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Alumni Newsletter 2002

Bob Marshall

12/09/02

Greetings from the Economics Department at Penn State. I am writing to provide you with some information about the recent progress of the department. 

            Before doing so, allow me to take this opportunity to inform you of a social event. The "big" annual meeting for economists will be in Washington, D.C. this January. The Penn State Economics Reception will be held on Friday, January 3, from 6-8 p.m. in Meeting Room 2 at the Renaissance Washington Hotel. Many faculty will be in attendance. You are invited and I hope you can make it.

As always, there is much to report about the undergraduate program, the graduate program, and faculty recruitment. 

Undergraduate Program

In the fall of 1995, the Economics Department had 200 undergraduate majors and total enrollments of 8,000, where 5,000 of those were in principles. As of this fall, we have 470 majors and total enrollments of 12,000, where 7,000 of those are in principles. The demand for both our major and our courses has increased significantly since 1995.

Some of this reflects a national trend. Bachelor's degrees awarded in economics have increased nationwide by approximately 20 percent since 1995. Perhaps this is because the starting salaries for economics majors are doing quite well despite a "down" market (see www.naceweb.org/press for comparative information on starting offers by major). But, this being noted, Penn State Economics is still outperforming the national trend. Why?

· Instructors dedicated to principles teaching . Two years ago the Dean authorized us to recruit and hire excellent "big-class" teachers. As non-tenure track instructors, these teachers are evaluated solely based upon their performance in the classroom as well as their assistance with the undergraduate program. We have five such instructors in the department and they are doing a terrific job.

· Writing projects in principles classes . All principles classes now require writing projects. Working in groups of five, students produce two essays per semester that address an important and topical economic issue. 

· Teaching awards for senior faculty . Two of our faculty, Bee Roberts and Ed Coulson, have recently won College-wide teaching awards.

· Internships . One Washington, D.C. firm recently spent three days on campus interviewing many of our junior economics undergraduates for summer internships. Several of these students have already received job offers from the firm.

· Professor David Shapiro's leadership . As Director of Undergraduate Studies, Professor Shapiro has shown remarkable dedication to the undergraduate program, the learning environment of our students, and the cultivation of career opportunities for future students. This kind of leadership is essential for success. In recognition of his efforts, he received the President's Award for Engagement with Students in the spring of 2002.

Graduate Program

In terms of the graduate program news, last year we placed one of our graduate students as an assistant professor at MIT and another at Cornell. This year one of our students is already holding offers from the University of Virginia as well as Cal Tech. We are now getting calls regularly from top departments in the country inquiring about our graduate students on the market. The consequent reputation gains for the department are something that all future, current, and past graduate students of Penn State Economics should enjoy. How was this accomplished?

· Recruitment of Applicants . Because of the deep involvement of Professor Barry Ickes in the New Economic School in Moscow, we have been able to attract numerous top Russian students to the program. In addition, Emeritus Professor John Riew makes an annual trip to many premier universities in the Far East in search of top applicants for our program. 

· Revised Core . The graduate program has been substantially changed since 1997. The best place to see the changes is at our Web site: http://www.econ.psu.edu.

· Job Market Preparation . The department has a major ongoing investment in this activity. Perhaps the most innovative (and grueling) of the new activities is a three-hour workshop where faculty offer blunt commentary about all aspects of the student's work and presentation. Our students are as well prepared for the rigors of the job market as any graduate students in the country.

· Professor Neil Wallace's leadership . Neil has been the Director of Graduate Studies for a number of years now and has been the architect of many of our changes.

I would be remiss if I did not take this opportunity to offer a description of the work of two of our aforementioned recent Ph. D. students, Professor Sergei Izmalkov of MIT and Professor Tao Zhu of Cornell. These descriptions can be found at the end of this letter.

Faculty Recruitment

Finally, last year we hired Joris Pinkse as a tenured associate professor. This was a major recruitment success for us. Joris did his graduate work at the London School of Economics. I encourage you to learn more about Joris at http://joris.econ.psu.edu/ . His principal area of expertise is econometrics, both theoretical and applied. His paper in the May 2002 issue of Econometrica shows that competitive forces in the U.S. wholesale gasoline market are primarily local, rather than regional or global, which has important implications for anti-trust policy in that market.

