MIT_EconBroch2012_web_01.pdf

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Economics at MIT 2012-2013


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MONETARY POLICY

The MIT Family TreeBy Richard Miller on January 19, 2012

The economics department of the Massachusetts Institute of Technology provides much of the brainpower used to combat the

global financial crisis. Seven former or current bank chiefs—of the U.S., Britain, the Euro Area, India, Israel, Chile, and Cyprus—

either studied or taught there. The department is famous for its stress on practical solutions to economic problems.

Used with permission of Bloomberg L.P. Copyright© 2012. All rights reserved


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Table of Contents

Department of Economics

Massachusetts Institute of Technology

50 Memorial Drive, E52-391

Cambridge, MA 02142-1347

http://economics.mit.edu/

Introduction

Recent Developments

Department Overview

Academic Programs

Undergraduate Economics

Graduate Economics

Current Research

Economic Theory

Macroeconomics, International, and

Development Economics

Econometrics

Appl ied Microeconomics

Economics Around the Institute

Faculty

2

4

7

9

13

16

21

23

29

31

Tab le o f Contents

The Massachusetts Institute of Technology is committed to the principle of equal opportunity in education and employment. The Institute does not

discriminate against individuals on the basis of race, color, sex, sexual orientation, gender identity, religion, disability, age, genetic information, veteran

status, ancestry, or national or ethnic origin in the administration of its educational policies, admissions policies, employment policies, scholarship and

loan programs, and other Institute administered programs and activities, but may favor US citizens or residents in admissions and financial aid.*

The Vice President for Human Resources is designated as the Institute's Equal Opportunity Officer and Title IX Coordinator. Inquiries concerning the

Institute's policies, compliance with applicable laws, statutes, and regulations (such as Title VI, Title IX, and Section 504), and complaints may be

directed to Alison Alden, Vice President for Human Resources, Room E19-215, 617-253-6512, or to the Manager of Staff Diversity and Inclusion,

Room E19-215, 617-452-4516. Inquiries about the laws and about compliance may also be directed to the Assistant Secretary for Civil Rights, US

Department of Education.

*The ROTC programs at MIT are operated under Department of Defense (DoD) policies and regulations, and do not comply fully with MIT's policy of

nondiscrimination with regard to gender identity. MIT continues to advocate for a change in DoD policies and regulations concerning gender identity,

and will replace scholarships of students who lose ROTC financial aid because of these DoD policies and regulations.

©2013 Massachusetts Institute of Technology

Nobel Prize Medal: ©The Nobel Foundation


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2 | INTRODUCTION Recent Developments

HE PAST YEAR was one of numerous awardsand honors for the MIT Economics Department. AmyFinkelstein was awarded the John Bates Clark Medalby the American Economic Association. This medal isawarded annually to the American economist under theage of forty who is judged to have made the most signifi-cant contribution to economic thought and knowledge.

Amy joins Esther Duflo (PhD ’99), Daron Acemoglu,and Jerry Hausman as active faculty who received theClark Medal. Emeriti faculty members Franklin Fisherand Robert Solow as well as the late Paul Samuelsonalso received the award. Daron Acemoglu received the

2012 Erwin Plein Nemmers Prize in Economics, givenbiennially by Northwestern University to recognize workof outstanding significance. Many winners of this prizehave gone on to receive the Nobel Prize, and Daron isthe youngest winner. Robert Townsend was elected tothe National Academy of Sciences.

We were pleased to hire two Assistant Professors in2012-2013. Paulo Somaini, who works in IndustrialOrganization, comes to us after completing his PhD atStanford. Alp Simsek (PhD ’10), who works in financeand macroeconomics, will join us from Harvard.

As in years past, our faculty received numerous honors

for their research and service contributions:

Daron Acemoglu and Esther Duflo were named two•of Foreign Policy’s Top 100 Global Thinkers of 2012.

David Autor and Amy Finkelstein were inducted into•the American Academy of Arts and Sciences.

Abhijit Banerjee and Esther Duflo received the•Financial Times Business Book of the Year forPoor Economics. They also were finalists for theGerald Loeb Award for Distinguished Business andFinancial Journalism for Poor Economics.

Arnaud Costinot was nominated for the Best Young•French Economist under 40 Prize by the Cercle desEconomistes and Le Monde.

Glenn Ellison and Sara Fisher Ellison were awarded•the Best Paper Award for 2011 by the AmericanEconomic Journal: Microeconomics for “StrategicEntry Deterrence and the Behavior of PharmaceuticalIncumbents Prior to Patent Expiration.”

Recent Developments

T Amy Finkelstein was elected as a Fellow of the•Econometric Society.

J• onathan Gruber won the National Institute foHealth Care Management Foundation Health CareResearch Award. He was named “One of the Top25 Most Innovative and Practical Thinkers of Ou

Time” by Slate Magazine, and was also awarded the Partners Health Care Connected HealthLeadership Award for 2011.

Bengt Holmström received two inaugural prizes•

the Senior Banque de France — Toulouse Schooof Economics Prize in Monetary and FinanciaEconomics, Paris and the OP—Pohjola Honorary

Award in Economics, Helsinki.

Anna Mikusheva received the 2012 Elaine Bennet•Research Prize, awarded biannually by the

AEA’s Committee on the Status of Women in theEconomics Profession.

Parag Pathak was named an Alfred P. Sloan•Research Fellow and received a Presidential EarlyCareer Award for Scientists and Engineers.

Nancy L. Rose was named a MacVicar Faculty•Fellow at MIT for her excellence in teaching.

Stephen A. Ross was awarded the 2012 Onassis•Prize in Finance by City University London and theOnassis Foundation. He also placed second in theBest Unpublished Paper in the Past Year categoryawarded by AQR.

Robert Townsend won the Frisch Medal of the•Econometric Society and received the Jean-JacqueLaffont prize of the Toulouse School of Economics

Heidi L. Williams received a CAREER award from•

the National Science Foundation.

Our faculty and alumni continue to provide leadershipand service to the economics profession. BengtHolmström served as President of the EconometricSociety and now serves on the Executive Committeeof the Econometric Society. Nancy Rose is VicePresident of the American Economic Association. JimPoterba has been elected President of the Eastern


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Recent Developments

Economic Association and is Presidentof the National Bureau of EconomicResearch (NBER).

Daron Acemoglu serves as Editor ofEconometrica. George-Marios Angeletosis co-editor of the Journal of the EuropeanEconomic Association. David Autoris editor of the Journal of Economic

Perspectives. Esther Duflo has hadgreat success in building the AmericanEconomic Journal: Microeconomics as thefounding editor. Muhamet Yildiz serves asforeign editor for the Review of EconomicStudies. Amy Finkelstein is co-directorof the Public Economics Program at theNBER. Jonathan Gruber is the directorof the Health Care Program, and NancyRose directs the Industrial OrganizationProgram. Parag Pathak continues asthe founding co-director of the MarketDesign working group at the NBER, andRobert Gibbons directs the Organizational

Economics working group.

Other faculty members continue thedepartment’s tradition of broader pub-lic service. Olivier Blanchard remains onleave from MIT while serving as ChiefEconomist at the International MonetaryFund. Michael Greenstone serves asDirector of the Hamilton Project at theBrookings Institution. Joshua Angrist isa member of the US Census Bureau

Scientific Advisory Committee. MichaelPiore continues as a member of theresearch council for the Economic PolicyInstitute in Washington, D.C.

Our graduate students continue to take tophonors. Continuing the trend of past years,in 2012, MIT students had outstandingrepresentation among the invitees of theprestigious Review of Economic Studies tour. Three of MIT’s graduating PhD stu-dents—Gabriel Carroll, Melissa Dell, andNathaniel Hendren - were honored to par-ticipate in the Review tour, which selects

seven outstanding new PhDs each year

to take part in a two-week seminar touof leading European economics departments. In 2011, three of the seven PhDsselected for the Review tour were MITstudents, and in 2010, four of the sevenPhDs selected graduated from MIT.

Gabriel Carroll also received the James Aand Ruth Levitan Award for Excellence in

Teaching from the MIT School of Humanities Arts, and Social Sciences.

Whitney Newey continues to serve asDepartment Head and David Autoremains Associate Head. The department continues to build with young facultyBenjamin Olken was promoted to the rankof full Professor. Arnaud Costinot and

Anna Mikusheva were promoted to therank of untenured Associate ProfessorsOur alumni, featured throughout this brochure, continue to make major contributions to research, policy, and commerce.

