions do they coincide.  Provide an argument for why we should expect efficient outcomes.  Economic efficiency has been critiqued on several grounds. Explain some of these criticisms and provide settings where the particular critique appears valid.

Candidate Questions from Midterm 2

E. This question concerns procurement. Discus why in government agencies procurement is subject to regulation. What is the regulation aimed at preventing? What does it try to accomplish? Explain why during the bidding process the lowest price bidder may not be selected, although the process is competitive. Discuss the various goals the agency conducting the procurement may have going into the process.

F. This question concerns an agent who while performing the same function serves two different principals. What are some examples where this situation emerges? What problems are created that don't exist in the case where there is a single principal? Explain what "capture" means and how it arises in this context. What might be done to discourage capture?

Monday, December 3, 2012

About the Final Exam

I mentioned in class today that the final will be a different format than the midterms.  It will be an all essay test.  There will be no math-like problems as on the midterms.  The essay questions may cover topics we have math modeled, but they will ask for a discussion of the issues, not derivation of a bunch of equations.

As has been the practice, I will make the candidate questions known ahead of time.  There will be between six and eight candidate questions.  Three will be chosen.  You can count on one of those being on content covering the reputations and dynamic incentives, since you haven't been tested on that yet.  The other questions can come from material done earlier in the semester.

The Final is worth 300 points, yet I'm only having three essay questions, not six of them.  This is so I can grade the thing in a reasonable time frame.  So each essay will be worth 100 points.  This doesn't mean you have to write twice as much as you wrote on the midterms.  It does mean I will be a little sterner grading the essays on the final.  For those who did attend class today, it means you have to light the match with your essay, not simply pour the gasoline.

For this Wednesday's class

We will begin talking about Prisoner's Dilemma - the repeated version.  I've written up some notes on that.  I would be good for you to read those through before class.  Then depending on how much time is left we'll start talking about Efficiency Wages a la Shapiro and Stiglitz.  I will make reference to the acutal paper, Equilibrium Unemployment as a Worker Discipline Device, instead of using M&R's discussion of the paper.  (Note to access the actual paper from off campus you need to use the Campus VPN.)  I have written up some notes on that paper too, in an attempt to cast it in a similar framework to the Prisoner's dilemma stuff and my prior essay on the economics of time.

I want to also clarify a point I made in class today about earning an economic rent in teaching the course.  In a typical market the marginal seller earns no economic rent and just receives his or her opportunity cost.  Sellers with lower opportunity cost are termed inframarginal sellers.  They earn rents.  So in normal market it is not that there are no economic rents.  It is only that the marginal seller doesn't get any.

In the Shapiro and Stiglitz paper, all the workers are identical except that some are employed and others are unemployed.  The employed workers do strictly better than the unemployed ones.  So the employment workers get an economic rent and the unemployed workers are "involuntarily" unemployed.  That is not how we think normal markets work, but it is why unemployment can serve as a discipline device.

Sunday, November 25, 2012

Upcoming Class Activities Sidebar Items Broken

The gadget for Blogger that I use for the upcoming class activities seems to be broken and Google recommends removing it from the blog.  So I did that.  You will instead have to go to the Class Calendar Tab to see the upcoming items.  I am sorry for the inconvenience.

Prof. Arvan

Friday, November 23, 2012

Candidate Essay Questions for Midterm 2

Welcome back.  I hope you had a refreshing holiday break.  We are now starting the last push until finals.  And with that on Monday we'll do a bit more on the principal-agent model from M&R chapter 7 - the quadratic version of the model, and then we'll have our review session for the next midterm, which is Wednesday.  Below are the candidate essay questions for the exam.

A.  This question concerns procurement.  Discus why in government agencies procurement is subject to  regulation.  What is the regulation aimed at preventing?  What does it try to accomplish?  Explain why during the bidding process the lowest price bidder may not be selected, although the process is competitive.  Discuss the various goals the agency conducting the procurement may have going into the process.

B.  This question concerns conflict in organizations and, in particular, Model 1 and Model 2 of Schon and Argyris.  Explain how a manager can without intending to do so cause the staff under him to be angry with his management approach.  What is it that causes their anger?  What are the consequences for the unit when the manager behaves this way?  Explain the Schon and Argyris recommendation about how the manager might diffuse the tension.  Why does their recommendation have a chance to be effective?

C.  This question concerns an agent who while performing the same function serves two different principals.  What are some examples where this situation emerges?  What problems are created that don't exist in the case where there is a single principal?  Explain what "capture" means and how it arises in this context.  What might be done to discourage capture?

Monday, November 12, 2012

Pay for performance......or not?

I thought it was  reasonably good session in class today, but I hurried a bit at the end.  So here are a few things to consider that I didn't get too.

(1)  One question is the frequency at which performance is measured.  You might consider that from the point of view of how the blogging is graded in our course.  An alternative to how we are doing that would be to have each post get a grade.  Is that alternative better or worse?  Can you explain why you feel that way?

(2)  A second question, related to the first, is whether the evaluation of performance has a direct impact on performance (the incentive  effect definitely exists  but lets call that an indirect effect).  The direct effect is due to the person feeling "on stage" and therefore less relaxed.  So thinking about it this way, a question is whether performance is better when the person is relaxed or better when the person feels on stage.  (The answer may depend on the person.)

(3)  A third question comes from noting that pay for performance provides extrinsic reward or punishment.  When there is intrinsic reward, meaning the person finds the work engaging for itself, what is the consequence of adding extrinsic reward on top of that?

These three questions are considered implicitly in this entertaining video - an animation with the voice of Daniel Pink.  I encourage you to watch it.   Then read my critique, because I don't think he gets the story quite right.

(4)  There is then the question when you have many people doing the same sort of work in an organization if you want to use performance pay as a way to differentiate them by their productivity, or if you instead want to pay them equally because most of the observed productivity differences can be attributed to measurement error and equal pay promotes an esprit de corps among these employees that itself provides a productivity boost.

This makes the consideration of pay for performance considerably more complex than the way I left it in class, but also considerably more interesting.

Sunday, November 11, 2012

Next two class sessions

Tomorrow we will start talking about moral hazard, the principal-agent problem as exemplar of moral hazard, and do so to get concepts out there and real examples considered. I plan to avoid using a PowerPoint in this session so we can get more interaction in class.

On Wednesday we'll do the math of the principal-agent problem in chapter six in M&R, introducing that with the insurance model, and moving from there.  We'll also do the S&L example from the book and talk about bank moral hazard in the presence of deposit insurance.  (The same sort of moral hazard may be present in a takeover financed by "junk bonds.")  We'll also do a brief discussion of the S&L crisis of the late 1980s and ask the question - why did history repeat only much worse in the financial markets in the 2000s.

I will use a PowerPoint for the Wednesday class so you can see the equations and work through the algebra.  I will not be giving out an Excel homework - it simply takes too long to write so there is some expediency in this approach.

