Friday, November 11, 2016

The Principle-Agent problem

The Principle-Agent problem means the motivation of one party (usually the agent) to act on behalf of another (the principal). Agency problems arise in a variety of different contexts, and arise when the incentives between the agent and the principal are not perfectly aligned and conflicts of interest arise. As a result the agent may be tempted to act in his or her own interest rather the principal’s. Conflicts of interest are almost inevitable.

One of the famous example that pops out of my mind is the Enron scandal revealed in 2001, which eventually led to the bankruptcy of the Enron Corporation and the dissolution of Arthur Anderson. Enron's board of directors, many analysts believe, failed to carry out its regulatory role in the company and rejected its oversight responsibilities, causing the company to venture into illegal activity. Company leadership, including boards of directors and the executive team, does not necessarily have the same interests as shareholders. It is believed that a lack of alignment between shareholders and directors may be the final cause of Enron’s demise.

However, as the prompt states, the situation in reality is often more like a triangle- the agent deals with two different principals. Speaking of which, I would like to share my own experience. When my freshman year was over, I went back to China. During the summer, I was employed by an English teaching agency. My job was to teach in an English boost camp for middle school student. The size of the class was not big (around 20-25 people), and students came to the agency on a daily base. The class was supposed to design to improve students’ test results and overall English skills. Thus, the agendas were basically focused on doing exercises and analyzing them. Here are some examples of the exercises that were related to the test: 

As we can tell, English tests in China concentrate a lot in grammar. Grammar is actually very boring. I bet not a lot of English speaker can say confidently that they were good at grammar correction. When I followed the agendas, and use most of the class time in asking students to finish the exercises, I found out lots students actually show passive attitude. They told me that they didn’t have any interest in learning English, and hoped that I could help them. Personally, I always think English skill is based on vocabulary levels. Language is used to communicate, and as long as the initiator and receiver understand each other, emphasizing too much on grammar will make no sense. Therefore, I rearranged the agenda, and put most of the in teaching students new vocabulary by playing interesting videos, movies, and discussing society hot topics.
Gradually, students started showing positive feedback. Nonetheless, my supervisor didn't agree with my teaching concept and asked me to change it back to the original one. He told me that what I was doing couldn’t improve students’ abilities to take exams. I then had an argument with him. Because I believed that English skills were not only limited to taking exams. English skills were more about expressing one’s thoughts, understanding other’s conversation, and starting appreciating its beauty. None of us chose to back up, and I ended up getting fired.

I think there definitely are more than one way to resolve such tension. But the choices are depending on the negotiation. I am aware that in the economic world, regulations are often used to solve principal- agent problem. Nevertheless, after reading Gary J. Miller’s “Solution to Principal-Agent Problems in firms”, I agreed with Miller’s opinion that there is no unique “solution” to the principal-agent problems in a firm. Instead, a Coasean “contingency” theory can be constructed in which different conditions inside the firm (characterized by production technology, severity of information asymmetry, and relative risk-preferences of principals and agents) call for different “solutions” to the principal-agent problems.  

Friday, October 21, 2016

Team Production and Gift Exchange

I think the story that attracts me the most is sharing marbles. Michael Tomasello and Katharina Hanmann, two German developmental psychologists, set up an experiments with 3 years old children who can get marbles as rewards by pulling ropes on a machine. These children may be better off if they engage in gift exchanging and team work. The experiment has three different scenarios. The first one is that two children pull ropes together, but one of the children gets 3 marbles while the other can only get one. The result of this scenario shows that children will equalize their marbles around 75% of the time. The second scenario is that 2 children will receive marbles. However, one will have three times more marbles than the other one. The result of this scenario shows that the one with more marbles will not give off their rewards to the other one who has less marbles. The last scenario is that 2 children do not pull the ropes together to get marbles. Nonetheless, one will get 3 marbles for every pulling while the other can only get 1. In this case, the result shows that about 30% of children would choose to equalize their marbles. I believe the article overall want to use the example to show that procedural fairness is more important than distributive fairness in economics.

