Monday, December 23, 2013

Joe Stiglitz on Trust (and abuse of trust)

This piece is interesting for several reasons, among them how many course themes show up in it.  It is regrettable in that much of this ends up being cast as left-right politics.  I suppose nowadays it is impossible to avoid national politics in representing the issues.

There was another piece in the paper today of interest (on the abuse of trust issues).  This one was about Affluenza, a word I hadn't heard before (and likewise for my spell checker).  I suspect that some fraction of you will become highly successful business-wise post graduation.  I hope that success doesn't erode your concern for others and that you can keep some sense of the positive value of gift exchange, even as you do well in your business careers.

And now for something completely different (not Monty Python).

This is amazing.

Friday, December 20, 2013

Grades Are Posted....

....both in Moodle and Banner.

Happy holidays!

Some Reading for After the Course Concludes

Here is a brief annotated list of things you might look at.  Only the last one is specifically economics.

1.  Finish reading B&D.  It is a good and interesting book.  The second half is on leadership, which we didn't mention at all.  Perhaps we should have spent more time on other parts of the book than what we did.  Particularly, the parts on politics and on the symbolic frame are interesting and perhaps things outside your current experience.

2.  Schon The Reflective Practitioner - I think of teaching as reflective practice.

3.  NAS How People Learn - The first few chapters are very useful, particularly the one on the expert-novice distinction and the next one on transfer.

4. Ericsson et. al.  The Role of Deliberate Practice - The issue of why some people plateau while others keep on learning has to do with deliberate practice, which means on an ongoing basis trying things that are a little bit out of reach but not totally impossible.  It takes a lot of determination to do that or it takes turning the activity into something fun so you persist at it.

5.  Herbert Simon's Nobel Lecture - While this essay was mentioned in the Syllabus at the outset, we didn't spend any time on it.  Now you may be ready to appreciate the ideas that are in it.

6.  Alchian and Demzetz on Economic Organization - This is the definitive piece on the firm as arising from team production and the need for a "residual claimant" to address the monitoring and incentive issues. This is a scholarly paper published in the American Economic Review, one of the very top journals.  But there is no math.  You might find the writing style a bit hard at first because they are writing for academics, not a general audience.

Comments on Final Exam Performance

This post signifies that the final exams have been graded.  It will take a while to upload grades, but it will be done by late afternoon.  Grades will be posted first in Moodle, then in Banner.

* * * * *

Transfer Pricing

Nobody talked about an alternative to transfer pricing - off the top funding.  Even in for profit companies certain departments, like HR (human resources) and IT (information technology) are typically funded off the top.  Off the top funding is preferred to transfer pricing when sizing the department is not a big concern.  Off the top funding encourages greater utilization of that department's services.   Transfer pricing is preferred to off the top funding when the sizing of activity is a critical aspect of firm operation.  If the upstream offering is from an undersized division, that can create costly bottlenecks for the firm.  Alternatively if the capacity the upstream division requires is very costly, having that capacity go idle frequently can significantly lower profits.  Transfer pricing is better than off the top funding at getting the size right.

Only a few people mentioned the possibility of an outside market and nobody really asked why there is this upstream division in the first place.  You may recall that earlier in the semester we talked about asset specificity and hold up.  This is typically why the firm is vertically integrated and why transfer pricing becomes an issue.  But there may be other possible suppliers in the market and the downstream division might consider outsourcing to them as an alternative to buying from the upstream division or in addition to that.  In this case the transfer price will be influenced by the market price.  In the textbook case where the market provides a perfect substitute to what the upstream division provides, then it is optimal for the transfer price to coincide with the market price.

There is a puzzle with regard to the following.  If divisional profits ultimately go to shareholders, why should the divisions care about how much profit they make?  The response to this is that divisional profits are utilized as part of the performance measure about how well division management is doing.  Another part of that performance measure might very well be overall company profit.  In other words, the upstream division will want the transfer price to be higher than where social surplus is maximized, but it may not want it to be as high as the monopoly price.  Most people ignored the possibility that the performance measure could be other than divisional profit only.