I will guarantee now that something on Moral Hazard will be present on Midterm 2, so I hope you take this seriously in spite of the lack of Excel homework.

Friday, November 9, 2012

Grades Posted in Moodle

The Midterm 1 grades, Bonus, Blog Posts 1 grades, and comments are now uploaded into Moodle. (It's a day later than I promised.  Sorry about that. )

Let me make some observations about the blog posts, from the perspective of moral hazard, our next topic of study.  One type of moral hazard emerges by considering the difference between renters and owners, particularly in regard to the maintenance and depreciation of a capital asset.  Owners use of the asset is mindful of the impact use has on depreciation, so owners are typically gentle users of the asset. Renters, in contrast, are typically rough users since they have no concern for how the asset depreciates.  Similarly, owners perform all necessary maintenance and sometimes go well beyond that (tender loving care) while renters typically avoid the maintenance costs and pass those onto the absent owners.

These notions of ownership and renting transfer to individual behavior in organizations, where there is no tangible capital asset, only the value of organization membership, a non-tangible asset.  Sometimes we say a person "must take ownership" or "have skin in the game," which amounts to the same thing and means the behavior is driven by a strong sense of responsibility to the organization.  In contrast, a person who "dials it in" shows little apparent effort and in that sense is behaving like a renter.

How does ownership in the organization arise and what does it mean in practice to display ownership?  The latter has a particularly clear answer for group work that produces a document.  Each member plays a dual role, contributor of his or her section, and editor of the entire document.  It is via the editing function that ownership is displayed.  Note that editing is itself a negotiation between editor and author.  Friendly negotiation of this sort typically is in the form of the editor making comments and posing questions.  The author has ultimate say but  must address the questions and comments in a serious manner, in a way that is overt to the editor.

Because the topic was group work in one or two of the posts, the question arises whether students in our class have a sense of skin in the game in this context.  My take is that most do not.  The common practice is for a first draft to be produced quite near to when the final version is due.  Consequently, the editing function gets short shrift.

What about how this issue pertains to our class?  I am giving comments/questions to your posts like an editor would.  A few students have responded to these.  Most students have not.  In practice, having skin in the game is encouraged in a very soft way, making the organization feel like a community.  It is not typically incentivized by an explicit reward for the behavior.  The class is not yet a community.  Beyond the lack of response to my comments, student are not commenting on the posts by their classmates.

A more general observation about the posts is that most students are pretty good in relating what happened but are less good at explaining why it happened.  Each of you would benefit from giving more attention to the why questions in your posts.  You would get deeper into your topic that way.

Monday, November 5, 2012

Bargaining Homework

The Excel homework on Bargaining is now available.  The one short cut I took in making this is that the graphs are just there.  They are not dynamically generated as you answer the questions, as in the previous homeworks.  I thought it more important to get the thing up than to have this bit of slickness.

As you can tell from this post I am home and very happy to be here.  I will see you in class on Wednesday.  Please get the homework done before then.

Sunday, November 4, 2012

No class tomorrow (Monday). Class on Wednesday.

I am going home tomorrow, though I am not sure when. So I am canceling class for that reason. There will be class on Wednesday. The topic will be bargaining and procurement. If time permits we'll also begin our discussion of moral hazard from an informal/intuitive vantage. Though this is not a course document, I encourage you to read today this post, The Diffeq from Hell,, which is about the making of the Excel homework on Bargaining. I will commit here to have that homework up and available by tomorrow evening. I hope that you can get it done before class on Wednesday. I realize that is a short turnover. But under the circumstances, that is what makes sense so we can get back on track.

The procedure I had today went well and my prognosis is good. They got to this thing early enough that I believe things will be under control from here on out. It was quite a scare last week but now it is time for optimism.

My attire in class likely will change as a consequence --- casual casual instead of business casual. I'll explain why on Wednesday. Maybe some of you will respond by dressing up so the mean attire level in the room remains unaltered. ;-) And if there is candy left over I'll bring it then.

Prof. Arvan

Friday, November 2, 2012


First, let me apologize to the class for the cloud of uncertainty the situation with my shoulder has created in addition to the already missed classes. Here is what I know now about my health. But before that a word on my technology capabilities from the hospital.

I can post messages like this one (obviously) but I can' do it for a long time, because I'm connected to a bunch of wires and it is awkward to do.I don't have access to Excel here. So I can't finish and then post the now infamous homework on bargaining. Nor can I post the grades from midterm1 and from the first half of your blog posts. All of that can be taken care of, I hope in short order, once I return home.

I have an infection under my skin but so far above the shoulder. So it is bad, but it would be worse if it were in the shoulder. The treatment is to take antibiotic via IV and then with medicine applied locally to the shoulder. Every time they clean the area and apply new medicine locally, that is a trip to the OR. I have now had two of these with a third scheduled, probably for Sunday. I expect to go home after that, likely on Monday.

If once home, I can take a pill instead of the IV then I probably can teach class the rest of the semester. If I need to have an IV like thing at home, then I will be stuck at home. I'd prefer not to entertain that possibility at present. But you should be aware that it is possible, which would mean the class would turn into an online offering in some fashion as the only means to close out the semester.

I should know which of these possibilities will happen after the next trip to the OR and will post about that a few hours after it happens.

Again, let me apologize to the class for the uncertainty this situation has created. I know that none of you signed up for it.

Professor Arvan

Sent from my iPad

Thursday, November 1, 2012

In the meantime

Read chapter six in M&R on moral hazard.and the a static principal-agent model that is akin to the insurance model. Read chapter 7 as well which gives a quadratic version of the model.

We will then confront time-based approaches in chapter 8. This essay likely will be useful to you.

If you have trouble accessing it, then wait till I can post it in UofIBox.

I would say that class on Monday is unlikely, but I will continue to update as I learn more.

Sent from my iPad

Wednesday, October 24, 2012

Turning a molehill into a mountain

The survey results can be seen in Moodle.  I thought some of the comments were interesting.  We'll

I again would like to apologize for missing class today.  My present plan on how to manage that is simply to move everything back one class session, so our discussion on signaling will be on Monday, your Blog post about B&D  chapter 8 can be turned in as late as Monday night.  I'll read those on Tuesday and we can discuss on Wednesday.  I will get the calendar adjusted to reflect these changes ---- in a little while.

So now the story of this little fiasco, which might prove interesting when we consider employee shirking, which sometimes happens in the form of absenteeism.  Now you'll have the chance to tell your friends and family, "hey, my instructor cancelled class one day by giving the lame excuse that he had to go to the emergency room."