An example I can think of is me and my best friend Phil. When I came to the states at the beginning, I didn’t have a car. Phil, on the other hand, had one. We both loved road trip and hiking. Thus, I will usually take care of the itinerary and accommodation, and Phil would drive. In this case, Phil provided the transportation to exchange for a well-planed travel. I could also get a ride to the destination by doing the trip preparation. The situation changed when I bought a car on sophomore year, since we both had cars, we both were lazy to do the trip itinerary. This is similar to the second scenario in the experiment that I mention above. Another good example for this is definitely camping. I love going outdoor and hike through all kinds of national parks. Usually I will go with bunch of friends. When I get to our camping spot, some guys will do the tent sett-up, girls will usually cover the food and BBQ preparation. I think the team production and gift exchange in this case are we all do work that we are good at and share all resources as a team.

However, team production with gift exchange can be somehow unfair. Take group project as an example, in most of my experience of doing group projects, there will always be 1 or 2 free riders who do minimal work. But we all receive the same grade at the very end. Thus, as far as I am concern, individual work may be more efficient than team work in particular situation.      

Friday, October 14, 2016

Future Plan and Income Risk

First of all, I think the prompt for this week is very interesting. I don’t have a job lined up for when I graduated (I am graduating in December). However, my future plan is absolutely clear. Unlike most of other students in the class, being involved in a career associated with economics is not in my goal. Therefore, in the following parts, I will first talk about the kind of job/career I plan to pursue after graduation and its location. Secondly, I will talk about some of my efforts and decisions during college that contribute to my future job and income risk.

I am a dual degree student majoring in Kinesiology and Economics. I started following the pre-med path when I was a sophomore. Becoming a physician in sports medicine field is my dream ever since I was a teenager. Therefore, due to the specialty of my choice, I can only continue to stay in school (medical school) for another 4 years and pass the board exam before I actually jump in the “real world”. Compared to my other friends who get a job right after graduation, I will have a huge opportunity cost when I get out of medical school. For example, my roommate Kevin, who is majoring in CS, gets an offer from Bloomberg in New York with 140k/year. He will earn at least 560k when I graduate from medical school. However, I believe the opportunity cost can be recovered in the long term since physicians will typically have an average of 32k/year. The only thing matter here is that if I have the patience to keep walking on the road till become a licensed physician or not. As for locations of the job, usually I will stick with sports teams or stay in big hospitals in major cities. But the location doesn’t really have a huge impact on the salary.

Since I am graduating this December, I have already applied for different medical schools since August. So far, I completed interviews from UC Berkeley, UCLA, USC, NYU, and Northwestern. The final results will come out at around the end of the year. Looking back at my preparation, I think I tried a lot of things during college to make me become a better medical school candidate. I became a personal trainer at the ARC when I was in sophomore year. With this opportunity, I have built up my experience in communication with clients and responding to their reactions and needs immediately. Moreover, I have participated in 3 different research labs as undergraduate research assistants for over 3 years. In the labs, I help Professors and PHD students to complete their project. The topics of these projects vary from immunology to cancer cell mutation. Sometimes I have to go to Carle hospital and Davita Clinic to collect data from dialysis patients. These lab practices give me strong research background and offer me chances to choose whichever specific fields I want to get in to in the future. Last but not least, I spend over 180 hours in different hospitals and facilities shadowing doctors. All of the above reduce my future income risk as it increases my chances to get into a better medical school. As for now, my debt only limit to my car loans and house rent. I am lucky enough that my parents are capable to pay for my medical school tuition. Therefore, I firmly believe that the choices that I made will ensure that I will have a content life if I don’t quit in the middle.


Friday, October 7, 2016

Blog Post Reflection

When going over the previous blog posts that I have written, I think they do share some small themes or similarities. I have to admit that I didn’t do a good job in posting blogs as the class requirement due to my extremely busy medical school application and interview. However, I would still think of examples for those blogs that I missed and participated in the class discussion. I think the connections between my previous blogs are my personal experiences, and I really try to give details to readers so that they can understand what I am trying to express out of the text. For instance, in my blog post “Experience with Organizations and Transaction Costs”, I talked about my working experience as a shift leader at Aplus Karaoke. I didn’t expect most readers know the environment of a standard Karaoke business, but I am sure with my explanations of my trainings and duties, most readers will know what it is like to work in a busy and high pressure place.

