Wednesday, June 25, 2014

Do Not Swear By Heaven....

A simple "Yes" or "No" will do.



Will. Somebody. Please. Show. Me. How. To. Block. The. Google. Soccer. Doodles.

Cannot. Take. This. Anymore.

Tuesday, June 24, 2014

Rise of the Humans

According to a Wall Street Journal article today on Page C3 ("London Hangs on to Ring" by Laura Clarke), the London Metal Exchange has decided to keep its face-to-face open outcry market process. This is in an era in which computerized trading has replaced face-to-face open outcry systems in a number of exchanges. I really liked the comment of Robin Bahr:

"I think it's a very efficient price-discovery process.....There's a feeling that it's transparent, people can see it. You get a good feel for how trading is taking place because your traders are facing each other on the floor."

Sounds like a dissertation topic for a student in experimental economics.

Friday, April 11, 2014

Orthodoxy and the University

You may have heard of Ayaan Hirsi Ali. She is a activist with strong views about the role of women in Islamic societies. She was to be honored with an honorary degree at Brandeis University, a university known for being unafraid to honor people with unpopular views. In Ms. Ali's case, however, Brandeis backed down in the face of criticism of (we are being told ) students and faculty. Brandeis cancelled Ms. Ali's honorary degree. Today, in the Wall Street Journal she published "Here's What I Would Have Said at Brandeis." I do not want to debate here, or even put out for debate here, the underlying issues that were swirling around Ms. Ali and her personal history. What I do want to do is to reproduce from her article a quote about the role of open inquiry at a university:

"When there is injustice, we need to speak out, not simply with condemnation, but with concrete actions.
One of the best places to do that is in our institutions of higher learning. We need to make our universities temples not of dogmatic orthodoxy, but of truly critical thinking, where all ideas are welcome and where civil debate is encouraged. I'm used to being shouted down on campuses, so I am grateful for the opportunity to address you today. I do not expect all of you to agree with me, but I very much appreciate your willingness to listen."

Thursday, March 27, 2014

School Vouchers

Here is a brief and recent video from Reason TV on a family's story related to the D.C. voucher program. At one point in the video a family member says, "[Education] should not be political". Unfortunately it has been made a political issue. Watch documentaries The Lottery or Waiting for Superman (and follow one of the protagonists from The Lottery Eva Moskowitz in her attempt to save the Harlem Children's Success Academy from Mayor De Blasio) . These documentaries make compelling cases for school choice. When people have the capability to choose their school they're capable of "voting with their feet" which rewards good schools and brings discipline to bad schools. Of course there are arguments against vouchers and school choice (we might explore some of those in a future post) and not all charter schools or private schools are equally good. But, even if someone chooses a bad school there is still the chance to switch, that choice is not available for a child attending a bad public school.

Thursday, February 13, 2014

Analytic Narratives

In a few days I will drive to Washington DC to be a visiting dissertation fellow at the Mercatus Center. While there I will attend and participate in lectures with faculty members at George Mason. In particular I am excited to hear lectures from Mark Koyama in his course on "Analytic Narratives". An analytic narrative is an approach to economics that combines some of the theoretical and statistical tools in economics (e.g. game theory and econometrics) with a more historical or ethnographic narrative.

I have started reading for the class. The first lecture is on the "Persistence of Cultural Beliefs" and the first paper I have read is titled "Fertility and the Plough" which is a working paper (here).

It has often been argued that once upon a time fertility was higher because children were not liabilities but assets. Put another way, agriculture is labor intensive and children were valuable because they could be put to work. But, even among agricultural economies there were differences in fertility rates. What could explain the variation in fertility? These authors argue the plough.

The argument is that agriculture broke down into two camps: hoe or plough. When farming with a hoe children were important to weed the soil before the hoe was utilized. However, with a plough weeding wasn't important, the plough would tear up all the weeds. The use of the plough also meant that women were not much use in agriculture (like children they would weed) since the plough required more strength.

One might think that women being in the home and not working in the fields would lead to a lower cost for women having children. On the margin, this means fertility would be higher. However, the authors show that this is apparently more than offset by the lower benefit to having children.