The medical issue, truly minor, is that one of the stitches didn't get absorbed properly so the wound opened and started oozing.  I was home alone and it was getting a bit messy so I called my wife to see if she could help by calling the orthopedics folks at Carle and asking them what I should do.  She calls back a few minutes later and says the nurse told her I should go to the ER.  But when I finally saw the doc later today, he said the ER trip was unnecessary.  He's on call and I could have met with him for a regular office visit.  The nurse had panicked by recommending the ER.  One good turn deserves another, so my wife panicked too.  As a consequence I did go to the ER.  The physician's assistant saw me in the waiting room so I wouldn't have an ER bill.  He patched me up temporarily.  I saw the doc later, and I'm seeing him tomorrow again just to make sure.  But the whole thing is much ado about nothing other than you guys missing class.

They say - better safe than sorry.  In this particular case I'm safe and also very sorry to have cancelled.

Tuesday, October 23, 2012

Reminder David Kinley Lecture This Thursday

Austan Goolsbee
Public Lecture – “ America’s Economy and the World: Why the Long Face?”
4:00-5:30 pm
Knight Auditorium, Spurlock Museum
Reception to Follow

Goolsbee was an economic adviser to then candidate Barack Obama in 2008.  Recently he served as Chair of the President's Council of Economic Advisers.  I'm guessing that the talk will be, at least in part, a reflection of that experience.

Monday, October 22, 2012

Grades in Moodle, Grade Distribution, and PPT from today

For students who missed today's class session -

The graded exams were distributed to those students in attendance.  If you would like to pick up you exam, I will try hard to remember to bring them on Wednesday.  Thereafter it is hit or miss whether I have it when you next come.  You might want to email me ahead of time in that case so I remember to bring it.

For everyone -

I showed a grade distribution for the exam in class, but I'm not ready to distribute that freely.  Likewise, I've not yet uploaded the midterm scores into Moodle.  Some of that is to await the results from Class Direction survey.  (See the previous post. It is linked there.)  I will make these things available in Moodle by Wednesday evening.

But there is another reason.  One consequence of a tough exam, especially one that wasn't anticipated, is that some students will become discouraged.  I've experienced that sort of response in other classes I've taught, so here I'm trying to counter it as much as possible.  Some of the discussion in class today and the discussion we'll have on Wednesday is part of that counter strategy.  Ironically it ties in somewhat to the content of the class session on Monday, based on B&D Chapter 8.

The PowerPoint we reviewed is publicly available.  The first several slides talk about issues from the class' performance on the exam.  The rest is a review of the exam itself and what sort of responses I wish I had seen.  Note that it was constructed rather quickly and it wan't meant to be self-contained.  My narration rounded it out.  If you missed today but want to get a sense of that, I suggest you discuss with one of your classmates who did attend.

Survey on Course Directions

Please take a few minutes to complete this survey.  I got a bit carried away in writing it so it is too wide to embed into the blog, which is why it is linked here instead.

The goal is to use the responses from the survey in our class discussion on Wednesday and then come up with whatever changes we will make in that session.   I will aggregate the results Wednesday morning - probably around 9 AM.  If you complete the survey before then, your views will be included in the aggregate results.

Monday, October 15, 2012

Noble Nobel

Al  Roth won the Nobel Prize in Economics along with Lloyd Shapley.  The story is here.

Saturday, October 13, 2012

Getting Caught Up - Grades, Blog Posts, and Baseball

I have now enabled Moodle and put some data there that you might want to verify.  First, on the left you should see a link to Grades.  Click that.  There should be 4 entries.  The first is your alias.  The other three are homework scores.  Each submission is worth 10 points.  You should also see a file near the top called Blog Participation Matrix.  There should be an x for each post you have done.

If you believe there is a discrepancy, please let me know as soon as possible, so we can fix the problem.

When the midterm has been graded the scores will be entered into the Grades area in Moodle.  After the sixth blog post I will also do grades and comments for those.  Soon after, I'd like to meet with you to discuss your blogging and what you might do to improve things.  Those meetings will occur outside regular class time and will need to be scheduled.

Monday is our review session.  To makes that session worthwhile, you should come ready with your questions/issues.  Of course, the midterm is Wednesday.  It's written and photo copied.  You really shouldn't need a calculator to do it, but you can bring one if it makes you feel more comfortable to do so.  There is a blog post due this Thursday.  The prompt for it has been posted, so  if you'd like yo you can get it done early.

Finally I'm grateful that the Yankees made it to the next round and especially that yesterday's game started at 4 PM.  I fell asleep in the middle of the game on Thursday.  I hope I can make it through the ninth inning this evening.

Wednesday, October 10, 2012

Candidate essay questions for midterm 1

One of three questions below will be the essay question on the midterm.  Of course you should prepare for the exam as you see fit, but I encourage you to work through an answer to each question so you are ready for the test.

By the way, the exam is closed book, closed notes.  The only materials you're allowed are pen and pencil and a calculator.

A.  This question concerns transaction costs.  The underlying cause for the transaction costs are specific inputs so that finding alternative suppliers is difficult if not impossible.  The input supplier then has the power to "hold up" the organization.  There are multiple potential ways to manage transaction costs.  Here we'll consider three:
(i) monitoring performance  coupled with the appropriate carrots or sticks,
(ii) extrinsic reward for excellent performance via bonuses, and
(iii) intrinsic reward by giving the input supplier some control over organization goals and strategies to implement those goals.
Discuss the upside and the downside with each particular  method.  Provide an example of a circumstance where that method is the preferred one,

B.  This question concerns transfer prices.  Provide a working definition for what a transfer price is.  In a for-profit organization how should ownership (shareholders) want the transfer price to be set?  Explain why others in the organization might want the transfer price to be set differently.  What transfer price would these others like to see?  When service quality is jointly set with the transfer price, what service quality would ownership like to see?  Explain why this is the case.  Others may want a different service quality level.  Explain how their preferred service quality level differs from what ownership wants.

C.  This question concerns economic efficiency concepts.  There is a partial equilibrium concept and a general equilibrium concept.  Describe each of these.  Do the two concepts always coincide?  If not, under what additional assumptions do they coincide.  Provide an argument for why we should expect efficient outcomes.  Economic efficiency has been critiqued on several grounds. Explain some of these criticisms and provide settings where the particular critique appears valid.

Wednesday, October 3, 2012

Homework on Adverse Selection in Insurance Markets

The Excel workbook for this assignment is now available.  I'm sorry for the delay.  Please use the comments area for this post to ask questions about the homework.

Monday, October 1, 2012

Gift Exchange or Corruption

The essay is about using gifts in a business setting and when is it and when is it not an act of opportunism.  At the time it was written, I intended the audience to be learning technologists from around the country, but I think it is written in a sufficiently general way as to be relevant to other types of organizations as well.

A Eulogy for Arthur Ochs Sulzberger

Sulzberger was the publisher of the NY Times.  This piece makes him seem a saint.  I'm sure he wasn't that.  The piece is useful to us because it shows what attributes of senior management are prized by those who work under that management, particularly in news organizations.