Last, only a few people mentioned the use of transfer prices as a means to avoid paying corporate profit taxes.  We didn't discuss this in class, but there was an Econ in the News post to the class site on Apple, in particular, exploiting transfer prices in this way.


Answers were generally okay.  Many people associated the expression "my way or the highway" with Model 1.  That was fine.

I would have liked students to ask more about why the employee should have something of value to contribute.  The vast majority of the class simply assumed that the employees would have something to contribute.  Might it be that in some cases they don't?   Had students asked this question it would have better tied their response into things we studies earlier in the semester.  Two possible sources of contributions are:
  • employees have information that the manager doesn't have, from interaction with clients, interaction with other employees, interaction with contractors, or from use of products or services that the manager hasn't used.  
  • employees have expertise that the manager doesn't have. 
The first instance should bring up a recollection of whether decisions are made by the center (manager) or at the edge (employee).  Recall that we said economists generally favor decentralized decision making - make the decision where the information is.  It would have been good to bring that earlier discussion in.  Nobody did.

The problem with the earlier discussion is that it is either/or and many decisions are more complex than that, with multiple bits of information needing to be incorporated to make a good choice.  This is why the inquiry approach advocated in model 2 makes sense.  Inquiry is the way to address the complexity.  

The second instance regarding differences in expertise may be worse on morale, when the opinions of the employee are ignored.  In the first instance it is always possible that, unknown to the employee, the manager has other information that speaks to supporting what the manager has chosen.  When the issue is expertise, however, the poor judgment of the manager is clearly evident to the more expert employee.  There is no doubt then.  That is demoralizing.  

Nobody brought up the Casey Stengel line that I had us consider earlier in the semester:

The key to being a good manager is keeping the people who hate me away from those who are still undecided.

There are at least a couple of ways to interpret this and have the interpretation consistent with Argyris and Schon.   First, the people who hate me in that quote are the ball players who are being platooned and want more playing time.  They'll complain about that, but it is something the manager should ignore.  Put a different way, sometimes the employee will want what is good for the employee but not necessarily good for the organization.  Those suggestions should be ignored.  The process of the employee communicating the suggestion and the manager ignoring it creates conflict, but in this case it is also consistent with higher productivity.  Second, having people like each other may be secondary at work.  What matters is that they respect one another and put in their best effort as a consequence.  In the case of Casey Stengel as manager of the Yankees, the team won, spectacularly often.  The winning was sufficient to cause the players to respect the manager, even if the individual players didn't get as much playing time as they wanted.  Sometimes respect and likability go hand in hand.  Other times they don't.  It is respect that matters more for productivity.

Now for a sidebar on language use.  The word authority has at least two distinct meanings.  One is dictator.  The other is expert.  If a regime has a dictator, then it is referred to as authoritarian.  Nazi Germany had an authoritarian regime under Adolf Hitler.  If a person is known as an expert then his or her opinion is taken as authoritative, which means others should trust it willingly.  There is an expression, "according to Hoyle" which originally meant that the rules (of the card game) were correct and has come to mean that the procedure being followed in any endeavor is correct.  Hoyle was an expert on card games.  Likewise, Judith Martin (Miss Manners) is an expert on etiquette.  If you quote Miss Manners you are offering an authoritative view about the proper way to behave.

On this question several students wrote authoritative where they meant authoritarian.  I didn't punish anyone for doing that, but I thought you should know the difference.


Students seemed to struggle with this question.  Many responses included incorrect assertions, among them:

  • There is monitoring in the static principal-agent model (there isn't).
  • Output is a deterministic function of effort in the static model so low effort produces low output and high effort produces high output.  (Actually, output is a random function of effort and high effort make high output more likely, but it is not certain.)
  • The equilibrium in each model can be improved upon by government interference (that's only true in the Shapiro-Stiglitz model).
  • Referring to the equilibrium of the Shapiro-Stiglitz model as an optimum.  (It is not optimal.)

There were a variety of other errors as well.  Perhaps more importantly, some people couldn't describe these situation in their own words.  They relied on the Excel homework (too much in my view) to characterize the equilibrium.

