MIT Reports to the President 1997-98


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. Tenured Associate Professors Joshua Angrist and Jeffrey Harris were promoted to the rank of Professor and Associate Professor Michael Kremer was given tenure and promoted to the rank of Professor at the same time, all effective July 1. Professor Angrist's areas of speciality are labor economics and applied econometrics. Professor Harris' area of specialty is health economics. Professor Kremer's areas of specialty are macroeconomics and development. One Assistant Professor was promoted to the rank of Associate Professor (without tenure) to be effective July 1. One junior faculty member joined the Department. We completed a search and appointed an additional junior faculty member in the field of microeconomic theory and labor economics effective July 1, 1998. The Department continues to search for a senior appointment in economic theory and junior faculty at the Assistant or untenured Associate Professor rank.

Professor Bengt Holmstrom received an honorary doctorate from the Stockholm School of Economics. Professor Paul Joskow received the very first MIT Dean's Award for Distinguished Service to the School of Humanities and Social Science. Professor Jonathan Gruber returns after a year at the U.S. Treasury where he served as Deputy Assistant Secretary for Economic Policy.

Once again, the Department competed aggressively with Stanford, Harvard, and Princeton, for the AY 98-99 crop of new Ph.D. students. We were successful in attracting an excellent class for the fall 1998 term.

The Department completed an upgrade of its existing graduate student computer cluster and an undergraduate computer cluster using funds from MIT and gifts from alumni. The Department also received $250,000 from Intel Corporation which was part of a $7.2 million gift to the Institute. The Department received a gift from an alumna 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 funding of the Robert M. Solow Endowment Fund has been largely completed and the second Solow Endowment Fund Fellow was appointed. The Castle Krob International Graduate Student Fellowship is now 66% funded and the second Castle Krob International Fellow will be named this month.


Professor Angrist was invited to be a Fellow at the Center for Advanced Study in the Behavioral Sciences in Stanford. Professor Olivier Blanchard is a member of the Committee on Honors and Awards of the American Economic Association and gave the Geary Lecture in Dublin. Professor Ricardo Caballero gave the Carlos Diaz Alejandro Lecture at the Latin American Econometric Society Meetings and the Plenary Theory Lecture at the European Econometric Society Meetings. Professor Glenn Ellison continues to hold the National Science Foundation Grant entitled, AStudies of Learning and Industrial Organization," and received a Sloan Research Fellowship. Professor Gruber continues as a Research Associate of the National Bureau of Economic Research. Professor Holmstrom continues to serve on the Executive Committee of the Econometric Society. Professor Kremer received the MacArthur Fellowship. Assistant Professor Guido Kuersteiner was an invited speaker at the Review of Economic Studies 1997 Tour. Professor Michael Piore received an honorary doctorate from the Universite des Science et Technologie de Lille in France. Professor James Poterba became Editor of the Journal of Public Economics, serves on the Special Committee on Nominating Procedures for the American Economic Association, and serves on the Board of Economic Advisors of the Congressional Budget Office. Professor Nancy Rose was nominated for the American Economic Association Executive Board.

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 New York and Santo Domingo, Dominican Republic during the academic year. WEL supported two Russian graduate students, and three junior faculty members' summer research, and provided research support for others in the Department. Grants from the Ford Foundation, GE and private donors continued to support a wide array of activities.


Next year's entering class of 23 Ph.D. students will include 16 international students (several of whom have undergraduate degrees from U.S. universities) and 8 women (35%). Twenty two percent of our entering class have National Science Foundation Fellowships to begin their graduate studies in economics.

Undergraduate enrollment increased slightly again this year continuing a trend in enrollment for undergraduates with a total increase of 65% over the last ten years. There were 138 undergraduate majors in economics (32 of whom are double majors), 145 undergraduate minors and 350 concentrations completed in economics.

Our Class of 1998 job market candidates did well this year, with 14% receiving assistant professorships in top ten economics departments and business schools. A total of 50% of our graduates accepted academic positions, 9% accepted government positions, 32% obtained positions in the private sector and 9% took positions in non-profit research institutions.


