The Gender Gap in Economics

While preparing my applications for graduate studies in Economics, I noticed that most of the programmes are male-dominated. They tend to have a 70-30 (male-female) distribution or less. Considering that the majority of those enrolling at university nowadays are female (Royal Economic Society, 2014), this is a rather striking result. What is more, following the reasoning of Akerlof and Kranton in their 2011 book Identity Economics, such a gender dominance may take a long time to reverse if the minority group is deterred from entering the profession. A recent article also highlights why society would benefit from an increase in females choosing a career economics:

Economics has a serious gender problem – it needs more women

In the article, Victoria Bateman – a lecturer and fellow in Economics at the University of Cambridge – aptly notices:

While economists like to think of their discipline as being gender neutral, the reality is that economists have looked at the world around them through male eyes – and rather privileged male eyes at that.

While Economics investigates gender gaps in a variety of settings, our profession has yet to raise awareness of its own gender gap, taking more measures to encourage females to choose a career in Economics.



Akerlof, G.A., and Kranton, R.E. (2011). Identity Economics: How Our Identities Shape Our Work, Wages, and Well-Being. Princeton: Princeton University Press.

Bateman, V. (2016). Economics has a serious gender problem – it needs more women. Available at:

Royal Economic Society (2014). The gender gap in economics enrolment: where does it arise. Available at:


Endogenous Preferences

Today’s post is going to be related to my research for my Honours dissertation. I have decided to look into risk attitudes for my dissertation because this area has gained momentum recently with more and more studies confirming a positive link between the macroeconomic environment and individuals’ risk attitudes.

One of the topics in my literature review is preference stability and what standard economic theory has to say about this. The textbook story is that agents have ‘exogenous preferences’, meaning that their preferences are determined outside the economic system. In this case one can think of agents’ preferences as inherited traits. Everyone is endowed with a certain set of preferences but they are stable over time. Yet economic theory often goes beyond this preference stability, assuming that these sets of preferences are also similar among people. Stigler and Becker in their well-known paper De Gustibus Non Est Disputandum (1977) propose that economists should regard people’s tastes as stable over time and comparable to other people’s tastes. They provide the following analogy for the ‘economics view’ on preferences:

On this interpretation one does not argue over tastes for the same reason that one does not argue over the Rocky Mountains-both are there, will be there next year, too, and are the same to all men. […] On our preferred interpretation […] the economist continues to search for differences in prices or incomes to explain any differences or changes in behaviour. (p.76)

Stigler and Becker’s paper exemplifies that standard economic theory has traditionally eschewed differences in preferences between people and changes in preferences of an individual over time from economic analyses. In 1998, Samuel Bowles saw this dominance of preference similarity and stability in economics as an opportunity to propose an alternative theory of ‘endogenous preferences’ in which he defines preferences as “reasons for behavior, that is, attributes of individuals that (along with their beliefs and capacities) account for the actions they take in a given situation” (p.78).

In the first step, Bowles recognised that every society – whether capitalist or communist – has some ‘allocation rules’; that is, a set of rules for the production and distribution of its goods and services. In the second step, Bowles argued that these allocation rules lead to characteristic interaction patterns in society and that these allocation rules shape human development and influence individuals’ personality, habits, tastes and values.

His alternative approach allowed Bowles to identify five important ways how economic institutions may have a significant impact on agents’ preferences; these are:

  1. Framing and situation construal
  2. Intrinsic and extrinsic motivation
  3. Effects on the evolution of norms
  4. Task performance effects
  5. Effects on the process of cultural transmission

While the first four reasons establish a direct link between economic institutions and preferences, the fifth is of indirect nature. The first reason for a link between economic institutions and individuals’ preferences is that institutions ‘frame’ the choices available to individuals. In particular, a market environment will be a significantly different frame compared to a non-market environment. This leads to behaviour and attitudes depending on the context (i.e. the frame). The second reason recognises the influence of extrinsic market rewards on individuals’ preferences. Bowles argues that, for example, a change in reward structures in society can also alter individuals’ motivations and attitudes. The third reason highlights that economic institutions have a significant impact on the evolution of norms which subsequently shape individuals’ preferences. Task performance effects are also of importance because the tasks which the agents carry out depend on the economy’s overarching economic institutions and how they structure work. Lastly, economic institutions indirectly shape the cultural learning process itself.

