Academic journal article The American Journal of Economics and Sociology

The Market, the Firm, and the Economics Profession

Academic journal article The American Journal of Economics and Sociology

The Market, the Firm, and the Economics Profession

Article excerpt

I

Introduction

THE GROWING MATHEMATICAL and statistical sophistication of academic economic research is undeniable. Coelho and McClure (2005) and Grubel and Boland (1986) provide evidence of increasing sophistication, if any is needed, through time-series analysis of papers in leading economics journals. The trend has resulted in numerous criticisms and consequences. Some critics argue that economics has become too mathematical and abstract, and consequently disconnected from the real world and irrelevant for policy purposes (Leontief 1982; Blaug 1998; Beed and Kane 1991; Davis 1997). The changing structure of graduate education affects the background, aptitude, and interests of new economists. Schools of thought emphasizing knowledge of institutions and history over formalism, like Austrian and institutional economics, get relegated to the profession's periphery (Beed and Kane 1991).

The critics seemingly can be dismissed as malcontents, unhappy that the direction of research has lowered the market value of their skill set. Paul Samuelson offered a crass version of the dismissal: "Those who can, do science; those who can't prattle about its methodology" (qtd. in Holcombe 1989). The "wisdom of crowds" argument (Surowiecki 2004) provides a more sophisticated and compelling case. Increased mathematical and statistical sophistication results from countless decisions made by economists as referees, journal editors, and members of hiring and tenure committees. Each decision represents a type of vote in favor of technically sophisticated research. The aggregation of these individual decisions reveals the profession's belief in the efficacy of mathematical research. Human beings are fallible, so any decision could be mistaken or influenced by other factors besides the economist's own judgment of the merits of technical research, but a consensus of expert opinion offers the best indication of research quality (see also Laband and Tollison 2001).

One potential response to the apparent judgment of the profession is an argument that the academy is rife with shirking, and professors indulge their preferences (regarding types of research or favorable job conditions or course content) without regard to the value to society (Sykes 1988; Klein 2005). In this view, mathematical formalism is a type of parlor game played by economists for their own amusement (Beed and Kane 1991). By contrast, I offer a market-imperfection explanation for the excessive mathematization of economics. Academic research is a prestige- and not a cash-based economy, with co-authorship as the primary medium of exchange. The organization of the academy on a department basis and reliance on peer evaluation effectively limit the scope of exchanges across disciplines. With limited ability to contract or use the market to produce research, economists must use the firm--the economics department--to produce complex research. Thus the requisite math and statistical skills must reside in the economics faculty. In time, this affects the economics curriculum, with graduate training becoming more technical than if the market could be used to produce research.

The remainder of this article is organized as follows. Many critiques of mathematical economics have been offered, and although my concern here is the production of mathematical and statistical research and not its ultimate value, I begin in Section II by reviewing some of the arguments against mathematics in economics. I then elaborate on the contracting problem that produces the inefficiency in Section III. Section IV discusses two plausible alternative mechanisms for organizing the university, monetizing the salary value of publications and an interdisciplinary point system, which could broaden the scope for contracting across the academy. Section V discusses examples and evidence on the alleged market imperfection. Section VI concludes.

II

On the Value of Mathematical Economics

NUMEROUS DEFENSES and critiques of the use of mathematics and statistics in economics have been offered over the years. …

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