MIT Reports to the President 1995-96


The goal of the MIT Department of Economics is to be the best economics department in the world. To achieve this goal, we strive to maintain both the best Ph.D. program in economics and an outstanding faculty of research leaders. We also endeavor to provide an outstanding education in economics for MIT undergraduates and to encourage our faculty to continue their active and successful public service activities in the United States and abroad.


The scientific and academic activities of the Economics Department continued at a strong pace during the year. We have made two senior appointments in the areas of international economics and labor economics. In addition, we have made two junior appointments in the areas of contract theory and information economics. The Department continues to search for one senior appointment in the area of economic theory.

Once again, the Department competed aggressively with Stanford, Harvard, and Princeton, for the AY 96-97 crop of new Ph.D. students. We were successful in attracting an excellent class for the fall 1996 term.

The Department has received an NSF (ARI) equipment grant to expand and upgrade the existing graduate student computer cluster and to add an undergraduate computer cluster. Receiving this grant was a major coup for the Department and will ensure that the Department is able to keep pace with the technology used by economists for education and research for at least the next few years. Having graduate and undergraduate computer clusters with state-of-the-art computer equipment will keep the MIT Department of Economics competitive with other top economics departments.


Assistant Professors Daron Acemoglu and Susan Athey both received new NSF awards. Assistant Professor Andrew Bernard served as a Session Chair for the Econometric Society Winter Meetings and the American Economic Association Meetings, Assistant Professor Alberto Bisin received the EEC Human Capital and Development Fellowship, Professor Olivier Blanchard was named Vice President of the American Economic Association, Assistant Professor Dora Costa received the National Institute on Aging Fellowship, Professor Peter Diamond was named the President of the National Academy of Social Insurance and was invited to give the Tjalling Koopmans Memorial Lecture at Yale University, Associate Professor Glenn Ellison was awarded the Sloan Faculty Research Fellowship, Associate Professor Jonathan Gruber received the National Science Foundation Presidential Faculty Fellowship, Professor Bengt Holmström was elected Research Associate at NBER, Professor Paul Joskow received the Edward A. Hewett Prize by the American Association for the Advancement of Slavic Studies and was named as the Elizabeth and James Killian Professor, Assistant Professor Michael Kremer was named the NBER Health and Aging Fellow, Professor Michael Piore was a finalist in the Los Angeles Times Book Prize for his book Beyond Individualism, Professor James Poterba was elected a Fellow of the American Academy of Arts and Sciences and named Mitsui Professor of Economics and Management, Professor Peter Temin was elected the President of the Economic History Association, and Institute Professor Paul Samuelson received the National Medal of Science.


This year's entering class of 24 Ph.D. students will include 15 international students (several of whom have undergraduate degrees from U.S. universities) and 4 women (17%). Seventeen percent of our entering class have National Science Foundations Fellowships to begin their graduate studies in economics.

Undergraduate enrollment increased again last year. The department has experienced a continued increase in enrollment for undergraduates with a total increase of 36% over the last ten years. There were 130 undergraduate majors in economics (29 of whom are double majors), 128 undergraduate minors and 316 concentrations completed in economics last year.

Our Class of 1996 job market candidates did very well this year, with 36% receiving assistant professorships in top ten economics departments. A total of 71% of our graduate accepted academic positions, 16% accepted government positions, 10% obtained positions in the private sector and 3% took positions in non-profit research institutions.


Faculty research continues to be intense and highly productive. Assistant Professor Acemoglu is working on "Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence; Assistant Professor Athey has just published "Product and Process Flexibility in an Innovative Environment" in the Rand Journal of Economics; Assistant Professor Bai has just published "Testing For Parameter Constancy in Linear Regressions: An Empirical Distribution Function Approach" in Econometrica; Professor Banerjee is working on "Contractual Choice and Productivity: Theory and Evidence"; Assistant Professor Bernard has a paper forthcoming in the American Economic Review: "Comparing Apples and Oranges: Productivity Convergence and Measurement Across Industries and Countries"; Professor Blanchard has two books forthcoming this year: The Economics of Transition, Clarendon Lectures, from Oxford University Press, and Macroeconomics, Prentice Hall; Professor Caballero has "The Cleansing Effect of Recessions" forthcoming in the American Economic Review, Papers and Proceedings; Assistant Professor Costa has just published "Health and Labor Force Participation of Older Men, 1900-1991" in the Journal of Economic History; Professor Diamond has just published "Discussion of the conceptual underpinnings of the contingent valuation method by A.C. Fisher" in The Contingent Valuation of Environmental Resources: Methodological Issues and Research Needs, from Edward Elgar Publishing; Professor Dornbusch has just published "Currency Collapses" in the Brookings Papers; Professor Eckaus is continuing his research on energy policy and greenhouse gas emissions in China; Associate Professor Ellison is working on "Basins of Attraction, Long-Run Equilibria and the Speed of Step-by-Step Evolution"; Professor Fisher is working on The Economic Theory of Production Prices Indexes which is forthcoming from Cambridge University Press; Associate Professor Genesove is working on "Trade Mechanisms in the New England Fish Industry"; Associate Professor Gruber has the paper "Saving Babies: The Efficacy and Cost of Recent Expansions of Medicaid Eligibility for Pregnant Women" forthcoming in the Journal of Political Economy; Associate Professor Harris has just published "Cigarette Smoke Components and Disease: Cigarette Smoke is Far More Than a Triad of 'Tar' Nicotine, and Carbon Monoxide,"in the National Cancer Institute Monographs; Professor Hausman has just published "Market Definition Under Price Discrimination," in the Antitrust Law Journal; Professor Holmstrom has just published "Internal Labor Market: Too Many Theories, Too Few Facts" in the American Economic Review; Professor Joskow has just published "Privatization in Russia: What Should Be A Firm?" in the International Journal of the Economics of Business; Associate Professor Kremer has the paper "Integrating Behavioral Choice into Epidemiological Models of the AIDS Epidemic" forthcoming in the Quarterly Journal of Economics; Professor Newey has just published "Nonparametric Estimation of Exact Consumer Surplus and Deadweight Loss" in Econometrica; Professor Piore has just published the chapter "Local Development on the Progressive Political Agenda" in the book Reinventing Collective Action: From the Global to the Local, from Blackwell Publishing; Assistant Professor Pischke has published the chapter "A Comparison of East and West German Labor Markets Before and After Unification" in the book Differences and Changes in Wage Structures, from the Chicago University Press; Professor Poterba has just published "Environmental Taxes on Intermediate and Final Goods When Both Can Be Imported" in International Tax and Public Finance; Associate Professor Smith just published "Necessary and Sufficient Conditions for the Perfect Finite-Horizon Folk Theorem" in Econometrica; Professor Temin has just published "Introducing Competition into Local Exchange Markets" in Telecommunications Policy; Assistant Professor Ventura is working on "A Representative Consumer Theory of Distribution"; and Professor Wheaton has the paper "The Cyclic Behavior of the Greater London Office Market" forthcoming in the Journal of RealEstate Finance and Economics.


Professor Paul Krugman will be rejoining the faculty effective September 1, 1996 after a two year absence. Professor Krugman specializes in international economics and is the leading economist of his generation. Professor Joshua Angrist, who was a Visiting Professor in AY 95-96, has accepted a position as Associate Professor with tenure. His areas of research are labor, applied econometrics and empirical microeconomics. Assistant Professors Robin Wells and David Spector will be joining the faculty effective July 1, 1996. Professor Wells' interests are in the area of organization theory, contract theory, theoretical and empirical corporate finance. Professor Spector received his Ph.D. in a new, joint program between the LSE and DELTA, and was the most sought after candidate on the job market this year. Professor Spector's interests are in contract theory, information economics and political economy.

Professor Richard Eckaus has formally retired, effective June 30, 1996.

Associate Professor Abhijit Banerjee, was approved for promotion to the rank of Professor, effective July 1, 1996. Assistant Professors Michael Kremer, David Genesove, Lones Smith and Thomas Piketty were all approved for promotion to the rank of untenured Associate Professor, effective July 1, 1996.

Assistant Professor Dora Costa was on leave as the Aging Fellow at the NBER. Associate Professor Jonathan Gruber was also on leave at the NBER and Professor Michael Piore was on leave for the academic year to more aggressively pursue his research.

There were eight visiting faculty for all or part of the 1995-96 academic year. Professor Jean Tirole, of the University of Toulouse, taught a topics course in industrial organization. Assistant Professor John DiNardo taught two courses in the labor economics sequence. Assistant Professor Ilya Segal, currently at Berkeley, taught Principles of Microeconomics. Assistant Professor Sara Ellison, formerly of the NBER, taught Statistics and Econometrics in the fall and Statistics in the spring. Professor John Geanakoplos of Yale, taught General Equilibrium and Topics in Economic Theory in the spring. Professor Robert Porter of Northwestern, Professor Paul Milgrom of Stanford University and Professor Therese McGuire of University of Illinois were visitors to the Department for Fall 1995. Although they did not teach, Professors Porter, Milgrom, and McGuire participated in workshops and worked with students during their visits.

The Department maintains its concern with increasing the representation of women and minorities in the economics profession. All search committees have been instructed to make a special effort to identify outstanding women and minority candidates as an integral component of their search process. To this end, Robin Wells (a minority woman) was aggressively recruited when it became known that she was willing to move from Stanford. As part of the regular recruitment process for junior faculty, the Department solicited/received 224 CVs. Of those, 31 were women. After the first screening, 32 files were retained for a more intensive review. After a second screening, 25 candidates (3 of whom were women) were selected for interviews. All candidates were interviewed by at least two members of the faculty. Subsequently, 4 candidates were invited to come to MIT and present a seminar. As a result of this exhaustive process, one offer was made and accepted.


We must continue to rebuild the faculty. We have made two of the three senior appointments authorized by the Dean and the Provost. We have a search committee reviewing candidates for the third position and hope to make an appointment this year. Almost 50% of the Department is now made up of junior faculty. This situation presents us with opportunities to bring fine new scholars into the senior ranks of the department. It also places an enormous mentoring burden on the active senior faculty in the Department. Providing competitive compensation arrangements and research funding continues to be a major challenge for retaining and attracting the best faculty.

We must maintain the strength of our graduate program. MIT is widely known to have the best Ph.D. program in the world. With the loss of several senior faculty a few years ago, our ability to recruit the best graduate students slipped for a year. We had a much better yield of the best graduate students applying for admission in AY 95-96. We did even better for AY 96-97. The end of the EB pool, the end of the Javits Fellowship Program, and a declining number of NSF fellowships presents a very difficult financial challenge to sustaining our graduate program.

Paul L. Joskow

MIT Reports to the President 1995-96