Saturday, September 29, 2012

A good read that is relevant to our class

Doug Glanville has an unusual combination of gifts.  He is a graduate of Yale and he is former Major League Baseball player.  Now, among the things he does, he is a writer.  This column about brotherhood, meant as a tribute to his dad, gives an eloquent description of the social climate to be found in an organization bound by "the invisible handshake."

Thursday, September 27, 2012

Road Map for Next Three Weeks

This morning I put in calendar entries for all sessions through the first midterm.  Here I want to give a narrative to explain that and give you a heads up so you can best prepare outside of class.

We are talking about six class sessions where the sixth is the exam.  You'll have the full 80 minutes for the test.  I will write it with the aim that it takes half that time.  That day you should spread out around the room.  The exam format will be 2 problems/scenarios (each spreadsheet within a workbook corresponds to a possible scenario.  There will also be one essay question.  I will distribute 3 to 5 potential questions ahead of time.  The actual question will be selected  from one of those.

The Monday before the exam we'll have a review session so you can feel prepared for the test.  I will do no new content then.   There won't be a blog post due the prior Thurs., to free up in class-time for the review.  Students will drive that session via the questions they ask.  

That leaves four other sessions and we will go through those last to first.  On Wed. October 10, we will discuss information economics as it pertains in insurance markets and in that context consider adverse selection (hidden information) and moral hazard (hidden action).  This session will be based on an Excel homework that I'm committed to author and have ready by next Tuesday (10/2).   The content in this homework is fair game for the midterm.

On Mon. October 8, we will recycle back to transfer prices.  This session will be partly a discussion about student posts on Illini bucks, partly a discussion about non-price means of allocation as an alternative to transfer prices, and partly a discussion about off-the-top funding for a division as an alternative to transfer pricing.  We also want to review the Excel spreadsheet on transfer pricing from the homework.

On Wed. October 3, we will talk about the elements of risk and insurance.  I hope for most of you this is a review from intermediate micro.  My intent here is to spend a disproportionate amount of time on definitions of concepts.  Our best session so far was when we spent our time this way.  We'll also spend some time on a rudimentary model of insurance.  This will be based on material available here.

Next Mon., October 1,  we will continue the discussion about coordination in the presence of Knightian Uncertainty by talking about learning and decision making.  We'll consider the economics model of experimental consumption (or equivalently how a monopolist chooses price to learn about the  demand curve.  Then we'll consider non-economic approaches:  (1)  Steve Sample on Thinking Gray (Read the first pages through page 12.)  (2)  Malcolm Gladwell's Blink on Thin Slicing (Read the first pages through page 25.)  (3)  Daniel Kahneman on WYSIATI from Thinking Fast and Slow.

Annual David Kinley Lecture

When:  Thurs, Oct 25, 4 - 5:30
Where:  Spurlock Museum, Knight Auditorium
Who: Austan Goolsbee

Wednesday, September 26, 2012

Background material on the economics of risk

The last time I taught intermediate microeconomics, I made a bunch of Excel workbooks with numerically animated graphs, which I call Excelets, and then I produced some micro-lectures, one per worksheet, and delivered those as YouTube videos.

You can find the set of these on Risk and Uncertainty at the link.  The Excel workbook on which these are based can also be downloaded.   We might cover a few of these next week in class.   It is important background information for us.

When I taught this stuff some of the better students wanted to see the algebra of expected utility worked through.  So here is a micro-lecture on that and here is the PowerPoint on which the micro-lecture is based. Finally, this is the same concepts looked at graphically and the Excel file for that.

Tuesday, September 25, 2012

Monday, September 24, 2012

Here is where we seem to be

1.  I would like to hold class on Wednesday, but I don't yet have a ride.  So check this space tomorrow evening or Wednesday morning to confirm.

2.  I am on pain relievers.  But I am entirely logical in my thinking.  The issue for me (assuming the class is held) will be fatigue, not lala land.

3.  I may dress more casually to accommodate the immobilizer.  Please don't let that bother you.

4.  Everything I produce on the computer now is done with the left hand.  (I am right handed.)  That is slow.  So I am trying to figure out what to do with the Excel homework near term.  We should discuss this in class on Wed.  Perhaps we'll concentrate more on B&D for a couple of days to balance things off.

5.  There have been a couple of comments to earlier posts.  Thanks for that.  I like getting the comments. Please keep them coming.

Friday, September 21, 2012

home after my procedure

the thing itself went ok.  but i'm groggy from the pain meds.  we'll figure out in a day or two the effect on our class.

Thursday, September 20, 2012

My lessons learned/Decisions to be made going forward

I think it is somewhat ironic that we talked in class yesterday about things going wrong and then finding somebody to blame with that preceding almost immediately several students struggling with the homework because they put in numerical values rather than cell references, and then some of those students sending messages of irritation along with their submission key.

I wonder whether those students completed the Demo for Homework that we went over in class during the second week of the course.  There were exercises in that Demo specifically about this issue.  From where I sit either (1) I should have required everybody to do that and submit their result or (2) some people who did that nonetheless didn't take the lesson from it, so the demo needs to be redesigned.  I would appreciate getting comments on this as I really don't know what the explanation is for you.  If you prefer putting that in an email to me to further protect your privacy, that would be fine too.

I trust that on future homeworks students will use cell references so this issue, painful as it was this time around, will be behind us.  The next issue for me in designing the homework is whether on the math itself I'm spoon feeding you the answers too much and that it would be better for your learning if I didn't do that from here on out.  I get that the comfort with the math is somewhat heterogeneous in our class and some may prefer to leave as is.  I welcome your opinion on this issue too.

Let me say how the issue looks from where I sit.  There is an old idea of how students do math homework called "plug and chug" where students take an already given formula and plug in values into that.  It is a path to generate an answer without getting understanding about why the formula is useful.    So I'd like to steer students away from plug and chug  and am looking for suggestions on how to do it.

Wednesday, September 19, 2012

More on Coordination/Thoughts on M&R Chapter 4

It is not unusual for one branch of economics to borrow from another.  When I was coming up with the ideas about service quality for the transfer pricing worksheet, I borrowed from ideas on the economics of regulation. And with that let me say that even if you learn only a little bit of economics in this class you will get a reference to a series of off-beat movies that somehow tie into the economics.  In the case it's The President's Analyst, a hilarious and very weird picture.  The tie in with the economics comes at the very end of the movie.  (You'll have to ask in class why.)  Also note that when I tie in to other economics I do a little test to see if it makes sense in my experience.  In this case I ask myself whether what the model predicts matches my experience when I was in CITES.  It does.  We'll talk about that a bit during our next class session.