It is due to this five reasons that Bowles sees preferences as ‘endogenous’ rather than ‘exogenous’. In his view preferences are both inherited and learned. While the inheritance argument is in line with the reasoning of standard economic theory, the argument that preferences are learned is based on a ‘social interaction approach’. Important evidence for his view comes from examples like the conformist transmission of preferences. What is more, Bowles points out that ‘endogenous preferences’ are not only more realistic but have also macroeconomic policy implications. For example, he argues that preference endogeneity implies a new type of market failure and that these behavioural foundations, i.e. endogenous preferences, must feature in governance and policy making.

I reviewed Bowles theory of ‘endogenous preferences’ today because it potentially allows for a link between the environment and individuals’ risk attitudes, hence explaining phenomena time varying risk attitudes or countercyclical risk aversion. I hope this will prove valuable for my ideas in the field. Also, if you are interested to hear more about the research by Samuel Bowles, there is a talk he gave at the World Bank in 2014 on Economic Incentives and Social Preferences on YouTube which also features his work on endogenous as well as state dependent preferences.

Many thanks for reading!




Bowles, S. (1998). Endogenous Preferences: The Cultural Consequences of Markets and other Economic Institutions. Journal of Economic Literature XXXVI (March 1998), 75-111.

Stigler, G.J. and Becker, G.S. (1977). De Gustibus Non Est Disputandum. The American Economic Review 67(2), 76-90.

The Less-Cash Society

Today I finally got to enjoy the latest episode of Freakonomics titled Why Are We Still Using Cash? The episode is motivated by Kenneth S. Rogoff’s latest book ‘The Curse of Cash’. Rogoff is a Thomas D. Cabot Professor of Public Policy and a Professor of Economics at Harvard who has been working on the problems of cash for many years. He published his first paper in this area back in 1998 (Rogoff cited in Dubner, 2016). Today he also advises the International Monetary Fund among others and writes op-ed articles for The Wall Street Journal.

The essence of Rogoff’s new book is that the use of cash as a means of payment in our economy comes at a real social cost. In particular, Rogoff argues that cash facilitates today’s most pressing social problems of tax evasion and crime, as well as illegal immigration and terrorism. Tax evasion, for example, is facilitated by the anonymity and portability of cash, its widespread acceptance and liquidity compared to ‘alternative currencies’ such as diamonds or bitcoins. Similarly, crimes like drug trafficking escape notice and do not leave any record due to the anonymity of cash. In addition, the ability to carry big sums in large denomination bills is an important advantage for illegal activities. On the other hand, illegal immigration is indirectly driven by the use of cash. This is because cash allows illegal workers to be paid off the books while avoiding social security altogether (Rogoff, 2016e). Hence Rogoff argues that the advantages of cash, like anonymity, portability, liquidity and near-universal acceptance, actually encourage a vibrant underground economy. Cash does more harm than good for society and it makes us poorer (Rogoff, 2016b).

Yet cash has its merits in our economy. First and foremost, cash allows for financial privacy and gives people the freedom whether to participate in the banking system or not (Henry cited in Dubner, 2016). At the moment they have a choice between holding cash or depositing the amount in an account at a bank. Abolishing cash completely would force every individual in the economy to possess at least a basic debit card account. Other concerns include the need for cash in cases of emergencies such as power outages or natural disasters as well as the convenience of cash for very small transactions (Rogoff, 2016b). This is why Rogoff does not advocate a ‘cashless society’ but a ‘less-cash society’. Rogoff’s plan is most concerned about large denomination bills. They tend to have the biggest share in the total currency supply, as shown in the figure below which is available from the data companion website of Rogoff’s book (see references).

(Source: Rogoff, 2016a)

For example, in the US the largest banknote makes up almost 80% of the total currency supply. Yet the $100 dollar bill is rarely used for legal transactions, but a common means of payment for all sorts of illegal activities. Rogoff’s plan is to gradually phase out these banknotes, including 50 and 20 dollar bills in the far future, while keeping small denomination bills (Rogoff in Dubner, 2016). A second pillar of Rogoff’s plan is financial inclusion. In order to make the ‘less-cash society’ work, one needs to provide the poor with a free access to basic debit card accounts. While especially the poor rely on cash today, Rogoff points out that a ‘less-cash society’ would benefit these people disproportionately through the significant increase in tax revenues to be redistributed as well as the reduction in crimes (Rogoff, 2016b).

