Wittman 104 UCSC wittman@ucsc.ed

ECONOMICS 104


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Applied Economics Laboratory and Research Seminar

Instructor's introduction

Welcome to the "Applied Economics Laboratory and Research Seminar"materials. This class is taught yearly at the University of California, Santa Cruz and is a "hands on" applied economics class for upper division undergraduates. Although we present this material as part of one class, individual sections can just as successfully be used independently in other classes. We hope that you find these materials useful in your classes. Please let us know at wittman@ucsc.edu 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 Cruz 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 research. 

Information about the class

This material is used in our Economics 104 "Applied Economics Laboratory and Research Seminar". This class is taken by upper division undergraduates after intermediate micro, macro, and econometrics. We generally have 25-30 students. This number is limited by the labor intensive nature of this class. 

The class is taught in a computer lab (or a computer lab/ classroom mix). The students are required to have read the appropriate section, as well as the outside readings, prior to coming to class. The material is then reviewed by the instructor. Often an informal review of the pertinent econometric techniques is added. At the end of each week, after covering one or possibly two sections, the student is required to hand in a short project related to the material covered that week. In addition, there is one in-depth project due by the end of the class. This is generally based on one of the sections, although students are given the opportunity of pursuing other interests, as well.


The sections

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 students favorite. Below you will find a quick overview of the different sections along with the readings that go along with them. We are not including the readings in this packet because of copyright restrictions. They are however easily available at your home institutions. There are also three appendices giving an overview of the different software used in the class (Micro TSP-Mac,  and EVIEWS). Eviews is the most current software.

  1. CEO SALARIES
  2. ELECTRICITY PRODUCTION FUNCTIONS
  3. BASKETBALL PLAYER SALARIES
  4. MALE - FEMALE WAGE DIFFERENTIALS
  5. ECONOMIC GROWTH
  6. THE DEFICIT
  7. THE EFFECT OF THE POLITICAL ON THE ECONOMIC
  8. TERM LIMITS
  9. STOCK PRICES
  10. ORANGE JUICE FUTURES

Section 1. CEO SALARIES (back to list)

This section looks at the determinants of CEO salaries. It uses two different data sets (one from Business Week, the other from Jensen and Murphy). There is a discussion on how to test theories (including variable choice and linear and log formations). Simple regressions are used and their results are interpreted.

Readings:

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, 1996):32-33.

Jensen, Michael C.; Murphy, Kevin J., "Performance Pay and Top-ManagementIncentives," Journal of Political Economy, v98, n2 (Apr. 1990):225-264.

Section 2. ELECTRICITY PRODUCTION FUNCTIONS(back to list)

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.

Readings:

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 to list)

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 specifications are used. The extensive data set comes from Kahn and Sherer.

BASKETBALL PLAYER SALARIES LECTURE NOTES

Readings

Kahn, Lawrence M.and Peter D Sherer, "Racial Differences inProfessional Basketball Players' Compensation," Journal of LaborEconomics v6, n1 (Jan. 1988): 40-61.

Section 4. MALE - FEMALE WAGE DIFFERENTIALS (back to list)

This section uses two data sets extracted from the National Longitudinal Survey to look at male-female and black-white wage differentials. Variables include education and family background.

Readings:

Mincer, Jacob, Summary and Agenda, Chapter 8, "Schooling,experience, and earnings," New York, National Bureau of Economic Research;distributed by Columbia University Press, 1974. Series title: Human behaviorand social institutions, 128-145.

Oaxaca, Ronald, "Male-Females Wage Differentials in Urban Labor Markets,"International Economic Review, Vol. 14, No. 3, 693-709, October, 1973.

Section 5. ECONOMIC GROWTH (back to list)

This section provides an introduction on working with macro data. It uses 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 World Tables, is also available.

Readings: Barro, Robert J., "Economic Growth in a Cross Section ofCountries," Quarterly Journal of Economics, v106, n2 (May 1991):407-443.

Section 6. DEFICIT(back to list)

This section explores the budget deficit and Ricardian equivalence. There is also a discussion of the problems of endogeneity in economic data.

Readings:

Boskin, Michael J., "Deficits, Public Debt, Interest Rates and PrivateSaving: Perspectives and Reflections on Recent Analyses and on US Experience."

Hall, Robert E. and John B. Taylor, "The Government's Budget Deficitand Aggregate Demand," Chapter 13, Macroeconomics: Theory, Performanceand Policy, third edition, W. W. Norton & Company, 350-269.

Section 7. THE EFFECT OF THE POLITICAL ON THE ECONOMIC(back to list)

This section addresses two complementary questions. Do Democrats create higher inflation? And, do Republicans encourage high unemployment and low inflation?

Readings:

Alesina, Alberto and Jeffrey Sachs, "Political Parties and theBusiness Cycle in the United States, 1948-1984," Journal of Money, Credit &Banking v20, n1 (Feb. 1988): 63-82.

Hibbs, Douglas A. Jr., "Partisan theory after fifteen years," EuropeanJournal of Political Economy, 8 (1992): 361-373.

Section 8. TERM LIMITS(back to list)

Are there self-interest explanations for voting for or against term limits? This section provides look at who voted for California's proposition 140 (the term limit initiative). Logit and probit are introduced.

Readings:

Friedman, Daniel and Donald Wittman, "Why voters vote for incumbentsbut against incumbency: A rational choice explanation," Journal ofPublic Economics v57, n1 (May 1995): 67-83.

Section 9. STOCK PRICES(back to list)

A look at stock prices and whether they are a random walk.

Section 10. ORANGE JUICE FUTURES(back to list)

This section investigates the role of weather in the determining orange juicefutures prices.

Readings:

Roll, Richard , "Orange Juice and Weather," The AmericanEconomic Review, Dec. 1984.