Applied Economics Laboratory and Research Seminar
Welcome to the "Applied Economics Laboratory and Research
This class is taught yearly at the University of California, Santa Cruz
and is a "hands on" applied economics class for upper division
Although we present this material as part of one class, individual
can just as successfully be used independently in other classes. We
that you find these materials useful in your classes. Please let us
if you do use these materials in your class(es). In this introduction,
you will find a brief overview of how the classis taught at UC Santa
as well as an overview of the different sections available.
The kind of intellectual exercise that we undertake for this course is
considerably different from that experienced in other economics
courses. In other economics courses, students essentially spit back
what they have been taught in lecture. For example, in a beginning
statistics course you, the student, might calculate the linear
regression or correlation coefficient given a certain set of
numbers. In this course, you are asked to be more original and
creative -- that is what research is about. Unfortunately, creativity
cannot be taught in lecture and you do not have the security blanket
that you can look up the answer in the text or in class notes.
Furthermore, there is no sense of closure as in many economics courses.
There is no one answer that is right or complete. The art of
econometrics is to deal with real data, which are messy and often not
what we really want (sometimes the results will be garbage).
Furthermore, answers are only tentative until the next study comes
along and refines the issues still further. The student must learn to
deal with this sense of incompleteness.
If you have the skills and drive to overcome the above hurdles, this
course can be richly rewarding. It will sharpen your ability to discern
whether “statistical results” and “facts” presented by others are
solid or bogus. And it will help you to do better and deeper
Information about the class
This material is used in our Economics 104 "Applied Economics
and Research Seminar". This class is taken by upper division
after intermediate micro, macro, and econometrics. We generally have
students. This number is limited by the labor intensive nature of this
The class is taught in a computer lab (or a computer lab/ classroom
mix). The students are required to have read the appropriate section,
well as the outside readings, prior to coming to class. The material is
then reviewed by the instructor. Often an informal review of the
econometric techniques is added. At the end of each week, after
one or possibly two sections, the student is required to hand in a
project related to the material covered that week. In addition, there
one in-depth project due by the end of the class. This is generally
on one of the sections, although students are given the opportunity of
pursuing other interests, as well.
We currently have 10 different section. They vary considerably in their
length and complexity. Some sections appeal to particular interests of
the students. The section on Basketball Player Salaries is often a
favorite. Below you will find a quick overview of the different
along with the readings that go along with them. We are not including
readings in this packet because of copyright restrictions. They are
easily available at your home institutions. There are also three
giving an overview of the different software used in the class (Micro
and EVIEWS). Eviews is the most current software.
- CEO SALARIES
- ELECTRICITY PRODUCTION FUNCTIONS
- BASKETBALL PLAYER SALARIES
- MALE - FEMALE WAGE DIFFERENTIALS
- ECONOMIC GROWTH
- THE DEFICIT
- THE EFFECT OF THE POLITICAL ON THE
- TERM LIMITS
- STOCK PRICES
- ORANGE JUICE FUTURES
This section looks at the determinants of CEO salaries. It uses two
data sets (one from Business Week, the other from Jensen and Murphy).
is a discussion on how to test theories (including variable choice and
linear and log formations). Simple regressions are used and their
Byrne, John A., "Pay Stubs of the Rich and Corporate," BusinessWeek,
n3158, Industrial/Technology Edition (May 7, 1990):56-108. Byrne, John
A.,"Gross Compensation?" Business Week, n3467 (Mar 18,
Jensen, Michael C.; Murphy, Kevin J., "Performance Pay and
Journal of Political Economy, v98, n2 (Apr. 1990):225-264.
Section 2. ELECTRICITY PRODUCTION FUNCTIONS(back
Basic hypothesis testing is introduced. The difficulties in estimating
production functions are discussed and a cost function for electricity
is estimated. The data is from the classic Nerlove article.
Nerlove, Marc, "Returns to Scale in Electricity Supply," inMeasurement
in Economics, C. Christ, ed., Stanford: Stanford, 1963,167-200.
Section 3. BASKETBALL PLAYER SALARIES (back
This is many student's favorite section. Sports statistics are used to
look at the relationship between player productivity and income as well
as to look at discrimination within the NBA. Many different
are used. The extensive data set comes from Kahn and Sherer.
PLAYER SALARIES LECTURE NOTES
Kahn, Lawrence M.and Peter D Sherer, "Racial Differences
Basketball Players' Compensation," Journal of LaborEconomics
n1 (Jan. 1988): 40-61.
Section 4. MALE - FEMALE WAGE DIFFERENTIALS
This section uses two data sets extracted from the National
Survey to look at male-female and black-white wage differentials.
include education and family background.
Mincer, Jacob, Summary and Agenda, Chapter 8,
and earnings," New York, National Bureau of Economic
by Columbia University Press, 1974. Series title: Human behaviorand
Oaxaca, Ronald, "Male-Females Wage Differentials in Urban Labor
Economic Review, Vol. 14, No. 3, 693-709, October, 1973.
This section provides an introduction on working with macro data. It
data compiled by Barro and Wolf to look at the determinants of national
growth. The data set includes expenditures on schooling, and political
and social variables. An additional data set, extracted from the Pen
Tables, is also available.
Readings: Barro, Robert J., "Economic Growth in a Cross Section
Quarterly Journal of Economics, v106, n2 (May 1991):407-443.
This section explores the budget deficit and Ricardian equivalence.
is also a discussion of the problems of endogeneity in economic data.
Boskin, Michael J., "Deficits, Public Debt, Interest Rates and
Perspectives and Reflections on Recent Analyses and on US Experience."
Hall, Robert E. and John B. Taylor, "The Government's Budget
Aggregate Demand," Chapter 13, Macroeconomics: Theory,
Policy, third edition, W. W. Norton & Company, 350-269.
Section 7. THE EFFECT OF THE POLITICAL ON
This section addresses two complementary questions. Do Democrats create
higher inflation? And, do Republicans encourage high unemployment and
Alesina, Alberto and Jeffrey Sachs, "Political Parties and
Cycle in the United States, 1948-1984," Journal of Money, Credit
v20, n1 (Feb. 1988): 63-82.
Hibbs, Douglas A. Jr., "Partisan theory after fifteen years," EuropeanJournal
of Political Economy, 8 (1992): 361-373.
Are there self-interest explanations for voting for or against term
This section provides look at who voted for California's proposition
(the term limit initiative). Logit and probit are introduced.
Friedman, Daniel and Donald Wittman, "Why voters vote for
against incumbency: A rational choice explanation," Journal
Economics v57, n1 (May 1995): 67-83.
A look at stock prices and whether they are a random walk.
Section 10. ORANGE JUICE FUTURES(back
This section investigates the role of weather in the determining orange
Roll, Richard , "Orange Juice and Weather," The AmericanEconomic
Review, Dec. 1984.