There are some countries like Sweden and India which are rapidly moving towards a ‘less-cash society’. India, for example, has paved the way for instant banking and financial inclusion to make the ‘less-cash society’ work (Nikelani cited in Dubner, 2016). Another example is the Eurozone. The European Central Bank announced the permanent production and issuance stop of the €500 banknote in May this year (ECB, 2016). However, the Freakonomics episode also points out that cash and access to cash is often seen as a human right (Arvidsson cited in Dubner, 2016). People tend to like their cash; it contributes to the identity of a nation and may have a longstanding history. That is why a ‘less-cash society’ as advocated by Rogoff seems to be a well-conceived plan to balance cash for small transactions with cashless payment for large purchases and other economic activities.

A ‘less-cash society’ might even have another benefit related to the efficiency of monetary policy. Rogoff explains that central banks would be able to control the economy more effectively. This is because it would lessen if not eliminate the zero lower bound on interest rates. It would make the manipulation of the interest rate a more efficient tool to stabilise the economy. It could be more effective at avoiding a deflationary spiral and at kick-starting the economy by stimulating demand through negative interest rates (Rogoff, 2016e).

I must say that I used to take a rather nostalgic viewpoint in this argument; plus preferring the convenience of cash for small transactions. However, the scale of currency outstanding and, in particular, the high proportion of large denomination bills makes me think twice about how much cash is optimal for society. Rogoff has done an outstanding job in showing the unintended consequences of the advantages of cash. Now it is up to governments and society whether to take in his insights. The judgment of whether the social costs of cash outweigh the benefits is unlikely to be an easy one. Yet, recognising that cash is a major driver of tax evasion, crimes, illegal immigration and terrorism among other things is probably the starting point for moving towards Rogoff’s plan of a ‘less-cash society’.




Dubner, S.J. (2016). Why Are We Still Using Cash? Freakonomics Radio, [podcast] 28 September. Retrieved from: [Accessed 02/10/2016]

ECB (2016). ECB ends production and issuance of €500 banknote. Retrieved from: [Accessed 02/10/2016]

Rogoff, K.S. (2016a). Figure 3.5: Share of largest banknote in total currency supply [dataset/figure]. Retrieved from: [Accessed 02/10/2016]

Rogoff, K.S. (2016b). The Curse of Cash: An interview with Kenneth Rogoff by Debra Liese. Princeton University Press Blog, 25 August. Retrieved from: [Accessed 02/10/2016]

Rogoff, K.S. (2016c). The Curse of Cash: An interview with Kenneth Rogoff (Part II) by Debra Liese. Princeton University Press Blog, 26 August. Retrieved from: [Accessed 02/10/2016]

Rogoff, K.S. (2016d). The Curse of Cash. Princeton: Princeton University Press.

Rogoff, K.S. (2016e). The Sinister Side of Cash. Wall Street Journal Online, [online] 25 August. Retrieved from: [Accessed 02/10/2016]

Schelling’s Masterpiece Micromotives and Macrobehavior

Being back in Glasgow for my fourth and final year at university I got myself a copy of Thomas C. Schelling’s Micromotives and Macrobehavior (1978) from the Andersonian library. I picked the book first and foremost as an introduction to behavioural approaches in Macroeconomics. However, one may regard it also as a critique of New Classical Economics.

Today I want to talk about the first chapter which is named after the book. Schelling opens the chapter with an example that should be familiar to most university students. He explains that he once gave a lecture to an audience of eight hundred people. The large amount of people is not surprising given his prominence. Yet what was striking was the distribution of the audience within the lecture hall:


All people were crowding in the back while the twelve rows in the front remained empty. Schelling first assumed that the seats had been allocated like this but he was soon to find out that the seating distribution in the hall was, in fact, voluntary.

