Essay Winner: Maggie Kennon

Earlier this semester, the Econ dept hosted an essay writing contest inviting students to explore, advance, apply, or illustrate an idea that they found most appealing, counter-intuitive, or poignant in their economics classes. We had 4 winners in no particular order:

• Kealan Vasquez
• Niklas Jenkins
• Max Bodach
• Maggie Kennon

As winners of the essay contest, the students attended the Southern Economics Association conference in late November and they'll have their essays published here. So, without further ado:

Ms. Maggie Kennon: Innovation as the Final Frontier Ideology

One of the most intriguing topics covered in macroeconomics is growth. Long run economic growth, an increase in productivity, is practically synonymous to an increase in technological innovation. In both the endogenous, 𝑌=𝐴𝐾, and exogenous, Δ𝑌/𝑌=Δ𝐴/𝐴+𝛼𝐾(Δ𝐾/𝐾)+𝛼𝑁(Δ𝑁/𝑁), production functions, technology, or A, directly affects output. That is, a percentage increase in technology will lead to the same percentage increase in output. It seems simple to say increasing A will increase productivity, but since there are so many factors that affect technology, the study of economic growth is complex. One such factor that has particularly shaped the American economy is culture.
American culture is defined by a sort of frontier ideology. When Alexis de Tocqueville visited early America, he wrote about a society unlike any he had encountered. He explained this difference as a difference in mores, translated as manners, which is the culture of a country defined by its habits and beliefs. The American mores was encompassed by a spirit of adventure, initiated by the pilgrims that is continued even today. This spirit of adventure could be called a frontier ideology; it is the idea that new possibilities and great rewards are available to those who take risks. The pioneers were those who sought a physical frontier, which continued until America was settled from coast to coast, but the absence of a physical frontier did not signify an end to this frontier ideology. It became manifested in free enterprise and equal opportunity.
This ideology was re-imagined as the American Dream, or the idea that everyone has an equal opportunity to earn reward when risk is taken. America is the frontier of possibility and opportunity, and entrepreneurs became the new pioneers. The frontier was no longer about the quest for land, but about the quest for ideas and innovation.
To appreciate just how much America’s culture has impacted its economic growth, consider other ways in which productivity increases. Increasing capital and labor should increase productivity, but they do not have the long-term effect of technological innovation. By the law of diminishing marginal returns, increasing capital or labor will at some point have very little marginal effect on productivity.
Furthermore, the economy tends to remain at an equilibrium, or steady-state level of capital, where saving per capita is equal to investment, or when enough capital is being invested to replace that which is depreciating and to compensate for the growth in population. Adding capital beyond the steady-state level will not have a long-term effect on productivity because the level of capital will converge to the equilibrium level. Without technological innovation, there would be no real growth in the economy.

Essay Winner: Max Bodach

Earlier this semester, the Econ dept hosted an essay writing contest inviting students to explore, advance, apply, or illustrate an idea that they found most appealing, counter-intuitive, or poignant in their economics classes. We had 4 winners in no particular order:

• Kealan Vasquez
• Niklas Jenkins
• Max Bodach
• Mairead Kennon

As winners of the essay contest, the students attended the Southern Economics Association conference in late November and they'll have their essays published here. So, without further ado:

Mr. Max Bodach: How Economics Solved Famines

My time studying economics as part of the Political Economy & Government major has been extraordinarily fruitful. One idea that has consistently stuck in my head from the very first time we discussed it in Dr. Bartsch’s Principles of Macroeconomics class is the idea of how international trade and the price system virtually eliminate the prospect of famines.

Famines have been with the human race for nearly all our history. Chapter 47 of Genesis relates how Joseph, serving as Pharaoh’s chief executive, expropriated all Egyptian land except for priestly holdings and then levied a 20 percent tax on all grain production in order to stockpile for famines. Famines ravaged European populations, notably in mid-18^th-century Ireland, and sparked mass migrations. Millions of people in the developing world died due to malnutrition and starvation. The scourge of famine has stalked us for millennia, claiming billions of victims.