M&R also borrow quite freely from many other areas in economics.  Much of the part of the book on compensation borrows from information economics and labor economics.  Chapter 4 borrows from a literature on economic planning a la the Soviet Union Agency Gosplan and mechanism design, which was a similar area for a theorist but applied to capitalist countries and was about the joint determination of how much public good is provided and how the tax burden for the public good is distributed.  That research was quite hot when I was in graduate school.  But now it's a little older and somewhat out of fashion.  So I want to give some context for why it existed and also say why we won't spend time on it in our course.  The PowerPoint I've prepared for next Wednesday is meant as an alternative.

Note that the Soviet Union came to an end right about the time most of you were born.  M&R came out about a year later.  So the existence of Soviet Union and the economic theory that developed around it had to matter a good deal in M&R's thinking, at least indirectly.  It is generally agreed that as economic systems go, Communism a la Gosplan setting prices and quotas for the economy was much worse than capitalism with market prices determined pretty much by supply and demand, with caveats we've already discussed in class.  Both system have warts - they are not perfect, but communism in this vein was much worse.  There were chronic shortages of many consumer goods, notably meat, and many produced good were of shoddy quality.  This in spite of a well educated populace.  Nobody disagrees about the comparison.  What's at issue for us is the explanation for why this is the case.

The planning and mechanism design literature focus on "informational efficiency" which means being able to communicate what is necessary with the least possible information possible - presumably because information is a scarce resource.  The price system in a market economy is informationally efficient.  But note that M&R were writing at the dawn of the computing and communications revolution and until that time information was a scarce resource.  Now we live in a world of information over abundance.  Walmart, for example, craves piles and piles of data about inventory and where it resides as well as about shopping patterns at its various stores so it can efficiently restock and warehouse its merchandise.  So informational efficiency seems less exciting nowadays as a reason to prefer one economic system over another.

Communism under the Soviet Union produced a massive amount of featherbedding and other forms of corruption and that sustained until the system as a whole collapsed.  Tying this to today's Powerpoint about Schumpeter - captialism is far better on the destruction part of creative destruction than communism is, where inefficient and old ways of doing things may have become entrenched.  Capitalism may also be better about the creative side, but I think its on the destruction side where communism failed.  Personally I think that would have happened even if somehow what Gosplan did was as informationally efficient as capitalistic price system.  There were so many other problems with the Soviet Union, pinning them all on informational inefficiency just doesn't seem right.

In what we will do next week my preferred way of thinking about this is to emphasize the role of the "honest broker" in coordination.  In stead of worrying whether a mechanized scheme like the intern matching program provides incentive to tell the trust, as whether people feel they are dealing with somebody they can trust and who listens to what they say.  That is how to achieve high productivity and upbeat spirit about the work, in my view.

Doing the third worksheet in the homework

After class today some students came up to me and said they were having trouble with the homework, the part where there is transfer pricing but also an external market.

I just tried it and it is fine as is.  But I also tried to replicate the error and I think I did that.  The problem is that there is a price in cell F255.  You see a number with two decimals, but you were instructed in the tutorial not to trust what you see but rather to use the cell reference.  See if that works for you.

(I'm placing the same message as a comment here.)

Monday, September 17, 2012

A Better Class Session - Disincentives against "nasty" behavior

There seemed to be more life in the class today.  I appreciate your efforts in making it so. There was good back and forth and we got participation from many students.  Both of those were delightful and in accord with my view of how things are done well with instruction.  For my part, it is definitely easier to get this if I'm reacting to you already, which is one role the blogging will play for the duration of the course.  I will try to do this even on days when we're not talking about the blog posts, but they'll be less context to use to make the points.

On the content of what we were talking about, I think it is time to bring in a metaphor that represents the opposite extreme of one I've already mentioned repeatedly, which is doing somebody a favor, being collegial, and promoting a trusting environment.  We need to talk about nasty behavior - doing bad things to others.  The next blog post is about hold up - a specific type of such nasty behavior that emerges as a person discovers that as a consequence from holding a specific asset that person has been conferred substantial bargaining power - so decides to use it.   Since hold up is the specific issue Coase had in mind when he wrote the Nature of the Firm paper, it is especially important to understand it.

However, there are other types of nasty behavior that we should consider as well.  Perhaps the "patron saint" for such predatory types is P.T. Barnum.  He is attributed with the line:

There is a sucker born every minute.  

Whether Barnum actually said the line is not important here.  What is important is the source of the power conveyed by the sentiment.  It is not anything that the predator possesses that gives him power.  Rather it's what the sucker lacks (knowledge and common sense).  The predator takes advantage of that.

Over the last 10 years there has been much written about predatory practices in financial interactions.  Originators of subprime loans, for example, have put borrowers into the wrong type of loan and with excessive principal, fooling these borrowers by initial teaser interest rates that were much lower than the longer term rates.  (Countrywide earned a reputation for encouraging such predatory lending.)  Some responded to this history by arguing that what is needed is to raise the financial literacy of the borrowers.  There may be substantial merit to this argument but do note that Bernie Madoff's customers, particularly those who lost a lot of money, were suckers yet among these are several very prominent people in New York business and social life. So, I believe, an equally compelling argument is that anyone can be cast in the role of sucker; education and intelligence may make it less likely to get duped but don't eliminate the possibility altogether.  Another alternative deterrent is regulation.  The new Consumer Financial Protection Bureau is aimed at doing just that.

Given that such nasty behavior is possible in the marketplace, it is probably reasonable to assume that it can also happen within organizations.  So while in class today I said that management tries to encourage intrinsic motivation for its employees, as that is the way to get the best work from them and enable them to get a lot of job satisfaction, it is also true that management must spend some time providing disincentive against predatory practices by its employees.  It is a darker side of the job, but some of it is certainly necessary.

Also note here that I'm sticking to predatory behavior within an economic context, as that is the scope of our course.  Surely it is possible to observe other forms of nasty behavior - bullying, sexual harassment, racial discrimination, etc.  The U of I, for example, deals with each of these via education and oversight.  The issues are certainly interesting to consider but we won't do so in our class as they run too far afield of our subject.

Use this for homework 2 questions and comments

The second Excel homework is due this Thursday evening.  If you have questions or comments about the assignment please put them as commnets to this post.

Saturday, September 15, 2012

Cheating and Social Responsibility

This Op-Ed from the NY Times makes you want to ask whether the same sort of attitudes prevail outside of academia.  There is a concept known as the white lie.  One should whether that in itself is benign or if it paves the path to much darker falsehoods.

The piece is also interesting in asking whether Harvard students are so different from those at the U of I.

Thursday, September 13, 2012

Upcoming Schedule

Below is the change of schedule I mentioned in the previous post along with some annotations about how you might best take advantage of it.

Blog Posts

Tonight there is a blog post due.  It is the first real one after last week's posting about your alias.  This one asks about your experiences in organizations.  I would like to spend some time on Monday, probably at the beginning of class discussing points culled from your posts.

There is no blog post due next week.  Partly that is simply because I will be unable to comment on the posts immediately after my procedure.  It is also partly to get the pace of the class better in tune.

