Young Women Economists in Lindau: Powerful Encounters

One of the reasons I applied to attend the 6th Lindau Meeting on Economic Sciences was the expectation of coming back brimming with self-motivation. Moreover, I expected to be deeply fascinated by the commitment of the pioneers of economic sciences, by their bravery in addressing world issues and by their lives as common individuals facing successes and failures. My expectations were by far exceeded.

I have always genuinely aspired to become an active participant in economics and to make a difference. My passion for the subject started with my postgraduate studies and further developed during my work at the United Nations and my academic experiences. A special opportunity offered by this meeting is the possibility of interacting with Nobel Laureates and other young academics, while sharing passions and values, understanding different cultures and exchanging ideas and future collaborations.

But what also fascinated me and made this experience even more magic and overwhelming was the passion, the eagerness and the determination of the many young women economists I had the pleasure of meeting in Lindau.


Zeinab Aboutalebi (left) and Angela De Martiis during the 6th Lindau Meeting on Economic Sciences. Picture/Credit: Lisa Vincenz-Donnelly/Lindau Nobel Laureate Meetings

Zeinab Aboutalebi (left) and Angela De Martiis during the 6th Lindau Meeting on Economic Sciences, Picture/Credit: Lisa Vincenz-Donnelly/Lindau Nobel Laureate Meetings


One of the ideas that particularly got my attention during the meeting is what Nobel Laureate Bengt Holmström called serendipity. Among the various questions to the laureates, many young economists were eager to know the secret of their success: how did they do it?

A common answer was indeed serendipity. An unexpected discovery that occurs by chance, a valuable finding that was not looked for by others, being in the right place at the right time, or simply luck. Nevertheless, the role of chance – or luck – in science is also driven by passion and determination. Often, such unexpected findings come from an error in the scientist’s own methodology, according to scientists Kevin Dunbar and Jonathan Fugelsang. Passion and determination were in fact the two main elements that I sensed when talking with young women economists about their research interests.

During my week at the meeting, I had the honour of presenting my research in front of five Nobel Laureates – an invaluable experience – and the pleasure of interviewing several young women economists from different countries, cultures and backgrounds. They came from Africa, Russia, Iran, China, the United States, Germany and Italy, and they all have one element in common: passion.

When I asked them about their motivation for doing academic research, the first answer was indeed passion, eagerness to learn, to understand and provide valuable results to inform some of today’s most debated issues – such as climate change, economic sanctions, information asymmetry, inequalities, labour markets, growth theory and monetary policy. The women economists, and women’s participation in the economy more generally, provide a diversity of economic thinking, as Janet Yellen recently emphasised in a speech at Brown University.

This diversity of thinking comes from the fact that, as one of these women economists told me, economics is not just economics. Being an economist implies knowing about mathematics, statistics, natural sciences, law, politics, psychology, history, sociology and more. Economics means dealing with issues that involve institutions and individuals. All these elements together make it a powerful tool for improving people’s welfare and lives.

On the one hand, welfare is one of the motivations driving Linda Glawe, a young German economist from the University of Hagen, to focus on prolonged growth slowdowns in emerging market economies and on the concept of the middle-income trap. In a world in which more than five billion people live in middle-income countries, representing more than 70% of the world’s poor population, a slowdown in emerging markets will have strong implications for low and high-income countries. Therefore, the danger of a middle-income trap is of great relevance for future welfare. After publishing a literature survey on the middle-income trap, Linda’s current research aims to provide a theoretical contribution to discussions of future growth in China.

On the other hand, when we talk about welfare we often refer to the fact that countries have unequal living standards that makes them grow faster or slower than others. Therefore, some countries display higher inequalities in incomes, wealth and human capital. These issues are among the main research interests of Rong Hai, a Chinese young assistant professor in economics at the University of Miami.

In one recent paper, she and laureate James Heckman investigate the determinants of inequality in human capital with an emphasis on the role of credit constraints. The results show that both cognitive and non-cognitive abilities are important determinants of human capital inequality. In addition, credit constraints are important because young people cannot borrow enough against their future human capital and thus suffer from lower consumption when they are in school.

In a second paper, Rong finds that reducing income inequality between low and median income households improves economic growth. But reducing income inequality through taxation between median and high-income households reduces economic growth.


Angela De Martiis and other young economists during the 6th Lindau Meeting on Economic Sciences,  Picture/Credit: Julia Nimke/Lindau Nobel Laureate Meetings

Angela De Martiis and other young economists during the 6th Lindau Meeting on Economic Sciences, Picture/Credit: Julia Nimke/Lindau Nobel Laureate Meetings


When investigating economic inequalities, there are many reasons to explore inequality within cities or states, especially if we consider that individuals move across space. Thus, the disparity of a particular area is also a reflection of the skills of these individuals as potential workers. From a labour economist perspective, Sarah Bana, an American Ph.D. candidate at the University of California, Santa Barbara, is interested in understanding the returns to skills and the role that skills play in earnings inequality in the US labour market.

One of her current research papers looks at displaced workers, those who lose their jobs as a result of a firm or plant closing. Analysing comprehensive occupational employment data, the results of her research suggest that vulnerable displaced workers’ difficulties in the labour market are a function of their skills and less related to the goods and services they were previously producing. This is due to the fact that the same set of tasks can be applied in the production of various goods and services, but there appears to be little scope for workers from shrinking occupations to find work with similar earnings, which may help to explain the large earnings losses.

As a researcher in labour economics, Sarah thinks of an individual’s work as their contribution to their family, community and society. But this may be hard for those workers who are displaced in worse labour market conditions.

Several studies investigate the effects of the global financial crisis on the labour market. The data from the displaced workers survey from 1984 to 2014 clearly show a sharp increase in the rate of job loss. Besides the effects on the labour market, the long-lasting impacts of the financial crisis on the economy and wider society have questioned the adequacy of the traditional tools in explaining periods of financial distress as well as the adequacy of the existing policy response.

At the same time, the financial crisis has shown that complex interconnections among financial institutions represent a mechanism for the propagation of financial distress and they are nowadays recognised as one of the key elements of potential financial instability or systemic risk.