While many solutions have been proposed and experimented with, only one solution has actually demonstrably reduced the incidence of famines significantly. The twin innovations of international trade and a price system solve a problem that has consistently bedeviled humanity.

Prices communicate an enormous amount of information to an enormous number of people. They incorporate supply of a particular product, demand for a particular product, and the expectations of both producers and consumers in how the price will change. The communication of scarcity is particularly helpful in the famine context because food producers know where to direct their resources in order to take advantage of rising prices (and therefore rising profits). They also help food consumers decide how to allocate and prioritize their scarce resources in order to achieve maximum utility in any given situation,

However, in order for the price system innovation to function effectively, trade liberalization must be in force. Free international trade (or at least trade without significant barriers) enables producers in food-rich countries to meet food demand in diverse markets across the world, which helps stave off famines before they even begin. International trade, prices, and an interconnected world have prevented more famines than ever before in history.

The only famines that occur in the modern era are caused by armed conflict. This is a massively underappreciated aspect to daily life that improves the outcomes of millions of people worldwide. The abstract insights that come from a systematic study of economics have a concrete consequence in millions of lives. This insight helped me understand the value of economics and of economic thinking more broadly, and I am grateful to Dr. Bartsch for explaining it more eloquently than myself.

Essay Winner: Niklas Jenkins

Earlier this semester, the Econ dept hosted an essay writing contest inviting students to explore, advance, apply, or illustrate an idea that they found most appealing, counter-intuitive, or poignant in their economics classes. We had 4 winners in no particular order:

• Kealan Vasquez
• Niklas Jenkins
• Max Bodach
• Mairead Kennon

As winners of the essay contest, the students attended the Southern Economics Association conference in late November and they'll have their essays published here. So, without further ado:

Mr. Niklas Jenkins: Free Trade and Comparative Advantage: Their Importance for the Common Good

The relationship between free trade and comparative advantage deserves a great deal of attention, as it provides the most productive method for mutually beneficial cooperation. They mutually enable each other and encourage specialization to produce more goods more efficiently. This idea, always important, has become particularly crucial in the Information Age, where improved technology allows for much easier trade over long distances and further increases the potential benefits of specialization. However, there are those who would selfishly hurt the rest of society and the world to protect their own interest and restrict the free market. There should be a push-back against such attempts, as it is deeply harmful to the economy at any scale. Free trade and comparative advantage are basic building blocks of a competitive market that work together amazingly well, and should be protected from the interference of self-interested groups.  

In order to understand the importance of the relationship between these two ideas, we must first delve further into them. Free trade essentially means the removal of political barriers to the exchange of good between nations, while comparative advantage refers to the ability of an individual or group to produce a good efficiently relative to others. These are both important to the maximization of total welfare. Comparative advantage lowers costs, thus also lowering prices, and free trade ensures that it is much easier to buy at those lower prices. A nation or group with a comparative advantage in producing a good is thus incentivized to specialize in production of that good, enabling each country to produce where they are relatively most productive. It acts as a larger scale example of removing entry barriers in a smaller scale economy, leading closer to a global version of perfect competition. As perfect competition maximizes welfare, and best encourages a properly functioning and unrestricted market, this seems desirable on a larger scale as well. Therefore, these two functions should be strongly encouraged by all governments. 

Free trade and comparative advantage grow in importance in the Information Age, where improvements in technology and communication increase the potential gains from both. A greater variety of goods and capital means that specialization is even more important, and comparative advantage grows more pronounced as advanced countries are better able to produce high-tech products. As an example of how this results in an improvement overall, better manufacturing opportunities have appeared for less advanced countries. The overall economic growth from various sources also means the magnitude of this improvement will be greater. 

However, there are challenges that must be met to enable this growth. Some groups will be hurt by the additional free trade, as some firms that may previously have been able to sell domestically lose that market due to the greater availability of cheaper foreign goods. This will hurt those firms and their employees to a potentially significant extent. While in the long term it will have good effects such as encouraging more investment in areas with a comparative advantage, in the short term problems such as unemployment do arise. This provides an incentive for some groups to try to prevent free trade. The easiest path to this goal is through lobbying the government for measures like tariffs and quotas that benefit the affected sectors to the detriment of everyone else. Producers in particular benefit from such legislation, which is problematic as they have the resources and unity to make lobbying much easier. Therefore while free trade and comparative advantage are highly beneficial, the problem becomes more complicated in practice.

