In today’s world of finance, financial intermediaries compete to hire top talents from the nation’s best schools in order to increase their level of expertise and gain an advantage in bargaining with competitors. However, this advantage can be offset in equilibrium by similar investments in expertise made by the competing trader. Vincent Globe, Richard Green and Richard Lowery argue that such an arms race in building financial expertise can be destabilizing, as it creates a risk of destroying the gains to trade when there is a shock in market volatility. To learn more click here to read the notes compiled by Alex Curthoys and Jake Ledbetter on “Financial Expertise as an Arms Race” for our class.
How does economic development take place in a dual economy with a planned and ”advanced” industrial sector and a ”backward” peasant-owned agricultural sector? What are the essential policy tools that would induce the desired growth? Nick Andrew Lewellen, Bing Sha and Amit Singh present Dixit’s seminal paper “Marketable Surplus and Dual Development“.
Historically, students who didn’t have the means to select the school that they would like to attend were assigned to a public school in their residential area. While many students would prefer to be assigned to their top school choice, this wasn’t possible due to the design of the student assignment mechanism. Furthermore, some ill-defined mechanisms induced the students to misrepresent their preferences, creating further problems. Abdulkadiroğlu and Sönmez present two competing student assignment mechanisms, Gale-Shapley Student Optimal Stable Mechanism (GS) and the Top Trading Cycles Mechanism (TTC), in hopes of mitigating school choice problems. “School Choice: A Mechanism Design Approach” is presented by Paul Hoard, Yexi Ding and Jen Ferris.
In the standard economic theory, Walrasian equilibrium predicts that the return on human capital would be a decreasing function of other worker’s skills. In contrast, Acemoglu proposes that return to human capital rises in the level of human capital stock due to the interaction of ex ante investments and costly bilateral search in the labor market. Diego Romero, Denzel Caldwell and Pawel Charasz summarize and present “A Microfoundation for Social Increasing Returns in Human Capital Accumulation“. Enjoy!
Formalizing the central idea of Wilson (1987), Streufert demonstrates how the social isolation of the underclass can cause, but not necessarily, the underclass youth to underestimate the effect of schooling on income and consequently, to choose insufficient schooling. Gene Burinskiy, John Soriano and Chengen Xie summarize and present “The Effect of Underclass Social Isolation on Schooling Choice“.
Empirical studies have revealed that blacks are faced with unfavorable housing terms in urban areas compared to whites. Marrium Khan and Lauren Russell present Courant’s buyer-search model which predicts that such a segmented housing market with all blacks receiving housing on terms inferior to those obtained by whites can exist as a long-run competitive equilibrium if some whites are averse to living with blacks. Here you can find their notes on “Racial Prejudice in a Search Model of the Urban Housing Market“.
Bank runs — the state where a bank runs out of assets as a result of panicked depositors rushing to withdraw their deposits — can have detrimental consequences for an economy. When do we observe bank runs? What are the tools to prevent them? Alex Curthoys and Jake Ledbetter present “Bank Runs, Deposit Insurance, and Liquidity” by Douglas Diamond and Philip Dybvig.
Efficient market mechanisms can improve the general welfare of the society. But they can do even better than that. Here is an example of how an efficient matching mechanism can literally save lives. In “Kidney Exchange“, Alvin Roth, Tayfun Sonmez and M. Utku Unver demonstrate a mechanism to match kidney donors and recepients that can increase the number and quality of kidney exchanges in comparison with existing pair and indirect exchange practices. Kevin Kurtz and Beisenbay Mukhanov present to the Econ 605 class.
Paul Hoard, Yexi Ding and Jen Ferris review Baumol’s paper “Entrepreneurship: Productive, Unproductive, and Destructive” which presents wide-ranging evidence from the world history to enhance the understanding of the theory of entrepreneurship based on an extension of the Schumpeterian model.
Hatred is a widely studied subject in the field of psychology and sociology. But what about economics? Can we talk about the supply and demand of hatred? Edward Glaeser models the market of hatred by defining it as a political tool that is used by the politicians to induce certain types of electoral behavior. “The Political Economy of Hatred” was presented by Diego Romero, Denzel Caldwell and Pawel Charasz. Enjoy!