Furthermore, the authors show that controlling for a lot of other factors that could also impact fertility like economic development. Then the authors show that there is an impact on fertility outcomes in PRESENT TIMES that can be tied back to the plough. To show this cultural transmission the authors rely on first and second generation immigrants to the United States. The argument being that, immigrants have their cultural heritage but operate in a well developed economy. First generation immigrants show more of the cultural attribute than second generation. This is the reason the paper falls under "Persistence of Cultural Beliefs".

The one glaring weakness in their paper is that the authors do not seem to control for religious beliefs that would seem to have some influence on people's perspective about children. Perhaps, this is no problem because there was homogeneity in religious beliefs about children. Nevertheless, it was worthy of at least a footnote.

Thursday, January 30, 2014

An Inconvenient Pedestrian

The City of Tallahassee is spending a large amount of money building a new network of sidewalks to make Tallahassee more "pedestrian friendly."  One of these sidewalks goes along Seventh Avenue. The sidewalk is not finished due to several very dangerous construction holes around storm drains. There are numerous barriers telling pedestrians that the sidewalk is still officially closed. Today, as I was getting ready to turn onto Seventh Avenue, a pedestrian, who should not have been there in the first place, and gabbing away on his cell phone, stepped directly in front of my car just before I hit the gas pedal.

So, City of Tallahassee safety planners, have you considered the possibility that

Better Sidewalks MEAN More Aggressive and Less Attentive Pedestrians WHICH MEANS More (Not Fewer) Pedestrian Deaths and Injuries?

Let's hope there isn't a Ph.D. dissertation in someone's future on this proving another example of good intentions having tragic unintended consequences.

Data. Data. Data.

"Data. Data. Data." he cried impatiently. "I can't make bricks without clay." ----Sherlock Holmes in "The Adventure of the Copper Beeches," as quoted in Wikiquote.

In today's round-up of FSU researchers in the news, there is a link to an article in MedicalXpress. It seems that two FSU statisticians have been crunching numbers on breast-cancer patients' genetic markers and which cancer therapies they received, and have found, in preliminary data analysis, that if the patients' cancer treatments "had been tailored to the patient, the response rate would have risen from 21 percent to 39 percent." That 18 percentage point increase is  an 85% increase over the baseline of 21 percent. That is huge.

Interestingly, the two FSU researchers, Jinfeng Zhang and Kaixian Yu, are not physicians. They are statisticians.

Take-away quote from Kathleen Haughney, author of the article:

"Doctors [i.e. physicians], though trained to diagnose and treat, are not statisticians."

Tuesday, January 28, 2014

A Good Link

With the exception (see below) of my strong dislike of Woodrow Wilson and Harry Emerson Fosdick, I try not to blog very often on specific people or on specific individuals' theology. However, it must be be the freakish cold weather here in Tallahassee that has me in the mood to bend my rules. First, earlier today  I posted another jeremiad against poor Woodrow Wilson (by the way, did I ever mention that Wilson's administration brought Jim Crow segregation to Washington, D.C.? Oh, I did? OK.) Now, I want to link to an excellent discussion against a specific theology. From the IFWE blog, here is an excellent discussion arguing against the so-called "prosperity gospel." If you enjoy it, please feel free to browse the entire IFWE blog site. (Full disclosure, I have been a contributor to and grant recipient from IFWE).

Tell us what you really think, Kevin....

Over at NRO, Kevin Williamson has an audacious take on the history of Presidential State of the Union addresses. He points out that Thomas Jefferson began the tradition of U.S. Presidents delivering the address in a written communication. Then he turns to an American President who is, as any reader of this blog knows, near and dear to my Presbyterian heart, as follows:

"It will come as no surprise that the imperial model was reinstated by Woodrow Wilson, Princeton’s answer to Benito Mussolini and the most dangerous man ever elected to the American presidency, a would-be dictator who attempted to criminalize the act of criticizing the state, dismissed the very idea of individual rights as “a lot of nonsense,” and described his vision of the presidency as effectively unlimited (“The President is at liberty, both in law and conscience, to be as big a man as he can”). A big man needs a big show, and it is to Wilson’s totalitarian tastes that we owe the modern pageant."