Looking at this performance, what I was asking was difficult for the class because you haven't practiced it before.  The key notion is to be able to translate the formal model into a narrative that you could use to explain the ideas to somebody outside the class.  It is an important skill to develop, in my class and in the rest of your study of economics as well. 

The Capture Theory In Action

It's also fair to say that the burden of evidence the courts require makes it difficult for a regulator to meet the standard.  So for the public, it is hard to tell whether capture has happened or not.

Thursday, December 12, 2013

Grades in Moodle have been updated

Here's the new stuff

Excel Homework

10 points for Excel HW #7 if that was submitted.   Then I added a column called Excel Bonus.  It has 30 points.  Every student got that.  The original plan was 10 homework assignments.  There were 100 points allocated to this in the syllabus.  So it was a way to bring that into balance.

Blog Posts

I tracked submissions for blog posts 9 and 10.  I also put in scores and comments for Blog posts second half.  The maximum possible score was 125.  I was pretty generous assigning points here, in my humble opinion.

Running Total

I added a column at the end to say how many cumulative points you've achieved to date.  The maximum possible, counting the 50 point bonus that everyone got, is 700.

What is not there

I didn't assign points yet for the comments you did.  There is a 50 point maximum on that.  I will assign those at the same time I grade the final.  Truthfully, this gives me a bit more of a fudge factor, based on the performance I see on the final exam.  This is worth 300 points at the max, so there are still 350 points to allocate.  Some incentive in the course is rear-loaded, by design.

Good luck with your other exams.

Tuesday, December 10, 2013

What I left out today

I rehearsed (in my head) for this class session quite a bit but as you could see when I had the senior moment before I could come up with "case studies," my mind wasn't fully there today.  So here are some things I had intended to say but didn't.

Developing a sense of taste - what is a good answer?

I only came up with using the Gift Exchange approach to organize the first half of today's session after flailing for two days with other approaches - each of which ended in me scolding you for not taking more responsibility for your own learning.  The problem is, scolding doesn't work.  It ends up more as venting than as effective communication.

Needing to have this sense of taste for a good answer is part of the take away I'd like you to have.  If you develop that feel for a good answer, then the next take away is to develop the habit of letting the sense of taste drive you in your learning and not stopping your inquiry prematurely, before you have an answer that pleases you.


Since attendance was not required, those who were regulars gave a gift by being there.  That to me is less interesting than understanding your behavior about attending classes more broadly.  Are there some of you who regularly attend some classes but not others?  Or is your attendance pattern pretty similar across the classes you take?  I have no sense of this now and would welcome feedback on the matter.

Other possible means for gift exchange in class

One thing I think obvious for a course like ours is to tie course matter to things that are happening out in the real world that are related to what we are studying.  This is one reason why I have the Econ in the News and Misc. Tags.  If there were gift exchange on this, some of you might have commented on these posts.  My sense is that there was very little such commenting and I suspect most of these posts were ignored by the majority of the class.

In particular, given my emphasis on Gift Exchange, you might enjoy this piece, which links to a NY Times Magazine piece about Adam Grant, a Professor at Wharton.  The Times magazine article is called: Is Giving the Secret to Getting Ahead?  Sounds pretty relevant to me.

Math via discovery rather than lecture

I don't know if this would interest anyone, but I had thought to offer, for anyone who is interested, to release the Excel workbooks without having the sheets locked - after the due date, so for those interested they can see how the graphs are generated, how the questions get evaluated, etc.  In other words, a complete look under the hood.  Those who want to delve deeper into the models might learn more this way than through traditional means.  This is another one where I'd appreciate feedback, if you have any to give.

Total time spent on the class

I don't know whether this is common knowledge with you or not, but the seat-time model (how many hours per week a class meets) has an implicit model on out of class time - two hours out of class for every hour in class, that most faculty subscribe to.  Thus, overall, our class demands 9 hours per week.  That should be interpreted as an average over the semester, not an exact number each week.  Nonetheless, the research I'm aware on this nationally, evidence from the National Survey of Student Engagement, says that at most universities the ratio is more like one hour out of class for every in class hour, or even lower.  In other words, students have different expectations on the effort front than what faculty have.  Consequently, many faculty, and I'm in this category, think that most students don't put in enough time in their studies.   The system may have evolved in an unhealthy way, to accommodate the student expectation.   It makes students happy near term but produces less learning long term.  

