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.
HIGHLIGHTS OF THE YEAR
The scientific and academic activities of the Economics department continued at a strong pace during the year. Associate Professors Jonathan Gruber and Glenn Ellison were given tenure and promoted to the rank of Professor at the same time, both effective July 1. Professor Gruber's areas of specialty are public finance and health economics. Professor Ellison's areas of specialty are economic theory and industrial organization. Three Assistant Professors were promoted to the rank of Associate Professor (without tenure) to be effective July 1. One senior faculty member and two junior faculty members joined the Department. We completed a search and appointed an additional junior faculty member in the field of econometrics effective July 1, 1997. Three junior faculty members were awarded Career Development Chairs. The Department continues to search for one senior appointment in economic theory and three junior faculty at the Assistant or untenured Associate Professor rank.
Professor Peter Diamond was named an Institute Professor which brings great prestige to himself and the Department. Associate Professor Michael Kremer received the Presidential Early Career Award for Scientists and Engineers and the prestigious MacArthur Fellowship.
Once again, the Department competed aggressively with Stanford, Harvard, and Princeton, for the AY 97-98 crop of new Ph.D. students. We were successful in attracting an excellent class for the fall 1997 term.
The Department completed an upgrade of its existing graduate student computer cluster and added an undergraduate computer cluster using funds from an NSF (ARI) equipment grant, funds from MIT, and gifts from alumni. The Department received a gift from the Sirivadhanabhakdi Foundation for equipment and UROP support for the undergraduate computer cluster. These upgrades will help the Department to close the gap in computational resources that exists with other leading economics departments. The Department has also submitted a proposal to Intel for advanced computer equipment. The funding of the Robert M. Solow Endowment Fund has been largely completed and the first Solow Endowment Fund Fellow was appointed and completed his first year of graduate studies. The Castle International Graduate Student Fellowship was 50% funded and the first Castle International Fellow will be in next year's first year class of Ph.D. students.
HONORS AND AWARDS
Professors Diamond and Bengt Holmstrom, and Associate Professor Lones Smith received new NSF awards. Associate Professor Daron Acemolgu and Assistant Professor Jorn-Steffen Pischke received a Citibank Grant. Assistant Professor Susan Athey is a Faculty Research Fellow at the National Bureau of Economic Research. Professor Abhijit Banerjee became a Fellow of the Econometric Society, and received a MacArthur Foundation Grant. Professor Olivier Blanchard served as the Vice President of the American Economic Association. Professor Ricardo Caballero was an invited lecturer at the Econometric Society. Professor Diamond served as Chair of the Board and President of the National Academy of Social Insurance and gave keynote addresses at both the Midwest Macro Conference and the Governor's Conference on Aging. Professor Ellison was selected as a fellow by the Center for Advanced Study in the Behavioral Sciences. Professor Gruber continues as Associate Editor of the Journal of Public Economics. Associate Professor Jeffrey Harris served on the National Research Council's Committee on Risk Characterization. Professor Holmstrom received the Department of Economics Graduate Teaching Award and the 1997 Economics Prize from the Economics Society of Finland. Professor Kremer is Health and Aging Fellow at the National Bureau of Economic Research. Professor James Poterba received Honorable Mention in the TIAA-CREF Paul Samuelson Prize for Research on Lifetime Financial Preparation, and continues as Co-Editor of the Journal of Public Economics. Assistant Professor Jaume Ventura is Associate Editor of the Review of Economics and Statistics.
The World Economy Laboratory (WEL) directed by Professor Rudi Dornbusch continued to thrive and provide valuable resources for the Department. WEL conferences were held in Washington, and Cartegena, Columbia during the academic year. WEL supported two Russian graduate students, provided research support for others, and funded needed computer equipment for the Department. Grants from the Ford Foundation, GE and private donors continued to support a wide array of activities.
PROGRAM HIGHLIGHTS
Next year's entering class of 25 Ph.D. students will include 12 international students (several of whom have undergraduate degrees from U.S. universities) and 6 women (24%). Nineteen percent of our entering class have National Science Foundation Fellowships to begin their graduate studies in economics.
Undergraduate enrollment increased slightly again this year. The department has experienced a continued increase in enrollment for undergraduates with a total increase of 46% over the last ten years. There were 132 undergraduate majors in economics (43 of whom are double majors), 124 undergraduate minors and 320 concentrations completed in economics.
Our Class of 1997 job market candidates did very well this year, with 33% receiving assistant professorships in top ten economics departments and business schools. A total of 52% of our graduates accepted academic positions, 11% accepted government positions, 22% obtained positions in the private sector and 15% took positions in non-profit research institutions.
RESEARCH ACHIEVEMENTS
Faculty research continues to be intense and highly productive: Professor Acemoglu has the paper, "Was Prometheus Unbound by Chance? Risk, Diversification and Growth," forthcoming in the Journal of Political Economy. Associate Professor Joshua Angrist has the paper, "Jackknife Instrumental Variables Estimation," forthcoming in the Journal of Applied Econometrics. Professor Athey is working on, "Comparative Statistics Under Uncertainty: Single Crossing Properties and Log-Supermodularity." Associate Professor Jushan Bai has the paper, "Testing for and Estimation of Multiple Structural Changes in Linear Models," forthcoming in Econometrica. Professor Banerjee has the paper, "A Theory of Misgovernance," forthcoming in the Quarterly Journal of Economics. Assistant Professor Andrew Bernard has the paper, "Comparing Apples and Oranges: Productivity Convergence and Measurement Across Industries and Countries," forthcoming in American Economic Review. Professor Blanchard recently published two books, The Economics of Transition and Macroeconomics. Professor Caballero published his paper, "Aggregate Employment Dynamics: Building from Microeconomics," in the American Economic Review. Associate Professor Dora Costa has the paper, "Displacing the Family: Union Army Pensions and Elderly Living Arrangements," forthcoming in the Journal of Political Economy. Professor Diamond published his paper," On Money Illusion," in the Quarterly Journal of Economics. Professor Dornbusch has the paper, "Brazil's Incomplete Stabilization," forthcoming in the Brookings Papers. Professor Ellison has the paper, "Risk Taking by Mutual Funds as a Response to Incentives," forthcoming in the Journal of Political Economy. Professor Frank Fisher has the book, The Economic Theory of Production Prices Indexes, forthcoming. Professor Gruber has the paper, "Physician Fee Policy and Medicaid Program Costs," forthcoming in the Journal of Human Resources. Professor Harris is working on a book, The Economics of Health and Medical Care: A Textbook. Professor Jerry Hausman has the paper, "The Effect of Superstars in the NBA: Economic Value and Policy," forthcoming in the Journal of Labor Economics. Professor Holmstrom has the paper, "Public and Private Supply of Liquidity," forthcoming in the Journal of Political Economy. Professor Kremer has the paper, "AIDS, Behavioral Choice, and the Composition of the Pool of Available Partners," forthcoming in the book, Advance in Mathematical Population Dynamics: Molecules, Cells, and Man. Professor Paul Krugman published his paper, "Seeking the Rule of the Waves," in Foreign Affairs. Professor Paul Joskow has the paper, "The Political Economy of Market-Based Environmental Policy: The 1990 U.S. Acid Rain Program," forthcoming in the Journal of Law and Economics. Professor Whitney Newey has the paper, "Convergence Rates and Asymptotic Normality for Series Estimators," forthcoming in the Journal of Econometrics. Professor Michael Piore has the paper, "Living with Ambiguity: An Interpretive Approach to New Product Development," forthcoming in the Harvard Business Review. Professor Pischke published the paper, "The Returns to Computer Use Revisited: Have Pencils Changed the Wage Structure Too?" in the Quarterly Journal of Economics. Professor Poterba published his paper, "Distributional Effects of Adopting a National Retail Sales Tax," in the book he edited, Tax Policy and the Economy, Volume 11. Professor Nancy Rose has the paper, "Diversification and Executive Compensation: Ability Premia or Managerial Entrenchment?" forthcoming in the RAND Journal of Economics. Professor Smith has the paper, "Social Learning in a Changing World," forthcoming in Economic Theory. Assistant Professor David Spector is working on "Incomplete Credit Contracts and Information Production." Professor Peter Temin has the paper, "The Golden Age of European Growth: A Review Essay," forthcoming in the European Review of Economic History. Professor Ventura published his paper, "Growth and Interdependence," in the Quarterly Journal of Economics. Assistant Professor Robin Wells is working on "Time and Surplus Allocation Within the Marriage." Professor William Wheaton has the paper, "The Cyclic Behavior of the U.S. Lodging Industry," forthcoming in Real Estate Economics.
PERSONNEL
Professor Krugman rejoined the faculty as Ford Professor of International Economics after spending two years at Stanford. Professors Spector and Wells joined the faculty as Assistant Professors. Professors Gruber and Ellison were granted tenure and promoted to the rank of Professor. Professors Bai, Costa, and Acemoglu were promoted to the rank of Associate Professor (without tenure). Professor Holmstrom was named the Paul A. Samuelson Professor. Professor Athey was appointed to the Castle Krob Career Development Chair. Professor Acemoglu was appointed to the Pentti Kouri Career Development Chair. Professor Costa was appointed to the Ford Career Development Chair.
Guido Kuersteiner will join the faculty as an Assistant Professor effective July 1, 1997. He received his Ph.D. from Yale University and is a time series econometrician with interests in macroeconomics and finance.
Assistant Professor Alberto Bisin and Associate Professor Thomas Piketty resigned effective July 1, 1997. Professor Bernard's appointment came to an end on June 30, 1997. Professor Bisin will assume a position as Assistant Professor in the Department of Economics at N.Y.U. and Professor Bernard has been appointed as Associate Professor in the School of Management at Yale.
Professor Stanley Fischer remains on leave as First Deputy Director of the International Monetary Fund.
There were three visiting faculty for all or part of the 1996-97 academic year. Professor Jean Tirole, of the University of Toulouse, taught a topics course in industrial organization. Associate Professor Mohamad Hammour taught macroeconomic theory. Assistant Professor Sara Ellison taught statistics and econometrics.
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. As part of the regular recruitment process for junior faculty, the Department solicited/received 186 CVs. After the first screening, 57 files were retained for a more intensive review. After a second screening, 30 candidates (4 of whom were women) were selected for interviews. All candidates were interviewed by at least two members of the faculty. Subsequently, 3 candidates were invited to come to MIT and present a seminar. As a result of this exhaustive process, one offer was made and accepted.
FUTURE PLANS
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 next year. Almost 45% 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 an excellent yield of the best graduate students applying for admission in AY 96-97 and AY 97-98. 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.
More information about this department can be found on the World Wide Web at the following URL: http://web.mit.edu/economics/www/
Paul L. Joskow
MIT Reports to the President 1996-97