Wednesday, January 22, 2014

Nonprofit Readings: Boettke and Prychitko

Several years ago at a conference I met Lenore T. Ealy. I remember the conversation was brief but very encouraging. She shared my for nonprofit organizations and their role in transforming lives and tapering the scope of government action. After our meeting she sent me several volumes of Conversations in Philanthropy. In the past I skimmed these volumes noting that the topics interested me; but, there always seemed to be something more pressing that I needed to read. This morning I pulled the books off the shelf and committed to reading at least one article. The article I chose was from Peter Boettke and David Prychitko entitled, "Is an Independent Sector Prone to Failure? Toward an Austrian School Interpretation of Nonprofit and Voluntary Action".

Here is my brief summary of the article:

Nonprofit scholar Lester Salamon argues that the nonprofit sector is not independent from government and instead acts as a collaborator with government ---in fact, they exist as collaborators because nonprofit organizations can never be anything more than a bandaid on social problems due to their limitations. These limitations include coordination failure, unreliable resource streams, and lack of ability to be large-scale providers. Salamon thinks of these limitations as voluntary sector failures.

First, Boettke and Prychitko ask the simple question, "What constitutes a failure?" What they are attacking is that Salaman has no conceptual benchmark to state that the voluntary sector has failures.  Second, Boettke and Prychitko discuss the work of Roger Lohmann who criticizes "failure" arguments on the grounds that imposing the logic of economic calculation on nonprofit organizations automatically makes nonprofit organizations seem like failures (because they lack same substance of for-profit firms). Overall, Lohmann's ideas are acceptable to the authors but they object with Lohmann's prescription for the way forward.

Third, Boettke and Prychitko present their Austrian take on the problem which I would just consider "good economics":  (1) The prices for inputs help to guide nonprofit action; however, (2) There is no help from the price-system to coordinate actions when providing goods, and (3) It is difficult to calculate the "value-added" of the unilateral transfers made by nonprofits. While there cannot be calculation in the strict sense the authors argue that nonprofits still engage in rational decision-making in the sense that they use information to update their beliefs about the relative merits of different courses of action. 

This is not meant to be an in-depth post. There are four commentaries on the Boettke and Prychitko article that I will read later on that will help me form some more in-depth thoughts on the article. For now, I can tell you, this article presented some good leads for readings that I need to be familiar with for my dissertation. It also confirmed that some people are thinking on similar dimensions as I am with the importance of nonprofit organizations in cultivating a self-governing society.

Friday, January 17, 2014

Economic Freedom Video

Here is a recent hour long video on Economic Freedom. Ironically, it was shown on government television: PBS. Of course FSU's own James Gwartney makes appearances.

Costs and Benefits

I've often thought of economics as the "science of common sense". Humans weigh costs and benefits of different actions and choose the action that yields the highest net benefit within their constraints. Constraints can be time, money, ability, etc.; but, whatever the constraint the  person must think about their available resources and all the possible uses for those resources.

I teach my students that when benefits increase (decrease) for a given action we should expect more (less) of that action. When costs increase (decrease) for an action we should expect less (more) of that action. Sometimes teachers illustrate this simple premise through the following exercise:

1. Set a penny on the desk and tell any student they can come and get the penny if they like.

2. Set a quarter on the desk and tell any student they can come and get the quarter and penny if they like.

3. Set a dollar bill on the desk and tell any student they can come and get the dollar and quarter and penny if they like.

By this time students are starting to come up and pick up the dollar and twenty six cents from the desk.

4. Set a five dollar bill on the desk ... LOTS OF STUDENTS come up trying to get it.

This just illustrates the point that as costs and benefits change behavior also changes.

Unfortunately (and fortunately I suppose) economics is not common sense to most people. The unfortunate part is that voters are susceptible to fraudulent claims that have little logic or reason behind them. The fortunate part, I guess for me, is that because economics is not common sense people are still willing to pay money to grasp the concepts of economics.