While many MIT undergraduates begin successful careers immediately after graduation, others continue their studies in graduate school. PhD programs

across the country vie for MIT’s crop of talented undergraduate candidates. This year, the following students have joined top PhD programs:

David Choi: Harvard University (Economics), Sungki Hong: Princeton University (Economics), Katelyn Gao: Stanford University (Statistics).

A few of our outstanding students who completed their PhD in 2012: (L to R) Samuel Pienknagura, Michael Powell, Nathaniel Hendren, Mauro

Alessandro, Jenny Simon, Danielle Li, Joaquin Blaum, Michael Peters, Luigi Iovino


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OR OVER A CENTURY , tDepartment of Economics at MIT hplayed a leading role in economics eduction, research, and public service. Franc

Amasa Walker, MIT’s third president, intduced undergraduate studies in econoics more than one hundred years agWalker, who rose to the rank of BrigadGeneral in the Civil War and directthe 1870 U.S. Census, was a leadineconomist of his day. He was a foundand president of the American Econom

Association. In the early part of the tweeth century, Davis R. Dewey, the editor the American Economic Review for twenyears and a longtime chairman of the MEconomics Department, played a marole in preserving and expanding econoics at MIT. In 1937, the Department addegraduate courses leading to a mastedegree. Four years later, in 1941, it inaugrated the PhD program that is renowneworldwide. MIT’s approach to graduatraining in economics has been wideemulated at other leading institutions.

MIT established its School of Humaniti Arts, and Social Sciences (SHASS) 1950, with the Economics Departmeplaying a central role within the Scho

The Economics Department expandsignificantly in the years following WoWar II with entrepreneurial leadership froRupert MacLaurin and a supportive uversity administration. By the 1950s, it westablished as one of the world’s leadincenters for economic research. Graduatof the MIT Economics Department’s dotoral program are now well-represente

on the faculties of virtually all leading ecnomics departments.

The MIT Economics Department todaya vibrant collection of faculty and studen

The Department’s scholars have receivnumerous awards, including four NobPrizes (the late Paul Samuelson, RobeSolow, the late Franco Modigliani, anPeter Diamond). Many faculty membeare Fellows of the National Academof Sciences, the American Academy

4 | Department Overview

Department

Overview

F

Deborah FITZGERALDDean, SHASS

Whitney NEWEY Department Head

Peter Diamond Nobel Laureate 2010

Institute Professor Peter Diamond has devoted virtually his

entire academic career to research and teaching at MIT,

save for four years spent at the University of California,

Berkeley between completing his PhD in 1963 at MIT and

returning to the Institute as an Associate Professor in 1966.In the ensuing four decades, Diamond has made seminal

contributions to the theory of optimal taxation, the analysis

of retirement, disability and other social insurance programs,

and the theory of labor market search and equilibrium

unemployment. In 2010, the Sveriges Riksbank recognized

these contributions when it awarded the Nobel Memorial

Prize in Economic Sciences to him, Dale Mortensen of

Northwestern University, and Christopher A. Pissarides of

the London School of Economics.

While neoclassical models of labor and product markets

envision a world where, for example, employers and workers

find one another effortlessly, work by Diamond, Mortensen,

and Pissarides commencing in the early 1970s recog-

nized that employers and employees invest real economic

resources into finding suitable matches. In a celebrated

paper, Diamond showed that even small frictions in mar-

ket search can generate large deviations from competitive

equilibrium—a result now known as the Diamond Paradox.

Diamond, Mortensen, and Pissarides developed tools to

incorporate these real-world frictions into mathematical

models, and these now provide the workhorse tools that

economists use to understand the evolution of employ-

ment and unemployment. Though most widely applied to

labor markets, the Diamond-Mortensen-Pissarides model

has yielded insights in many search settings, including real

estate markets, retail pricing, and the “market” for spouses.

Peter Diamond is the fourth

MIT Economics faculty member

to receive the Nobel Prize in

Economics, following in the foot-

steps of Paul Samuelson, Franco

Modigliani, and Diamond’s

own mentor and thesis advisor,

Robert Solow.

Top: Peter Diamond and Robert Solow

Bottom: Peter A. Diamond, Christopher A. Pissarides and Dale T. Mortensen, at

their interview with Nobelprize.org in Stockholm, 6 December 2010.

Copyright © Nobel Media 2010 | Photo: NiclasEnberg


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Arts and Sciences, and the EconometricSociety. Numerous faculty members haveserved in various elected offices of the

American Economic Association and theEconometric Society.

The Department offers the most rigorousundergraduate economics education ofany U.S. college or university, and itsclasses attract a very large undergraduate

student enrollment. During the 2011-2012academic year, 1,904 undergraduatesenrolled in economics courses, 103 under-graduates were majoring in economics, 68were minoring in economics, and another272 took economics as a concentration.Many undergraduate majors, as well asstudents from other departments at MIT,participated in research projects super-vised by the economics faculty. Many arefunded by the Institute’s UndergraduateResearch Opportunities Program (UROP)and departmental UROP funds donatedby our generous alumni.

The Department has an outstandingrecord of recognition of its recent gradu-ates and is consistently ranked as a topgraduate training institution. Each year theMIT PhD program enrolls about twenty-four candidates, selected from approxi-mately eight hundred applicants. Duringthe 2011-2012 academic year, therewere 116 graduate students enrolled inthe Department’s PhD program. Studentdissertation topics span a wide rangeof issues in microeconomics and mac-roeconomics and advance the frontierof economic theory, data analysis, and

econometric methodology. An importantdevelopment of the last two decadeshas been a growing internationalizationin the demand for graduate economicstraining. Currently about half of admittedstudents have undergraduate degreesfrom American universities, while the resthave degrees from the developed anddeveloping world.

Most doctoral candidates spend fiveyears in residence at MIT taking graduatecourses and doing research. The first twoyears of the PhD program are devoted pri-

marily to course work, while the remainder

MIT Economics and

the Nobel Prize

in Economic Science

2010

Peter Diamond, MIT, PhD ’63

MIT Institute Professor of Economics

Emeritus

2008

Paul Krugman, MIT, PhD ’77

MIT Professor of Economics

1980-1994 and 1996-2000

2007

Eric Maskin

MIT Professor of Economics, 1977-1984

2003

Robert F. Engle


2001

George Akerlof, MIT, PhD ’66

Joseph Stiglitz, MIT, PhD ’66

2000

Daniel McFadden


1999

Robert Mundell, MIT, PhD ’56

1997

Robert Merton, MIT, PhD ’69

1987

Robert Solow


Emeritus

1985

Franco Modiglian

MIT Institute Professor of Finance and

Economics (deceased

1980

Lawrence Klein, MIT, PhD ’44

1970

Paul A. Samuelson


(deceased

The Nobel Prize in Economic Science

was first awarded in 1969 R o b e r t S O L O W

P a u l S A M U E L S O N ( d e c e a s e d )

F r a n c o

M O D I G L I A N I ( d e c e a s e d )

P e t e r D I A M O N D

of the program focuses on writing a doc-toral dissertation. Graduates of MIT’s PhDprogram pursue diverse careers. While amajority enters academia, MIT economicsPhDs are sought after by governments,domestic and international research andpolicy organizations, and private sectorfirms. In recent years, major Internet firmshave hired top economics talent to designand oversee their market strategies.

As the Internet has enabled electronic dis-semination of information to replace tra-ditional print media, the MIT EconomicsDepartment has developed a closely fol-lowed web presence. The Department’sweb site provides up-to-date informationon department courses and seminars. Itincludes links to the many web pagesmaintained by faculty, who often postresearch papers, policy papers, data sets,and even computer programs on theirsites. Graduate students and economicsresearchers from around the world visitthese web pages to download currentresearch. Our faculty’s research papersare often widely read and cited monthsor years before they are published in aca-demic journals. A major redesign of theDepartment’s web site went live duringthe 2011-2012 academic year.

The majority of classes offered by theEconomics department—sixty-seven atlast count—are also made freely avail-able online through MIT’s heralded OpenCourseWare (OCW) initiative (ocw.mit.edu).

An undergraduate economics develop-

ment course, “World Poverty”, will soonbe going live on MITx, the new onlinecourse platform. This will bring a wonder-ful MIT economics presence to audiencesall around the world.