Learning outside the course setting with friends or at work.  

We did a tiny bit of benchmarking with other courses today, but we didn't do any whatsoever about learning informally with your friends via experiences (going to hear live music, for example) or discussion that happens with some regularity (say about those experiences or about national politics or on any other topic that interests you).  Likewise we didn't discuss today any learning that may arise at a part time job you have, though that has been the subject of one or two blog posts this semester.

Because I had a lot of this informal learning as an undergrad, particularly in my junior and senior years at Cornell, I'd be quite happy regarding the total time issue in the previous bullet, if class time was less than the faculty norm because learning outside the course setting was happening with substantial frequency.

Having fun can be quite educational.  Alternatively it can be pure time dissipation with little to no learning happening (think of playing hearts or some other card game to the wee hours of the morning).  So what is of interest is the total picture, including all the learning activities and then consider our course within that.  This would speak as to whether requirements should be raised, lowered, or left where they are.

Thank you

It has been an interesting semester for me.   Unlike last year, I have enough energy this time to write a post like this after the class session.  I appreciate your indulgence in letting me discuss these extra matters.

The Final Exam is in our regular classroom

There is a different room posted, but that is for extra space only.

The Marx Brothers on Contract Negotiation

A partial list of non-economics works that informed the design of our course

Thursday, December 5, 2013

Shapiro-Stiglitz Model

First - about the final

Different Format
Potential Questions.

Next about the discussion group.

Some background for why and a prominent topic we might want to discuss - reverse time management

Background - Do good students take on too many obligations?
From an economics perspective - there is focus on the extensive margin, more lines on the resume.  What about the intensive margin?
First Class Site with Blogging - 4 years ago
Encouraging the Mind to Putter

Another issue related to the first - Do students have sufficient agency about their own learning.  In other words, if something interests the student does the student have the wherewithal to pursue the interest.  If not, why not?

Then, on the relevance of the our class to understand real world current events.  

Ed Lazear on Why There Is Mandatory Retirement  (There isn't any more.)
Relationship of wage profile to reservation wage profile (Implicit bonding?)
Defined benefit pensions
What about the employer moral hazard?

Efficiency says separation should occur when the marginal product equals the reservation wage.  But if the paid wage exceeds the reservation wage, the employer has incentive to separate when the marginal product equals the the paid wage.  If the employer did induce separation then, it would be cashing in.  Seeing that behavior would demoralize other employees.

This is one way to interpret what is going on with State of Illinois pensions now ---- but note that the real cashing in happened many years earlier when the state failed to actually make its share of the contribution to the fund and instead spent those funds on other things.

Discussion about monitoring as applied to our class and elsewhere. 

They're watching you at work
The article says that at Bloomberg every keystroke an employee makes is monitored.

In our class -
Box - sends me an email every time there is a download (but unless you are logged in it doesn't say who).  It also has features like the YouTube Dashboard.
YouTube Dashboard
Google Form (for Excel Homework) gives time stamp.   (What information is conveyed.

More active monitoring
In class by noting -

  • Who is there
  • Who participates in discussion
  • Facial expressions of students (this one is very important)
  • Who seems to be nodding off

This is monitoring that carries no explicit punishment or reward.  But it does communicate on commitment, comprehension, and overall whether the class is going well or not.  This monitoring is all part of what teaching a small class is about so it happens en passant while teaching.

Reading blog posts  - my comments/questions are intended as a type of coaching.  Doing this is labor intensive and clearly not required of instructors.  I do get a sense of how you are doing with this, so there is definitely a monitoring aspect.   If the coaching is at all effective, then it should improve your learning.

So a question is what is the output - a taught class?  or how much students learn in that class?

I don't monitor potential plagiarism with the blogging.  Why not?