This is one of the crucial issues that the young Italian economist Chiara Perillo, Ph.D. candidate at the University of Zurich, is investigating. In particular, she is exploring the implications of the unconventional monetary policies (such as quantitative easing) in the euro area by combining financial network analysis with econometric methods. Using the time evolution of loans granted from euro area banks to different institutional sectors operating in the euro area, her results show that since the beginning of quantitative easing there has been an increase in bank lending, but mostly addressed to the banking system itself.

Another element that drew my attention while getting to know the young women economists was their diverse backgrounds, another powerful tool for academic research in the diversity of thinking. Being Russian by origin and doing research based in Germany, Maria Kristalova, Ph.D. candidate at the University of Bremen, investigates the impact of the mutual sanctions between the EU and Russia, followed by the escalation of the Ukraine conflict in 2014. Her results show a division pattern of all EU-27 countries in two groups: the West European countries that recovered from the sanctions shock, and the East European and Baltic countries, which are still suffering with negative consequences.

Angela De Martiis (right) and Maria Kristalova during the 6th Lindau Meeting on Economic Sciences

Angela De Martiis with Maria Kristalova, Picture: Courtesy of Angela De Martiis

According to Maria, this topic is of crucial importance for gaining a better understanding of the costs of political decisions that might affect the aspired convergence of Europe. In a second research topic, Maria also looks at long-run co-evolution of innovation activities and public funding in German regions. The results show strong empirical evidence of its existence.

Another issue of crucial importance, one of the most controversial, is climate change. According to Jennifer Uju Okonkwo, a young Nigerian economist based at the University of Kiel, regardless of what sceptics think, research shows evidence that the climatic system is changing and this change has several negative consequences, such as rising sea levels, coastal flooding, droughts, global warming and changes in precipitation. Hence, there is a dire need to understand optimal ways to adapt to the changing climate. Her research thus aims at finding cost-effective strategies to manage climate change that could be beneficial to developing countries with limited adaptation funds.

When investigating the issue of climate change, we immediately come across divergent views and an asymmetry in information, thus generating inefficiencies in addressing and solving such a phenomenon. As a young Iranian economist working on applied microeconomic theory at Warwick University, Zeinab Aboutalebi is investigating the role of information asymmetry.

Her research is dedicated to tracing inefficiencies created through the strategic interaction among economic actors. The role of information asymmetry is crucial in shaping the resulting consequences and in reducing the inefficiencies using, for example, different incentive schemes, designing incentive mechanisms, delegation or persuasion techniques.

Zeinab is currently working on feedback in experimentation and how the goodwill of a principal to not discourage an agent, while providing him/her feedback about the result of the experiment, could cause large inefficiencies and uninformative communication between the principal and the agent. Information asymmetry and the lack of informative communication are thus the building blocks of most of today’s big phenomena.

From climate change, to inequality, displaced workers, sanctions, growth, monetary policy and information asymmetry, it was a pleasure to make this journey into the lives and research interests of seven young women economists – to discuss new research ideas, exchange views and laugh while talking about science and about a world that is a fascinating place still to be discovered with a pinch of serendipity and a lot of determination. Thank you for sharing your passion!

Young Economists Comment on the ‘Post-Truth’ Era

The economic consensus on such matters as the benefits of trade, technology and global integration has taken a political battering recently. We asked young economists of #LiNoEcon about their perspectives on what is often referred to as a ‘post-truth’ era, and what they think economists could or should do to combat it.


67th Lindau Nobel Laureate Meeting, 25.06.2017, Lindau, GermanyI think it is hubris to think that the economic consensus has ever played a role in influencing the man on the street. While the effects of trade nationalism may be catastrophic in economic dimensions I feel that in other research disciplines (e.g., climate research) the stakes are much higher. Consequently, we should stay resilient, persistent and join our fellow researchers from other fields speaking up in the name of truth.

        Chris Flath from Germany







        Photo/Credit: Julia Nimke/Lindau Nobel Laureate Meetings           



67th Lindau Nobel Laureate Meeting, 25.06.2017, Lindau, GermanyEconomists and other academic researchers are often wary of over representing their findings, which does not make it easy to communicate the complexities of these problems to the public.

Sarah Quincy from the US











           Photo/Credit: Julia Nimke/Lindau Nobel Laureate Meetings



67th Lindau Nobel Laureate Meeting, 25.06.2017, Lindau, GermanyI think that this fact is mainly the outcome of the financial crisis and, more importantly, of the growing inequality in our societies.

        Dimitris Papadimitriou from Greece











Photo/Credit: Julia Nimke/Lindau Nobel Laureate Meetings           



HelenaPolitical instability worldwide associated with migration flows and the financial crisis of 2008 (and thus rising income inequality) might be responsible for the development of extreme political and economic attitudes across society, especially in Europe.

Helena Chytilova from the Czech Republic








           Photo/Credit: Julia Nimke/Lindau Nobel Laureate Meetings



6th Lindau MeetingI don’t think that this ‘post-truth’ phenomenon is a reaction against truth or science, but against ideology-based opinions disguised as facts.

        Pedro Degiovanni from Argentina












           Photo/Credit: Julia Nimke/Lindau Nobel Laureate Meetings           



6th Lindau Meeting on Economic SciencesCommunicate, communicate, communicate. We need to better explain our work and results, and actively engage in a discussion with the greater public.

Sofie R. Waltl from Austria










           Photo/Credit: Christian Flemming/Lindau Nobel Laureate Meetings           



6th Lindau MeetingI believe we as economists need to do a much better job of communicating ideas, basic economic concepts and research findings in a manner conducive to being easily understood by lay persons.

        Farooq Pasha from Pakistan












           Photo/Credit: Julia Nimke/Lindau Nobel Laureate Meetings          



67th Lindau Nobel Laureate Meeting, 25.06.2017, Lindau, GermanyThe tackling of anti-intellectualism should follow from building a consensus that is capable of better foreseeing the consequences of the policies justified by it. Additionally, economists would be in a much better position to address anti-intellectualism if we embraced natural sciences, and built the profession as a natural offspring of other major disciplines.

Benjamin Leiva from the US









           Photo/Credit: Julia Nimke/Lindau Nobel Laureate Meetings           




6th Lindau MeetingIn my opinion, the dissemination of information is the best way to combat the ‘post-truth’ mentality. Economists and researcher in various fields of study should try to connect their work with people; the debate should come out of closed circles, be more interactive and open to the dialogue in various areas of society using simple and easily accessible communication tools.