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The John Bates Clark Medal is awarded by the American

Economic Association to the American economist under

the age of forty judged to have made the most significant

contribution to economic thought and knowledge. Namedafter the American Neoclassical economist John Bates Clark

(1847-1938), it is considered one of the two most prestigious

awards in the field of economics, alongside the Nobel.

Approximately 40 percent of Clark Medal winners have (so

far) gone on to win the Nobel Prize in Economics.

MIT has had a large role in the production of Clark Medal

winners. MIT-trained economists have claimed seven of

the last nine Clark Medals, including, most recently, Amy

Finkelstein in 2012. Notably, three of the four most recent

Clark Medal winners—Esther Duflo, Jonathan Levin and

Emmanuel Saez—were members of the MIT PhD class of

1999. Four current faculty members—Daron Acemoglu,

Esther Duflo, Amy Finkelstein and Jerry Hausman—are

Clark Medalists, as well as two emeritus faculty members,

Franklin Fisher and Robert Solow. The late Paul Samuelson,

who spent his entire academic career on the MIT faculty,

was the first (and youngest) recipient of the Clark Medal.

Emmanuel SaezPhoto courtesy of the

John D. & Catherine T. MacArthur Foundation

Amy FinkelsteinEsther Duflo

Jonathan Levin

MIT and theJohn Bates Clark Medal

MIT senior Yangzhou Hu worked with Pentti J.K. Kourri Associate Professor

Arnaud Costinot and Gary Loveman Career Development Assistant Professor

Dave Donaldson on a project studying the gains from market integration

within the United States agricultural sector over the past 130 years. This

project uses unique agronomic data to predict how productive each arable

parcel of land in the U.S. would be for planting a range of staple crops.

As one step in this research project, Professor Costinot and Professor

Donaldson developed an in-depth proof to show that one could correct the

agronomic data for an extremely general set of potential errors by bringing tobear additional data on the amount of land that each U.S. county devoted to

each crop. Through the UROP program, Professors Donaldson and Costinot

hired Yangzhou Hu, a Mathematics and Economics major, to assist. Because

the proof drew on advanced graduate-level economic theory concerning

existence and uniqueness of general equilibrium solutions—material that

Yangzhou had not encountered in her studies—it was expected that her role

would be limited to spotting minor errors and filling in unfinished details.

To the pleasant surprise of both professors, Yangzhou was able not only to

error-check the mathematics but also provide insights and ideas that ulti-

mately streamlined the proof’s logic and exposition.

Undergraduates in

Economics Research

L to R: Jerry Hausman (John & Jennie S. MacDonald Professor of Economics,

Clark Medalist 1985), Amy Finkelstein (Ford Professor of Economics, Clark

Medalist 2012), Daron Acemoglu (Elizabeth and James Killian Professor of

Economics, Clark Medalist 2005), Esther Duflo (Abdul Latif Jameel Profes-

sor of Poverty Alleviation and Development Economics, Clark Medalist 2010),

Franklin M. Fisher (Jane Berkowitz Carlton and Dennis William Carlton Profes-

sor of Microeconomics, Emeritus, Clark Medalist 1973).


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HE ECONOMICS FACULTY is equal-ly committed to graduate and undergraduateeducation. Senior professors teach introduc-tory microeconomics and macroeconom-ics courses. The Department’s success inattracting exceptional undergraduates andpreparing them for advanced study demon-strates the soundness of this philosophy andthe excellence of the program.

Many faculty have written undergraduate andgraduate textbooks that are used in col-leges and universities around the world. PaulSamuelson first developed his pioneeringeconomics text in an introductory econom-ics course for MIT undergraduates. RudigerDornbusch and Stanley Fischer’s intermediatemacroeconomics textbook, Macroeconomics,introduced modern macroeconomic analysisto undergraduates and has been translatedinto many languages. Olivier Blanchard’s text-book in macroeconomics brings state-of-the-art macroeconomic theory and applicationsto undergraduates while Jonathan Gruber’stextbook, Public Finance and Public Policy ,does the same in public finance. Daron

Acemoglu’s recent textbook, Introduction toModern Economic Growth, takes graduatestudents on a journey through the theory

of economic growth from its neoclassicalparadigms to the most recent models ofendogenous growth. Joshua Angrist’s MostlyHarmless Econometrics: An Empiricist’s

Companion has been widely praised forits integration of theory and practice andappears to be on its way to great success.

The undergraduate major in economics beginswith a two-semester introductory sequencethat explores theoretical and applied topicsin microeconomics and macroeconomics.

Additional training in microeconomics, mac-roeconomics, statistics, and econometrics

follows. Majors have a choice of additionalapplied and advanced courses drawn froma menu that includes public economics,industrial organization, government regula-tion, labor economics, monetary economics,economic theory, economic development,international economics, health econom-ics, the economics of education, and othercourses. The level of mathematics masteryamong undergraduates allows economicscourses to be taught at a high level.

Undergraduate Economics

Undergraduate ResearchUndergraduate students take advantage of numerous opportunities to hone

their research skills. One such opportunity is MIT’s Undergraduate Research

Opportunities Program (UROP), which fosters close ties between undergradu-

ates and faculty members. Students in the UROP program work closely with

faculty members and graduate students to bring the technical skills of modern

economics to bear on questions of economic importance. UROP supplements

coursework, and its projects allow undergraduates to participate in ongoing

research in the Department and to meet with faculty members outside of class.

They perform tasks such as gathering and analyzing economic data, writ-

ing computer programs, checking mathematical calculations, and gathering

research materials. For example, a number of UROPs work with the Jameel

Poverty Action Lab (J-PAL) in understanding questions in development eco-

nomics. In addition to UROP opportunities, undergraduates develop research

and writing skills through coursework that includes producing original papers.

Former undergraduate Chijoke Okeke used regression analysis to determine

ideal business practices for a local cupcake bakery for class 14.33, Economics

Research and Communication. In his paper, “The Effect of Weather and Other

Variables on the Sales of a Store,” Okeke used data sets from the bakery’s

three locations and the National Climatic Data Center to calculate the ideal

number of cupcakes each location should produce on a given day, and how

this number is affected by factors such as holidays and weather conditions.

TThe Economics Department at MIT has a long tradition ofoutstanding training of undergraduates. The unique analyticalskills of the MIT undergraduate student body allow the faculty

to offer a rigorous and comprehensive program unlike that of

any other U.S. college or university.

ACADEMIC PROGRAMS Undergraduate Economics


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8 | Undergraduate Economics

Undergraduates

in Economics Research

MIT junior Yuqi Song, who is a Mathematics and Economics

major, worked with Professors Autor and Pathak and

graduate student Christopher Palmer on a project that

seeks to assess whether the elimination of Rent Control

regulations in Cambridge in 1995 changed the charac-

teristics and desirability of Cambridge neighborhoods, inpart by reducing the incidence of crime in formerly rent

control-intensive areas. Yuqi spent the summer of 2012

building a unique Geographic Information System (GIS)

database of all crimes occurring in Cambridge between

1991 and 2005, classified according to the category of

offense and the location where it occurred. This database

was built from two administrative databases provided by

the Cambridge Police Department (CPD): 1) electronic

crime records from CPD for years 1997 through 2005;

and 2) paper-based crime logs for the years 1991 through

1996. These paper records, often sparsely and crypti-

cally documented, were hand-coded and entered by MIT

UROP students over the course of the past two academic

years. Making these disparate data sources consistent

was a major challenge that Yuqi handled with incred-

ible speed and aplomb. Drawing on the expertise of

the Roche GIS Library, she then mastered ARC GIS and

geotagged all crimes—a task that drew on both coding

skills and a considerable amount of detective work with

Cambridge and Google maps to "site" vaguely docu-

mented crimes. Yuqi finally implemented a geospatial

algorithm to calculate the frequency of crime within pre-

specified radii of each residential parcel in Cambridge.

She will continue her work on the project this fall as the

project moves from data construction to data analysis.

Yuqi's training in Econometrics subject 14.32, which

she'll take this academic year, will help to provide the

statistical/regression-analysis tools that she'll be using in

the second phase of the project.

The faculty is committed to innovation in the unde

graduate curriculum. New courses are constantly

being developed to bring insights from recen

research into the undergraduate program. Recen

or planned innovations include courses on information technology and the labor market, economics

and psychology, regulatory economics, environ

mental economics, and empirical financial econom

ics. As part of an MIT-wide initiative on commun

cation skills, the department also offers a course

in which students carry out a series of increasingly

independent research projects and hone their writ

ing and presentation skills.