But what does it have to do with Economics? Despite being a rather harmless example, it does illustrate the importance of micromotives in macrobehavior. Simultaneously, it stands in stark contrast with the interpretation of the situation from the viewpoint of Economics. When people make decisions economists tend to assume that they maximise their utility; that is, choose the best alternative available to them given their preferences. In Schelling’s example all seats were available to all the members in the audience. As a result, one would be inclined to conclude that the people preferred to occupy the seats in the back. Their preferences induced them to make this choice voluntarily because they maximised their utility by sitting in the back neither being able to understand much of the lecture nor having enough space to sit comfortably. Yet this would disregard the complexity of the situation at hand. What is more, the example anticipates a major lesson of the book:

“These situations, in which people’s behaviour or people’s choices depend on the behaviour or the choices of other people, are the ones that usually don’t permit any simple summation or extrapolation to the aggregates. To make that connection we usually have to look at the system of interaction between individuals and their environment.” (Schelling, 1978, p.14)

Schelling’s insights prove valuable for Economics because he offers a starting point to re-think our economy as a system in which everyone who reacts to the environment is also part of it. In doing so, his work is probably mostly in unison with Keynes’ idea of animal spirits. Both take a more behavioural perspective in macroeconomics. Both stress that people show contingent behaviour; that is, their behaviour is correlated with other people’s behaviour in the economy. For example, individuals’ goals, aspirations and views are going to be influenced by others’ goals, aspirations and views. One might also note that with the spread of social media and global interconnectedness the concept of contingent behaviour is more important than ever before. Yet the more general moral of Schelling’s story is that social interactions matter and they do matter for Economics. While we may carry on to assume that economic agents have certain preferences it is important to recognise that these are influenced by their environment and other people’s behaviour.

Besides, the moral for university lecturers might be to use Schelling’s insights to nudge their students to choose front seats over seats in the back. This might not only make lecturers happier but also students, helping them reach their true preferences of hearing well and having a comfortable seat. Yet one would need to know more about the emergence of the patterns of aggregate behaviour in the seating distribution to tweak it for the greater good.

Despite not being finished with Schelling’s book, I can clearly say that it is one of the most inspiring books in the sphere of Social Sciences and Economics I have come across so far. In my opinion it joins the ranks of Kahneman’s Thinking, Fast and Slow and Animal Spirits by Akerlof and Shiller and I hope that my post today inspired you to pick up a copy from your library as well!

Thanks for reading,




Schelling, T.C. (1978). Micromotives and Macrobehavior. New York: W.W. Norton & Company.

2016 vs 1996

The last chapter of Paul Krugman’s Book The Accidental Theorist (1998) is an interesting one. The essay is called Looking Backward and was originally published in New York Times Magazine on 29 September 1996. The main theme of the essay is a proposition of five economic trends of 1996 that we should have expected but yet failed to anticipate. According to Krugman (pp.198-202) these are:

  1. Soaring resource prices
  2. The environment as a property 
  3. The rebirth of the big city
  4. The devaluation of higher education
  5. The celebrity society

The second and third one probably need some explanation. The environment as a property describes the trend to establish free and foremost efficient markets around natural resources to tackle environmental issues like polluting clean air with clearly established property rights.  This trend is driven by the realisation that our environment has limits and natural resources are scarce. Putting a price tag on these helps to reduce inefficient overuse (free rider problem, tragedy of the Commons) and makes people internalize social costs. The rebirth of the big city describes the revival of urban living. This is based on the observation that low-skilled jobs are mainly located in rural areas while high-skilled jobs tend to cluster in cities due to the need for face-to-face interaction etc. As low-skilled jobs vanished people flocked back into the cities they left for the low-skilled jobs in the first place.

What I want to blog about today is to ask the following: Do these observations hold for the year 2016 as well as they did twenty years ago?