        Giovanna Zeny from Brazil








           Photo/Credit: Julia Nimke/Lindau Nobel Laureate Meetings           



67th Lindau Nobel Laureate Meeting, 25.06.2017, Lindau, GermanyWhile I believe it is important to speak in terms everyone can understand when explaining economic ideas, economists should not simplify so much as to say ‘trade is always good’ when we know that trade creates winners and losers.

Andrew Jonelis from the US




           Photo/Credit: Julia Nimke/Lindau Nobel Laureate Meetings           



67th Lindau Nobel Laureate Meeting, 25.06.2017, Lindau, GermanyOur policies should have in mind the poorest, neediest, and least educated citizens in our societies. We need a Europe that takes care first of all of those citizens who do not travel abroad and do not speak any other idiom than their native language. Once we’ll have that Europe, we will be dramatically closer to a truly united Europe.

        Alessandro del Ponte from Italy










           Photo/Credit: Julia Nimke/Lindau Nobel Laureate Meetings           

Blockchain Technology: ‘Proof-Of-Work’ Versus ‘Proof-Of-Stake’

Bitcoins. Photo/Credit: skodonnell/

Bitcoins. Photo/Credit: skodonnell/


Cryptocurrencies like Bitcoin and the blockchain technology that underpins them are gradually becoming household words. Although peer-reviewed research is only just beginning to develop on the topic, the cryptocurrency ecosystem is growing at an exponential rate. Everyday, new businesses, investors and researchers enter this dynamic space.

At the University of Liechtenstein, I have been working on an experimental blockchain project with Professor Dr Martin Angerer and Jonas Gehrlein, MSc from the University of Bern. Our research on blockchain technology has been an educational, demanding and exciting journey.

The terms ‘blockchain technology’ and ‘distributed ledger technology’ refer to a variety of different technologies that attempt to solve different problems. Cryptocurrencies and blockchain technology emerged after the 2007/08 global financial crisis. The most popular example of these technologies is Bitcoin.

Bitcoin is a decentralised and open-source digital currency that stores transactional data in a distributed database that is maintained by computers all around the world. The creator of Bitcoin, who is still unknown but goes by the pseudonym Satoshi Nakamoto, wanted to provide a decentralised, private and secure means of transferring value online that did not rely on trusting sovereign entities, central banks or financial intermediaries.

A major discussion in the cryptocurrency realm relates to the optimal algorithm for achieving a collective agreement on which transactions are valid and which are invalid within a distributed network. Currently, the two most popular methods are known as ‘proof-of-work’ and ‘proof-of-stake’.

Bitcoin’s proof-of-work algorithm uses large quantities of energy and hardware equipment, which have been estimated to cost approximately $400 million per year. Proof-of-stake is a newer invention that has not been rigorously tested in the market.

When my colleagues and I began our research project, we wanted to investigate the differences between these two consensus mechanisms in a laboratory environment. Our motivation was simple: if both systems achieve the same outcome but one system (proof-of-work) incurs a negative externality on the environment, then why are people still using it?

Despite the seeming superiority of proof-of-stake, market participants prefer proof-of-work. Using market capitalisation as a proxy for demand, the highest market capitalisation coins all rely on proof-of-work. But proof-of-stake is gaining popularity: Ethereum, the second largest market capitalisation coin, is expected to switch from proof-of-work to proof-of-stake during the next year.

Our research uses game theory and behavioural economics to study the strengths and weaknesses of these two competing systems in a lab environment with students.

Our first step was to boil down the complex nature of these consensus mechanisms into abstract concepts that could be easily modelled in a lab. We spent months reviewing the research literature and brainstorming possible set-ups for the experiment.

The lab setup for proof-of-work was relatively straightforward. We planned to draw from the public goods literature on network externalities. Students would be given the option to use a medium of exchange that incurred an internal personal cost or a medium of exchange that incurred an external cost for the environment.

Essentially, this represented the current fiat system versus the energy-guzzling Bitcoin. At this point, we were very excited about the direction of our research and about the contribution that it could make to the fields of economics and information science.

Unfortunately, our research hit an insurmountable obstacle when we tried to model proof-of-stake: we could not find a way to do it easily in a lab. We discussed potential drawbacks of the proof-of-stake system such as 51% attacks, deflationary spirals and uncertainty stemming from ambiguity. But we came to the conclusion that Bitcoin’s proof-of-work suffered from the same drawbacks, albeit to a lesser degree.

During my own reflection on the differences between proof-of-work and proof-of-stake, I came to the conclusion that these systems resemble our transition from a gold standard to a fiat standard. Like gold, Bitcoin uses electricity and capital equipment to mine new coins. The probability of randomly being chosen to create a block and receive a reward is equal to each miner’s amount of mining power divided by the total amount of mining power on the network.

On the other hand, proof-of-stake allows the users with the largest holdings to create coins out of thin air. In a proof-of-stake system, the probability of receiving a reward is equal to the fraction of coins held by the user divided by the total number of coins in circulation.

Following this logic, proof-of-stake would appear to be superior to proof-of-work because economic theory argues that the fiat system is superior to the gold standard due to deflationary spirals caused by hoarding. (Note, however, that my late uncle, the American economist Larry Sechrest, argued in his 1993 book, Free Banking: Theory, History, and a Laissez-Faire Model that the problems associated with the gold standard actually stemmed from regulation and not from the scarcity of gold.)

To date, my reflections have not helped us find a suitable set-up for the lab experiment: we have been unable to find a major setback of the proof-of-stake consensus mechanism. The only problem that I could find was quite philosophical in nature and too complicated to be easily modelled in a lab.

The twentieth-century Austrian logician, Kurt Gödel, argued that no system can prove its own correctness from within itself. In reference to proof-of-work and proof-of-stake, the former appears to solve Gödel’s incompleteness theorem while the latter relies on external truth to achieve consensus.

In a proof-of-work system, anyone can join the system and immediately determine the correct history of transactions in the blockchain because the correct chain is the longest chain by default. In comparison, proof-of-stake has not developed a method for ensuring that every computer in the network comes to the same conclusion on the correct history of transactions from within the system.