Undergraduate Economics Association (UEA) pro

vides an informal forum for students to meet and

explore various topics with faculty. Sponsored bythe faculty, the UEA is run by and for economics

majors to address such issues as career planning

and current topics in economic policy. Students

and faculty also enjoy the relaxed interaction tha

the UEA provides.

Undergraduate economics majors go on to gradu

ate work and to distinguished careers in academia

global businesses, government, finance, consulting

and law. Many become professional economists.

About 20 percent of MIT economics undergraduates enter a graduate program in economics o

finance. This is among the highest yield of PhD

candidates for an undergraduate economics pro

gram. Approximately half of the Department’s

graduates choose to gain experience in business

government, consulting, and non-profit organiza

tions before seeking out business and public policy

schools for post-graduate study. The number o

post-graduates choosing to study law is grow

ing. Growing use of formal economics in law has

strengthened this connection.

Whatever their destinations, undergraduate eco

nomics majors acquire essential skills for a wide

variety of jobs, an excellent foundation in econom

ics, and an opportunity to meet faculty and fellow

students in a challenging intellectual environment.


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HE DEPARTMENT’S HIGHLY regarded doctoral

program enrolls about twenty-four students each year.

Doctoral students take required courses in microeconom-

ic theory, macroeconomics, and econometrics. Students

are also expected to complete four fields in economics

(two major and two minor) and to pass general exami-

nations in their major fields. The field options include

public finance, urban economics, industrial organization,

international economics, monetary economics, labor eco-

nomics, economic development, econometrics, financial

economics, organizational economics, political economy,

and advanced economic theory.

Graduates of the PhD program teach in leading econom-

ics departments, business schools, and schools of public

policy. They work on congressional staffs and government

advisory councils, and with organizations such as the

World Bank, the International Monetary Fund, the National

Economic Council, the Council of Economic Advisers, the

Federal Reserve, and the Treasury Department. They are

also found among the most influential positions in the

market economy, ranging from corporate executives to

hedge fund managers to economic consultants.

Graduate Economics T

Graduate Economics

MARIA SIMONA JELESCU

graduated from MIT in 2002 with bach-

elor’s degrees in Economics and

Management Science. She was hired

at Goldman Sachs and moved rapidly

through the ranks, from Analyst in 2002 to

Vice President in Principal Strategies in

2007. In 2008 she took her current posi-

tion, Managing Director in Goldman Sachs

Investment Partners. In this role, Jelescu

is responsible for designing, analyzing,

and implementing investment strategies

in global equity and debt markets for

an opportunistic multi-disciplinary invest-

ment fund. In addition to her impressive

career trajectory, Jelescu has continued

to contribute to the MIT community as

co-president of her alumni class and as

the co-chair of her class’s tenth reunion.

She previously served as Social Chair of

the MIT Alumni Club of New York.

ECONOMICS STUDENTS:

Where are they now?

Graduate Economics


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MARIO DRAGHI became President of the Euro

pean Central Bank in November 2011. He earned

his PhD from the MIT Department of Economics

in 1977 under the supervision of Nobel Laureates

Franco Modigliani and Robert Solow. Draghi began

his career at the University of Florence. While there

he became an executive director of the World Bank

In 1991, he left academia to become the directo

general of the Italian Treasury, an office he held unti

2001. During his time at the Treasury, he chaired the

committee that revised Italian corporate and finan

cial legislation and drafted the law that governs

Italian financial markets. He is also a former board

member of several banks and corporations.

In addition, Draghi is on the Board of Trustees of

the Princeton Institute for Advanced Study and

the Brookings Institution, has been an IOP Fellow

at the Kennedy School of Government at Harvard

University, and has authored and edited several pub

lications on macroeconomic and financial issues.

ECONOMICS STUDENTS:

Where are they now?

The purpose of the World Economy Laboratory

(WEL), founded by the Economics Department in

1992 and directed by Ricardo Caballero and Sloan

faculty member Roberto Rigobon, is to strengthen

the links between the department and policy mak-

ers, central banks, and business economists.

The WEL is organized around the Central Banks—

MIT Research Network, which was started in

2006 and aims to develop relationships between

MIT and central banks. It is organized around

occasional meetings in Cambridge and visits by

central bank researchers to the MIT Economics

Department. The working group environment

of the meetings is aimed at discussing policy

issues at a relatively technical level. The meet-

ings are attended by the heads of research

of many central banks, as well as faculty and

students working on international finance and

macroeconomics policy issues.

WEL is financed by membership contributions.

The funds are used to organize the meetings

and to support policy-oriented research by

junior faculty and students.

Further information about WEL may be found at

http://economics.mit.edu/centers/wel/index.htm.

The World EconomyLaboratory

10 | Graduate Economics


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Graduate Economics | 1

Graduate students work in intense col-

laboration with faculty to learn the craft

of research. This occurs both in theo-

retical projects and in empirical fields,

where learning-by-doing transfers

information about data sets, research

strategy and econometric tools. For

example, Alexander Wolitzky worked

with Daron Acemoglu on a theoretical

paper aiming to improve understand-

ing of slavery and other coercive laborpractices. They viewed coercive labor

practices through the lens of the

principal-agent framework and argued

that important features to add to the

classical model are that workers have

no wealth, and employers have the

opportunity to invest in punishment

technologies which impose hardships

on workers who leave the relationship.

Thinking about when employers have

more and less incentive to invest in

technologies, they derived a number ofinsights about where labor coercion will

be more and less severe. They embed-

ded their model in a general equilibrium

framework to gain insights into ques-

tions like how the rise and fall of feudal

institutions may have been related to

population changes and urbanization.

Graduate study at MIT consists of

more than just satisfying the course

requirements. Regularly scheduled

department workshops, also known as

seminars, offer a forum for students to

learn about the latest research in their

fields from invited speakers.

In contrast to the more formal nature

of seminars, a key component of the

dissertation advising system at MIT isa set of informal weekly field lunches at

which students who have passed their

general exams try out new research

ideas. The presentations can range

from very early stage research, hardly

more than a literature review and a few

ideas for future work, to nearly-com-

plete dissertation projects. The informal-

ity of these meetings makes it possible

for students to explore research topics

in a setting where no one is expected

to present finished work. Faculty mem-bers view attending field lunches as a

central departmental responsibility.

Many past graduates of MIT’s PhD

program report that field lunches were

invaluable in providing them with a

sounding board for new research topics

Since most thesis writers volunteer to

present a talk each semester, the field

lunches also have the important benefit

of setting near-term, but manageable,

deadlines for dissertation progress.

All students who have passed theirgeneral examinations are required to

attend at least one field lunch each

week and to make a presentation in

at least one lunch during the course

of the year. Many students present

their research in multiple lunches and

thereby obtain a range of different

faculty and student input. First and

second year students who are carrying

out research are also welcome to par-

ticipate in these workshops. Third year

students are required to complete andpresent a third-year paper.

Workshops & SeminarsGraduate Research

Left Photo: Jon Gruber meets with advisee and coauthor Jason Abaluck (PhD 2011)

Right Photo: Sahar Parsa (PhD 2011) presents research at a graduate field lunch


14/36

Undergraduates

in Economics Research

Gregory Lau, who majored in Economics

and Physics and graduated in 2012, worked

with Dave Donaldson, the Gary Loveman

Career Development Assistant Professor of

Economics, on a project that aims to derive

non-parametric bounds on the gains from

international trade. The basic idea stems

from Paul Samuelson’s 1938 concept of

revealed preference. Assuming that consum-

ers are making optimal choices, the choices

that consumers make at different sets of rela-

tive prices reveal essential information about

their preferences over these choices. These

bounds can then be used to study how much

lower consumer welfare would be in a world

in which international trade was infeasible

for a country's producers and consumers.

As a UROP student, Greg Lau worked on

two aspects of this project. First, he worked

to streamline Matlab computer code that

extracts from a set of observed consumer

choices the tightest possible bounds on

their preferences revealed by these choices.

Additionally, he collected rich data on inter-

national trade and production that were

needed to implement this analytic procedure

using live data. Professor Donaldson reports

that Greg was instrumental in assisting him

to overcome key conceptual and practical

obstacles in implementing this ambitious

research project. Greg is currently enrolled in

the Master of Finance program at MIT Sloan

School of Management.

