Tuesday, December 20, 2005

Grades for Grad Students

Looks like Harvard and others will be ending the ban on Grad students disclosing their grades to prospective employers.

The ban on grade-sharing has been enormously popular with students since it was adopted in 1998. Supporters say that it discouraged (or at least kept to a reasonable level) the kind of cut-throat competition for which business schools are known. With the ban, students said they were more comfortable helping one another or taking difficult courses.

And over at Wharton:
The Wharton School as an institution does not have a ban or requirement on disclosing grades, but the student government adopted a policy in 1994 banning the release of grades.

Serhan Secmen, student body president at Wharton, said that students there are proud that the policy is not a “top down” rule like the one Harvard is ending, but is one that they have come up with themselves. He said that even though the student government has no way to enforce the rule, students abide by it.

He said that keeping grades from prospective employers encourages “teamwork and student collaboration.”

I suppose there is an interesting mix of issues at play. There are the obvious individual incentives provided by grades, with the possible perverse group incentives. Of course group projects and grading may ameliorate these to some degree, if you can overcome the free rider problem.

And then you have the importance of signaling. Taking the grade signal out of the employer/student matching equation helps some and hurts others. I imagine this policy is great for pretty, white, dumb people, but everyone else who isn't covered by one of those adjectives should rethink their position.

Keywords: Grades

Saturday, December 17, 2005

How Scientific Progress is Made

The process should be an open, transparent, and collegial search for the truth. Levitt is an outstanding academic, he is open, transparent, honest, collegial, and still right.

Keywords: Abortion, Crime

Exchange Rates

I previously studied exchange rates. Well I suppose I still do, but with much less fervor than I once had. This post by the New Economist, does a great job of bringing some resources together concerning the micro-structure approach to understanding some puzzles of ERs.

Keywords: Exchange Rates, ECO120, ECO301

A Random Walk

You would think, given my blog title and my past research, I would have been able to spot the Random Walk. But I think I got the first one wrong?? However I did it auf deutsch, so that may have been my problem. I got the second and third ones right. The secret is the following: They generate the artificial series, by restricting it to the same start and end point. I'm not sure I can quite grasp how they generate a random walk from this, but remember a random walk crosses its mean less often then a stationary process.

The computer-generated price process is constructed such that its closing prices at the beginning and at the end of the year perfectly correspond to those of the real stock. However, the closing prices of the real stock may significantly deviate from the artificial ones during the year. In order for the computer-generated time series to look as realistic as possible its prices only change on days with positive trading volume in the real stock.

The standardized trading volume of the real stock is calculated as "Trading volume of the real stock on day t divided by the average trading volume during the depicted year."

Keywords: Random Walk, Stock Prices, ECO301

Friday, December 02, 2005

Minimum Markup Laws

Minimum markup laws are just plain dumb. Michael from The Knowledge Problem points us to a recent example involving gas prices.

Have you noticed how low gasoline prices have been lately? No? Apparently you haven't been paying attention.

Fortunately, a representative of Burch Oil, which sells gasoline in Southern Maryland from Burchmart convenience stores, was paying attention. When prices dropped too low at gas stations down the street last week ? to 199.9 ? he knew just what to do: get on the phone.

The arguments for these laws go something like this...if a big firm is allowed to sell for less than cost they will do so temporarily, driving the smaller suppliers out of business. Then once the competitors are vanquished the large firm will begin acting like a monopolist, raise their prices thus harming the consumer.

I'll take my chances. Give me the cheaper gas now, I'll risk the potential higher future gas prices. Why? Because it won't happen, that's why. Entry into the gas station market is relatively easy (even with all the regulations they face), as evidenced partially by the fact that there is one on every street corner.

And isn't it funny that the main proponents of these minimum markup laws are always the small firms, barely hanging on? They claim to have the best interest of the consumer in mind. But economics teaches us they likely only have thier own interest in mind. Well except for one upstanding retailer recently interviewed on WPR.

The funny thing is that this very same argument is used to protect certain domestic industries from international competition. The so called anti-dumping laws are merely international minimum markup up laws. But the great thing here is (note the sarcasm) we get to decide what the foreign producers costs are. And of course the domestic producers who claim that they have been harmed help the USITC develop estimates of the foreign producer's cost. Funny how they also claim that they are doing this in the best long term interest of the consumer.

You can find a list of all the active antidumping investigations at the linked web site.

But even when entry barriers appear to be insurmountable, things change. Look at the threat Google poses to Microsft. (via Newmark's Door) And to think just a few years ago we thought Microsoft was a monopoly that needed to be spilt up.

Keywords: ECO120

Thursday, December 01, 2005


People continue to decry the state of health care. They claim we spend too much, but do not realize commensurate improvements in life expectancy. I asked Robert Fogel this question when he was here last year, and his response was something along the lines of: We spend more on health care, not because costs are rising, but because consumption is rising, and rising in ways that do not improve longevity, but rather quality of care. Richard Lehman makes a similar point.

Have you been to a hospital lately? They no longer house patients in wards, in many cases you have your own room with TV and other amenities.

The sad truth is that if we are to reduce consumption we have to ration health care. That will likely happen, or be most effective if we ration the consumption of elderly near the end of their lives. Every dollar spent on a 90 year old provides the least bang for the buck in terms of spending and increasing life expectancy.

Keywords: Healthcare