Instead, proof-of-stake relies on an external third party or host of third parties to establish agreement on the history of transactions. In plain terms: proof-of-stake establishes truth by appealing to an external anchor while proof-of-work establishes proof from within. Although the introduction of counterparties may not be a problem in every case, the original goal of the blockchain technology was to create consensus without intermediaries.

In the end, we could not find a suitable way to model proof-of-stake in a lab with humans. In our own analysis of this problem, we realised that there was a fundamental problem with the premise of our study: we were trying to model a lab experiment with humans based on a technology that was designed to minimise human interaction.

Although we have encountered this major setback in our study, we have learned a tremendous amount about blockchain technology and about our own strengths and weaknesses as researchers. Instead of giving up, we are going in a new direction with our blockchain research. After all, the journey for pioneers is never paved.

The Puzzle of Global Inequality

During a Science Breakfast at #LiNoEcon moderated by Romesh Vaitilingam (left) laureate Eric Maskin, young economist Devaki Ghose and Howard-Yana Shapiro, Chief Agricultural Officer, Mars, Incorporated, discussed how to address global inequality.

During the Mars Science Breakfast moderated by Romesh Vaitilingam (left) laureate Eric Maskin, young economist Devaki Ghose and Howard-Yana Shapiro, Chief Agricultural Officer, Mars, Incorporated, discussed how to address global inequality.


New policies are needed to tackle the surprising rise in inequality within developing countries, even as they have become more integrated into the global economy. That was the core message of a panel of researchers speaking at a science breakfast sponsored by Mars, Inc., on Thursday, 24 August at the 6th Lindau Meeting on Economic Sciences.

The fact that the dramatic growth in average income in large developing countries like China and India has led to increased inequality is ‘deeply troubling’, according to the opening speaker, Nobel Laureate Eric Maskin.

This seems to contradict the long-established theory of comparative advantage, which predicts that relative wages of unskilled labour should rise as their trade increases. It also contrasts with what happened in previous periods of globalisation, for example, in the late 19th century.

Professor Maskin explained that what has changed is that the production process has been internationalised. Communications technologies now allow companies to establish just-in-time global supply chains, and to employ skilled workers around the world, so that the gains of trade are no longer distributed on a countrywide level.

Domestic migration is also fuelling inequality, he added. There is a growing gap between the city and the countryside in developing countries. Those who move to the cities have improved opportunities for education, jobs and income, while the countryside is increasingly impoverished.

Panel member Devaki Ghose, of the University of Virginia, one of the young economists attending the Lindau meeting, drew on her experience of research in India to reinforce these points.

She noted that India’s high-tech sectors, such as its IT outsourcing business, which has been a huge international success, employ only a small percentage of the Indian workforce. It is only open to a small proportion of the population – under 6% – who are both computer-literate and English speakers. She also said that these high-tech firms are concentrated in just a few states in India where they have close links to universities.

In contrast, 60% of the Indian population works in agriculture, where they face problems of low productivity, poverty and lack of investment in modern production techniques.

Dr Ghose cited a personal example, where a large family she knew from a tribal area was unable to farm all the land they owned, but were too poor either to hire extra labour or to buy expensive inputs like fertiliser to improve crop yields. What’s more, the legal system in India, which seeks to protect poor farmers’ land ownership rights, prevented them from selling part of their landholdings to others who could make more productive use of it.

Genetic scientist Dr Howard-Yana Shapiro, chief agricultural officer at Mars, Inc, argued that now was the time for action. What we need, he said, is ‘a change of theory, not a theory of change.’

He pointed out that 37% of the population in rural Africa is malnourished at birth, as are 43% of Indian children. There is a moral obligation to tackle the problem of chronic malnutrition in countries where farmers cannot produce enough food to feed themselves. He said that only an inclusive approach, which could both discover solutions and scale them up would work, using the skills of industry, universities, NGOs and governments alike.

Mars is committed to developing new crop varieties with increased yields that can be freely distributed to farmers. Dr Shapiro said that although the yields on the ten major food crops may have reached their natural limits, there are great gains to be made by genetic modification of 100 less widely grown food crops in Africa.

In India, Mars is working with farmers to improve the yields of chick peas, one of its major food crops yet a commodity for which continuing low yields means it still has to be imported from abroad. Mars has also mapped the genetic sequence of cacao to breed a higher yielding, disease resistant tree, which can also produce tastier chocolate. The company has made the genome data freely available to growers in developing countries.

Professor Maskin suggested that higher crop yields alone would not be enough to tackle rural inequality, as early adopters would gain at the expense of those who could not or would not take up the new crop varieties.

There was considerable discussion about the incentives that might motivate companies to take actions that tackle poverty and inequality, including improving human capital through training. Professor Maskin expressed scepticism that many companies would do so on their own initiative without government incentives such as tax breaks.

Dr Shapiro commented that although Mars had an advantage as it is a privately held company that is not subject to short-term pressure from shareholders, other companies, such as rivals Nestle and Unilever, were following in its footsteps, in their own long-term self-interest.

He added that tackling climate change was another area where companies, such as Mars, were increasingly willing to act on their own to develop a zero carbon footprint, independent of government actions such as the US decision to withdraw from the Paris agreement on climate change.




The Road to a Nobel Prize

How does an economist choose their area of research? What are the influences on how they pursue their goals? What do they see as the next steps in their chosen fields? The answers to these questions will be central to the way that young economists – and indeed academics from any discipline – will take decisions in their own careers.

Three Nobel Laureates who won their prizes for separate work on contracts, incentives and organisations took part in a panel at the 6th Lindau Meeting on Economic Sciences. They discussed the personal academic journeys that led them to make the intellectual findings for which they were recognised – and the people and research that had influenced them.


Panel Discussion: Contracts, Incentives and Organisations duirng the 6th Lindau Meeting on Economic Sciences. Picture/Credit: Christian Flemming/Lindau Nobel Laureate Meetings

Panel Discussion: Contracts, Incentives and Organisations at the Lindau Meeting. Picture/Credit: Christian Flemming/Lindau Nobel Laureate Meetings


Oliver Hart, who won the 2016 prize for his work on contract theory, was motivated to look at incomplete contracts after a conversation with Sanford Grossman in which they asked why one firm would ever buy another firm rather than just trading with it. As trained microeconomic theorists, they decided that they could add to the informal existing literature. After grappling with issues such as the role of authority and the idea of requirements contracts, they realised they were thinking about it in the wrong way.