JONATHAN LEVIN graduated from MIT in

1999 with a Ph.D. in Economics. He joined the

Stanford faculty in 2000 and is currently the

Holbrook Working Professor and Chair of the

Economics Department. He is also Professor by

Courtesy in the Graduate School of Business

and Senior Fellow at the Stanford Institute for

Economic Policy Research.

His research is in the field of industrial organiza-

tion, particularly the economics of contracting,

organizations, and market design. His current

research includes projects on internet markets,

auction design, and health insurance.

Jon is a Fellow of the Econometric Society

and has been a Sloan Research Fellow, an

NSF Career Award recipient, and winner of

department and school-wide teaching awards.

In 2011, he received the American Economic

Association’s John Bates Clark Medal as the

economist under the age of forty who has made

the most significant contribution to economic

thought and knowledge.

ECONOMICS STUDENTS:

Where are they now?

12 | Economic Theory


15/36

Many members of the MIT Economics

Department faculty teach courses in eco-

nomic theory, either as part of the core cur-

riculum for graduate students, as graduate

electives, or at the undergraduate level. This

group of faculty includes Abhijit Banerjee,

Glenn Ellison, Robert Gibbons, Bengt

Holmström, Mihai Manea, Parag Pathak,

Drazen Prelec, Juuso Toikka, Robert Townsend, and Muhamet Yildiz. Other MIT

theorists include Daron Acemoglu, George-

Marios Angeletos, Ricardo Caballero,

Arnaud Costinot, Stephen Ross, and Iván

Werning. In addition, many Sloan School

of Management faculty members, includ-

ing Alessandro Bonatti, Michael Grubb,

Gustavo Manso, Robert Pindyck, and

Jiang Wang, also have significant interests

in economic theory.

MIT faculty members are currently carrying

out theoretical research that bears on both

microeconomics and macroeconomics.

The range of current theoretical research

projects is extraordinary. Abhijit Banerjee

has worked on social learning and evolu-

tionary game theory. His seminal research

on “herd behavior” has proved very influen-

Economic Theory | 1

tial in areas ranging from price competition

among firms to the behavior of prices in

financial markets. Glenn Ellison is known

for his work on learning in games and also

works in theoretical industrial organization

Robert Gibbons focuses on the econom

ics of organizations. He has most recently

worked on relational contracts and trust as

determinants of firm boundaries and firmorganization. Bengt Holmström is a con

tract theorist. His seminal work on caree

concerns and the difficulties of providing

incentives to teams and in complex env

ronments has played a fundamental role

in shaping the modern theory of the firm

Mihai Manea is a game theorist who has

worked on bargaining and matching mod

els. Parag Pathak studies the economics

of matching in a wide variety of contexts

most notably medical markets and public

school choice. Drazen Prelec is actively

involved in research and teaching on psy

chology and economics. Juuso Toikka has

worked on repeated games and dynamic

mechanism design. Robert Townsend has

made fundamental contributions to con

tract theory and currently works in both

mechanism design and general equilibrium

EconomicTheory

LL ECONOMIC RESEARCH,

whether abstract or applied, and all

economic policy advice is rooted in

economic theory. Substantial advanc-

es in economic science are usually

based on new ways of thinking about

and modeling economic phenomena.

MIT’s commitment to economic theory

is strong and is facilitated by a close

collaboration between faculty mem-

bers and students developing new

theoretical insights, those performing

empirical research, and those who are

interested in framing public policy.

Most of the MIT faculty members who

work in economic theory also have

serious research and teaching inter-

ests in one or more applied fields.

A

The United States needs additional gov-

ernment spending to create significant

economic growth, and in so doing would

face little risk of serious inflation, said

Lawrence H. Summers ’75, the econo-

mist and former Obama administration

adviser. The November 2011 Under-

graduate Economics Association event

drew an overflow crowd in Wong Audi-

torium, and featured an interview format

in which Summers answered questions

from James Poterba, MIT’s Mitsui Pro-

fessor of Economics, who has collabo-

rated with Summers on research.

Summers discussed the economic cri-

sis in Europe (comparing it to a fiscal-

policy version of the United States’ war

in Vietnam, in which stopgap measures

by Europe’s leaders have produced a

quagmire), budget cuts proposed by

lawmakers in Washington (recommend-

ing, “government should be embarked

on a multiyear, substantial investment

program in infrastructure”), and weigh-

Summers: To end slump, United States must spend

ing in on economists’ performance in

light of the largely unanticipated eco-

nomic crisis (arguing that the profession

has made world leaders better informed

in recent decades, although the dynamic

stochastic general equilibrium models

used by many economists have been of

little value in these complex times.)

Summers is currently the Charles W

Eliot University Professor at Harvard

where he served as university presiden

from 2001 through 2006. In his mos

recent stint in Washington, Summers

served as the director of the Nationa

Economic Council for the first two years

of Barack Obama’s presidency.

L to R: Mengjie Ding (SB ’12), Lawrence H. Summers, Christian Perez (SB ’12), Shelly Jin (SB ’13), and Jing Li (SB ’11


16/36

14 | Economic Theory

modeling. Muhamet Yildiz is an expert on games

of incomplete information and has written on

delays and breakdowns in bargaining.

The MIT Economics Department is fortunate

to have ongoing visiting faculty arrangements

with other world-class economic theorists. Fo

example, Jean Tirole, an internationally acclaimed

scholar who has worked in game theory, industria

organization, regulation, and many other fields

typically lectures in MIT’s industrial organization

courses. Tirole is also a frequent summer visitor

He offers mini-courses on specialized topics in

economic theory that are very popular with gradu

ate students in all stages of the PhD program.

Economic theory is part of the basic undergraduate

microeconomics sequence at MIT. Because MIT

undergraduates have a good command of math

ematical methods, and because economic theory

relies on formalism and mathematical analysis, MIT’s

undergraduate economic theory offerings are prob

ably more rigorous than those at any other college

or university. MIT’s introductory course “Principles o

Economics” is typically taught at the level of inter

mediate microeconomic and macroeconomic theory

courses at other departments. This enables undergraduates to enroll in follow-up courses in advanced

microeconomic and macroeconomic theory. Anothe

popular undergraduate course explores applications

of game theory in a wide range of economic settings

including business competition and individual dec

sion-making. Yet another popular course focuses

on the development and implications of models o

behavioral economics and the ways in which psy

chological insights can inform economic modeling

Many former MIT undergraduates who have gone

on to graduate studies in economics report that thei

undergraduate theory courses provided a very firm

foundation for their graduate work.

Graduate students are required to pass four half

semester core courses in microeconomic theory

The first of these courses emphasizes price theory

the theory of consumers and producers, and gen

eral equilibrium analysis. The second course focus

es on game theory and provides the key equilibrium

notions that are needed to analyze interactions

between firms in an industry and between agents

in many economic environments. The third course

goes further into game theory and examines the

Robert GIBBONSGlenn ELLISONMarkets and Networks

The law of one price states that all identical goods should

sell at the same price. This principle applies to large mar-

kets in which every buyer can trade with every seller at

no transaction cost. However, in many markets trading

opportunities are local. Depending on transportation costs,

social relationships, local information, and technological

compatibility, each buyer can trade only with some of the

sellers, and vice versa. Such market relationships can

be naturally modeled as networks, whereby only pairs of

connected agents may engage in exchange. In a paper

recently published in the American Economic Review ,

“Bargaining in Stationary Networks,” Mihai Manea stud-ies trading in network environments and investigates the

influence of the network structure on market outcomes.

How does an agent’s position in the network determine

his bargaining power and the local prices he faces? Who

trades with whom and on what terms? When are prices

uniform as suggested by the law of one price? The analy-

sis reveals that network asymmetries give rise to unequal

bargaining power among market participants and lead

to systematic departures from the law of one price.

Indeed, some groups of sellers face higher demand in

the network and exert more market power relative to oth-

ers. Such sellers may act as an oligopoly and use their

oligopoly power to capture a significant fraction of the

gains from trade. The structure of feasible agreements

is described by a decomposition of the network into a

series of oligopolies. Manea identifies the set of oligopo-

lies and the price distribution that emerge in equilibrium.

The most powerful oligopolies—the ones with the lowest

seller-to-buyer ratio—drive market outcomes.

