Archive for June 26th, 2009

ABCDE Conference 2009

June 26, 2009

World Bank hosts this popular conference every year. It is called ABCDE (Annual (World) Bank Confernce on Development Economics). The 2009 conference was held in Korea and the papers are here

The papers on Indsutrial Policy look  quite good (haven’t seen others). The paper by Ha-Joon Chang, University of Cambridge is titled as – Industrial Policy: Can We Go Beyond an Unproductive Confrontation?

🙂  This is needed for almost everything in economics.

OECD Free E-book on International Trade

June 26, 2009

I received an email from a visitor about this free e-bookfrom OECD which serves as a primer on International Trade. It is written by Patrick Love (OECD economist; can’t find his profile page) and Ralph Lattimore.

The visitor is promoting the book and thought it might be useful for Mostly Economics Readers. The other visitors can see the book in case they find it interesting.

I will try and write a review later on the book in the blog.

PS.

This blog is not used for any advertisement purposes. However, if visitors have useful eco/fin related e-books which could be useful for ME readers, I don’t mind adding it on the blog.

Was Adam Smith a behavioral economist as well!

June 26, 2009

Yes Indeed! Nava Ashraf, Colin F. Camerer and. George Loewenstein say so in this paper.

Adam Smith’s The Wealth of Nations, first published in 1776, helped create the discipline of economics with its conjuring of the invisible hand, self-interest, and other explanations of market forces that have influenced academics, governments, and business leaders ever since. But it’s the insights from one of Smith’s earlier works, The Theory of Moral Sentiments, that caught the attention of Harvard Business School professor Nava Ashraf and coauthors Colin Camerer and George Loewenstein.

In “Adam Smith, Behavioral Economist,” published in the summer 2005 edition of The Journal of Economic Perspectives, the authors find that Smith’s insights from 1759 can contribute to modern thinking on everything from our fascination with celebrity to the theory of loss aversion. In fact, says Ashraf, Moral Sentiments presages the emerging field of behavioral economics.

Nava Ashraf explains in this HBSWK interview:

Ann Cullen: How did you and your coauthors come to be interested in this lesser known publication of Adam Smith?

Nava Ashraf:Several years ago while taking a graduate course at Harvard on the Scottish Enlightenment, I wrote a paper called “The Morals of a Market Society” focusing on the virtues Smith wrote about in The Theory of Moral Sentiments (TMS). Once I started more research in behavioral economics, I realized how closely Smith’s work from TMS related to this emerging field. Indeed, it looked very much like the field of behavioral economics, which economists usually think of as a “new” field, was in fact rigorously studying the very factors that Smith, arguably the “father” of modern-day economics, had always thought were critical in human behavior and interaction.

Simultaneously, both my esteemed coauthors, Colin Camerer and George Loewenstein, had been exploring TMS and had mentioned in their own work how important it was for economists to read this lesser known work. So it was great fun for the three of us to write this paper, to bring together Smith’s insights with advances in behavioral economics research. Our hope is that it encourages people to go back to TMS and read it for themselves—it’s a truly wonderful book.

What are the main Smith thoughts that make him a beh economist??

Q: According to your article, Smith’s Theory of Moral Sentiments argues that behavior is determined by a struggle between “passions” and the “impartial spectator.” What did he mean by this?

A:Smith believed that much of human behavior was under the influence of the “passions”—emotions such as fear and anger, and drives such as hunger and sex—but these passions were moderated by an internal “voice of reason,” which he called an “impartial spectator.” The impartial spectator allows one to see one’s own feelings and the pulls of immediate gratification from the perspective of an external observer. In the area of self-control and self-governance, the impartial spectator takes the form of a long-term interest (i.e., I won’t have that cookie today because I can see that I will regret it down the road). In the area of social interaction, the impartial spectator allows us to see things from another’s perspective rather than to be blinded by our own needs.

The conflict between the passions and the impartial spectator is the most fascinating part of Smith’s TMS for me. The conflict is particularly important when studying savings decisions, since savings is exactly a decision to delay immediate gratification for a long-term interest, to stay the voice of a short-term pull for the voice of the impartial spectator.

With my coauthors I applied this framework to designing a savings product for a bank in the Philippines that helps clients act in line with their long-term interests. In this “commitment savings product,” clients sign a contract with the bank that doesn’t let them withdraw their own money until a certain amount or date has been reached. It gives their control over to the bank to help them overcome short-term impulses to spend. The product had a large and significant effect on clients’ total savings, helping clients to buy land, improve their businesses, pay for large educational expenses, etc.

The paper on Phillipines’ saving product is here and Ashraf’s other research is here.

To show Adam Smith as a behavioral economist and his work as a presage for beh eco is simply crazy. Again, if you don’t know history you are bound to be surprised. But this is just too much of a surprise. It is  a complete shock….

I was completely unaware about this paper for a long time. This paper was publised in 2005 and I just found it now. Needless to say it is pretty exciting.

Knowing Business History is as important

June 26, 2009

This blog has written in many a posts the importance of knowing and remembering economic history.

HBSWK has an interview of Geoffrey Jones, Harvard University Prof who is a Business Historian. He has written a handbook on the subjectand the interview deals with findings and business history.

Over the last few decades, business historians have generated rich empirical data that in some cases confirms and in other cases contradicts many of today’s fashionable theories and assumptions by other disciplines, says Harvard Business School professor Geoffrey Jones, who edited the volume with University of Wisconsin-Madison professor Jonathan Zeitlin.

But unless you were a business historian, this data went largely unnoticed, and the consequences were not just academic.

“This loss of history has resulted in the spread of influential theories based on ill-informed understandings of the past,” says Jones. For example, current accepted advice is that wealth and growth will come to countries that open their borders to foreign direct investment. “The historical evidence shows clearly that this is an article of faith rather than proven by the historical evidence of the past,” says Jones.

🙂

(more…)

A quick look at Financial regulation in India

June 26, 2009

Shyamala Gopinath, RBI Deputy Governor,  gives a glimpseof financial regulation in India and the way Indian regulators managed the crisis.

Her speech looks at a very important aspect of regulation – the perimeter of regulation i.e. what all should be covered and what all should be excluded. She says:

In the Indian context, what has provided a huge systemic advantage is the fact that the regulation of key financial markets – money market, Government securities market, forexmarket and credit market – vests withthe banking regulator i.e. the RBI. Thus the channels of interconnectedness between banks and other financial sector entities are not beyond the regulatory purview. From a financial stability perspective, the above framework has proved to be a sound model.

How times change? This was exactly the problem stressed by many expert committees asked to look at Indian financial sector. They said RBI is doing too many things and should instead just focus on price stability. The criticism was pretty severe and there was continuous coverage in media. S0me used pretty harsh words which was clearly not needed atleast in the public space.

And come this crisis, we have Fed, BoE etc each asking for more powers to regulate their financial system and firms. All of a sudden RBI’s model became from unwanted to wanted. As the crisis was setting, the Indian model criticisers were confident that the systems in US, UK etc would prevail and crisis would be averted. However, we now know nothing was far from truth. Things were more messy in the model states than anybody could imagine. Moreover, the same set of people are now criticising the earlier model states wrt their regulations, policies etc.

Convenience at its best. I have no problems with economists changing their views. You need to change them as times pass by. But atleast admit and acknowledge it.

What is also needed is a review of all those grand finance fix plans for India. The public clearly needs more answers on what lessons should India take from this crisis. Unfortunately as crisis has eased a little, we have started talking about same set of issues. I am not saying Indian model is not perfect and does not need to change. But let it  atleast be in line with the current reality.


%d bloggers like this: