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.

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