‘The penny dropped that we were thinking in complete contract terms when we realised it would be better to think about it in incomplete contracting terms,’ Hart said. ‘In complicated relationships that take place over many years, it is very hard for the parties to foresee the future and write the idealised state contingent contract.’ Hart and Grossman went on to write the highly influential paper Incomplete Contracts and the Theory of the Firm.

Bengt Holmstöm, who shared the prize with Hart in 2016, took a less direct path towards economics, gaining an undergraduate degree in mathematics at the University of Helsinki and a masters in operations research and doctorate at Stanford. While working later for a large conglomerate in Finland, he was asked to implement a corporate planning model.

‘It didn’t take before I realised that this did not look like the right thing to do’, he said. ‘That ignited my interest in incentives and provided an endless source as a sounding board – I don’t get enthusiastic about anything that does not match with the reality. If the apple falls up rather than down, then I’m not interested in that model.’

Jean Tirole, who won the prize in 2014 for his work on market power and regulation, said that he believed it was impossible to develop thoughts in a vacuum. Although he admitted he found it hard to codify his own research, he focused on three routes.

The first was intensive research on gaps that he had identified in the current theory. He mentioned his close reading of papers produced in the 1980s on principal-agent theory by Holmstrӧm – who was sat next to him on the panel. ‘It was a full tree but there were holes and we had to fill in the branches that were missing.’

The second route was to be motivated by the research of other academics, which included the work of Hart and another fellow laureate, Eric Maskin, who was at the Massachusetts Institute of Technology when Tirole was there as a doctoral student. Tirole went on to write a paper, Unforeseen Contingencies and. Incomplete Contracts, with Maskin who had earlier supervised his PhD.

His final route was engagement with practitioners who worked on issues relating to contracts on a daily basis and who asked Tirole questions as an expert that he found he could not answer, motivating him to do further research. ‘My research does not come in a vacuum but it comes from interactions, from being in the right place at the right time,’ he said. ‘We have to listen to people if we are going to learn about our own ignorance.’

The young economists in the packed theatre hall put a range of questions to the laureates including: whether university tenure was an optimal contract; how their subject area had evolved and future areas for research; and bank compensation in the wake of the global financial crisis. Two questioners asked the laureates about who had influenced them and what were the inconvenient questions that young scholars needed to ask.

Hart cited a number of economists including Kenneth Arrow and Gerard Debreu, laureates of an earlier generation who gave their names to the theory of general economic equilibrium, as well as another laureate, Ronald Coase.

Holmström urged young economists to focus on finding answers to small questions that can then be expanded. ‘I have tried to answer some big questions but they have never gone anywhere,’ he joked.

Tirole struck an inspirational final note saying that the Nobel Prize had turned him into a somewhat reluctant public intellectual in his home country of France. ‘You have to help design institutions that are going to be resilient in case a bad president comes to power. Mechanism design is very important,’ he said.

‘You basically get the economic policies that you deserve and our role as economists is to try to explain in simple terms what economics is about. We will get good policies if public opinion is well informed about economics – with all its uncertainties.’



Elderly Europe

Picture/Credit: JodiJacobson/

Picture/Credit: JodiJacobson/


Europe is growing old. We tend to regard Japan’s old age dependency problem as exceptional: but populations are also ageing rapidly across the whole of Europe. Persistently low birth rates in many countries, coupled with rising longevity due to improvements in healthcare and nutrition, is increasing the proportion of elderly to working-age people. In some countries, this is exacerbated by emigration of the young.

Germany’s population is already the second oldest in the OECD. In 2015, there were about 35 people aged 65 and older for every 100 working-age adults: the OECD predicts that by 2060, this proportion will have doubled. Portugal’s population is ageing even faster: the ratio of over-65s to working-age adults is projected to rise from about 32% at present to over 75% by 2075.

Nor is population ageing limited to Eurozone countries. Poland, currently a comparatively young country, is ageing faster than Germany or Portugal: the OECD forecasts that its old age dependency ratio will hit 57% by 2075.


OECD (2015), Demographic old-age dependency ratios: Historical and projected values, 1950-2075, in Pensions at a Glance 2015, OECD Publishing, Paris.

Demographic old-age dependency ratios: Historical and projected values, 1950-2075, in Pensions at a Glance 2015, OECD Publishing, Paris.

Population ageing is slowest in Scandinavian countries and France, where birth rates are higher than in Germany. But even in these countries, the birth rate is below the OECD replacement rate of 2.1 children per woman and the old age dependency ratio will reach nearly 50% by 2075.

Europe is slowly recovering from the crises of recent years. GDP growth is resuming, though at a glacial pace, and unemployment is gradually falling. But the rapid demographic shift raises serious questions about future prosperity. State pension ages are rising across Europe, to 67 and beyond, and many people are choosing to work on beyond their state pension age. The OECD’s definition of ‘old age’, which presumes complete withdrawal from the workforce at 65, may already be out of date.

But raising the age at which people can claim their state and occupational pensions is extremely unpopular with voters, and it is often fiercely resisted. Many older people have a deeply entrenched belief that they have paid for these pensions, so raising the age at which they can take them is a form of theft.

The dependency of those who are not working on those who are is not widely understood, and governments have made little attempt to explain it. The likelihood is, therefore, that pension ages will not rise as much as increases in longevity suggest that they should.

Poland has even reduced its state pension age recently and reintroduced an early pension for women, for which it may face a legal challenge by the EU. Whether these changes are affordable does not concern those who expect to receive their pensions at the age ‘promised’ when they started work half a century ago.


Demographic old-age dependency ratios: Historical and projected values, 1950-2075, in Pensions at a Glance 2015, OECD Publishing, Paris.

Demographic old-age dependency ratios: Historical and projected values, 1950-2075, in Pensions at a Glance 2015, OECD Publishing, Paris.

It is already clear, however, that affordability will be a problem. Germany, for example, is projected to spend 12.5% of GDP on pensions by 2050. Elderly people also make high demands on health and social care services: as the proportion of elderly in the population grows, the cost of these services for working-age adults will inevitably rise. The picture is one of a growing tax burden on a shrinking workforce.