Shapiro-Stiglitz model

In typical supply demand model - no rents for actors on the margin.   A surplus can be earned by actors on the infra-margin.

Question:  If rents are required for incentive and no actor has market power, how can the market equilibrium be consistent with addressing the moral hazard ?

Answer:  There must be rationing - In this model rationing means involuntary unemployment.

So this model has Keynesian features, but it generates that for non-Keynesian reasons.  (Keynes talks about failure in aggregate demand.  The Shapiro -tiglitz model talks about moral hazard in labor supply.)

Work through algebra of asset equations

Review homework on endogenizing the monitoring intensity and whey the equilibrium is not Surplus Maximizing.

Candidate Questions for the Final

I have decided NOT to distribute last year's exam.  When I did that for the midterms, it produced what I perceived to be memorization of the solution I offered up.  I'd much prefer you to generate your own solution and give it in your own words.  So I'm trying a different approach in an attempt to deter some of the memorization.

Of course, you can post questions (as comments to this post) and I will respond to them.  But I will do so without providing a full answer to the question that you can memorize in toto.

Also, you can schedule a meeting with me if you'd like.  I'm happy to discuss this or any other course issue with you.

There are six candidate questions below and three will be chosen from the six.  Two are new to you.
You haven't seen them before and are on the last portion of the course.  The other four you have seen either the question as posed or something similar.  These are questions on the content of Midterm 1 and Midterm 2 that didn't appear on those exams.


The New Questions:

A.  This question concerns shirking and explicit incentives to prevent it, as well as the consequences on market equilibrium.  Compare and contrast the static principal-agent model with random output to the Shapiro-Stiglitz model.  Discuss the underlying assumptions, how incentives for putting forth effort are provided, and the consequence on equilibrium, from both the contractual perspective and the market perspective.  Also discuss for each model whether or not there is a role for government to play to improve market performance.

B.  This question concerns innovative practice in the the setting of the repeated Prisoner's Dilemma.  Employees with some responsibility allocated to them may be quite diligent in doing their established work, so shirking per se is not an issue at all, but they may be very reluctant to try out new approaches for fear of being blamed when an experiment along those lines blows up in their faces.  There are various possible solutions to this issue:
     (i) provide large rewards for experiments that succeed,
     (ii) pool experiments across several employees each with some responsibility so responsibility is shared,
    (iii) punish work groups if they don't show innovation over time.
     (iv) possibly other mechanisms that might occur to you.

Discuss the pros and cons of each of these and discuss how the organization might come to a particular approach in trying to encourage organization members to be innovative.

Candidate Questions from Midterm 1

C.  This question concerns transfer prices.  Provide a working definition for what a transfer price is.  In a for-profit organization how should ownership (shareholders) want the transfer price to be set?  Explain why others in the organization might want the transfer price to be set differently.  What transfer price would these others like to see?  When service quality is jointly set with the transfer price, what service quality would ownership like to see?  Explain why this is the case.  Others may want a different service quality level.  Explain how their preferred service quality level differs from what ownership wants.

D.  This question concerns economic efficiency concepts.  There is a partial equilibrium concept and a general equilibrium concept.  Describe each of these.  Do the two concepts always coincide?  If not, under what additional assumptions do they coincide.  Provide an argument for why we should expect efficient outcomes.  Economic efficiency has been critiqued on several grounds. Explain some of these criticisms and provide settings where the particular critique appears valid.


Candidate Questions from Midterm 2

E. This question concerns procurement. Discus why in government agencies procurement is subject to  regulation. What is the regulation aimed at preventing? What does it try to accomplish? Explain why during the bidding process the lowest price bidder may not be selected, although the process is competitive. Discuss the various goals the agency conducting the procurement may have going into the process.

F. This question concerns conflict in organizations and, in particular, Model 1 and Model 2 of Schon and Argyris. Explain how a manager can without intending to do so cause the staff under him to be angry with his management approach. What is it that causes their anger? What are the consequences for the unit when the manager behaves this way? Explain the Schon and Argyris recommendation about how the manager might diffuse the tension. Why does their recommendation have a chance to be effective?

