Economics by neophyteblogger

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									A Closer Look

at Business Education
April 2007

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: Economics
INTRODUCTION:

Economic concepts such as market efficiency, competition, externalities, public versus private goods, and Pareto optimality are essential to a rigorous understanding of business functioning. A strong background in the discipline can aid managers in understanding not just corporate performance, but also offer substantial insight into such complex- yet business-relevant- global issues as immigration and climate change. Exposure to economic principles is a fundamental and mandatory element of MBA education today, but students do not always recognize the importance of the field or appreciate the academic rigor it requires. 1 In an early survey of business school administrators, respondents were divided on whether courses within the discipline were popular or unpopular amongst students.2 For those who responded affirmatively, the most important reason cited (42%) was the quality of instruction. On the other hand, the tendency for Economics courses to be highly theoretical was named as the most popular response (30%) for why the discipline was unpopular with their student body. One current method of grounding economic theory is by supplying relevant, real-life examples that focus on social impact management issues. When studying real-life examples is combined with excellent instruction, student interest in the subject is piqued.3 The Aspen Institute’s Beyond Grey Pinstripes data reveal a good number of MBA classes that integrate social and environmental themes into core and elective Economic coursework with both a macro and micro focus. This Closer Look edition shares teaching ideas and materials that broach this pedagogical intersection.
THE BOTTOM LINE:

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Managerial Economics courses which “seek to merge microeconomic theory with quantitative tools to solve managerial problems” are now conventional in the core MBA curriculum. These courses tend to be more grounded in application than traditional fundamentals courses, and offer much opportunity for the integration of socially and environmentally relevant examples. 4 Game theory, in short the formal analysis of strategic social interaction and a current Economics cornerstone, is being utilized in a fair amount of MBA Economics courses. The field offers great opportunities for studying social choices amongst rational actors. Those reporting game theory instruction in the classroom are Yale, Notre Dame,

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For example, the Association to Advance Collegiate Schools of Business suggests that curricula address “domestic and global economic environments of organizations” in its Standards for Business Accreditation: <http://www.aacsb.edu/accreditation/process/documents/AACSB_STANDARDS_Revised_Jan07.pdf>. 2 Gregorowicz, Philip and C. Hegji. “Economics in the MBA Curriculum: Some Preliminary Survey Results,” Journal of Economic Education. Vol. 29, Issue 1; pp. 81-88, Winter 1998. 3 It would be fascinating to learn if student reviews of economic professors and classes have improved over the past decade, seeing as the high salaries and competition for Economics Ph.D.’s have only increased. See, for example, “The Competition for Economics Ph.D.’s” from the Chronicle of Higher Education: <http://chronicle.com/jobs/news/2002/06/2002060601c/careers.html>. 4 Quote taken from Daniel Marburger’s “Making Managerial Economics Relevant to the MBA,” <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=471060>, p. 2.

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A Closer Look

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Stanford, Dartmouth, Columbia, Presidio World College, and Cal. Poly Orfalea College of Business. 5 ■ Fascinating topics in this space currently range from the impacts of cross-border capital flows and distribution of wealth issues to community impacts of downsizing and achieving sustainable economic growth at a national scale. 6

A FACULTY POINT OF VIEW:

David Levine is the Eugene E. and Catherine M. Trefethen Professor of Business Administration at the Haas School of Business, University of California, Berkeley. He has received the school’s Earl F. Cheit Award for Excellence in Teaching twice, and has held visiting positions at the Sloan School of Management, the U.S. Department of Labor, and the Council of Economic Advisors. On student interest in Economics at the MBA level: “I teach macroeconomics to MBAs and they are interested in economic crises, causes of long-term growth, global warming, unemployment, etc. At the same time, their interest is higher with examples from India or China (where they plan to do business) than sub-Saharan Africa or Mongolia.” On current scholarly research: “There is a vast and growing academic literature using economics to study environmental and social concerns. Topics range from global warming to global trade and development to whatever you can imagine.” Yossi Feinberg is an Associate Professor of Economics at the Stanford Graduate School of Business. He received the school’s MBA Distinguished Teaching Award in 2003 and is currently an Associate Editor of the Journal of Economic Theory. On the integration of environmental and social issues in Economics curricula: “I am not sure I see a trend, but there is extensive incorporation of environmental, ethical and social issues in the courses I teach. We discuss externalities as they apply to environmental issues and present not only the Coasian approach, but also the limitations of market solutions. These issues also come up when discussing price discrimination, production in other countries and so on. We have a large constituency of socially active students and it is fascinating and rewarding to watch them learn and harness economic principles.” 7