That's all for now. Hope to see you in DC at our reception. If possible, I would appreciate hearing from you so please send me an e-mail at rmarshall@psu.edu .

Best, 

Bob Marshall signature

Robert C. Marshall, 

Professor and Head

P.S. If you would like to make a financial contribution to the Department the directions are below. If the money is to be earmarked for a specific fund please note this in the memo section of the check. 

Payee : PSU Department of Economics

Address : Liberal Arts Development Office, 13 Sparks Building, Penn State University, University Park, PA 16802

Possible Designations (in memo section) :

· "Blank" - unrestricted gift.

· Anna M. McMullin Fund in Economics 

· Philip A. Klein Fund in Economics 

· Thomas G. Fox Fund in Economics 

· Prybyla/Riew Lectureship in Economics .

 

Research of Sergie Izmalkov, 

MIT

Auctions have been used since antiquity to sell a variety of objects -- ranging from fish and fresh flowers to bonds and gold bullion. In recent years, Internet auction websites like E-Bay have also become increasingly popular and economically important. In his dissertation, Sergei Izmalkov (Ph. D. Economics, 2002), used tools from game theory to study optimal bidding strategies in auctions, specifically in the so-called English auction -- in which an auctioneer calls out prices and bidders indicate whether or not they are interested in purchasing the item at that price. Bidding strategies in such an auction are quite complicated since a bidder can learn valuable information regarding the value of the object from observing the behavior of other bidders. What is the optimal way in which bidders should incorporate this information? How should they act on it? When should they drop out? When should they reenter the auction, if at all? Should they wait until the last minute to bid? The answers to these and related questions form the core of Izmalkov's dissertation.

Besides finding the way to bid in such a setting, Izmalkov also demonstrated an important structural feature of English auctions. If all bidders follow the suggested strategies then the outcome of the auction is efficient in the sense that the object being sold always ends up in the hands of the bidder who values it the most. Somewhat surprisingly, this is true even if bidders are unsure about the true value at the time that they participate in the auction. The efficiency of the English auction is of importance to policy makers. Auctions are increasingly being used to facilitate privatization. For instance, in recent years sections of the electromagnetic spectrum, previously owned by the government, have been auctioned off to companies that provide cellular telephone service. In such settings the goal is to privatize in a manner that companies with the lowest costs provide telephone service; that is, to allocate the use of the spectrum in an efficient manner. Izmalkov's research has important implications for the manner in which such auctions should be designed and conducted.

Research of Tao Zhu,

Cornell University

For hundreds of years, economists have talked about the idea that money is important in situations in which one person has what the other wants, but not vice versa. Despite that, the first coherent models that build on that idea were formulated for the first time in the late 1980's. However, those models and many subsequent variants of them made very special assumptions that limited the usefulness of the models. In particular, it was assumed that trade involved either one indivisible unit of money or one indivisible unit of the good being purchased for money. Allowing both the amount of the good and the amount of money traded to be chosen by the buyer and the seller as part of an equilibrium was considered to be too difficult to study. Tao Zhu showed otherwise. In his Ph.D. dissertation, he proved that an equilibrium exists even when both amounts are chosen by the traders. 

Zhu's work opens the way to applying the model to a variety of issues and policy questions. One application concerns the effects of 16 th century new world specie discoveries. Many observers, including David Hume, claimed that those discoveries and the subsequent increases in the amount of money stimulated real economic activity in Europe. The version of Zhu's model with indivisible money provides a new explanation of that observation. Under the monetary systems in place at the time, money was significantly indivisible in the sense that the smallest coins that could be made were large in terms of purchasing power. In such a situation, Zhu's work predicts that significant additions to the total money supply will stimulate real economic activity. Work on a second application is underway. A long-standing puzzle for monetary theory is the coexistence of money and higher return assets. Building on Zhu's existence results, Zhu and his advisor, Neil Wallace, hope to provide a new solution to that puzzle.