About the Final Exam

The final will be a different format than the midterms.  It will be an all essay test.  There will be no math-like problems as on the midterms.  The essay questions may cover topics we have math modeled, but they will ask for a discussion of the issues, not derivation of a bunch of equations.

As has been the practice, I will make the candidate questions known ahead of time.  There will be six candidate questions.  Three will be chosen.  You can count on one of those being on content covering the reputations and dynamic incentives, since you haven't been tested on that yet.  The other questions can come from material done earlier in the semester.

The Final is worth 300 points, yet I'm only having three essay questions, not six of them.  This is so I can grade the thing in a reasonable time frame.  So each essay will be worth 100 points.  This doesn't mean you have to write twice as much as you wrote on the midterms.  It does mean I will be a little sterner grading the essays on the final.

Wednesday, December 4, 2013

Something for next semester - a discussion group*

*For your edification and not for credit

If there is interest I would like to start a weekly discussion group in the spring on the general theme of taking the long view on your learning - things members of the group might try to have a greater take away from both the academic side and the intellectual part of the recreational side of undergraduate life.   It would also be a place for group members to drive the discussion, talk about issues they are having and have the group weigh in on how to think it through.  In some sense it is meant as a face to face alternative to the blogging you have done this semester.  

The past couple of years I have mentored an I-Promise student.  I don't have an I-Promise mentee this year, so for me the group would be an alternative.  We know each other a bit now from our class so we shouldn't need to spend much time breaking the ice.  The group would also be a bit of an experiment on whether outside of a course setting coaching qua thinking "it" through (whatever it is) can be effective for participants.  I've not done a discussion group with students like this before.  

In my ideal we'd block off 90 minutes once a week.  We might not go that long each week, but sometimes we would.  Size-wise I'd hope for 4 or 5 students. That's about the max where if everyone shows each can participate vigorously in the conversation.  Less would be okay but make the group more vulnerable to no shows.  If more are interested I'd want to accommodate that, but it would move the group closer to a classroom setting and then the participation issue would creep in.  

Since this is unofficial, scheduling could be a bear.  That's the main reason for posting about this now.  If you are interested, please indicate so via a comment to this post.  Also say whether your schedule for next semester is pretty firm or still up in the air.  It's no use to set a time until those who are interested have a good idea about their schedules.  

Tuesday, December 3, 2013

Reputations: Personal and Organizational

Before getting into the topic of the day -

Excel Homework on Shapiro-Stiglitz Efficiency Wage Model is due Wednesday evening.
One caveat on shirking - don't take it too literally.  It makes the most sense for physical labor where the work is painful or for repetitive work that is "mind numbing".  It makes less sense as a defining characteristic of "knowledge work." Professionals typically don't shirk.  The moral hazard issue there is not that professionals do no work at all, but rather that they want to define the work that they do, while their manager has other ideas.  The "alignment problem" is where moral hazard in knowledge work is likely to manifest.  Shirking per se is not the big deal issue.  We have modeled it as if it is.

The last blog post is due Friday.   In addition to the prompt, I think it useful to consider that post from something we discussed the first week of the semester - it is your human capital.  Has the course given you some new ideas about how to extend your human capital and better maintain the human capital you already have.  In particular on the blogging, do you think you are now capable of writing your own prompt and in offering comments/critique the way I've done during the semester.  Could you apply that to other courses you will take in the future and/or to paid work you will do after you graduate?

Personal Reputations - An Example: Professor Arvan when he was a student

Found with artifacts from cleaning out my parents' condo.
The Generation Gap

An alternative view from several years earlier.
Page from High School Yearbook about It's Academic

email response from Mr. Conrad.