Tuesday, January 14, 2014


This post discusses C.S. Lewis' literary group the Inklings and his pipe smoking preferences.

HT: Brandon Vogt

From a podcast from Research on Religion I learned from Bob Subrick of James Madison University that Hayek, in his childhood, had a real affinity towards the Bible. His parents who were not religious would dissuade him from church-going would take picnics to the park on Sundays. What a strange method ---might we have had Hayek the theologian? (No link to Subrick's working paper).

In a recent article from National Review Online Jay Nordlinger wrote an article called "Looking for Lefty" (the link is here but it's behind a wall). In the article Nordlinger is seeking a voice from the Left that can provide their best arguments --- hold the snark, ad hominem attacks, and psychosis. He writes for the need for a voice from the other side, "I know there must be fiber in our diets. We cannot just consume journalistic and political ice cream." But, he is fed up with a number of the left's sources. For example, he told a story about how he kicked the New Yorker to the curb when they published an article about the movie "8 Mile" that stated that conservatives disliked interracial friendships. He has other similar stories for different rags. But, he is resolved to find that lefty he can rely on to give him the good positions. He wonders whether he might have found that in the Guardian. 

Monday, January 13, 2014

Religious Organizations and Property Rights

This morning over oatmeal and coffee I listened to a recent Econtalk podcast on religious liberty. The guest on the show was Anthony Gill who is a political scientist from University of Washington. He is also the host of a new podcast from Baylor University entitled Research on Religion which has some interesting material for future listening.

The Econtalk was terrific and Gill provides several reasons why social science scholars should want to study religion. One in particular I thought was interesting (I hadn't heard before) was when he stated social scientists are interested in studying organizations their structures, networks, etc. then he asked what has been the most enduring organization in modern times? The Catholic Church. If so, shouldn't social science scholars want to study the Catholic Church to gain insight into organizational theory? Other faiths and denominations also have enduring structures. Shouldn't we want to study them too? He also discussed competition between religious organizations and religious pluralism in the early United States. Obviously there are lots of other reasons to think the intersection of religion and social science is important. Presumably religion impacts decision-making and since (1) All the people on planet earth are decision-makers and (2) Most of them engage in religious practice, this would seem to be a beneficial research agenda.

But the most fascinating portion of the podcast was the discussion on religious organizations and property rights. I had never realized that governments in various places were attempting to prevent the construction of churches. The construction of the churches is often halted because churches "cause congestion". One example he provides, among others, was the construction of the Cottonwood Christian Center in Los Angeles. Before they could break ground the government stopped them and claimed eminent domain (a host of articles through the LA Times can be found here). Gill states that the idea behind dismissing Cottonwood was that there would be "congestion"; however, by excluding them the city of Cypress hoped to erect a Costco on that same land. What gives? Well, Gill provides an elegant public choice analysis noting the differential in property tax revenues and other tax revenues derived from churches v. businesses.

Also, as Mark noted in an earlier post the Kelo decision makes this kind of property fight even more nefarious. The government has grounds to prevent Cottonwood from opening their church because government revenues can be considered a "public good" that is in the public interest. Gill thinks the interaction between Kelo and religious liberties will be a fight the Supreme Court will see in the coming years.

Friday, January 10, 2014

Government Funded - Church Provided Social Services: Part 2

As mentioned in a previous post I am working on understanding the determinants of favorable attitudes toward the use of funds by the government to finance social service provision through the church. The question is interesting and the answer is unclear. From stump speeches, executive orders, and extra documents a strong case can be made that efficiency was a strong determinant of favorability. The document called Rallying the Armies of Compassion puts it this way,

" … Federal assistance must become more effective and more tailored to local needs … Traditional social service programs are often too bureaucratic, inflexible, and impersonal to meet acute and complex needs of the poor. Reforms must make the Federal Government a partner with faith-based and community organizations that are close to the needs of the people …"

At the same time there are other arguments for government funds being directed toward social service provision through the church: representativeness. Government funds are collected and then disbursed without the option of some of those funds going to the church. Some people viewed this as a form of discrimination.

So we have at least two possible reasons that people might favor government funds being directed towards churches who provide social services: increased efficiency and representativeness.