FACULTY RESEARCH


17/36

DAN GILBERT received his B.S. in Economics fromMIT in 1991. Gilbert started his career in management

consulting with McKinsey & Company and A.T. Kearney

He has held leadership positions at several leading

technology companies, including Webvan, Palm, Inc

and Cisco Systems, Inc.

In 2010, Gilbert joined Barnes & Noble as the

Executive Vice President of Operations and Custome

Service, to help drive the company’s expansion intothe digital reading space. Gilbert’s team at Barnes &

Noble is responsible for the end-to-end supply chain

for the company’s NOOK® Reader and Tablet prod

uct lines, including new product introduction, sourc

ing, manufacturing, and worldwide distribution. His

team also manages all customer service for Barnes

& Noble, supporting digital and physical transactions

made through devices, the web, and the company’s

network of 700 retail stores.

Dan Gilbert is an active member of the early-stage

investment group Band of Angels and a Limited

Partner in the Acorn Fund. He sits on the Executive

Advisory Board of SCM World, on the Board o

Directors of Belgian company DVD Post, and on the

MIT Corporation Visiting Committee for the Socia

Sciences. He is a conference speaker on the subjects

of business transformation and finding new ways for

operational organizations to drive top-line growth.

Economic Theory | 1

ECONOMICS STUDENTS:

Where are they now?

Bengt HOLMSTRÖM

Drazen PRELEC

Parag PATHAK

underpinnings of models of consumer behavior. Finally, the

fourth course focuses on information economics and contract

theory. It touches on questions of contract design, asymmetric

information, moral hazard, and the working of insurance mar-

kets. Together, these four courses provide a comprehensive

introduction to modern microeconomic theory.

Graduate students who plan to specialize in economic theory,

and who expect to write dissertations in this field, select a

minimum of two advanced courses on game theory, contract

theory, and behavioral economics. Other courses cover a variety

of more specialized topics such as auction theory, bargaining

theory, decision theory, and dynamic optimization. While not

all of these courses are required for students to take generalexams in economic theory, most students who study economic

theory as a major field enroll in virtually all of the advanced the-

ory courses. The set of faculty members teaching the advanced

theory courses varies from year to year, and the content of these

courses often varies with the instructors.

There is a close connection between some issues in economic

theory and the modern applied field of financial economics.

Much of the modern theory of asset pricing derives from

research in economic theory on choice under uncertainty and

the allocation of risk in security markets. A substantial body

of current research on corporate financial policy begins with

insights from contract theory, and from analysis of how firmsand households behave in economic environments charac-

terized by asymmetric information. These close ties between

theory and financial economics lead many students who plan to

write dissertations in finance to study economic theory as one

of their two primary fields of specialization.

Informal discussions take place at weekly theory lunches where

graduate students may discuss current topics or present pre-

liminary research ideas. These meetings provide support for

students writing their dissertations in economic theory. Current

research developments are presented at weekly MIT-Harvard

seminars. These seminars, which host outside speakers, pro-

vide excellent opportunities for graduate students to learn whatleading scholars are currently working on.

Mihai MANEA

Juuso TOIKKA Muhamet YILDIZ


18/36

16 | Macroeconomics, International Economics, and Development Economics

ACROECONOMICS IS THE STUDY

of the forces that shape economic activity and

welfare at the aggregate level. Core topics

include economic growth, fluctuations, unem

ployment, financial crises, and fiscal and mon

etary policy. But macroeconomics is a diverse

field; its topics often overlap with areas such

as labor, public finance, and political economy

and its analytical tools often draw from game

theory and contract theory. International eco

nomics is the study of the international flows

of goods and capital and of the implications of

these flows for economic activity and policy at

the national level. In many cases, the centra

issues in international economics and develop

ment economics have roots in macroeconom

ics, so these fields are closely interconnected

Macroeconomics and

International Economics

The long tradition of active interest in curren

macroeconomic issues is exemplified by the work

of MIT’s Nobel Laureates Peter Diamond, Franco

Modigliani, Paul Samuelson, and Robert Solow

The current macroeconomics and internationa

group includes Daron Acemoglu, George-Marios

Angeletos, Olivier Blanchard, Ricardo Caballero

Arnaud Costinot, Alp Simsek and Iván Werning. In

addition to this core group, several other faculty

members teach and do research at the boundary

between macroeconomics and other subfields

such as labor economics, development, public

finance, and corporate finance. This includes David

Macroeconomics, International,

and Development Economics

Most economics research at MIT

focuses on tangible economic prob-

lems. Empirical research may identify

new empirical patterns, may test the-

oretical models of economic behavior,

or may seek to evaluate the effective-

ness of different policies. Theoretical

research may shed new light on the

behavior and the interaction of key

economic players, may establish new

conceptual frameworks for studying

markets and economic institutions,

or may lead to new statistical and

analytical tools. Business and gov-

ernment decision makers in the U.S.

and abroad frequently seek out MITfaculty for help in formulating and

evaluating business decisions and

economic policy initiatives.

George-Marios ANGELETOS

Olivier BLANCHARD

Ricardo CABALLERO

Arnaud COSTINOT

Daron ACEMOGLU

Iván WERNING Alp SIMSEK

M


19/36

FACULTY RESEARCH

Macroeconomics, International Economics, and Development Economics | 1

Autor, Abhiji t Banerjee, Bengt Holmström, James

Poterba, Jean Tirole, and Robert Townsend.

Empirical research in macroeconomics draws,

not only form econometrics, but also from empiri-

cal work in labor economics and public finance.

Macroeconomic theory, on the other hand, draws

heavily on “microfoundations” in neoclassical

microeconomic theory, as well as in game theory

and contract theory. Students who plan to carryout research in macroeconomics and interna-

tional economics often find that course work in

economic theory is extremely helpful in identifying

research topics and in providing analytical tools

for potential dissertation research. Conversely,

students interested in theoretical work are often

motivated by the type of questions that are in the

center of macroeconomics.

The Department offers three undergraduate and six

graduate macroeconomics courses. The under-

graduate courses range from the introductory level

to advanced seminars in which students assessand participate in current research. The advanced

undergraduate macroeconomics course is com-

parable to the graduate macroeconomics offering

at many economics departments.

All PhD students must take four of the six gradu-

ate macroeconomics courses. The remaining two

are field courses that cover current research and

prepare students to write dissertations.

An undergraduate course in international eco-

nomics introduces students to the theory of

international trade and finance. Two graduate

courses cover traditional and modern theories

of international trade and finance, incorporating

both theory and empirical work.

The faculty in macroeconomics and international

economics maintain a very active research program.

Daron Acemoglu carries out both theoretical and

empirical research on diverse topics such as the

determinants of economic growth, the develop-

ment of political institutions, and the workings

of labor markets. George-Marios Angeletos’ cur-

rent research focuses on studying the formationof expectations and the potential of coordina-

tion failures within the context of business cycles

and financial crises. Olivier Blanchard, currently on

leave at the IMF, is studying financial crises and

global imbalances; his graduate text, Lectures in

Macroeconomics, co-authored with Stanley Fischer,

is a standard reference. Ricardo Caballero is explor-

ing a range of issues at the intersection of macro-

economics and finance; he has recently focused

Fiscal UnionsBy Emmanuel Farhi and Iván Werning

With the European crisis raging on, it is common-

place to hear about the need for a fiscal union to

back up a currency union. Indeed, in the United

States various provisions create automatic transfers

across regions undergoing different economic situ-ations, but similar arrangements are largely missing

across eurozone members. This raises a few ques-

tions. What exactly is the role of a fiscal union and

what economic principles should guide us in its

design? This paper provides a theory both for the

need of a fiscal union and its optimal design. The key

idea is that international transfers provide macro-

economic stabilizing benefits. These are particularly

valuable because monetary policy is restricted by

the common currency. From an individual perspec-

tive these macroeconomic benefits constitute an

externality—the benefit for the country as a wholeexceeds that of the individual. Because of this pri-

vate financial markets have no hope of providing the

proper level of international insurance. Fortunately,

from a country’s perspective, this externality can be

internalized. The paper shows that the optimal insur-

ance arrangements can be implemented as a fiscal

union specifying prearranged contingent transfers or

bailouts across governments.


20/36

In the fight against global poverty, we

know surprisingly little about which

policies work best. The objective of

J-PAL is to reduce poverty by ensur-

ing that development policy is based

on scientific evidence. J-PAL aims to

set a new standard of rigorous evalu-ations to identify effective programs

across various sectors including agri-

culture, education, energy and envi-

ronment, finance, governance, health,

and labor markets.