As for connecting what I wrote to the course themes, I think there are many ways to do it. At the very beginning of writing posts, I just simply answered the prompts just like answering different short essay questions. However, in this way, it was hard for me to figure out the connections between my posts and our course materials. Later, I figured out that it would much better if I treated the prompt as one big thesis. Each small question should be treated as a small topic and eventually guided me to evolve my thoughts to readers. For example, in my post about experience with organizations, I put a lot of effort in connecting the team configuration to my own experience. However, I didn’t go further after my work description. I should have made a contrast what it is like when it is very busy from what it is like when things are slower.

As I have missed two blogs posting, I can’t really say there is an obvious evolve. However, my thoughts on organizing the content and getting prepared for the prompt are evolved. As I mentioned above, initially I just simply answered the prompts. Now I will try going further, making conclusions, after writing examples. I believe this will not only help me understand the course but also deliver clearer messages to readers. I think I would prefer more “open” prompts which don’t have standard answers. I think these prompts can allow me to know more about other people’s thoughts and contracts their thoughts to mine.           

Friday, September 23, 2016

Successful Team Working Experience

The successful team which I work with is actually the team that I am working with right now. I have a part time job at the APlus VIP Lounge at downtown Urbana. My position is shift leader and I think the team structure at APlus VIP Lounge confirm to the Simple Hierarchy team configurations.

APlus VIP Lounge is a café/bar/KTV, people usually come and reserve their own private room (which can host around 10-15 people) and sing karaoke. The rate is calculated by hours. Aplus also provides alcohol services and café drink. On a busy night like Friday night and Saturday night, we will usually have 8 people on site. 1 manager, 1 shift leader (me), 1 bar tender, 4 waiters/waitress, 1 bus boy. In the textbook, simple hierarchy team configuration is described as the model that with a middle manager who reports to the boss and in turn supervises and communicates with others. In this case, the Aplus manager is the boss, and I am the “manager” in the middle. Before opening, I will ask the waiters and waitress to check each room with a complete checklist. After that, I will have to make a short brief to the manager about the overall situation (whether there are broken speakers/microphones/chairs etc.). The manager will then decide if the business needs new equipment or new supply. After the simple briefing, I will communicate with all the waiters and waitress to do the work assigned by the manager. During the business time, the manager and I are more like free men, we will help whichever positions are in short. For example, if there are too many people ordering cocktails, the bartender can’t handle it, the manager and I will help him mix cocktails. However, most of the time, the manager will sit at the front desk in charge of money and be the cashier. The 4 waiters/waitress are responsible for any services requests from customers, including making cafe drinks and delivering beers and liquors. The bus boy will be responsible for room cleaning right after customers are gone.

I think the team configuration frees the manager to focus on mission and external relations while leaving operational details to the shift leaders to staff. Moreover, it shows multiple characteristics of high quality-teams highlighted by Katzenbach and Smith’s research. First, our team is in manageable size. Second, we are good at translating common purpose into specific, measurable performance goals. For example, we want our customers to have better atmosphere, we will do very detailing room cleaning and microphone sanitizing every day. Third, all of our team members are accountable. One for all and all for one is our principle. Last but not least, our team develops the right mix of expertise as everyone in the team has their specific roles and works, which are decided by their own specialties.

Overall, I think I enjoy working with the team and l look forward to the future.     

Friday, September 9, 2016

Experience with Organizations and Transaction Costs

I am a personal trainer at the Campus Recreation. My job is providing professional guidance and suggestions to clients based on their specific needs. Before joining the team, I need to get certificates from NASM to become a qualified trainer. Moreover, CPA certification is also required.
Clients are randomly assigned to me by the system after clients signing up on the website. Usually I will have an initial meeting with my clients before our first training session. During the initial meeting, I will gain a deeper understanding of my clients’ life behaviors and exercise preference. After knowing the exercising goals of my clients, I will come up with specific plans. I will also set up a fixed schedule with my clients during the initial meeting.