Even if people accept the need to work for much longer, there will be structural changes to the economy from the demographic shift. Older people tend not to be as productive as younger: to some extent, this is offset by greater knowledge and experience, but as cognitive faculties start to decline, this effect diminishes.

Older people are also more likely to work part-time, to eschew work that takes them away from home, and to have health problems or caring responsibilities that restrict the types of work they can undertake. As the proportion of older people in the economy grows, therefore, we might expect poorer productivity, which if not addressed would result in persistently lower GDP growth. Countries need to invest in technology that raises productivity, particularly among those who have physical and mental limitations.

But from the point of view of Germany’s ageing population, ensuring their futures should be the top priority of their government, even if it means pursuing policies that, by stealing demand from other countries, make it more difficult for them to provide for their own people. This is understandable, but it is not sustainable. For it is not just Europe that is ageing: it is three quarters of the world.

If only a few countries were experiencing rapid population ageing, and the rest had young and growing populations, then for those countries to pursue policies aimed at maintaining a high saving ratio and a large current account surplus would make sense.

After all, young and growing populations tend to have excess demand, so an ageing population can siphon off some of it with impunity – indeed, this might help younger countries to control inflation. But when most of the countries in the world are ageing rapidly, policies that rely on demand from other countries are beggar-my-neighbour policies.

The IMF recently expressed concern that the US, and to a lesser extent the UK, are acting as ‘consumers of last resort’, running large current account deficits to mop up their excess savings. ‘While the rotation of excess imbalances toward advanced economies – with deficits increasingly concentrated in the United States and United Kingdom – likely entails lower deficit-financing risks in the near term,’ the IMF said, ‘the increased concentration of deficits in a few economies carries greater risks of disruptive trade policy actions.’ It called on countries with ‘fiscal space’ to rely less on monetary stimulus and to spend more.

Understanding and planning for the challenges of an ageing population requires international cooperation, not competition. We need to have an adult conversation about how the needs of the old can be made affordable for the children and the unborn who have no voice in this debate but will bear the consequences of our decisions in years to come.


Frances Coppola was speaking on a panel with Nobel Laureates and young economists during a press talk at the 6th Lindau Meeting on Economic Sciences. Picture/Credit: Julia Nimke/Lindau Nobel Laureate Meeting

Frances Coppola was speaking on a panel on the future of the European economy with Nobel Laureates and young economists during a press talk at the 6th Lindau Meeting on Economic Sciences. Picture/Credit: Julia Nimke/Lindau Nobel Laureate Meetings

On the Future of the Euro Area

The euro area crisis has laid bare institutional, political and economic weaknesses in the set-up of Europe’s monetary union. In the following, I outline some of these weaknesses and sketch possible solutions – or at least improvements.


Euro sculpture, Frankfurt, Germany. Photo/Credit: instamatics/

Euro sculpture, Frankfurt, Germany. Photo/Credit: instamatics/

First, fiscal oversight of the members is as toothless as it can be. Once Germany and France had violated the Stability and Growth Pact without being sanctioned in the early 2000s, monitoring of national budgets has not been credible – a problem of enforcement. There is also a problem of reporting, as evidenced by Greece’s use of dodgy numbers to gain access to the euro in 2000.

In my view, national budgets that violate the Maastricht criteria for the soundness and sustainability of public finances (which may need some updating) should require approval by a European Union body – probably the European Commission as the ‘guardian of the treaties’, but preferably the European Parliament given its stronger democratic mandate.

The question is whether such fiscal oversight is compatible with the treaties and with the constitutions of the members, as it means nothing less than a partial loss of national budgetary sovereignty. Maybe Germany and other (perhaps overzealous) supporters of fiscal prudence can trade such oversight for some degree of debt mutualisation, which sounds like a typical European idea.

Second, political interaction is too weak. The euro area is a very diverse construct with the ageing economic giants of Germany and France at the centre, young developing economies such as Slovenia and the Baltic states, and countries that have been unfortunately plagued by political gridlock and institutional inadequacy, notably Italy and Greece. Naturally, these countries have different aims for economic policy, and finding a compromise will always be difficult.

I like the idea of officials of the European Central Bank (ECB) being invited to address all the national parliaments as well as the European Parliament. Similarly, heads of state and government could be invited to speak to the parliaments of other members. This would be a further step towards a common European identity, explaining to one another why the economic policy of a government is the way it is – and of course listening to the explanations by others – not behind the closed doors of the European Council, but in public.

Third, ECB officials should realise that it is beyond the institution’s powers to create economic recovery on its own. Neither of its unconventional policies – from full allotment to quantitative easing – has lifted European inflation or expectations of inflation. In most of the euro area, inflation rates are well below the target of close to but below 2% in the medium run. In addition, business activity is weak, with the notable exception of Germany.

We can learn from this that a central bank’s powers are limited to managing the business cycle – which of course it must do. ECB policy in the early days and weeks of the crisis was a flawless execution of a central bank’s textbook role of ‘lender of last resort’. More recently though, all it has done is buy time for fiscal policy to act, at the expense of bank stability – as full allotment saved zombie banks that dragged economies down (notably Italy’s) while rock-bottom interest rates threatened the business model of healthy banks.

The ECB needs to phase out its unconventional policies for three reasons:

  • First, they prevent consolidation of the European banking market and threaten the stability of healthy banks.
  • Second, preparations need to be made for the next downswing of the business cycle, as the very modest recovery in Europe should be close to its end, judging from past lengths of the cycle.
  • Finally, governments need to face greater pressure to get their act together and implement reforms that improve growth, foster competition and increase employment.

The reasons why the members are still struggling to recover are quite different, so there is no ‘one-size-fits-all’ economic policy. For example:

  • Germany needs more investment in (digital) infrastructure and childcare, as well efforts to foster its start-up culture. The country also needs to clean up the mess of the government-car industry nexus that seems to be at the centre of the ‘Dieselgate’ scandal.
  • France is taking the first steps towards reforming its labour market and needs to continue on this path.
  • Spain, too, must reform its two-tier labour market in order to reduce unemployment, particularly among young people.
  • Italy needs to sort out its pile of debt (a task that is likely to require the assistance of the ECB) and fix its institutional set-up in a way that gives the country more stable governments.

