M i n n e s o t a EconomicsFall 006 LOOKING Back, Moving Forward Remembering the golden history of the Economics Department Recognizing the life and work of Regents Professor Leonid Hurwicz Students and alumni who’ve made their mark Fall 2006 9 Minnesota Economics is published Fall 006 once a year by the Department of Economics in the College of Liberal www.ecoN.UmN.edU Arts at the University of Minnesota for alumni/ae, faculty, staff, and friends of the department. CHaiR Narayana Kocherlakota diReCtoR oF Graduate studies Timothy Kehoe diReCtoR oF undeRgRaduate studies Simran Sahi 2 6 10 editoRs Elizabeth Hilberg Eugenia Smith Lisa Thiegs Colleen Ware Table of Contents WRiting 1 Letter From the Chair Douglas Clement Elizabeth Hilberg Lisa Thiegs 2 A golden History Since its inception, the University’s economics department has been PHotogRaphy home to experts and ideas that have garnered international recognition. Everett Ayoubzadeh University Archives Department of Economics 6 Intelligent designer Leonid Hurwicz knows how to achieve desired objectives in economics ContRiButoRs and in life. Susan Banovetz Tessa Eagan 10 Treasure Hunt Sara Shuford Tom Holmes unearths the hidden gems in his economic research. Wendy Williamson PRinting 12 Putting their Heads together U of M Printing Services Working in collaboration has paid off for graduate students Ananth Ramanarayanan and Costas Arkolakis, whose ongoing research has already received accolades. on tHe CoveR 13 Sense and sensibility The University of Minnesota’s Economics Amy Bratkovich marries her passion for jewelry design with her background in economics. Department has long been a pioneer of economic thought thanks to outstanding faculty. Pictured on the cover are: (L to R) 14 Cultural Crossings John Chipman, Timothy Kehoe, Leonid From Minneapolis to Mexico, father and son Don and Kurt Winkelmann Hurwicz, Marcel (Ket) Richter, and have used their U of M economics education to gain global perspective. Simran Sahi. 16 Making a difference Cover photo by Everett Ayoubzadeh Rebecca Blank’s undergraduate degree in economics from the U of M launched a career dedicated to social change. This publication is available in alternate formats upon request. 17 Kudos Please call (612) 625-5031 or fax us at (612) 625-3504. © Regents of the University of Minnesota Back cover Leaving a Legacy 0 Minnesota Economics letter from the chair ON JULY 1, I took over as chair of the and Neil Wallace. Moreover, I knew from Department of Economics, following Ed my many Minnesota Ph.D. friends that Foster. These are big shoes to fill. Ed has Minnesota somehow magically inculcated in done a great job over the past six years, and its Ph.D. students exactly the right attitude the department and the University owe toward research: It’s important, frustrating, him a large debt of gratitude. but most of all fun. It was without a doubt I thought I’d use this opportunity to tell the highlight of my career when I joined the you a little about myself, and in so doing, faculty here in 1998. a little about the University of Minnesota. Enough about the past, though. Where I got my Ph.D. in economics in 1987. My does the department need to go in the degree was from the University of Chicago, future? Many of the positive attributes but Minnesota had a huge indirect impact I stressed above are still firmly in place. on my Ph.D. education. My adviser was We have a great Ph.D. program and a Lars Hansen, who received his Ph.D. very strong undergraduate program. Our NarayaNa KocherlaKota professor and chair from Minnesota in 1978. Two of the most view of economics is still grounded in a exciting courses I took were taught by Robert synthetic view of theory and data. We’ve 612-625-3810 Townsend, who received his Ph.D. from had some departures and some retirements, [email protected] Minnesota in 1975. My experience with Lars however; so our number-one task in the and Rob has had an enormous impact on my next couple of years is to hire more faculty research throughout my career. The approach to economics that Lars and Rob taught us relied on the synthesis of By the time I was ten years removed economic theory and economic data. This synthesis is a hard one because the precision from my Ph.D., there was no place of economic theory doesn’t dovetail nicely with the messiness of economic data. Most I respected or admired more than economists end up cutting corners either in their use of theory or in how they use data Minnesota. In some form or another, because they can’t make them jibe together almost every part of economics that in a satisfactory way. But Lars and Rob made the connection I used in my research came from there. seem natural to us. I still remember