How he became an economist? Via a series of accidents:
Dixit didn’t start out in economics. His bachelor’s degree from Bombay University is in mathematics and physics; he earned another bachelor’s in mathematics from Cambridge University. He credits a professor at his Cambridge college, Corpus Christi, for setting him on his new path by suggesting he read Paul Samuelson’s Foundations of Economic Analysis and Gérard Debreu’s Theory of Value.
When he arrived at MIT in 1965, he was interested in economics but formally a master’s student in the operations research department. “They sent me to see Frank Fisher for advice on what economics courses to take. He heard my story and said, ‘Operations research is boring; it’s just all algorithms. Come and join the economics Ph.D. program.’”
Superb advice from Prof Frank Fisher! Another great mind becomes an economists because of chance and great advice. Not much different from what Prof. Dixit said earlier. Also read why Summers decided to become one.
Prof. Dixit talks about his path breaking monopolistic competition model and how it led to so much work 0n international trade, growth etc.
What became known as the “Dixit-Stiglitz” model underpins a huge body of economic theory on international trade, economic growth, and economic geography—a model tapped by Paul Krugman, who won the Nobel Prize in 2008. The model, first published in 1977, became a building block for others in the new fields of endogenous growth theory and regional and urban economics—what journalist David Warsh described as “one of those economical and easy-to-use ‘Volkswagen’ models that were the hallmark of MIT” (Warsh, 2006).
The theory of monopolistic competition shook up modern trade theory, which Oxford economist Peter Neary attributed to “one factor above all others”: the development of the “elegant and parsimonious” model by Dixit and Stiglitz. The duo applied their innovation only to the classic question in industrial organization of whether monopolistically competitive industries would yield an optimal level of product diversity. But within a few years, many were applying the approach to international trade.
Dixit admitted to Warsh that he hadn’t foreseen the wide applications of the model. “Joe and I knew that we were doing something in building a tractable general equilibrium model with imperfect competition, but we didn’t recognize that it would have so many uses—obviously; otherwise we would have written all those subsequent papers ourselves!”
He adds that his research interest have been diverse and he has picked up the next issue based on his interest. He discusses his work on game theory, development economics etc.
What are his views on the state of economics after this crisis?
Dixit, recently retired from full-time teaching at Princeton, rejects the agonizing of some chastened economists following the global economic crisis. He says they are wrong to blame the “dismal science.”
“Actually, I think that economic theory came out of this rather better than policy practice did. . . . Economic theory and economic analysis based on pretty standard theories told everybody that the situation was unsustainable, that there was going to be a house price bust sometime. The timing is always unpredictable, but pretty much everybody knew that things were going to go bad.
“But what we were not able to predict is the quantitative magnitude of it—how far, for example, house prices would fall. And secondly, we were not able to recognize how big an effect the financial crisis would have on the real economy.”
In light of the crisis, how should economic research adapt?
“Going forward, I think some of the most fruitful research will come from a better integration of financial theory and macroeconomic theory. It may be supplemented by better recognition of rare major events, something that already exists in financial theory, but is less assimilated into financial practice than it should be.
He says what is needed is prudence in good times so that it could be spent in bad times. Which is always difficult to do.
The profile also has economists discussing Dixit as teacher. Rodrik calls him the best teacher he has had. Steven Levitt praises Dixit for his sense of humor and wit. Having said this, there is only one witty quote from Prof Dixit here:
Box 1. Being twenty-three
“Of all the lessons I have learnt during a quarter-century of research,” writes Dixit, “the one I have found most valuable is always to work as if one were still twenty-three. From such a young perspective, I find it difficult to give advice to anyone.”
Going by Prof. Dixit’s high standards, this profile does not have much wit and humor.
But overall superb stuff.