Whatever the weaknesses of the members, Europe’s mess is hardly the fault of the euro per se, although it did play a decisive role. Without the possibility of devaluing your own currency, a country’s adjustment after years, sometimes decades, of bad policy has to come strictly from ‘internal devaluation’ – a fancy term for falling prices, subdued demand, stalling investment and unemployment. The euro did not cause the problems, but it has prevented the usual adjustment, and policy-makers have been unable – or worse, unwilling – to adapt.

The lesson is that in a monetary union, sane and sustainable economic policy becomes ever more important both for a country’s own economy and for the other members. Burden-sharing of one kind or another may help, but it is no substitute for economic prudence. While this lesson is clear, it remains uncertain how Europe will react to the lesson in terms of both institutions and policy.

Smart Resettlement: A Refugee Success Story From Rural Australia

The town of Nhill in rural Australia is an unlikely setting for a refugee success story. A farming community 400 kilometres inland from Melbourne, Nhill’s 2,500 inhabitants are largely made up of white, conservative Christians. Yet over the course of the current decade, the town has seen a remarkable transformation.

Seven years ago, Nhill struggled with a steadily decreasing population coupled with a lack of workers, as is symptomatic of many Australian country towns. To fill its employment needs, the town’s main producer invited a handful of refugees from Myanmar to resettle in Nhill and work at the local factory. Today, over 200 refugees call Nhill home and are credited with having revived the town, with an estimated net gain of more than AU$42 million (€28 million) over a four-year period.


The town of Nhill in Victoria, Australia. Photo/Credit: Mattinbgn CC BY-SA 3.0

The town of Nhill in western Victoria, Australia. Photo/Credit: Mattinbgn, CC BY-SA 3.0, Wikimedia Commons


Stories like Nhill’s rarely make the headlines during the world’s largest refugee crisis since the Second World War. Given the wave of recent terrorist attacks on European soil, the focus of the media and public discourse has understandably been on security.

But there remain many questions about how best to integrate refugees once they have been approved for resettlement in a host country. Randomly allocating new arrivals to Western cities with few employment prospects and expecting a smooth assimilation is unlikely to be a successful long-term strategy. And given that there are 65 million forcibly displaced people worldwide in need of resettlement, with another 30,000 more displaced every day, it is clear that the issue of resettlement will not go away soon.

We should thus start to learn from positive examples like Nhill. Most academic research to date suggests that the main channel by which newly resettled refugees produce an economic cost to society (if they do at all) is through the labour market. Increased competition for jobs (particularly among lower-skilled workers) may put pressure on employment and wages.

But not all parts of host countries face the same economic conditions – and so it is logical to investigate resettling new arrivals in geographical areas that actually need to increase their population and workforce.

Done correctly, hosting refugees can be less about minimising burdens and more about cultivating benefits. In addition to filling employment and skills gaps, refugees and migrants are more likely to start new businesses that create wealth, employ local residents and stimulate investment.

Other rural towns in Australia have followed Nhill’s lead in using refugee resettlement to combat population ageing. Several fading Italian towns in Sicily and Sardinia have been rejuvenated by the successful integration of Syrian refugees. And a small town outside Atlanta, Georgia, has been proudly labelled the ‘Ellis Island of the South’.


Refugees Welcome Banner in Dortmund, Germany. Photo/Credit: Michael Luhrenberg/

Refugees Welcome Banner in Dortmund, Germany. Photo/Credit: Michael Luhrenberg/


These are not isolated examples. But ultimately, the reasons for the reluctance to accept and resettle asylum-seekers may be less about economics and more about psychology. Fear of cultural contamination and consequent frictions have cultivated a popular view that resettling refugees places a strain on the social fabric of communities.

Are these fears justified? Social scientists have debated this issue for decades, as what appears to be a social impact may in fact be confounded with symptoms of economic stress. Cases like Nhill, however, can help to shed light on this issue.

In recent research, we find strong evidence that resettlement has had surprisingly positive social effects on the community, even after taking account of economic benefits. Nhill locals trust refugees more; they also hold more positive attitudes towards resettlement in general.

And the benefits don’t just accrue to the locals. Under carefully targeted rural resettlement policies, refugees receive crucial employment security and a visible role in their new community, which can ease the process of integration. In Nhill, the refugees report feeling safer and more positive about resettlement than fellow refugees in the cities.

In principle, there is little reason why such policies can’t be ‘win-win’. Overall, the message coming out of our research is that ‘smarter’ resettlement programmes in small towns may be able to harness economic and social benefits for locals and migrants alike.

While the evidence does suggest that small, rural communities are good candidates for successful resettlement, of course this is not a panacea by itself. When unplanned and unmanaged, refugee resettlement can overstretch communities’ resources and potentially lead to social tensions.

But our research begins to identify other common elements from successful towns. A gradual, transparent process, strong community leadership and well-established communication channels are key components of an effective policy. One thing is clear: given the extent of the challenges facing policy-makers in the area of resettlement, lessons from models of success are too important to ignore.

Meanwhile, in Nhill, the locals aren’t thinking in terms of trade-offs. The refugees have been a success – both economically and culturally – and the town’s focus has remained on participating in and embracing their community as a whole. This includes some new additions to the community calendar, such as the colourful celebration of Burmese New Year, hosted by the refugees themselves. The new arrivals haven’t turned out to be a burden at all.

Happier Than Ever

Wellbeing has become an important topic for researchers and politicians. Measuring wellbeing enriches the discussion of what determines a good life.

Until recently, gross domestic product (GDP) was the only welfare indicator of a nation. But it has been criticised as a comprehensive indicator: first, because it underestimates many factors, such as the value of having a job or good health; and second, because it does not take account of such factors as income inequality, quality of education, environmental status and voluntary work.


Photo/Credit: Jan-Otto/

People at the beach of St.Peter-Ording in Germany. Photo/Credit: Jan-Otto/


Measuring Wellbeing

 For a rigorous analysis of wellbeing, it is important to use a representative longitudinal survey that covers a variety of demographic, economic, social and personal characteristics. A common way to measure wellbeing is to simply ask the question: How satisfied are you with your life, all things considered? Please answer on a scale from 0 to 10, where 0 means completely dissatisfied and 10 means completely satisfied.