Let’s start with resource prices. At the time Krugman wrote his essay, nominal crude oil prices had risen to 22.26$/bbl (September 1996) after the drop to 13.77$/bbl in December 1993. Looking more closely at the monthly commodity price indices compiled by the World Bank one can see that over the period from 1993 to 1996 commodity prices for food, energy or raw materials rose. 1997 and 1998 marked two years of decline before commodity prices took off to unprecedented levels.  Recently, however, commodity prices have fallen remarkably. Most notably, the World Bank’s energy index fell from levels in the 130s in 2014 to around 40.5 in January 2016 (2010=100). This is due to the large drop in crude oil prices both driven by supply and demand factors – especially by the increase in oil production of OPEC countries triggering an oil glut and their failure to coordinate to lower production as a response to supply exceeding demand (IMF, 2016). But also the raw material index fell after a spike in early 2011 and the food index likewise fell after mid-2012.

commodity prices.png

What are the expectations for 2016 though? If one takes the Dow Jones Commodity Index as an indicator, commodity prices are likely to revert again as the Commodity Index has risen more than 13 percent this year (DiChristopher, 2016). Also the benchmark copper price on the London Metal Exchange as well as iron ore prices have picked up again and there are clear signals that we have passed the trough and markets are turning around. ANZ Research for example predicts a 17 percent price rise in nickel, 13 percent price rise in copper and 7 percent in zinc over the next 12 months as well as the bet that short term winners are sugar, nickel, corn, palladium and thermal coal (Fensom, 2016). Also Scotiabank predicts the beginning of a price rally in 2016 driven by a weaker U.S. dollar and less concerns over China (Crawford, 2016). But another important point remains here which Krugman already made in his essay in 1996. Natural resources are ultimately scarce and we are far past an era of low natural resource prices. This is more or less the basic law of supply and demand from ECON101. With ultimately limited supply but increasing world demand, prices will spiral upwards sooner or later and people who are willing to pay the most will win the bidding.

The second theme concerns the promotion of property rights in natural resource markets. In fact, notable research on this can even be dated back to 1991 when Anderson and Leal published their book Free Market Environmentalism (FME). Anderson (2007) notes that there have been FME success stories concerning land and water markets. However, there has been more a trend towards government regulations and active government intervention with the goal to fight climate change rather than the establishment of free markets to let people internalize the costs of environmental degradation etc. (Downey, 2016). The US Environmental Protection Agency is an example of active government intervention to cure market failure and environmental problems and is often criticized for its detailed regulation without improving America’s environment (Smith, 2011). On the other hand, there is evidence for the free market approach in the Kyoto Protocol signed by 192 parties. It does include natural resource market mechanisms, in particular carbon emissions trading to lower greenhouse gas emissions. It has had mixed results in terms of commitment to specific targets (USA, China, India) but the EU Emissions Trading System (ETS) does seem to work with a ‘cap and trade’ scheme which is in principle the least-cost method to reduce emissions (Dawson, 2011). In sum, the environment as a property trend does not seem to accurately describe our state of environmentalism today as we moved more towards detailed regulation rather than a free market approach although there are some well-working counter-examples like the ETS.

The third trend concerns urbanisation. This holds true for today as well as it did for 1996 and – although Krugman probably focused on America – this is a global trend. According to the UNFPA (2016) the world now experiences the highest urban growth in history and today urban areas are home to half of the world’s population. Among the most urbanized regions are North America, Latin America and the Carribbean. What is more, there is a trend towards megacities. These are cities with more than 10 million people of which there are 28 currently (United Nations, 2014). There also continues to be a correlation between a country’s income level and its urbanisation level, i.e. increasing urbanisation is generally associated with increasing economic prosperity. Hence the hypothesis still seem to hold that high-skilled (high-paying) jobs are clustered in population-dense areas.

The fourth observation surprised me a little: The devaluation of higher education. Krugman notes in his essay that the pay-off of higher education has shrunk. Other post-secondary training has taken over university degrees, requiring less time for job training and preparation and therefore lower opportunity costs. He also notes that today’s elite universities are more similar to the nineteenth century as a social institution rather than a scholarly one. Supporting evidence for North America at least comes from the gross tertiary enrolment ratio (World Bank, 2016b). Over the period from 1996 to 2000 enrolment did drop by 11.5 percent. However, contrary to the prediction of its declining value, enrolment thereafter picked up again. Especially during the Global Financial Crisis and its aftermath enrolment increased considerably. This likely stems from the fact that during recessions the opportunity cost of education are lower as less jobs tend to be available. Similar to the experience in 1996 one can see a renewed fall in enrolment in North America. The statistics for the US in particular show a peak of around 96 percent in enrolment in 2011 which is now back down to 89 percent in 2014. This drop might well be explained by improving labour market prospects. The diagram also reveals trends among different income groups of countries; all of which have been on the rise until recently indicating the increasing importance of tertiary education in building human capital even in high income regions like the EU. The world trend in tertiary enrolment has now surpassed 30 percent. However, since the world economy’s recovery enrolment seems to have stagnated (lower middle income) or fallen (low income, high income) with the exception being upper middle income countries.