Faculty research continues to be intense and highly productive: Professor Daron Acemoglu published his paper, "Asymmetric Business Cycles: Theory and Time Series Evidence," in the Journal of Monetary Economics. Professor Angrist has the paper, "Using Maimonides' Rule to Estimate the Effect of Class Size on Student Achievement," forthcoming in the Quarterly Journal of Economics. Assistant Professor Susan Athey is working on the paper, "Comparative Statics Under Uncertainty: Single Crossing Properties and Log-Supermodularity." Associate Professor Jushan Bai published his paper, "Testing for and Estimation of Multiple Structural Changes in Linear Models," in Econometrica. Professor Abhijit Banerjee published his paper, "A Theory of Misgovernance," in the Quarterly Journal of Economics. Professor Blanchard published the paper, "Disorganization," in the Quarterly Journal of Economics. Professor Caballero has the paper, "The Macroeconomics of Specificity," forthcoming in the Journal of Political Economy. Associate Professor Dora Costa has the paper, "Unequal at Birth: A Long-term Comparison of Income and Birth Weight," forthcoming in the Journal of Economic History. Professor Peter Diamond published his paper, "Macroeconomics Aspects of Social Security Reform, in the Brookings Papers on Economic Activity. Professor Dornbusch published his paper, "Capital Controls: An Idea Whose Time is Gone," in Princeton Essays. Professor Ellison published his paper, "Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach," in the Journal of Political Economy. Lecturer Sara Ellison published her paper, "Characteristics of Demand for Pharmaceutical Products," in The RAND Journal of Economics. Professor Frank Fisher published his book, The Economic Theory of Production Price Indexes. Professor Gruber published his paper, "Social Security and Retirement: An International Comparison," in the American Economic Review. Professor Harris is working on his book, The Economics of Health and Medical Care: A Textbook. Professor Jerry Hausman published his paper, "Misclassification of a Dependent Variable in Qualitative Response Models," in the Journal of Econometrics. Professor Holmstrom published his paper, "Public and Private Supply of Liquidity," in the Journal of Political Economy. Professor Joskow has his paper, "Auction Design and the Market for Sulfur Dioxide Emissions," forthcoming in the American Economic Review. Professor Kremer has the paper, "Why Isn't Convergence Instantaneous? Young Workers, Old Workers, and Gradual Adjustment," forthcoming in the Journal of Economic Growth. Professor Paul Krugman has the paper, "Technology, Trade and Factor Prices," forthcoming in the Journal of International Economics. Professor Kuersteiner is working on the paper, "Linear Covariance Matrix Lower Bounds for Time Series Estimators." Professor Whitney Newey published his paper, "Efficient Semiparametric Estimation of Expectations," in Econometrica. Professor Piore published his paper, "Interpretive Management: What General Managers Can Learn from Design," in the Harvard Business Review. Assistant Professor Jorn-Steffen Pischke published his paper, "Why Do Firms Train? Theory and Evidence," in the Quarterly Journal of Economics. Professor Poterba published his paper, "401(k) Plans and Future Patterns of Retirement Saving," in the American Economic Review. Professor Rose published her paper, "Diversification and Executive Compensation: Ability Premia or Managerial Entrenchment?" in The RAND Journal of Economics. Associate Professor Lones Smith published his paper, "Time Consistent Optimal Stopping," in Economics Letters. Assistant Professor David Spector is working on the paper, "Rational Debate leads to One-Dimensional Conflict." Professor Peter Temin published his paper, "New Economic Approaches to the Study of Business History," in Business and Economic History. Assistant Professor Jaume Ventura is working on the paper, "Current Accounts in Debtor and Creditor Countries." Assistant Professor Robin Wells is working on the paper, "Time and Surplus Allocation in Marriage." Professor William Wheaton published his paper, "Land Use and Density in Cities with Congestion," in the Journal of Urban Economics.


Guido Kuersteiner joined the faculty as an Assistant Professor. Associate Professors Angrist and Harris were promoted to the rank of Professor, and Associate Professor Kremer was given tenure and promoted to the rank of Professor at the same time. Assistant Professor Jorn-Steffen Pischke was promoted to the rank of Associate Professor (without tenure).

Sendhil Mullainathan will join the faculty as an Assistant Professor effective July 1, 1998. He received his Ph.D. from Harvard University and is a microeconomic theorist with interests in labor economics, corporate finance, game theory, and behavioral economics.

Associate Professor Jushan Bai resigned effective June 30, 1998. The appointments of Associate Professors David Genesove and Lones Smith came to an end on June 30, 1998. Professor Bai will assume a position as Associate Professor in the Economics Department at Boston College. Professor Genesove has been appointed as Associate Professor in the Economics Department at Hebrew University, and Professor Smith has been appointed as Associate Professor in the Economics Department at the University of Michigan.

Professor Stanley Fischer remains on leave as First Deputy Director of the International Monetary Fund.

There were five visiting faculty for all or part of the 1997-98 academic year. Professor Jean Tirole taught a topics course in industrial organization. Associate Professor Mohamad Hammour taught macroeconomic theory. Associate Professor Mark Bils taught macroeconomics and statistics. Professor Debraj Ray taught game theory. Professor James Mirrlees taught a course on bounded rationality.

The Department maintains its concern with increasing the representation of women and minorities in the economics profession. All search committees 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 199 CVs. After the first screening, 60 files were retained for a more intensive review. After a second screening, 36 candidates (2 of whom were women) were selected for interviews. All candidates were interviewed by at least two members of the faculty. Subsequently, 9 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 next year. Thirty percent of the Department is 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 97-98 and AY 98-99. The end of the EB pool 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:

Paul Joskow

MIT Reports to the President 1997-98