NOTABLE COURSEWORK:

The following course descriptions are drawn exclusively from Beyond Grey Pinstripes, a research survey conducted biennially by the Aspen Institute. ■ ESADE Business School Trade and Investment in the World Economy (Core Course) Instructor: Luis de Sebastian “The course on “Trade and investment in the world economy” does not confine itself to the commercial and financial problems of the U.S.A., Japan and the EU, but attaches great importance to the trade problems (protected agricultural markets, agricultural multinationals) and the financial

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<http://www.gametheory.net> is a good resource for those interested in learning about this field of study. These issues are drawn from coursework submitted in the 2005 edition of Aspen’s Beyond Grey Pinstripes. 7 For a simple description of the Coase Theorem, see the University of Chicago’s Law School website: <http://www.law.uchicago.edu/socrates/coase.html>.

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problems (foreign debt of the poorest counties, development aid) which affect the poorest members of the world’s population. The course champions an international economic and financial order that transcends the current limits of the Bretton Woods institutions (IMF, WB, WTO), and draws attention to the general changes that should be made within these and other multilateral organizations, in addition to the policies that the rich countries could adopt in order to ensure a fairer distribution of the planet’s wealth. Various recent crises, such as that of Argentina, are analyzed and compared.” ■ The University of North Carolina at Chapel Hill, Kenan-Flagler Business School Macroeconomics (Core Course) Instructor: Gregory Brown “ Social and environmental impacts are weighed in discussions about the implications of global economic trends and policies. For instance, in the context of macroeconomic theory, the class includes discussion of how the GDP and other economic indicators may not correctly take into account certain externalities (e.g., environmental impacts) or transactions (e.g. a mother who decides to stay at home and take care of her child is a negative to the GDP, but the same work is still being done). The assignments, which are drawn from current global economic news, often incorporate social and environmental issues (for instance, one assignment studied whether or not economic growth was good or bad for the environment).” Nottingham University Business School Managerial Economics and Business Policy (Core Course) Instructors: Wendy Chapple and Leigh Drake “Social impacts are explicitly addressed when considering the nature of the firm and its objectives. The course also discusses the nature of externalities, the causes of market failure, and the implications for government intervention and voluntary engagement in social and environmental programmes by firms. An important element of the course is the application of economic theory to practice, and one of the main cases used in teaching centres on the economic arguments for and against government intervention to address global warming through the Kyoto protocol.” Wake Forest University, Babcock Graduate School of Management Macroeconomics (Core Course) Instructor: Sherry Jarrell “Building on the foundation established in Managerial Economics, this spring semester module focuses on the role of the United States in the world economy with special emphasis on world trade, the international flow of funds, monetary and fiscal policy, and the business cycle. Social impact discussions revolve around the impact of taxes and inflation on standard of living and how measures of economic well-being fall short of society’s measure of the real quality of life. Environmental issues include the impact of energy prices on alternative sources of energy.” The University of South Florida at St. Petersburg, College of Business Environmental Economics and Policy (Elective Course) Instructor: Antoinette Criss “I begin with a review of economic theory - principally, under what circumstances markets function well and under what circumstances do markets fail - in order to lay the foundation for environmental policy. Then I discuss government regulation in its two distinct approaches: command-and-control and market-based. Next is a discussion of risk analysis, which leads into benefit-cost analysis. Here we must determine how benefits and costs are identified for environmental decision making in order to conduct benefit-cost analysis. Finally, we move into the application section of the course where we can use economic theory, regulatory analysis, and benefit-cost analysis to address particular environmental management issues. We look at global air quality issues - why international agreements concerning ozone depletion and greenhouse gases are vastly different. We discuss the role of international trade and international agreements in the problem of sustainable development. Lastly,