From: Steve Conrad []
Sent: Monday, January 05, 2009 12:43 PM
To: Arvan, Lanny
Subject: Hi from Manhasset
Sent: Monday, January 05, 2009 12:43 PM
Hi Lanny, 
Of curse (that WAS a typo, but I think I shall leave it there) I remember that game of TWIXT. My nature is to play games to win, so your win was not with my assistance. You just plain old beat me. You actually caught my business Web site (Math Leagues and Math League Press) just as we are preparing to sell it. We began offering math contests to schools around the country in 1975. Were it not for that, I do not know how I would have sent my sons to the schools they attended (Harvard and Princeton). They are identical twins, as you must recall, and they are both mathematicians, it so happens. Brian, a math professor at Stanford, and Keith, who teaches math at the University of Connecticut, were surrounded by math as they were growing up, so . . . :) 
You must remember James Kraft, right? One of my sons was giving a math talk to a group of mathematicians once and James Kraft walked up to him after the talk and said "I was in your father's algebra class when he was called to leave because you were born."
Brings tears of joy to my eyes. I too recall that very well. 
I had lunch with Robin Block over 4 years ago. After retirement, I returned to playing bridge. I had dropped out of college and was going to be a professional card player when I decided to return and lead a normal life. Anyway, after retirement, I returned to bridge, and my wife and I had lunch with Robin when I was playing in the North American Bridge Ch ampionships when they were held in New York City in the summer of 2004. These days, I am tournament chairman for Long Island, and I spend almost half a year each year teaching bridge on cruise ships (I teach only when the ship is at sea -- when it is in port, I go ashore with the passengers). 
So I see you are in academia. What was your academic field? College administration? :) 

Conclusion:  Since personal reputations are held by others about that person, that reputation might very well vary by the holder, who brings his or her own memories into it.

Organizational Reputations - An Example: The U of I

Professor Arvan's first encounter with the U of I when he was in High School

New Yorker's view about everything west of the Hudson.

1.  What movie is this from and what does it represent?

From Wikipedia
HAL became operational on 12 January 1997 at the HAL Laboratories in Urbana, Illinois

2.  From a Saturday course on Fortran.

3.  A few years later when at Cornell - a friend of a housemate was going to the U of I for grad school to study?    

......... computer science.

Conclusion:  The U of I has a reputation for being good with computers.  This was the reputation Professor Arvan had of the place before he came to the midwest.

Some years later after arriving on campus

Morrow Plots
Undergrad Library built underground
Department of Ag Econ
Morrill Acts

Conclusion:  The U of I has a reputation for being the Land Grant College for the State of Illinois.

Other views of the U of I

What is the movie?

Scene from later in the movie:

Now a view from the world of sports.

Question:  Which if any of the above are part of the U of I's brand?

More generally - What part of the organization is responsible for the organization's brand?  the organization's reputation?

Does it matter for our course that the Web site is not in the domain and lacks I-mark?

Branding for cereal aimed at kids.

What about cashing in on the reputation?

Example - student backpacks.   (Good brands?  Brands to avoid?)

Different example - student laptops?  (Same questions.)

The economics of reputation and cashing in

Experience goods versus inspection goods.  (Nelson)  There is no seller moral hazard with inspection goods.  There is with experience goods.  What encourages seller to produce good quality?

Klein and Leffler - Quality Assuring Price

The economics of reputation from an Industrial Organization perspective

Branding can:
1.  Encourage customers to be loyal.
2.  "Steal" customers from a rival.
3.  Bring new customers into the market.

Competition between firms in an industry is muted  if most of the customers are loyal and there are not a lot of new customers to compete over.  Conversely competition between firms is fierce if there is a lot of business stealing and there are many new customers entering the market.

There can be a tension between having too much competition in an industry and maintaining a quality assuring price.

Student Blog Posts on Organizational Reputation

For the most part the posts focused on a few sectors of industry.

1.  Sporting Goods (Nike, Addidas)
2.  Financial Services - Big Banks (Chase), Local Banks, Credit Card Companies (Discover),  Investment Services (Merrill Lynch).
3.  Technology Companies - Facebook, Google, Apple  - from perspective as consumer, also as potential employer
4.  Misc - Amazon as virtual Walmart, A Conglomerate for Auto Parts.

Let's first ask whether the reputation that was described is shared by other holders of the reputation.  Or do they see things differently?  How do you know?

Next consider these from the IO perspective, then the moral hazard perspective.

Then let's ask whether merger or takeover of a company impacts its brand and its reputations.