tertiary enrolment.png

This analysis does not answer the question completely though, i.e. whether higher education is losing in value today. There is evidence that higher education has transformed over the last years due to fierce competition with other post-secondary schooling. Buller (2014) for example notes that there is a re-orientation towards job training and career preparation and a shift away from pure research to applied research.   Furthermore he argues that American higher education which used to be both a preparation for career and for life has now lost the preparation-for-life goal out of sight in favour of job training. This is a bit different to what I understand Krugman observed in 1996. Universities do not seem to turn back to the old days being merely social institutions but rather lean more and more towards job training and career preparation. Evidence for this could be the rise of MBAs and other professional degrees which are very much based on job experience and learning in an applied setting. What is probably more worrisome than a devaluation of higher education in 2016 is credential inflation. Rather than having less graduates on the job market employers face more and more high-skilled graduate applications and can be selective (again the law of supply and demand) so that at some point the master’s degree becomes the new bachelor’s (Pappano, 2011).  In sum, I would argue that higher education has revalued over the last decade even if enrolment ratios are currently decreasing slightly. Higher education has increasingly become a source of job training and the higher education landscape has adapted in 2016 to lessen the opportunity cost of gaining a degree (short courses, distance and online learning etc.) as the demand shifted towards job training. It remains questionable whether the developments in higher education are overall a good or bad thing but they seem to be different from 1996.

Lastly, the celebrity society theme is more or less self-explanatory. It is at least as important as 1996 with social media, television and other means being its drivers. Today being a celebrity pays rather than the content because this person is creating an intangible brand that can be marketed without the possibility of “copyright infringements”. Fame has become a true asset in today’s economy with increasing value; even more so than in 1996.

I hope you enjoyed today’s post as a sort of comparison of what changed and what actually didn’t. Thanks for reading!


Anderson, T. (2007). Free Market Environmentalism. PERC Report, 25(1). Retrieved from:

Buller, J.L. (2014). The Two Cultures of Higher Education in the Twenty-First Century and Their Impact on Academic Freedom [pdf]. Journal of Academic Freedom, Volume 5. Retrieved from:

Crawford, E. (2016). Commodity prices set for significant rebound in 2016: Scotiabank. Retrieved from:

Dawson, G. (2011). Free Markets, Property Rights and Climate Change: Hot to Privatize Climate Policy. Libertarian Papers, 3(10). Retrieved from:

DiChristoper, T. (2016, 21 April 2016). Rising commodity prices could spell trouble for Fed: Boockvar [online]. CNBC. Retrieved from:

Downey, H. (2016). TBT: A Free Market Earth Day. Retrieved from:

Fensom, A. (2016, 28 March 2016). Commodity Prices: The Cycle Turns? The Diplomat. Retrieved from:

IMF (2016). Commodity Special Feature from World Economic Outlook April 2016 [pdf]. Retrieved from:

Krugman, P. (1998). The Accidential Theorist: And other Dispatches from the Dismal Science. New York, N.Y.: W.W. Norton & Company.

Pappano, L. (2011, 22 July 2011). The Master’s as the New Bachelor’s [online]. The New York Times. Retrieved from:

United Nations, Department of Economic and Social Affairs, Population Division (2014). World Urbanization Prospects. The 2014 Revision, Highlights (ST/ESA/SER.A/352).

Smith, F.L. (2011). A Free Market Environmental Program. Retrieved from:

UNFPA (2016). Urbanization. Retrieved from:

World Bank (2016a). Commodity Markets Monthly Data [data file]. Retrieved from:

World Bank (2016b). World Development Indicators [data file]. Retrieved from World Development Indicators (WDI) database: