ericson research

Applications ofMicroeconomic

Theory

Rick Ericson

ContributionsThe Soviet EconomyMicroeconomicTheoryOther Research

My References

On (Some) Economic Theory and the SovietEconomy

Some Contributions

Richard E. Ericson

East Carolina University

21 May 2016


Theory

Rick Ericson


My References

Introduction: Rick Ericson in Economics

I BiographyI UC Berkeley PhD in 1979I Taught at Harvard, Northwestern, Columbia, and ECUI Visited Soviet Union regularly (every other year) from1970 to 1990: highlights

I 1970 — language study (LGU)I 1972 —USIA Cultural ExhibitI 1977-78 — dissertation research yearI 1987 —Fulbright research visitI Since 1996 —EERC workshops, NES, and someconferences

I Research straddling microeconomic/equilibrium theoryand the Soviet economic system: 2 main thrusts —

I Plan Implementation

I Understanding the Soviet economic system

I IO - Industry Dynamics


Theory

Rick Ericson


My References

Modeling Soviet Plan ImplementationUnderstanding the Soviet Economic System

I State of Research: descriptive analyses and modelsreflecting the socialist debate of the 1930s;

I Early focus on ‘central planning’and its diffi culties;aggregating information and disaggregating ‘plans’;decentralized algorithms for central planning

I Shift to incentive issues with asymmetric information,and modeling the Soviet-type economy as an economicorganization

I Centrally planned industrial input allocation and itsimpact on plan performance: Ericson (1978, 1982,1983);

I (even optimal) Central planning rigidifies the economy,rendering its dynamics unstable in the face of incessant,small shocks;

I Role of the “Second Economy”: Ericson (1983,1984):ameliorates the impact of shocks, stabilizing systemdynamics at the cost of some loss of control;


Theory

Rick Ericson


My References

Understanding the Soviet Economic System... and its Collapse: elaborating on Gregory Grossman (1963)

I Command, not Planning, is the core:I Necessary to maintain control over the development/evolution of the economy, counter the centrifugal forcesof decentralized decisions even with perfectly consistentand informed plans: Ericson (1991, 2008);

I The classical ‘System’was coherent and effective, yetineffi cient, increasingly unmanageable, and ultimately‘unreformable’: Ericson (1991, 2006a);

I ‘Reforms’undercut coherence and effectiveness,disrupting/disorganizing planned economic activity andstate objectives

I Second economy, an increasingly necessary lubricant tothe functioning of the planned/first economy,systematically undermined the coherence of plans andplanned outcomes, while helping preserve theappearance of success;

I Collapsing largely under it’s growing incoherence in achanging world: Ericson (2013a,b)


Theory

Rick Ericson


My References

... And Its Transformation

I A systemic substitution, with mixed success: Ericson(2000, 2001, 2002)

I Informal mechanisms and entrenched economic/politicalinterests, vitiated radical reforms

I Substantial changes, yet ‘channeled’by physical,institutional, and ‘ideational’legacies: Ericson (2009,2013a)

I Initial reforms only completed in 2003-5, after whichdeep institutional reform stalled

I Creating a ‘Constrained Market Economy’: Ericson(2001, 2006b, 2009)

I An abnormal configuration of “normal” (Shleifer,Treisman, 2004) middle-income country characteristics;

I Economic development and significant initiative subjectto state authorization and control.


Theory

Rick Ericson


My References

Industry DynamicsI Most models in the deterministic “structure, conduct,performance,” framework with limited dynamic analysis;

I Industry/product evolution with uncertainty: Lambson(1991), Audretsch (1995), Klepper (1996);

I Game-theoretic duopoly and patent race models(Maskin-Tirole, 1988; Rosenthal-Spady, 1989;Cabral-Riordan, 1992)

I B. Jovanovic (1982) introduced stochastic dynamicmodel with a continuum of firms and effi ciency ‘type’learned over time, an approach refined and extended inthe dynamic Hopenhayn (1992) model of a perfectlycompetitive industry with entry, exit, and a continuumof firms subject to idiosyncratic shocks;

I These have spawned a large body of stochastic, dynamicwork analyzing perfectly competitive industry and itsresponse to regulation and other policy initiatives;

I Analysis not applicable to imperfectly competitiveindustries and not amenable to structural econometricmodelling, issues addressed in my research with Pakes.


Theory

Rick Ericson


My References

Industry Dynamics ContributionI Pakes and I introduced a discrete time, stochasticdynamic equilibrium model of industry evolution with afluctuating finite number of (imperfectly) competitivefirms subject to idiosyncratic shocks, incorporatingendogenous entry, exit, and continuous pressure(common shocks) from outside competition: Ericson,Presman (1988), Ericson, Pakes (1989-1995, 1998)

I Early application of the Maskin-Tirole “Markov-PerfectEquilibrium”concept, contributing to research indynamic stochastic games and the computation ofstochastic equilibria.

I Further developed by Pakes-McGuire (1994, 2001),Pakes-Fershtman (2012), Doraszelski (2004),Doraszelski-Satterthwaite (2003, 2010), Benkard, et.al.(2007, 2008), etc.

I It has provided a widely used tool for empirical analysisof industries: Pakes-Berry (1993), Pakes-Olley (1991),Gorisankaran (1994), Ryan (2012), Laincz (2005, 2009),Markovich (2008), etc.


Theory

Rick Ericson


My References

Other Applications of Microeconomic TheoryRecent and Current Research

I Modeling international strategic interaction with ordinalbi-matrix games (“Theory of Moves”– Brams 1994,Willson 1998) and their “Ultimate Outcome” solutionconcept, developing a program to solve all such 2-playergames. Applied to:

I Refugee crises: Zeager, Ericson, Williams (2013)I Russian-Western strategic interaction over Ukraine:Ericson, Zeager (2015)

I Welfare impact of macroeconomic shocks:I Interest rate and productivity shocks in a DSGE modelof a small open economy: Ericson, Liu (2012a,b)

I Decision making in the face of catastrophe: the impactof ‘ambiguity’: Ericson, Kruse (2016?)

I Tractable models of agent behavior in the face ofextreme uncertainty.


Theory

Rick Ericson


My References

References: Plan Implementation

I Ericson (1982), “Inventory Stability and Resource Allocationunder Uncertainty in a Command Economy,”Econometrica,V. 50, #2, March 1982, pp. 345-376.

I Ericson (1983), “A Diffi culty with the Command AllocationMechanism,”Journal of Economic Theory, V. 30, #1,October 1983, pp. 1-26.

I Ericson (1984), “The ‘Second Economy’and ResourceAllocation under Central Planning,” Journal of ComparativeEconomics, V. 8, #1, March 1984, pp. 1-24.

I Ericson (2006a), “Command vs. Shadow: The ConflictedSoul of the Soviet Economy;”Comparative EconomicSystems, V. 48, #1, March 2006, pp. 1-17.

I Ericson (1990), “The Soviet Statistical Debate: Khanin vs.TsSU,”Chapter 2 in H.S. Rowen and C. Wolf, eds., TheImpoverished Superpower: Perestroika and the SovietMilitary Burden, (San Francisco, CA: ICS Press, 1990).


Theory

Rick Ericson


My References

References: Russian Economic TransformationI Ericson (1999), “The Structural Barrier to Transition Hiddenin Input-Output Tables of Centrally Planned Economies,”Economic Systems, V.23, #3, September 1999, pp. 199-224.

I Ericson (2000), “The Post-Soviet Russian Economic System:An Industrial Feudalism?”Chapter 6 in Tuomas Komulainenand Iikka Korhonen, eds., Russian Crisis and its Effects(Helsinki: Kikimora Publications, 2000), pp. 133-66.

I Ericson, Ickes (2001), “A Model of Russia’s ‘VirtualEconomy’,”Review of Economic Design, V. 6, #2, 2001, pp.185-214.

I Ericson (2002), “The Russian Economy: Market in Form but“Feudal” in Content?”Chapter 1 in Michael Cuddy andRuvin Gekker, eds., Institutional Change in TransitionEconomies (London, UK: Ashgate, 2002), pp. 3-34.

I Ericson (2006b), “The Russian Economy,” in WolfgangDanspeckgrüber, ed., Perspectives on the Russian State inTransition (Princeton, NJ: Princeton University Press, 2006),pp. 112-162.


Theory

Rick Ericson


My References

References: Enterprise and Industry Dynamics

I Ericson, Winston (1983), “Predatory Capacity Expansion in aDeregulated Motor Carrier Industry,” in T. Keeler, ed.,Research in Transportation Economics, (Greenwich, CT: JAIPublishing Co., 1983), pp. 1985-235.

I Ericson, Pressman (1988), “A Stochastic Model of OptimalInvestment in New Technology and Competition,” in V.I.Arkin and P.K. Katyshev, eds., Mathematical Modeling ofControl Processes under Uncertainty, (Moscow, USSR:CEMI, 1988). [in Russian].

I Ericson, Pakes (1995), “Markov Perfect Industry Dynamics:A Framework for Empirical Work,”Review of EconomicStudies, V. 62, #1, January 1995, pp. 53-82.

I Pakes, Ericson (1998), “Empirical Implications of AlternativeModels of Firm Dynamics,” Journal of Economic Theory, V.78, #1, 1998, pp. 1-45.


Theory

Rick Ericson


My References

References: Some Recent WorkI Ericson (2009), “Eurasian Natural Gas Pipelines: ThePolitical Economy of Network Interdependence,”EurasianGeography and Economics, V. 50, #1, 2009, pp.28-57.

I Zeager, Ericson, Williams (2013), Refugee Negotiations froma Game-Theoretic Perspective, (Dordrecht, The Netherlands:Republic of Letters, 2013).

I Ericson (2013a), “Command Economy and its Legacy,”Chapter 3 in M. Alexeev, S. Weber, eds., Handbook of theRussian Economy (London: Oxford University Press, 2013)pp. 51-85.

I Ericson (2013b), “Demise of the Soviet Union,”Chapter 28in R. Parker, R Whaples, eds., The Handbook of MajorEvents in Economic History (New York: Publisher, 2013), pp.330-349.

I Ericson, Zeager (2015), “Ukraine Crisis 2014: A Study ofRussian-Western Strategic Interaction,”Peace Economics,Peace Science and Public Policy, V. 21, #2, April 2015, pp.153-190.


Theory

Rick Ericson


My References

Other Economic Theory

I Ericson, Fusaro (2010), “The Welfare Economics of ‘BounceProtection’Programs,” Journal of Consumer Policy, V. 33,#1, 2010, pp. 55-73.

I Ericson, Liu (2012a), “Welfare Effect of Productivity Shocksand Policy Implications in a Small Open Economy,”Perspectives on Global Development and Technology, V. 11,#2, 2012, pp. 290-319.

I Ericson, Liu (2012b), “Welfare Effect of Interest Rate Shocksand Policy Implications,”Applied Financial Economics, Vol.22 (22), October 2012, pp. 1899-1917.

I Ericson, Kung (2015), “Fundamental Non-Convexity andExternalities: A Differentiable Approach,”Berkeley Journalof Theoretical Economics (Topics), 2015, #1, pp. 49-62.