Strength in Numbers
By Nicole St.Pierre
Curious what World Cup soccer, procrastination and frequent flyer miles have in common?
Ask a USC College economist.
While some scholars wait decades to see their work find practical
applications, College economists’ research is applied with tangible
results. On a routine day, economists combine theory and data to
predict stock prices, structure compensation contracts, and pinpoint
why and how incentives motivate people.
“In the past few years, this department has really gained momentum.
Most of what we research relates to issues that are going on in the
real world,” says Robert Dekle, associate professor of economics and
chair of the department.
Dekle attributes much of this vigor to the College’s senior faculty
recruitment effort. Since 2000, five senior professors and a cadre of
rising associate professors have joined the department, with others
moving along the recruitment pipeline.
Together they’re propelling the department to new heights, steadily
breaking ground in microeconomics, contract theory and industrial
organization. The department is partnering with scholars in the
Marshall School of Business to supplement existing strengths in
macroeconomics.
A World View
In September 2003, Professors Hashem Pesaran and Guofu Tan
joined the department. Scribbles of economic formulas adorn their white
boards. Complex to be sure, but a look past the surface reveals
practical applications.
Pesaran provides insights about the economics of oil in the Middle
East, energy demand in Asian countries and the monetary and foreign
exchange policy in Iran. A former consultant to the World Bank and
United Nations, he develops econometric models that governments and
businesses can use when they need to make economic and financial
decisions on the fly.
“I am hoping I will be able to continue my work in this area and build
the foundation of what might one day be called Real Time Econometrics,”
says Pesaran, who joined the College from the University of Cambridge.
Fellow newcomer Tan brings international expertise with respect to Asia and the Chinese economy.
Organizing Industry
Tan and Jean-Jacques Laffont, the John Elliott Chair in
Economics, anchor the department’s work in industrial organization. In
a series of articles, Tan explains some of the unpredicted consequences
of the deregulation of the U.S. airline industry in 1979. His economic
models analyze the hub-spoke network, frequent flyer programs and
failure of new entrants and mergers.
Meanwhile, Laffont’s work has been tapped by the Federal Communication
Commission, forming the backbone for policies that regulated pricing in
the telecommunication industry.
Two rising stars, Associate Professor Juan Carrillo and Assistant
Professor Isabelle Brocas, add muscle to the department’s growing
expertise in industrial organization and behavioral economics. They
research original topics such as rush and procrastination under
interdependent activities and the psychology of economic decisions as
it pertains to information and self-control.
Carrillo, formerly a faculty member at Columbia Business School, is
blazing new ground in his study of job assignments as a screening
device.
Sometimes economics can be found in the most unexpected places.
Professor Richard Easterlin, a member of the National Academy of
Sciences, studies how economics influences society, focusing on
history, population changes and the relationship between wealth and
happiness.
Those who find happiness watching sports may find Professor Gert
Ridder’s work intriguing. A native of the Netherlands, Ridder has
successfully predicted outcomes of major soccer tournaments like the
World Cup by using a large database to assess the strength of teams and
simulate matches.
Outside of this work, he is developing a new approach to labor
economics and the evaluation of social programs. His research helps
state social workers to develop methods that motivate people who are
out of work. In one of his best-known studies, Ridder analyzes
incentive-based employment programs, asking the question: Should you
stimulate people with rewards or punish them if they don’t work?
Contracting Minds
Laffont and Economics Professor Bentley McLeod are advancing the study of contract theory.
McLeod has found that understanding the complexities of an environment
has all kinds of implications for contracts and employment
relationships. He is currently studying such issues at the Industrial
Relations Center at Princeton University. His research has found it is
very common for contract parties to describe certain behaviors as
“unfair.”
For instance, if an employee feels that she is being unfairly treated,
then she might respond to this by decreasing output. An implication is
that an employer’s beliefs as to what an employee can do can have
dramatic effects on performance.
“But motivating people is not an issue in our department,” laughs Dekle. “The energy seems to be contagious.”
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