The next blog post is due in two weeks.  The topic - refraining from behaving opportunistically - is important.  My preference is that you use an example other than not cheating while taking an exam.   I'm sure some of you don't cheat but are aware or believe that others do.  (And some of you might have cheated in the recent past, but writing about that would be weird.)  We might discuss this example in class.  But if it is the only example we discuss than it will be less interesting.  It would be much better to consider the issue in a variety of contexts.

I am cancelling class Monday the 24th, which is just a few days after my procedure.  That should give you more time to consider the blog post you will write and to help put together the various pieces that the class is considering.

Excel Homework

The next Excel Homework is due a week from today, on Coordination Failures and Coordinating Mechanisms.   We'll do a little bit next Wednesday on the Intern Matching program which is the concern of the second worksheet, but the first worksheet (which is simple but important) and the third worksheet on transfer pricing, we don't get to in class for a while.  I want you to do it early so you begin to get some perspective on the issues.

The third worksheet in that homework is about Transfer Pricing.  This is discussed in Milgrom and Roberts, but my tone and perspective is different than theirs.  Because they take the Efficiency Principle as truth, their analysis proceeds in a certain way.  But what happens if instead of bargaining, the parties act independently?  What then?  Might it be the case where parties create private benefit but inefficient group outcomes as a consequence?  This alternative possibility is more consistent with Bolman and Deal's political frame.  In essence, politics is the consequence of social inefficiency.

Upcoming Class Sessions

Next Monday in class when we conclude the discussion on efficiency that was started yesterday, I want to discuss via examples the issue of gaming the system or designing it.  I hope by doing that to make these ideas about Social Surplus and Pareto Optimality more real to you.

On Wednesday we'll discuss "the assignment problem" and discuss that from a couple of different perspectives.  One job of management is to solve the assignment problem.   If you've seen the movie, Eight Men Out, this scene might help in considering some of the issues (the first one at the link):

As I said above, I'm cancelling class the following Monday.  I'm also going to leave the mixture of doing modeling versus simply having discussion unspecified for now.  The reality of my procedure suggests that these things will fall out based on how I'm doing afterward.

Wednesday, September 12, 2012

Getting on Terra Firma

You guys took me by surprise today when it seemed nobody in the class had seen the Edgeworth Box.  After the class was over it occurred to me that we didn't talk about quasi-linear utility, so we have to do that, and maybe my quick coverage of the Edgeworth Box was just too quick.

So let me say the following:
(a) For your general literacy as Econ students the Edgeworth Box is important as a tool.  If you want to learn more about it:
     (a1)  You can go here where there are a bunch of brief videos I've made on it.  There is coverage about markets in the Edgeworth box, which I only briefly touched on today.
     (a2)  Since some of you have trouble with Google Docs for downloading Excel Workbooks, I've posted the one on General Equilibrium here.  It has what I call Excelets --- there are controls you can press that move the graphs so you can better understand how the graph changes when that parameter changes.
(b)  For our course the Edgeworth box is not very important at all.  The concepts of Pareto Improvement  and Pareto Optimality, which can be applied in contexts other than the Edgeworth Box, are important.  As far as I know the are typically taught first by looking at the Edgeworth Box, but if you understand those concepts more broadly, that's fine.  Then you can ignore some of the minutia of the Edgeworth Box.
(c)  The one other reason for introducing the Edgeworth Box is that if the only alternative reference you have is the (partial equilibrium) supply and demand framework, then you know that the competitive equilibrium maximizes the social surplus, but it sure looks in that setting like efficiency considerations can be separated from equity considerations.  As a general proposition, it isn't true.  So we look at the restricted case of quasi-linear utility because it is true in that setting.  Law and Econ types like Coase maintain that assumption without blinking an eye.
(d)  I intended that first homework as a review to set the context for our course.  There is a puzzle if you take Econ 302 too literally.  Why not have only markets and all transactions taking place in them? Why have organizations as an alternative to markets?   Since it seemed less review than I had thought, I wonder if what we did with the PowerPoint afterward helped in setting context.  We didn't finish that and will have to return to it in the next class.

It also occurred to me that we shouldn't go so quick on covering stuff, particularly if it is newer to you than I had previously thought. So I am going to revise deadlines for things over the next few weeks to reflect that change of pace.  I will write another message in a bit about those new deadlines, once I've thought through what makes sense.

Work Around for Homework Download/Extending First Homework Deadline

I have looked for other alternatives of where to store the Excel Homework for members of the class to access.  For the Efficiency Concepts Workbook, I now have posted a copy to SCRIBD and also posted a copy to the U of I's new Box service.  For those of you who have yet to do the assignment, see if you can download one of those and then see if you can submit your solution by this evening.  You'll still get credit for doing it that way.

Longer term. I will choose one of those as the alternative place to post the assignment and continue to use Google docs as well.  I'd like to choose the Campus Box service, but I was having problems with the login this morning.  I'd want to make sure those are behind me before opting for it.  SCRIBD should work, though it is not a campus service, but at least there is a fallback option.

The only real downside to using one of these is that while I can paste the link to the site of the document  in the Google Calendar description, that won't be clickable.  You'd have to copy it from the calendar description and paste into your browser.  I can put in a clickable link in the block post about the assignment, but not in the calendar description.

Tuesday, September 11, 2012

Issues with doing the homework reported by students

At this point seven students have done the homework and submitted their key via the Web form.  This to show that for those who have yet to have done so, it is do-able.  But it seems there are a variety of stumbling blocks, so I'd like to list them here and give my best guess as to how to resolve them.

Downloading the File

I have been getting some requests to share the file.  They are unnecessary.  All the homeworks are made publicly available.  There *may* be an issue that if you are logged into Google Apps with your Campus account then it won't let you access it because this lies outside the Campus Google Apps.  I'm not sure on this.  I can't test whether it is true or not.  But the simple solution is to do as follows.

Don't be logged into anything.  Click the link to go to the page with the File.  Then go to the File menu and Download it.  You must use real Excel to do this homework.  You can't do it in Google Spreadsheet.

Doing Computations

Some of you have been trained to do arithmetic and algebra on a calculator.  That is okay for figuring out the solution to a question.  But when you enter the solution do the computation in Excel.  Don't enter an approximate solution.  It will say it is incorrect.  Do the calculation precisely.

Working the Algebra

Some students have struggled a little with finding a P.O. allocation in the Edgeworth Box, the homework says this requires a little algebra.  This is where doing the homework with a classmate can help - they can explain what they did.  Or you can post questions to the class site.

After the fact you need to feel comfortable with the algebra.  I expect that in our review tomorrow, students who struggled will ask questions.  That's the point of the activity.  Do note that the midterms will take problems to work from the homework.