As mentioned in the earlier post, I will be running regressions to determine the significant determinants of favorability and how well they correspond to each of these reasons. Once again, the data used is from the Religion and Public Life 2001 survey (where an efficiency question exists). Now that I have coded up the data the quick and dirty regression suggests the following:

Age - The age of the respondent is important. Older people are more likely to favor the church-state interaction while younger people are more staunchly opposed.

Education - Highly educated individuals (college grads and postgrads), on average, strongly oppose this church-state interaction. This significance remains even if we account for interaction terms between the educated religious. This is perhaps the most significant finding alongside efficiency arguments.

Religion - Catholic and Evangelical are more favorable to the the church-state interaction. The fact that so many other denominations are indifferent or negative toward this interaction suggests that representativeness is not what is driving favorability.

Political Party - Does not seem to matter. The closest item to significance is being a Democrat which negatively impacts favorability. However, it is not signifiant in magnitude or statistically.

Efficiency - The notion that churches would be more efficient than the government in providing these services is a significant and large determinant of favorability. Other factors that matter which we could include under the efficiency umbrella include: more compassionate social service administrators and the belief that religion changes lives. All of these factors are very significant with sizable magnitudes.

What do these preliminary results suggest? They suggest that favorability is determined primarily through the vehicle of efficiency arguments and a belief that churches can perform the job of social service provision better than the government. Obviously these results are preliminary and more work needs to be done to establish this in a more rigorous fashion but the arrow points in this direction.

Wednesday, January 8, 2014

Questions on Gift Exchange

In previous posts I discussed how contemplation brings about an internal understanding that we are the recipients of a great gift. However, some people struggle with the knowledge that they do not want to be reciprocal in their gift.

This is similar to a story that a faculty member told me about gift-giving culture in Japan. He mentioned that the standards within Japanese culture for the dollars and thoughtfulness involved in the gift giving deters some people from returning to Japan to visit their families.

Indeed our salvation and relationship with God are great gifts! So much so that receiving them and becoming a disciple demands everything. This is well articulated in Bonhoeffer's book The Cost of Discipleship.

Does the knowledge that there will be an inclination to give back cause some people to never receive the gift at all? If so, what can be done to alter that perception that doesn't diminish the demands of being a disciple?

An additional thought comes to mind from the Parable of the Two Sons that puts an interesting spin on these questions. If someone is reluctant is that necessarily a bad thing? Of course, we think it best to be as Isaiah when he says, "Here am I. Send me!" (Isaiah 6:8) but ultimately it matters that we are sent and that we act. The first brother, though initially spurning the invitation, ultimately follows through with care for the vineyard. The second brother liked the idea of the work than the actual work.

I Could Be A Communist.....

According to Robert Rector in today's Wall Street Journal, "If converted to cash, current means-tested [anti-poverty] spending is five times to amount needed to eliminate all official poverty in the U.S." My attitude is, if this is true, then scrap the lot of it. Eliminate all federal housing subsidies, food stamps, etc. from root to branch, pool the revenue, and give every single American, from Bill gates on down, a refundable individual personal tax credit. We could gradually taper the refund based on income to avoid spikes in effective marginal tax rates.

Now, eliminating all of the support agencies which are the massive holes in this "leaky bucket" would undoubtedly crash the D.C. Metropolitan area housing market and help to end that region's insulation from the economic realities that affect everywhere else in America, but that is a good thing. A thriving, luxurious national capital that creates an insulated wealthy class feasting on government rent-seeking would have been anathema to the Founding Fathers. As far as I know, no American President, not even Ronald Reagan,  has left Washington with fewer Bloomingdales and the like than when he arrived. That needs to change.

Tuesday, January 7, 2014

Government Funded - Church Provided Social Services Part 1

How people view the favorability of government financed church services will be one chapter of the dissertation I have been working on. In particular I want to understand the factors that cause people to support providing funds to churches as well as oppose the government providing funds to churches for social services.

