All happy families are alike; every unhappy family is unhappy in its own way.

Leo Tolstoy

Anna Karenina

Silver Linings

Bad Times

are

Good Times

for Economists

Portrait of an Economist as a Young Ghoul

Classroom Spill-over

• More Students

• Greater General Interest

Exploiting the Classroom Opportunity

• Avoid too much abstraction – the easy to teach/easy to test syndrome

• Explain the abstract framework through case studies – economics as a form of problem solving

Making Use of the Crisis

• Financial Economics

• Money and Banking

• Macroeconomic Policy

• Other basic Macroeconomic variations

MicroeconomicsFast Food Example

The Nature of our Students

• We are not training future academic economists

• Learning by doing is the most effective teaching method if students are to gain something useful from the course

• Students need to be led away from memorising toward understanding

The Economics of Contracting

• Costs of Contracting

–Information

–Property Rights

–Risk

–Opportunism

–Asset Specificity

Solutions to the Contracting Problem

• The Agency Problem

–Markets

–Firms

–Government

Student Incentives

• Don’t Memorise

• Practise

• Workbook

• Net Bulletin Board

• Exam

Krugman – ‘Enron’s Second Coming?’

• Angelo Mozilo – CEO Countrywide Financial

• Conflict of Interest

• Shifting Risk for dubious strategies

Study Question“The current tendency to blame the boards of financial

institutions for the current mortgage crisis is entirely overblown,” claims Dean of Management (Wottsamatta U.) Sivad De. “We are making a big fuss over a very few bad peach pits. Of course it is easy to point out mistakes retrospectively. And certainly some financial institutions took what turned out to be unwarranted risks. But these were only honest mistakes. It is nonsensical to expect boards to always know what the right path should be. Moreover there is little to no incentive for such boards to condone mismanagement. The members of these boards have nothing to gain by doing so and risk losing their reputations.” In response, corporate watchdog, Metz von Flattua, stands up in the middle of this speech and throws a custard cream pie into the surprised face of Dean De. Can you try to provide a more explicit basis for Ms von Flattua’s unorthodox response to Dean De’s claims? Use contractual analysis to evaluate this issue.

What does this demonstrate?• Importance of problem solving.

• Students grasp economic relationships best by seeing concrete situations.

• Economics is best understood as a way to analyse specific problems.

• Models shouldn’t be presented as an end in themselves.

Benefits and Costs of Approach

• Student Appreciation of inherent practicality

• Intuitive understanding of economic applications

• Hard work for students and lecturer

• Higher Risk than standard course

Last Word - Oscar Wilde

Education is an admirable thing. But it is well to remember from time to time that nothing that is worth knowing can be

taught.