Minnesota Economics

I hear from a friend that some of my posts have not been warmly welcomed by economists with PhDs from the economics department of the University of Minnesota.

I thought I would share more of my impressions of economic research that has been done over there after the jump

For one thing, there is this thesis defence tomorrow and I have to decide whether a dissertation written in part over at U Minnesota is a significant and original contribution to economic research. I know I should keep an open mind, but I think it is.

My objections to the Minnesota economics department are really two. One I think they try to force students to learn more math than they should. I understand that the workload is less extreme than it used to be, but I think the approach (or the old approach) has costs as well as benefits.

Second, I think that a 27 year old paper (warning pdf) had too much influence on the department and the profession. Now the paper may have been reasonable when it was published. A serious problem is that it was based on an estimate of the intertemporal elasticity of substitution in consumption (warning you have to pay to read) which was based on miss-timed instruments.

However, this paper has little to do with the research from Minnesota which I have encountered recently. I don’t look for it and so I will discuss a very small random sample of seminars which I happen to remember.

One problem with the original micro founded macro literature (the original fresh water macro then New Keynesian stochastic dynamic general equilibrium) is that a huge shortcut was made from micro to macro — the representative consumer assumption. The idea was that aggregates can be interpreted as the choices of a single infinitely lived agent. This assumption would be exact if we were immortal and exactly equal in wealth and ability and tastes. It can also hold in special cases without perfect equality. It’s a strong assumption made in many papers (many of them with my name on them).

OK so vivid memories of economics from Minnesota

A paper the effect of divorce on aggregate savings” Presented by Victor Rios Rull (written with a co-author). Oh my no representative agent here. Within the family husband and wife bargain with the wife eager to save more as she will get the kids and poverty in case of divorce. The question is did increased divorced rates cause lower savings rates in the USA. The authors get an integrity prize, because after working out the model the final result was the opposite of the initial guess. In the model increased divorce causes increased savings.

Vested Interests in a Positive Theory of Stagnation and Growth
P Krusell, JV Rios-Rull

on the political economy of economies in transition. Interest groups. Reform blocked by vested interests. No representative consumer there.

Polygyny, Fertility and Savings.
Michel Tertlit

In societies with polygyny (one husband many wives) there is great supply of potential husbands. Therefore it is common for the groom to pay the father of the bride (opposite of a dowery). This is a fact. This increases the value of children as opposed to physical capital (or education of children) as an investment and might explain why polygynous societies haven’t gotten rich (unless there is Oil under them). This is a fact.

Again macroeconomic effects of economics of the family. Redistribution among in laws is key. Far as one can get from a representative agent.

Giordano Zevi

Primogeniture and urbanization. In continental europe there are strict laws of inheritance which used to be much stricter. In particular in some times and places only the eldest son inherited. I just learned this is still true of inheritance of land in Alto Adige (SudTirole). In France some provinces had primogeniture and others didn’t. Napoleon changed all that ruling that all children (even girls) got equal shares. Under neither rule could an heir be disinherited without cause.

The idea was to keep farms going (still is in Alto Adige). Did the laws have an effect on the migration from the countryside to cities.

Sure looks that way.

Here we have macro effects of distribution within the family again. Also a natural experiment.

Look after 27 years the representative agent becomes not only implausible but also boring. Economists look for new challenges. Their work is reliably interesting and sometimes convincing (I really like the paper on Polygyny)