What kinds of factors you ask? At present the broad categories under consideration are: religious beliefs, political beliefs, demographic characteristics and efficiency. Using the Religion and Public Life Surveys from the Pew Research Foundation I will explain each items included in each of the categories for those who are interested,

Religion - frequency of church attendance, frequency of interaction with church community, frequency of prayer, faith and/or ecclesial affiliation,  etc.

Political - their party id, are they a registered voter, have they volunteered with political organizations, etc.

Demographic - age, gender, race, education level, marital status, and income. I know that income needs to be adjusted for purchasing power. 30,000 in San Francisco is not much but will stretch out like salt water taffy in Huntsville Alabama.

Efficiency - whether the person believes that churches can provide social services in a more efficient manner. Unfortunately for me this question is only included in the Religion and Public Life 2001 survey and the Baylor 2005 survey. Currently I am looking into some methods for imputing the value to the other samples.

There are a number of wrinkles I have considered. I'll provide an example, given that I have data on favorability for 2001, 2005, and 2008 I could use some spatial econometrics to understand how favorability as changed across different regions. This could be problematic because the question wording is not identical across years but I'm letting the ideas simmer.

There will be more to come over the next several months.

Sunday, January 5, 2014

Better Feed Your kids Those Twinkies

Steven Hayward discusses one of the the most beautiful examples I've ever seen of the problem of confusing correlation with causation (note that he links to an earlier post of the same graph on

Saturday, January 4, 2014

Two Quotes

In reading about the nature of faith I came across these two quotes.

"A casual stroll through a lunatic asylum shows that faith does not prove anything." -Nietzsche 

and a substantially longer quote from GK Chesterton from his book Orthodoxy,

"The publisher said of somebody, “That man will get on; he believes in himself.” And I remember that as I lifted my head to listen, my eye caught an omnibus on which was written “Hanwell.” I said to him, “Shall I tell you where the men are who believe most in themselves? For I can tell you. I know of men who believe in themselves more colossally than Napoleon or Caesar. I know where flames the fixed star of certainty and success. I can guide you to the thrones of the Super-men. The men who really believe in themselves are all in lunatic asylums.” He said mildly that there were a good many men after all who believed in themselves and who were not in lunatic asylums. “Yes, there are,” I retorted, “and you of all men ought to know them. That drunken poet from whom you would not take a dreary tragedy, he believed in himself. That elderly minister with an epic from whom you were hiding in a back room, he believed in himself. If you consulted your business experience instead of your ugly individualistic philosophy, you would know that believing in himself is one of the commonest signs of a rotter. Actors who can’t act believe in themselves; and debtors who won’t pay. It would be much truer to say that a man will certainly fail, because he believes in himself. Complete self-confidence is not merely a sin; complete self-confidence is a weakness. Believing utterly in one’s self is a hysterical and superstitious belief like believing in Joanna Southcote: the man who has it has ‘Hanwell’ written on his face as plain as it is written on that omnibus.” And to all this my friend the publisher made this very deep and effective reply, “Well, if a man is not to believe in himself, in what is he to believe?” After a long pause I replied, “I will go home and write a book in answer to that question.” This is the book that I have written in answer to it.""

Nietzsche argues that the lunatic asylum reveals faith as a vacuous concept. Anyone can have faith in all sorts of things; but, that doesn't make it true. Chesterton points out that in lunatic asylums the faith people place is in themselves. What he goes on to show in Orthodoxy is that what we place our trust in God, Scripture, and Sacred Tradition ---not ourselves.

Friday, January 3, 2014

Inklings and the Cigar Club

Florida State University students will soon return to a fresh semester. But, one consequence of being in Greenville, SC is that I will not be joining them and I won't be a regular at the "cigar club" each Friday afternoon.

The cigar club is a wonderful meeting between economics faculty and graduate students to discuss life, current economic events, recent research articles, current projects we are working on, and so much more. I looked forward to those meetings each week and the community we shared ---community is a marvelous privilege that sharpens the mind and emboldens the spirit.

In addition to the community that is present at those meetings I felt an attachment through time to previous communities of scholars. I felt our group was carrying forward the kinds of traditions embodied in groups like the Inklings at Oxford with C.S. Lewis, J.R.R. Tolkien, and other literary figures. They were friends who read and discussed their work over pints and pipes at one of the local pubs (mostly The Eagle and Child).