Overall, the takeaway should be that while challenges will arise, encouragement of free trade and specialization will be for the overall good. Through them, everyone who participates will be better off in the long run with patience. Attempts to attack the practice of these ideas both attacks the freedom of the market and causes long term harm in service of short term considerations.  

Our Economics Honors Theses

This past semester we had 3 students taking Econometrics who took their first major step toward a great honors thesis. I'm excited to see what these young ladies conclude. Below are their abstracts. If you encounter these young scholars out in the wild, then be sure to ask them about their research!

(Also, please subscribe to our blog posts by entering your email address to the right of the post)

Mary-Kathleen Dowling-Parra
Micro and Small Enterprise Financing in Peru

Microfinancing is often seen as the answer to providing financial security and empowerment to small business owners who often would not have access or be unable to obtain loans or credit otherwise. In this study, I test the impact of financing on micro and small businesses in Peru to evaluate whether it truly helps marginalized business owners and increases their business profits. Using Micro and Small Business Surveys from Peru's National Institute of Statistics and Information, I examine which demographics are most likely to receive financing as well as what type of financing increases a business’s profits the most. I consider the owner’s gender, age, and education as well as the age of the business, its technology, number of employees, and their training. I find that male owners were more likely to receive financing than women - though there is no evidence that this is due to discrimination or different barriers to access. The characteristic that most increases the likelihood of an owner receiving financing is when an owner has received business training. As I further my study, I will explore where there is a gender difference in the type of financing that an owner receives how it affects micro and small businesses. 

Brianna Hougham
The Protection of Women against Domestic Violence Act and Children’s School Outcomes in India

Studies have shown the challenges children face after witnessing or falling victim to domestic abuse. There is high incidence of violence at home in India, with fifty-two percent of women believing it is okay for a man to beat his wife. This violent home environment can have detrimental effects on children and their school outcomes. I examine whether the implementation of the Protection of Women against Domestic Violence Act (2005) had a positive impact on children’s school outcomes. My study uses panel data of school age children from the 2006 and 2012 Indian Human Development Survey. Additionally, I use data from the Fourth Monitoring and Evaluation Report 2010 on the Protection of Women from Domestic Violence Act of 2005, which reports data on the number of protection officers and the state-level estimated budget set aside towards implementation of the act. I study whether increased budgets and a greater numbers of protection officers help in improving school outcomes for children. My preliminary findings show that states with enforcement of Protection Officers increased children’s attendance in school. An increase in the budget, however, led to a decrease in children’s school attendance, suggesting that budgets for education were decreased in order to fund the act. 

Julia Wool

The Effect of Government and Industry Funding on the Antibiotic Discovery Void

Does increased government health funding impact the discovery of new antibiotics? Previous studies state the importance of antibiotic research given the growing concern of antibiotic-resistant infections.  Researchers point to a void in the discovery of new antibiotics that began in 1987 and has continued to the present.  The consensus in the literature is that the lack of government and private funding has been a significant contributor to this void.  To examine this I use health data from the National Science Foundation on research and development expenditures broken down by type of research: basic, applied, and development.  My preliminary descriptive statistics show that since 1953 all three types of funding by the federal government have increased.  For the private industry my findings show that both applied and development research and development have increased while basic research and development has stagnated. The preliminary findings from my Probit model show a negative and statistically significant relationship between government funding and the discovery of new antibiotics.  However, this result is not consistent with the theory. Therefore, in a future extension, I plan to extend my model to control for regulations that could have disincentivize the discovery of new antibiotics by the private sector.

Balser Recording

In case you missed it, below is a link to the audio recording of the Drs. Balser talk in which he discusses maternity leave and maternal health. Unfortunately, we are unable to release his lecture on the promotion gap.