An ongoing revolution in academic

economics and related disciplines is

changing the way development pro-

grams are evaluated. Researchers use

randomized trials like those used in

medicine to evaluate social policies.

This approach provides transparent

and scientifically sound answers to

policy questions and can credibly iden-

tify the impacts of programs in the field.

Improvements in evaluation research

The MIT Abdul Latif Jameel Poverty Action Lab

18 | Macroeconomics, International Economics, and Development Economics

on asset market crises and global capital

flows. Arnaud Costinot is a trade theorist

who is exploring the central determinants of

underlying trade patterns between nations.

Alp Simsek focuses on financial markets,

heterogenous beliefs, and other important

topics at the intersection of finance and

macroeconomics. Iván Werning works on

optimal policy in both macroeconomics

and public finance, touching on diverseissues such as capital controls for macro-

economic stabilization, fiscal unions, and

social policies such as unemployment

insurance. In addition to these Economics

faculty, Kristin Forbes, Simon Johnson,

and Roberto Rigobon of the Sloan School

of Management are actively involved in

research and thesis supervision in the area

of international economics.

Development

Economics

Underdevelopment is one of the most pro-

found problems in economics, and it may

be the problem with the greatest human

impact. At MIT the study of development

Abhijit BANERJEE Esther DUFLODave DONALDSON

economics began during Paul Rosenstein

Rodan’s tenure and continued through the

work of Richard Eckaus. Today, this active

group is one of the most impressive in the

world. Abhijit Banerjee is an applied theo

rist with a strong commitment to studying

problems in development economics. He

is currently working on issues involving

credit cooperatives, tenancy reforms, and

A young girl attending school in Morocco, where J-PAL is evaluating the impact of condit ional cash transfers on student attendance and learn ing

PHOTO: AUDE GUERRUCCI

tions to evaluate their poverty reduction

programs. Affiliated professors include

Michael Greenstone as well as Sloan

School faculty members Antoinette

Schoar and Tavneet Suri. J-PAL’s affil

ates have conducted over 340 random

ized evaluations in 51 countries to findthe most effective approaches to crit

cal development issues including how

to reduce the spread of AIDS, increase

student attendance, reduce industria

pollution, and decrease corruption in

government projects.

J-PAL actively disseminates the results

of evaluation research to policymak

ers from around the world and works

with them to scale up proven, effective

policies. J-PAL is also dedicated to

capacity building and has trained more

than eight hundred development pro

fessionals in rigorous impact evaluation

Further information about J-PAL may

be found at www.povertyactionlab.org

have the potential to dramatically

enhance the policies that are used to

alleviate poverty in many nations.

Led by Abhijit Banerjee, Benjamin Olken,

Esther Duflo, and Rachel Glennerster,

J-PAL works with governments, interna-

tional development agencies, non-gov-

ernmental organizations, and founda-


21/36

Macroeconomics, International Economics, and Development Economics | 1

the structure of contracts. Dave Donaldson

focuses on empirical research at the intersec-

tion of international trade and development

economics. Esther Duflo is primarily interested

in empirical issues that arise in the study of

poverty alleviation, and she ranges widely

across various topics. She has recently com-

pleted major empirical studies of education

reform, farming practices, political structures,

public works projects, and financial policy.

Benjamin Olken is an expert on the challeng-

es that corruption and governance raise for

development policy. Robert Townsend is aneconomic theorist with substantial interests in

development policy and the role of entrepre-

neurs in economic growth.

Many of the core issues that confront devel-

oping economies have close parallels in

developed nations, and the set of MIT fac-

ulty who have studied economic policy in

developing nations includes many mem-

bers in addition to the group that teaches

development economics. Peter Diamond, for

example, has carried out research on Social

Security reform in Chile and other developingcountries. Jonathan Gruber has studied the

economic impacts of disability in Indonesia.

Joshua Angrist has studied education policy

in a number of developing nations.

The Department offers a two-semester course

for graduate students in development eco-

nomics, as well as two popular undergraduate

courses on economic development. The cours-

es offer students an opportunity to use tools

from both microeconomic and macroeconomic

theory to study a range of interesting policy

issues in developing nations. The Department

also hosts a joint seminar with Harvard that

attracts faculty interested in development eco-

nomics from both institutions.

Many alumni of the department work at inter-

national organizations, such as the World Bank

and the International Monetary Fund, where

they help to design and implement economic

policies for developing nations.

Robert TOWNSEND

How Large Are The Gains From

Economic Integration?

In the international trade literature answers to this question are typi

cally obtained by estimating models of how countries behave unde

alternative trading regimes. A core ingredient of these models—and

the core driver of potential gains from integration—is a set of inferio

technologies (or techniques) that a country would have no choice but

to use if trade were restricted, but which the country can choose not

to use when it is able to trade. Estimates of the gains from economic

integration, however defined, therefore hinge critically on a compar

son of ‘factual’ technologies that are currently being used to inferior

‘counterfactual’ technologies that are deliberately not being used

But if a technology is not being used, how can researchers hope

to know anything about its attributes, knowledge that is required

to inform estimates of the gains from trade? Standard approaches

invoke strong and untestable functional form assumptions that allow

an extrapolation from observed technologies to unobserved ones. In

“How Large are the Gains from Economic Integration? Theory and

Evidence from U.S. Agriculture, 1880-2002,” Arnaud Costinot and

Dave Donaldson instead propose the use of a novel source of agro

nomic data from the Food and Agriculture Organization that predicts

how productive a given parcel of land (anywhere on Earth) would be

were it to be used to grow any one of a set of crops. In short, thanks

to the scientific understanding of how crops grow under various

conditions, both factual and counterfactual technologies are knownin this particular context. Costinot and Donaldson show how this

data source, when combined with conventional data on output from

the US Census of Agriculture, can be used to estimate the rate at

which US counties have become increasingly integrated with one

another, as well as the gains from this integration, from 1880 to

2002. Their findings suggest that growth due to reductions in barr

ers to trade have been substantial—approximately 2 percent growth

annually—and slightly larger than the growth due to technologica

progress in the agricultural sector over the same period.

FACULTY RESEARCH

Benjamin OLKEN


22/36

ECONOMICS STUDENTS:

Where are they now?

FIONA SCOTT MORTON received herPhD in Economics from MIT in 1994. She

was on the faculty at Stanford University and

at the University of Chicago, prior to joining

the Yale School of Management in 1999. An

expert in competitive strategy, Scott Morton’s

research focuses on empirical studies of com-

petition among firms in areas such as pricing,entry, and product differentiation. In 2011, she

was Deputy Assistant Attorney General for

Economic Analysis for the U.S. Department

of Justice. Scott Morton is the first woman to

hold this post. As the chief economist of the

DoJ Antitrust Division, she supervised more

than fifty Ph.D. economists in the Antitrust

Division’s Economic Analysis Group (EAG),

which is widely recognized as one of the most

experienced and sophisticated organizations

in the world in the application of economicsto competition policy. Her key responsibilities

included enforcing antitrust laws, reviewing

mergers that come before the department, and

exploring how antitrust regulations interact

with new legislation, particularly the landmark

Affordable Care Act of 2010.

Financial Systems in

Developing Economies:

Growth, Inequality and Policy

Evaluation in Thailand

BY ROBERT M. TOWNSEND

Unique in its approach and in the variety of

methods and data employed, this book is the

first of its kind to provide an in-depth evaluation

of the financial system of Thailand, a prototypical

Asian developing economy. Using a wealth of

primary source qualitative and quantitative data,

including more than fifteen years of detailed sur-

vey data painstakingly collected by the author, it

evaluates the impact of specific financial institu-

tions, markets for credit and insurance, and

government policies on growth, inequality, and

poverty at the macro, regional, and village level

in Thailand. Useful not only as a guide to the Thai

economy, Townsend’s analysis rigorously dem-

onstrates the impact that financial institutions

and policy variation can have on both aggregate

welfare and the distribution of gains and losses

at the macro- and micro-level. This book will be

an invaluable resource to academics and policy-

makers with an interest in development finance.

20 | Econometrics


23/36

CONOMETRICS RESEARCH

and teaching at MIT blend the theory

and practice of economic data analy-

sis. Econometrics provides fundamen-

tal approaches to using data to under-

stand underlying structural and causal

relationships and finds application in a

wide range of topics in both microeco-

nomics and macroeconomics.