Monday, September 10, 2012

Good Content - Flat Class

The class really seemed to drag today and it was probably more me than you as the cause.  I started to get a sore throat later in the afternoon and have been a bit sleep deprived ahead of time because of my shoulder.  I hope the sore throat and sleeplessness will pass and that my energy level is higher on Wednesday.

This is the link to the Arthur Okun essay I mentioned.  On campus, it should just work, off campus you need to use VPN for access.  I think it is an excellent read and it might help you out now, although it dates from 1980.  Many of you are going on the job market in the not too distant future and you will start to ask yourself what it is that you want in the job, apart from the salary.  Thinking of the job as an implicit contract might help you to frame what you should be asking during the interviews (and what answers you should be providing to the recruiter's questions.)  It might also help you to reflect on whether you are ready to make a long term commitment to a job.  (Perhaps you aren't.  I definitely wasn't when I graduated, which was a big reason for going to grad school.)  In any event, I like that essay a lot, so perhaps you will like it too.

Let me switch gears and talk about technology.  One of the disadvantages with the approach I'm taking is that I don't have a campus Google account (they haven't given those to faculty yet) so I can't try things from the perspective of somebody who has one.  The prof.arvan account is a regular gmail account, not affiliated with the university.  If you use a private gmail I don't believe you should run into any technical problems.  (I do believe in Murphy's Law and The Jinx, so I probably shouldn't have written that prior sentence.)  I also believe in learning by doing and in passing along work-arounds to problems.  So if you have some technology glitch and solve it, please post about it, either on your own blog or as a comment here.  Think of doing so as providing a favor to me and your classmates.

Thursday, September 6, 2012

Hub or Edge/Rules or Discretion?

There is a close parallel between asking whether decisions are made at the center or near the edge, on the one hand, and if decisions are made by following prescriptive rules or if instead they are left to individual discretion.  In class yesterday I said that economists as a group are biased in favor of decentralized decision making.  The argument is that a person near the edge has information about local context that the center doesn't have, so the person at the edge can make a decision that better fits the circumstance.

But there is a counter argument that you should be aware of, that says rules are better when decision makers can quite possibly exert a negative externality on others but ignore that in making their own decision.  A novel example of such a negative externality is given in this essay by Atul Gawande, On Washing Hands.  (You can access the full text of this article if you are on the campus network.  The Library has licensed access for you.  If you are at home, use the CITES VPN to attain access.)  This piece made quite a stir when it first appeared.  It turns out that in hospitals doctors actually make patients sick by passing along the infection one patient has and giving it to another patient, though this happens invisibly so it is difficult to pinpoint who the culprit is.  Hand washing stops the spread of infection from happening.  The rule is that doctors are supposed to wash their hand each time they examine a patient.  But many bypass the rule - their time is scarce, hand washing is inconvenient, and too much hand washing can irritate the skin.  The piece discusses ways to get better compliance with the rule.

On more familiar territory, the negative externality argument presumably justifies why there are laws against speeding and drunk driving.

First Homework on Efficiency/Using Pencil and Paper?

I have turned off  Moderation on the blog.  I'll leave it that way as along as we don't get a lot of spam. If the spam does come will go to Plan B.  (At the moment, I don't have Plan B.)

Use this post to ask questions you have about doing the first homework.  Do so in the comments area for this post.  For each subsequent homework, I will make a post so you can ask questions on that particular assignment.  As I said in class yesterday, other students are free to respond to those questions.  It would be good for you to do that.  Sometimes students understand better than the instructor the difficulty encountered and the work around they found.

In the demo yesterday, I showed that there are blank cells for you to do "scratch work" as you complete your assignment.  But many people are more comfortable with a pencil and paper, writing out what needs to be solved, drawing a diagram, or working an equation.  So I encourage you to find an approach that fits the way you think.

I am curious about that so perhaps after the or third homework, when a routine has been established, I will poll the class about how each of you go about doing this.

Blog Description

Some of you have already interacted with me on the issue of whether an outsider mistakenly assumes you are really pretending to be the famous economist you use in your alias.  This is unlikely, to be sure, but I am nonetheless concerned that it could happen.  So below is a further step I'd like you to take that will prevent this possibility.

Your blog has a place for putting in a description.  (See the image below).  I would like your description to say the following:

I am a student in Econ 490 blogging under an alias, using the name of a famous economist as part of my identifier.  I am doing this so that my true identity remains private while enabling me to make public posts for the class. 

The place for putting in the description can be found in the Basic item in your Blog Settings.  It comes next after Title.  Click the Edit link and enter your description.

Tuesday, September 4, 2012


Since I'm authoring much of this content and doing so "on the fly" don't be surprised if there are little errors.  I will not be offended if you point them out to me so that I can make a correction.

When I was a Freshman I took a course in probability from a world-famous probabilist - Gian Carlo Rota.  Our textbook, he said, had several typos.  (He was right about that.)  He said that was a good thing - to keep us on our toes.  Were I as good an economist as Rota was a mathematician, I'd claim to be putting in the typos deliberately, to keep you on your does.  But in this case the real explanation is that though I proofread what I provide to you, I do so timewise rather close to when I post it.  Invariably errors get through that way.

Some Reminders

Tomorrow we'll begin with a technology demo.  It would be good if you could bring your laptop to class.  It would also be good if you could download the Excel file we'll use for the demo ahead of time.  That Excel file is here.  After following the link, go to the file menu and select download.

A few of you have sent me the link to your blog, but many have not yet done that.   Please do so at your earliest convenience.  Note that the first real post, a description of the economist from whom your alias has been derived, is due this Thursday at 11 PM.

Thursday, August 30, 2012

Rotator Cuff Surgery

I will have a procedure to fix my right shoulder on September 21, a Friday.  I'm not quite sure how the following week will go.  If I'm on strong pain medication, teaching may be difficult.  If it's only over the counter stuff, then I think I can manage.  So I thought I'd alert the class so we can plan for some alternative if I will be drugged up that next week.  (Canceling class without any substitute activity might make some students happy, but it is below my bar for a reasonable alternative.)  In any event, we should discuss this when it gets closer to the actual date.

Please be careful this weekend.

From: Chancellor Phyllis M. Wise []
Sent: Thursday, August 30, 2012 2:16 PM
To: Everyone
Subject: MASSMAIL - Possibility of Dangerously High Water - Please Register for Emergency Alert Messages

Dear members of the campus community:

The National Weather Service is predicting that the remnants of Hurricane Isaac could drop as much as 10 inches of rain on the Champaign-Urbana area. If you have not already done so, please register for the campus emergency messaging system, Illini Alert, at

Also, when the storm arrives, please use caution when traveling around campus. High water can be extremely dangerous. Although street crews are clearing drains in the community, heavy rains often cause temporary - but dangerous - flooding in the campus area.

If you are planning to attend this weekend's athletic events, please know that the Division of Intercollegiate Athletics department is closely monitoring the weather and will alert fans of any changes in schedules, and is prepared with evacuation plans for athletic facilities. Visit for the latest information.