learning principal-agent theory in one of members to continue to enhance the think of anyone working today who more Rob’s advanced courses and then using student experience and to compete with completely epitomizes the Minnesota that advanced (remember, it’s the early other highly ranked departments. synthesis of theory and data than Pat. eighties!) theory to understand feudal On that front, we’re very excited about The department is enormously proud institutions in the next. This synthetic the arrival of associate professor Fabrizio of the continuing successes of our alumni. approach was (almost) unique to them Perri and professor Patrick Bajari. Fabrizio To cite but one of many, Luis Carranza among the Chicago faculty of the day. But specializes in international economics but (Ph.D. ’96) was recently named the finance after graduate school, as I met more and has made contributions in a variety of other minister in Peru. As it turns out, financial more economists trained at Minnesota, fields as well. Some of his most interesting markets know the benefit of a Minnesota it became clear to me that this approach work teaches new lessons about the ability Ph.D: Peruvian bonds immediately rose to to economics was really a Minnesota of people in the United States to share a nine-week high upon the announcement approach to economics, not something income risk with one another. of Luis’ appointment. special to Lars and Rob. Pat Bajari is a Minnesota student This department has a glorious tradition. By the time I was ten years removed from through and through. He got his B.S. in It would be impossible to maintain that my Ph.D., there was no place I respected economics and mathematics here in 1992; tradition without the gifts we’ve received or admired more than Minnesota. In some then he received his Ph.D. in economics over the past years from our generous form or another, almost every part of in 1997. His field of specialization is alumni and other friends. All we can say economics that I used in my research came industrial organization. In his recent is: thanks! from there: mechanism design from Leo work, he has made enormous headway in I look forward to serving as department Hurwicz, rational expectations econometrics the crucial problem of estimating models chair over the next three years. Feel free to from Lars Hansen and Tom Sargent, and of strategic firm interaction in dynamic call me or send me an e-mail if you have monetary economics from Robert Townsend settings. More generally, it is hard to comments of any kind. Fall 2006 3 5 6 7 8 9 4 0 3 4 5 6 Minnesota Economics Since its inception, the University’s Economics Department has been home to experts and ideas that have garnered international recognition. By Douglas Clement deas are the lifeblood of a university. to the course description, was “to present a key member of the faculty during this And because many people can use clearly and fairly the history of the science period before his departure for Harvard the same idea simultaneously and to thoroughly inculcate established in 1937. His (and Sir John Hicks’) IS-LM without decreasing its value for principles.” From the start, Folwell seemed charts, which summarize relationships Iothers, sharing ideas stimulates productiv- to understand the importance of divergent among investment, savings, liquidity prefer- ity. This concept of “endogenous growth” outlooks in the discipline. “Conflicting ence and money supply, still tax the learning has been formalized by economists only views are brought out with all possible curves of economics undergrads today. Min- recently—and some economists still debate impartiality,” he said. nesota’s close association with University of its validity—but it is an apt description The University’s first economics Chicago economics also began early: In the of the University of Minnesota’s Depart- Ph.D.—and one of the nation’s first women 1930s, George Stigler was a faculty member ment of Economics throughout its history: to receive a doctorate in economics—was at the University, as was Milton Friedman increasing returns through the generation Hannah Robie Sewall in 1899. Like eco- briefly at the close of World War II. and diffusion of ideas. nomics dissertations today, her thesis, a From its earliest years, when the Univer- nuanced analysis of evolution in concepts of Birth of a Department sity’s president did double-duty as its only economic value prior to Adam Smith, was After the war, student enrollment climbed economics instructor, to the most recent filled with Greek symbols.U nlike today’s at the University, and faculty numbers class of graduate students, who wrote dis- students, however, Sewall wasn’t using expanded in step.