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we look at industrial ecology and pollution prevention, two approaches that are compatible with the concept of sustainable development.” ■ Stanford Graduate School of Business International Development (Elective Course) Instructor: John McMillan “Half of the world's people, living on less than $2 a day, barely have enough to eat. This course examines global poverty from a business-school point of view: i.e., starting from the proposition that nations are poor because their markets and firms aren't working as they should. The questions range from how to do business in an emerging economy to what policies could reduce global poverty. We examine the role that management, both private and public, may play in solving these problems. Putting business school tools to work is a major theme throughout the course. This course examines the economies of various developing countries throughout the world and encompasses numerous issues including civil rights/liberties, entrepreneurship as a means to solve poverty, government regulation, corruption, health care, etc.” Yale School of Management Energy Economics and the Environment (Elective Course) Instructor: Erin Mansur “The course begins with an overview of energy markets and an introduction to the economics of extracting nonrenewable resources. In the second section, the class looks into the environmental implications associated with energy and methods regulators use to correct for these market failures. In particular, we examine the economics of air pollution and climate change. The next part of the course covers investment in renewables. We discuss what regulations have been used to encourage investment and examine their effectiveness. The final section includes lectures on the economics of transportation (e.g., CAFE standards), and of energy conservation (e.g., DSM programs). In each section, lectures will cover the economics behind a particular energy issue and then will be followed by a class discussion about related case studies or articles.” For additional courses on related subjects, or to download select syllabi, search 1,672 descriptions at Beyond Grey Pinstripes.

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NOTABLE TEACHING MATERIALS:

Materials referenced are meant to represent the diversity of related teaching resources available at Caseplace.org. Most are available as free downloads to registered faculty members. ■ Working Paper: “Economics Wins, Psychology Loses, and Society Pays” Authors: Max Bazerman and Deepak Malhotra Source: Harvard Business School: Negotiation, Organizations and Markets Unit, 2005 “Economics is the social science that dominates public policy debate and formulation. Economic assumptions lay the foundation for policy initiatives and economic principles provide the framework for design of regulations that govern our society. We argue that other social sciences, and in particular psychology, have a great deal to offer, and that our failure to incorporate the lessons from other social sciences leads to inferior public policy. The chapter outlines five predominant myths, adapted from pervasive economic assumptions, which serve as guiding policy principles and destroy value in society. We elaborate on the consequences of our over-reliance on these myths, and demonstrate how psychological lessons and insights might inform policy decisions.”

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Teaching Module: Synergies Between Business Opportunity and Community Development Author: Maureen Scully Source: CasePlace.org, 2006 This Teaching Module offers cases and readings in four areas in which business opportunities in cities have worked synergistically with economic development aims: banking, insurance, supermarkets, and health care. The cases show a mix of roles for business: business as the primary driver of economic development through its market operations; business in partnership with non-profit organizations to identify, stimulate, and legitimate business opportunities; business in partnership with government agencies or prompted to action by government regulations such as the 1977 Community Redevelopment Act. Porter's article supports the logic of business as the driver. A reply by Professor Bennett Harrison, in Technology Review, argues that business alone cannot drive economic development. These articles as a pair can stimulate classroom discussion. Teaching Module: Market Failures Author: Neva Goodwin Source: CasePlace.org’s Corporate Governance and Accountability Project, 2006 Some managers believe that they need not concern themselves with social and environmental issues because markets can be trusted to enforce efficiency and make businesses serve the social good. While economists point out that markets often lead to beneficial results, economists also know that such results only occur if certain assumptions hold. Consideration of any of a number of real world factors greatly complicates the story. ■ ■ Do the most frequently taught economic and financial metrics give us the range of information and tools we need to manage corporations for long-term sustainability? To what extent do business students consider attempts by professors to integrate environmental and social themes into Economics coursework as relevant and important to their business education? How can/do faculty frame the lessons of macroeconomics in ways that feel relevant and usable for individual managers of individual companies, and not limited to the realm policy makers?

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ONGOING QUESTIONS:

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RESOURCES:

BeyondGreyPinstripes.org – World’s biggest MBA database, including detailed records on 1,672 courses, 1,730 extracurriculars, and 216 research articles at 128 schools on six continents. CasePlace.org – A free and practical on-line resource for up-to-date case studies, syllabi, and innovative teaching materials on business and sustainability. Created for the educators who will shape our next generation of business leaders!
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A Closer Look is a monthly series of briefing papers on topical issues in MBA education, based on the research and programs of the Aspen Institute. The Aspen Institute Business and Society Program works with senior corporate executives and MBA educators to prepare business leaders who will effectively manage the financial, social, and environmental impacts of the private sector.

Contact Justin.Goldbach@aspeninstitute.org to order reprints or to offer feedback.

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