Normally, a training session will last for an hour. The first 10-15 minutes I will ask my clients to warm up and do some active stretches. Then, I will spend around 35-40 minutes to do strength training. The rest of the session will contain cool down and stretching out.
The organization structure of our team is simple. The Campus Recreation has about 20 personal trainers, and 2 senior coordinators. The 2 senior coordinators are responsible for clients’ distribution and equipment renew. There is a full time supervisor who is in charge of the policy and costumer complaints.

In economics and business, transaction costs are the costs we incur when we make economic exchanges during the purchase of goods and services. The theory of transaction cost economics is a concept developed by Ronald Coase and refined by Oliver Williamson. The theory states that organizations like firms may distribute resources more efficiently than an imperfect or limited bargaining system, like a market.  As far as I am concerned, the higher efficiency in organizations is due to the low transaction cost. Take my job as an example, when clients come to our facility and sign up for a session. All he needs to do is show up and follow my guidance. If he tries to work out by himself as a beginner, he may spend lots of time digging exercise information online, and maybe waste a bunch of time making the move in a wrong form. These are the transaction cost.  

Thursday, September 8, 2016

“Paul Milgrom”的图片搜索结果

Paul Robert Milgrom was born in April 20, 1948 in Detroit, Michigan. Milgrom is the Shirley and Leonard Ely professor of Humanities and Sciences in the Department of Economics at Stanford University and professor, by courtesy, at the Stanford Graduate School of Business. He is a member of both the National Academy of Sciences and the American Academy of Arts and Sciences and a winner of the 2008 Nemmers Prize in Economics and the 2012 BBVA Frontiers of Knowledge award.

Milgrom was born to Abraham Isaac Milgrom (born in Toronto, Canada) and Anne Lillian Finkelstein (born in Detroit). He was the second of four sons. At the age of six, his family moved to Oak Park, Michigan and Milgrom attended the Dewey School and then Oak Park High School (Michigan). In high school, Milgrom learned to play and analyze chess. He soon shifted his interests in strategic games to bridge. Milgrom showed an early interest in mathematics and attended summer programs at Ohio State University and entered the Michigan Mathematics Prize Competition while in high school. Milgrom graduated with high honors from the University of Michigan in 1970 with an A.B. in mathematics. He was also actively involved in the Vietnam War protest movement. He worked as an actuary for several years in San Francisco at the Metropolitan Insurance Company and then at the Nelson and Warren consultancy in Columbus, Ohio. Milgrom became a Fellow of the Society of Actuaries in 1974. In 1975, Milgrom enrolled for graduate studies at Stanford University in the MBA program. After his first year, he was invited to the Ph.D. program, earning an M.S. in statistics in 1978 and a Ph.D. in business in 1979. His dissertation on the theory of auctions (Milgrom, 1979a) won the Leonard Savage prize. This also led to the first of his several seminal articles on auction theory (Milgrom, 1979b). His thesis advisor, Robert B. Wilson, would later become his collaborator in designing the spectrum auction used by the Federal Communications Commission.

Milgrom's primary research is directed to designing auctions for multiple unique but related items. Along with Robert Wilson, he introduced the initial design for sales of radio spectrum licenses in the United States. He has designed new auctions for Internet advertising and for procuring complex services. Research on incentives and complexity are combined to create auctions that are simple and straightforward for bidders, yet which dramatically improve resource allocation compared to traditional auction designs. According to his BBVA Award citation: “Paul Milgrom has made seminal contributions to an unusually wide range of fields of economics including auctions, market design, contracts and incentives, industrial economics, economics of organizations, finance, and game theory.” According to a count by Google Scholar, Milgrom’s books and articles have received more than 70,000 citations.
The following link is an 88 minutes' lecture, which Milgrom made on FCC in 2003:

In this 88 minutes’ lecture, Milgrom looks at several recent successful auction designs. These include the FCC simultaneous multiple-round auction which allocates spectrum, the National Resident Matching Program which matches doctors to hospital residency programs, and the EDF auction of power generation capacity. He also discusses recent academic research in market design, including empirical, theoretical, and experimental work.