Audio starts at about 8:40:

Hosting Drs. Cary Balser

The Ave Maria Economics department is happy and excited to announce that it will be hosting Drs. Cary Balser of the University of Notre Dame in order to discuss maternity leave, the gender gap, and maternal health. We are very thankful to AEI and the James Madison institute for co-hosting this event. All members of the Ave Maria community are welcome and light refreshments will be served.

Essay Winner: Kealen Vasquez

The Ave Maria University Economics department is proud to publish its first blog post. We could bore readers with archaic nuances concerning economics, or with trivial and in-offensive content about something uninteresting.  Instead, our first post will be from one of our students.

Earlier this semester, the Econ dept hosted an essay writing contest inviting students to explore, advance, apply, or illustrate an idea that they found most appealing, counter-intuitive, or poignant in their economics classes. We had 4 winners in no particular order:

• Kealan Vasquez
• Niklas Jenkins
• Max Bodach
• Mairead Kennon

As winners of the essay contest, the students will attend the Southern Economics Association conference in late November and they'll have their essays published here. So, without further ado:

Mr. Kealen Vasquez: Some Thoughts on Risk and Utility Functions

Utility Functions are crucial to understanding risk-aversion and risk-seeking behaviors. A risk-averse person has a concave utility function, such that losing money decreases utility more than gaining the same amount of money would increase utility. This idea makes intuitive sense: one might expect the average person to balk at the idea of betting $100 at the flip of a fair coin. Losing $100 hurts a risk-averse person more than gaining $100 benefits them.

Often I’ve thought about what my own personal utility function might look like, in order to understand why I feel inclined to make specific decisions. I have found that the state lottery has been a useful avenue with which to experiment with my preferences on risk. In particular, the Pick-4 game provides itself as a good measuring stick. In the game you choose 4 numbers, each between 0 and 9. There is no jackpot for Pick-4; instead they only have set prizes based on which game you decide to play. A “Straight” game, for example, costs 50 cents to play and you only win if you get the 4  numbers right and in the correct order. The prize for winning the “Straight” game is $2500 and the probability of winning 1 in 10,000, meaning the expected value of the ticket is 25 cents, which is less than the cost for the ticket. 

Alternatively, I could play “Box” games, in which one wins by getting the numbers right in any order. Then, for example, all 12 combinations of my numbers 5-0-4-0 can win, but the prize is only $200, about one twelfth the“Straight” prize. Thus the expected value is still about 25 cents, but the prize is distributed in a different way. In fact, Pick-4 sets all of is prize amounts so that every ticket has an expected value of about 25 cents, rounded to make uniform prize amounts. This makes the game an

excellent measurement of risk preferences: because every ticket has the same expected value, they only differ in deviation, a very basic yet intuitive measure of risk. I noticed in my behavior that I first started playing the “Straight” games, but I decided early on that the “Box” games were more worthwhile, at least for me. Using these kinds of decisions as data, I, playing enough lottery, might be able to better estimate my utility function.

The fact that I feel justified in even playing this lottery game means that at low values of money, I am risk-seeking, and my utility function is convex. However, I know that at large values of money, I am risk-averse: for example, I would not place a $100 bet on a fair coin toss. Then my utility function must at one point flip from being convex to concave, forming a kind of “S” shape. I suspect that this point for me is likely less than $1, because I find it difficult, if not impossible, to save pocket change without losing it. On low values of money then I must be placing very low--negligible, even--values of utility. I’ll call those values for which my utility function is convex “petty money”. Millions of people play the lottery each and every day, so it seems fair to assume that it is not abnormal to see people with utility functions that start convex and flip to concave at a certain point. I’d like to speculate that for each person there is a range between $0 and some positive amount that counts as “petty money”, for which values the person is risk-seeking, before their utility function turns concave. 

Traditionally, one might view a risk-seeking person as reckless and impulsive, but it could be the case that a person who is risk-seeking at higher values just has a larger range for “petty money”. Then risk-seeking behavior might be an indicator of security, or even wealth.