Have a safe weekend, and thank you for registering at


Phyllis M. Wise
Vice President, University of Illinois
Chancellor, University of Illinois at Urbana-Champaign

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Wednesday, August 29, 2012

What's good for the goose is good for the gander

Since I'm asking you to blog on a weekly basis, I will try to do that too, though nobody is giving me a grade for it and my compensation for the course doesn't depend on it.  I believe that a good part of teaching is modeling, so my aim in these posts will be to model - style-wise mostly, perhaps content-wise too.  Then it is also true that the previous label, about extending the class session, doesn't help much if we haven't yet discussed the issue at all face to face, so I need a label to make posts that are new to our discussion.

In this first post about the course I want to do a few things:  (1) talk a little about my philosophy in regard to what economics to learn, (2) pose an issue about what to do when the class seems divided, and (3) give a little direction about the next two weeks so you can better focus your efforts.


One possible approach to teaching an econ course is to take the point of view of true believer - I love economics so you should too.  Having co-taught some core courses, I know some of my colleagues would argue that you should teach as a true believer even if you aren't one in your inner being and if you have some serious criticisms of the profession as a whole.  The argument for this is that students are too immature to take a more nuanced view.  If instead of true believer one offers an approach with both affirmation of economics and criticism of it, the worry is that students will pounce on the criticism and use it as an excuse not to learn the affirmative parts of the subject.  To the extent that students are immature (and adults too are immature more frequently than they care to admit)  there is validity to this position.

Nonetheless, it is not the way I want to teach because it is not the way I think.  So I will offer both affirmation and criticism and quite frequently I won't feel it my job to resolve the muddle.  It is only my job to show you that there is more than one approach to think about an issue.

Here is a concrete example to illustrate.  The week after next we will talk about M&R chapter 2 and consider seriously their hypothesis (they didn't invent it, but do they do articulate it) that economic efficiency is an important goal of any organization.  We will spend some time on that and on the math of what economic efficiency means.  But then I'd like us to consider various critiques.  One quite practical and close to home criticism can be found in this essay by Michael Berube, written in the late 1990s, but quite relevant for now.   Berube is now a Professor at Penn State (unfortunately for him, he holds the Joe Paterno Chair in English, or something else with a similar name) but he was a faculty member on our campus when he wrote that piece.  Berube argues that Universities should not be efficient.  Is this just a language thing - with a reinterpretation of words  he would argue for efficiency?  Or is it more than that and if so does it suggest that other organizations also shouldn't be inefficient?  How would M&R respond to Berube?  How would I respond?

Readings other than the textbook

While from a pure ego point of view I want you to think of my course as quite signficant, truthfully I think it more important that you develop the habit of independent reading on your own, so my main goal of introducing pieces of that sort (the Berube piece is from the Chronicle of Higher Education - not some economics journal) is to encourage that sort of reading habit and to encourage the intellectual disposition that if you read something that disagrees with the position your hold, that disagreement offers an opportunity for learning.

In this particular case, at the time of the Berube piece I was leading an organization involved in Online Learning and we were engaged in Efficiency Projects, so Berube's critique had some personal aspects to it.   On the one hand I felt assaulted by the piece.  On the other hand, and you should judge yourself by how our course is conducted, I've embraced some of the ideas he advocates for in the piece, updated to our current circumstance.

I can't consistently pick outside readings that have such an intimate history with me, but I will try through the remainder of the semester to choose provocative pieces that I hope will engage you and encourage you to think harder about what we are studying.

Next Week (and beyond)

At this point the survey has 14 responses, and that doesn't include me testing it out.  Do note I take it seriously.  I believe in the student voice impacting what the class does.  However, knowing the evidence doesn't necessarily suggest a unique way to proceed.  Particularly on the question of doing economics only or a mixed approach, the results are:

Stick with economics approaches to organizations.
Do a mixture of non-economic and economic approaches.
Do a mixture of non-economic and economic approaches.
Do a mixture of non-economic and economic approaches.
Do a mixture of non-economic and economic approaches.
Do a mixture of non-economic and economic approaches.
Stick with economics approaches to organizations.
Do a mixture of non-economic and economic approaches.
Do a mixture of non-economic and economic approaches.
Do a mixture of non-economic and economic approaches.
Do a mixture of non-economic and economic approaches.
Stick with economics approaches to organizations.
Do a mixture of non-economic and economic approaches.
Do a mixture of non-economic and economic approaches.

So at present the majority is for a mixture but there are a few who want to stick with the econ only approach.  In part, but not in full, this question was asked as an indirect way of getting at whether people know what they are voting for and why they do so.  I could have taken one extreme or the other.  On the one hand, economics is becoming more interdisciplinary, either as a a matter of survival or because other disciplines offer perspective economists are interested in.   So other approaches are interesting in the same way Berube's piece is interesting.  Can we reconcile that with what we are already talking about or not?  On the other had, economics is about taking a certain method.  Does the method get lost if we start to ask certain questions that the method is ill suited to answer, which is likely to happen if we bring in other disciplines?

The Bolman and Deal book, which I am requiring and unabashed about that, has reframing in the title.  Their approach suggests that as a manager or as a leader there is a loss of perspective by considering only one frame.  I think that remains true as an economics student - particularly when asking the question: why did the organization do x?  A lot of good economics is positive - it explains what happened.  But as a discipline economics doesn't have a monopoly on offering up explanations.  Things happen for non-economic reasons, on occasion, perhaps more frequently than that. My view is not to dismiss those alternative explanations, a priori.

For example, one of my big things is the issue of intrinsic motivation - which is mainly curiosity.  Can you discuss economic incentives without considering intrinsic motivation?  I don't think so.  Can you ignore economic incentives as long as intrinsic motivation is present?  I don't believe that either, at least not as a long run proposition.

Let me leave with one last point.  There is a tab on the Web site about comments.  Of course you are free to comment on anything on the site.  But I would especially appreciate comments about posts with this label, so I can learn whether what I've written resonates with you.

Wednesday, August 22, 2012

From my own blog - a post about teaching economics.

From time to time I'll want to say something more about what we discussed in class.  I will then use this label for that purpose.  Since we haven't met yet, the label is somewhat inappropriate, but I thought you might find the piece I excerpted and linked t interesting as background for the course.

Monday, August 20, 2012

Under Construction

While the bulk of the site should be ready for the first day of class, modifications to the site will be made during the first couple of weeks as certain things get pinned down.  Do note, in particular, that the pace at which we proceed will be jointly determined by the class, so the subject matter for a particular class session will only be set about two weeks before the actual meeting. Therefore calendar entries, in particular, may be changed with some regularity.

Start of Semester Survey

Please Review Site - All Tabs

There is a lot of information on the site.  Please go over it all at your earliest convenience.  We will cover some of it, but certainly not all of it, during the first class session.