Victor Chernozhukov carries out wide

ranging research in econometric theory.

Topics include high dimensional models,

shape restrictions, set inference, endoge-

neity, and quantile estimation. He applies

these methods to novel and classical

economic problems, often in collabora-

tion with other MIT faculty or students.

Jerry Hausman has made fundamental

contributions to the econometric analysis

of microeconomic data, developing new

ways to estimate models of transporta-

tion, labor supply, research and devel-

opment investment, educational returns,

and stock market prices. He is currently

investigating discrete choice models that

allow flexible correlation among alterna-

tives and measurement error, while car-rying out a range of applied studies in

industrial organization and public finance.

Anna Mikusheva has worked on the

problems of statistical inference when

time series are nearly non-stationary. Her

recent research focuses on geometry and

dynamics of weak identification. Whitney

Newey has extended instrumental vari-

ables to nonparametric models, devel-

oped inference methods for models with

many moment restrictions and proposed

methods for non separable econometric

models. His recent interests include dis-crete panel data and welfare measure-

ment with heterogenous agents.

In addition to these core econometrics

faculty members, several other faculty

members in the Economics Department

and the Sloan School have important

interests in econometrics. Joshua Angrist

studies methods for program evaluation

in applied economics. Andrew Lo of the

Sloan School studies the econometrics

of financial markets and is an author of a

leading text in this field. Thomas Stoker,

another member of the Sloan School

faculty, has also worked on a range of

problems in micro-econometrics.

The graduate econometrics course

sequence gives students the best tools

available for solving difficult problems.

The courses cover standard topics such

as linear regression, while also introduc-

ing students to the latest techniques for

empirical research. Course material is

updated regularly to reflect advances inthe field. There is a weekly MIT-Harvard

econometrics seminar.

Econometrics

Whitney NEWEY

Jerry HAUSMAN

Victor CHERNOZHUKOV

E

Anna MIKUSHEVA

Econometrics | 2


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22 | Econometrics

Economics Computingat MIT

The Department supplements MIT’s computing resources

with its own cutting-edge systems designed to support

learning and research. Our graduate computing labgrants students access to powerful Windows-based vir

tual machines, which run a full suite of econometric and

statistical software packages. The lab is open 24 hours a

day and is also remotely accessible, allowing students to

connect using their personal computers from anywhere in

the world. Additionally, we provide multiple Linux-based

research computing servers, including a 200+ proces

sor high-performance computing cluster. These systems

allow students to work with massive data sets and easily

manage long-running jobs. Our computing infrastructure

is backed by a robust and secure fiber-optic data storage

system which provides user-accessible backups of data

sets and documents.

Three full-time professionals, Carl Anderson, Andy Dorne

and Mark Leary, support our extensive IT operation

Graduate students may also look to user consultants fo

assistance and direction. These consultants, drawn from

the ranks of current economics PhD students, train new

users and help with data management and programming

The Department offers a student-taught programming

course designed to acquaint both graduate and under

graduate students with popular programming languages

Students often take this class in preparation for empiricaprojects and work as faculty research assistants. Othe

important computing resources for MIT economists

include MIT’s Geographic Information Systems Laboratory

housed at Rotch Library, and the virtual Harvard-MIT Data

Center. In 2012, the Economics Department launched an

agreement with the Census Bureau’s Research Data

Center (RDC), located at the nearby National Bureau of

Economic Research (NBER), allowing all of our students

and faculty to access confidential government microdata

sources for approved projects.

Undergraduate Majors in

Economics

Paul Kominers majored in Economics and

Political Science and graduated from MIT in

2012. He is currently a Research Director

at TurboVote, a startup nonprofit based in

Brooklyn, New York which is, according to its

web site, striving to make voting in US elec-

tions “as easy as renting a DVD from Netflix.”

Paul’s single most important commitment asan undergraduate was his involvement with the

MIT Educational Studies Program, a student run

organization whose members “volunteer out of

a love for teaching, organizing and service…” to

teach high school and middle school students

in the Boston area and beyond. Paul was recog-

nized for this teaching with a community service

award in his freshman year. He also served in

student government through the Undergraduate

Economics Association, the Baker Foundation,

and the house government of the Random Hall

dormitory. In his senior year, Paul sat on five

appointed MIT committees.

Research was a major component of Paul’s

undergraduate career. He held a mix of research

assistantships and UROPs in the Media Lab,

in the Economics Department with Professor

Gibbons, at the Berkman Center for Internet and

Society at Harvard University, and at Harvard

Business School with Professor Edelman. He

also interned at the Admissions Office and notes

that he “could probably still give an MIT infor-

mation session more or less by heart.”

Paul’s relationship with Professor Parag Pathak

was, by his report, the highlight of his MIT

Economics experience. In his sophomore year,

Paul fell in love with Pathak’s IntermediateMicroeconomic Theory class (14.04). He recon-

nected with Pathak in his senior year when he

asked him to advise his senior thesis. Though

the topic was in a field far outside of his primary

research area, Pathak enthusiastically agreed.

The result was a highly original and successful

study entitled, “The Impact of Autocracy on

Online Censorship.”


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Applied Microeconomics | 2

PPLIED MICROECONOMICS

is comprised of several specialized

areas of study: industrial organization

and regulation, labor economics, public

economics, political economy, health

economics, urban economics, eco-

nomic history, and financial economics.

IndustrialOrganization and

RegulationCourses in industrial organization andregulation examine the strategic behaviorof firms, the effect of government regula-tions, and more generally, the structure,behavior, and performance of productand service markets. MIT Economicsregularly offers undergraduate courses in

industrial organization, energy economics,and health economics. The main PhDfield sequence in industrial organization iscomprised of three semester-long cours-es that develop the theory and empiricalapproaches to oligopoly, antitrust, andregulation during the first two semesters,and focus in the third semester on hands-on experience with structural econometricmethods used in industrial organizationand applied microeconomic research.

The methods course is strongly recom-mended for students writing dissertationsin the field and has been very popular

among students in related fields as well.

Many faculty members carry out researchin industrial organization. Glenn Ellison’sresearch spans a broad range of theo-retical and empirical analyses across thefield of industrial organization. Recentwork includes analyses of the implicationsof consumer deviations from neoclas-sical optimizing behavior for firms andmarkets, the design and performance

of various internet-based markets, anddeterminants of firm location decisionsand agglomeration. Sara Fisher Ellisonis an applied econometrician with exper-tise on the pharmaceutical industry andonline businesses, and broad interests inhow political and market institutions influ-ence strategic decisions by firms. PanleJia Barwick and Paulo Somaini combinetheir interests in industrial organizationwith econometrics expertise to analyzefirm behavior through the lens of struc-tural econometric models, developingand applying cutting edge econometric

tools to problems of interest. Panle hasanalyzed product and entry decisions ina range of service industries, includingairlines, discount retailing, and realtors.Paulo’s recent work analyzes the effectof interdependent costs on competitionin highway procurement auctions. NancyRose is an expert in the economics ofregulation who has studied the effects ofregulation and its reform on performancein a range of energy and transportationmarkets, as well as the interactions ofregulation with labor market outcomes.Her research on unregulated markets

has focused on pricing, product qual-

Nancy ROSEPanle Jia BARWICK Paulo SOMAINI

A

Applied

Microeconomics

Sara Fisher ELLISON

ity, and financial constraints in the airlineindustry. Emeritus Professor and DeanRichard Schmalensee has done seminawork in both the theory and empirics oindustrial organization. His most recenprojects have focused on energy andenvironmental policy, and the operationof two-sided markets, particularly credicard markets. Department faculty and

students also interact with a number oSloan School of Management facultywhose primary research interests are inindustrial organization.

Labor EconomicsLabor economics is concerned with themany economic forces that determinewages and employment. Labor economics also covers subfields such as theeconomics of education and the economics of the family. Our undergradu

ate labor course offers an overview otraditional labor topics, including supply and demand in the labor markethuman capital, and the wage structureGraduate students may take a twosemester course on modern empiricaand theoretical labor economics, as welas more advanced courses on labor topics and econometric methods of speciainterest to labor economists.

A distinguished group of faculty membersspecializes in labor economics. Daron

Acemoglu has contributed to core theoret

Documents

MIT_EconBroch2012_web_01.pdf