This scale is used by many major surveys, such as the German Socio-Economic Panel (SOEP) and the World Value Survey (WVS). The 11-point scale is often transformed into three categories: high satisfaction (8, 9 or 10 points); medium satisfaction (3-7 points); and dissatisfaction (0,1 or 2 points). This is a simplification of the symmetric scale that my colleagues and I use in our research.


Wellbeing in Germany

Wellbeing in Germany is now at its highest level since reunification in 1999. In the latest representative SOEP survey from 2015, 55% of German residents said that they are very satisfied with their life in general. Only 2% were not satisfied and the remaining 43% reported medium satisfaction with their life.

On average, reported life satisfaction was 7.28 in 2015. Ten years earlier, in 2005, the comparable figure was 6.84 and in 1995, it was 6.86. This positive trend has arisen because substantially fewer Germans report being dissatisfied. At the same time, the fraction of Germans that perceive themselves as very happy has remained constant across the decades. The positive shift results in lower variance: in other words, there is less inequality in the distribution of life satisfaction across the population.


The Reasons: Economic and Social Improvements

 What are the reasons for the 6.4% increase in Germans’ average life satisfaction between 2005 and 2015? The three most important impact factors for a good life are employment, health and social interaction (number of friends, marriage and so on) – and all three of these factors have improved over the past two decades.

The unemployment rate has reached an all-time low since reunification: just over two and a half million people are unemployed today, whereas in 2005, the number of unemployed people was nearly twice as high with about five million people searching for a job. Life expectancy has also increased, including among people on lower incomes. In addition, the digital transformation has simplified social interactions and the divorce rate has decreased.


Correlation but Not Necessarily Causation

While noting these changes in employment, health and social interaction, it is very important to understand that causal evidence is rare when analysing wellbeing. Nearly all findings on wellbeing represent correlations only and no causal evidence.

For example it is not feasible to find out whether marriage makes people happy. There are at least two potential explanations for the fact that married people are happier; one is that happier people find a partner more easily; the other is that marriage improves happiness. It is hard to find evidence that makes it possible to discriminate between these explanations.

Germany’s Monetary Mythology: Central Bank Independence and Crafting the Past

Financial district in Frankfurt, Germany. Photo/Credit: fotoVoyager/

Financial district in Frankfurt, Germany. Photo/Credit: fotoVoyager/


The job of a central bank is to ‘take away the punch bowl just when the party gets going,’ as William McChesney Martin, an American central banker, once quipped. In other words, the central bank should raise interest rates to rein in the economy before things get out of hand.

This is not always a popular job – and some central banks have done it better than others. Think of the Deutsche Bundesbank, for instance, which celebrated its sixtieth birthday at the start of this month. West Germany’s central bank was among the most successful in the post-war fight against inflation.

Indeed, we have long since reached the stage where the image of the Bundesbank has become a caricature. The German central banker: conservative, independent and not a smile to be seen. To be sure, if there were a punch bowl at a party, the German central banker would be the first to confiscate it.

Reputation is a priceless asset in the world of central banking. Credibility matters. How can we explain the Bundesbank’s reputation? Statistics are important, of course. The Bundesbank ensured that Germany experienced lower inflation rates than its trading partners, boosting the country’s competitiveness and prosperity. Such success breeds reputation.

But can numbers explain everything? Well, no. Another important factor can be history – or, at least a certain version of history. Germans, so the story goes, have long been scarred by the traumatic experience of inflation in 1920s: ever since, they have been dead set against inflation and for an independent central bank.

So no wonder the Bundesbank has been so successful fighting rising prices. The German central banker is motivated by the powerful example of his or her history.

But hold on a second. This picture is a little too neat – and there are some holes in the story. For example, Germany is not the only European country to have experienced a hyperinflation during the twentieth century. A bunch of others, including Poland and Hungary, have endured them. Yet it is only Germany that places price stability at the top of its list of economic priorities, ostensibly because of its traumatic history. What makes the German inflation so special?

To understand why Germany’s political culture is so fixated on inflation, we need to focus less on the hyperinflation itself and more on what happens afterwards. This is where approaches of cultural history – and my research – come in.

Put more precisely, we need to examine how the country’s monetary history became caught up in a post-war power struggle over the direction of monetary policy between the central bank, on the one hand, and the federal government, on the other.

The lessons stemming from Germany’s experience of inflation became politicised and mobilised into arguments in support of – and against – the need for central bank independence.

Wait, against? Contrary to popular belief, central bank independence was a controversial issue in 1949, the year in which the West German state was established. It was controversial because the Reichsbank, Germany’s central bank prior to the end of the Second World War, was legally independent of government instruction during both the hyperinflation and deflation. That is a historical fact – and it is one that is often forgotten.

In part this is because, today, we tend to associate independent central banks with economic stability, not instability. After all, that is what (most of) the post-war period teaches us. In 1949, however, that association was a far tougher sell. It was not a given. So the link between central bank independence and economic stability had to be carefully crafted, using select examples taken from Germany’s inter-war history, with other, more inconvenient facts shoved to the side.

Both supporters and opponents of central bank independence reverted to historical lessons amid efforts to influence the provisions in the Bundesbank Law, a crucial piece of legislation that established the post-war Bundesbank as we know it today.

Historical narratives of Germany’s past were forged amid this struggle for power – and in the end, those lobbying for central bank independence won the day.

Crucially, however, the Bundesbank Law itself reaffirmed this powerful struggle over monetary policy. In providing for a central bank that was independent of political instruction, the law made it highly likely that conflicts between the central bank and government would become ‘dramatised’ and spill into the public sphere.

These public controversies often centred on central bank independence. It was in these very episodes that the lessons of Germany’s experience of inflation became relevant yet again, geared in support of central bank independence.

Some historical experiences are more useful than others. A post-war institutional power struggle, one that centred on monetary policy, made Germany’s history of inflation more relevant for future generations of West Germans. Contemporary political disputes were treated in distinctly historical terms. An institutional struggle helped to foster this cultural preoccupation with inflation. That is what has made the German inflation so special – and so consequential – as opposed to those experienced by other countries.

Reputation is a priceless thing in the world of central banking – and it is even more powerful when a central bank has the right kind of history, or story, backing it. ‘The past is never dead’, the novelist William Faulkner once wrote: ‘It’s not even past.’ In the post-war era, Germany’s monetary history became a political football – and it remains one to this day.