For most Friday's from now on my body will be in Greenville but heart will be at the cigar club in Tallahassee.

Thursday, January 2, 2014

Gift Exchange and the Sabbath Part 2

Quick, before reading any further … What are you thankful for? List the top 5 things that come to mind.

Did salvation or God's great love crack the list? If not, please do not think I was setting you up for guilt. Instead, it was meant as an honest inventory of our thankfulness.

In Part 1 of this post I conjectured that contemplation can help Christians to recognize they are the recipients of a great gift. After contemplation the gift recipient responds with joy on the Sabbath and the liturgy acts as a gift returned to God. It is glorious to think that this beautiful gift exchange has occurred for two millennia and can occur with great purpose, meaning, and fruit the rest of our lives. I wish now to illuminate this set of statements with some background from economics.

In economics there has been a theory of "gift exchange" around for almost 30 years. Nobel Laureate George Akerlof asked the question about why some employers would pay wages above the going market rate. The classic example of this is that Henry Ford paid his workers a wage of $5 per hour when other similarly skilled workers earned about half of that. In fact, Henry Ford doubled the wages of his workers in 1914. As a side note, you commonly hear people contend that he did this so workers could afford the product.; however, this is unlikely.  Akerlof conjectured that these above market clearing wages would occur to attract higher quality workers, reduce turnover, and increase the productivity of workers. And, for some employers it could stem from a sense of fairness.

Others also did theoretical work in this area but to keep things brief I will move on to the experimental work. Ernst Fehr is probably the best known experimental economist working in the area of "gift exchange". The set up is a simple framework I'll explain below.

Consider an employer and employee. The employer can choose a wage of {0,1,2,…,10} and the employee can choose an effort level of {0,1,2,…,10}. The exact payment each actor receives can be manipulated; but, one simple example would be that the employer receives profit= e - w and the worker receives a payment=w - e. In words, the employer benefits from the effort of the worker but must pay the worker. Meanwhile, the employee benefits from the wage but has an effort cost associated with working.

Suppose the timing is such that the employer sends some wage first, let's say, w = 8. What would the employee do? Well, according to standard game theoretic arguments the employee will choose e=0. Game theory would predict this because the employee's payment is reduced when choosing e > 0.  In numbers 8 > 8 - e. This argument would still hold if they were playing the game for many (finite) periods due to the argument of backward induction. Therefore, the employer should know this and offer a w=0.

This might sound quite strange to some of our readers. In fact, when I suggested that game theory predicts e=0 you might have balked and cursed game theory in your heart. And, you might have done this because you believed nobody receiving w=8 would return the employer with e=0! In fact, you're right (on average). There have been numerous studies that demonstrate that people do *not* play the game according to game theoretic predictions. People are reciprocal and return great effort when they have been given a great wage. But, the perception must be that they received a great wage when the employer didn't have to give it to them.

Now I want to transition back to the starting place. Contemplation helps us to correctly see the gift. If we do not see the gift we will not feel compelled to return the gift.

Wednesday, January 1, 2014

My Dagobah

The Empire Strikes Back is a favorite movie of mine and like all great stories it harkens to experiences and characters that are relatable.

At present I write from Greenville, SC after almost a decade in Tallahassee, FL. While I am in Greenville the goal is to acquire knowledge and skills to advance my dissertation.  That is what I have been doing most days. On one of these days I came to think of Greenville as a parallel to Dagobah. While Luke had learned about the force from Obi Wan and had some experience with his Jedi skill set he still needed a different kind of training. On Dagobah Yoda teaches Luke the mental side of the game.

In Greenville I must grapple with the nuances and details of a dissertation. I must concentrate, dig deep, and push through to improve my capabilities as a researcher. And, throughout the process I am thrilled to have the master (Mark) a Skype call away.

I've always said that training montages are much cooler and exciting in the movies than the grit and determination required in real life. Yet, I look out at 2014 and think this will be a wonderful new year. I hope it is for you too.