Jerry R. Green
David A. Wells Professor of Political Economy; John Leverett Professor in the University
Jerry Green is the John Leverett Professor in the University and the David A. Wells Professor of Political Economy in the Department of Economics.
His current research includes work on the economics of incentives, principles of equity for use in collective decision making and the use of data on choice to evaluate economic well-being.
Professor Green was one of the originators of the theory of rational expectations and of a variety of concepts and methods in the economics of incentives and information. He has pursued both the theory and applications of these ideas in his work. He was an early innovator in the analysis of the strategic uses of corporate financial management. He analyzed the growth consequences of corporate and capital gains taxation, the mortgage market, the risk characteristics of private pensions and the implications of patent policy for the pace of innovation.
Professor Green developed the required graduate course in economic theory at Harvard University, with which he has been involved with since 1970. He is a co-author, with Andreu Mas-Colell and Michael Whinston, of the leading graduate level textbook, Microeconomic Theory, (Oxford University Press, 1995, of Incentives in Public Decision Making (with Jean-Jacques Laffont, 1978), and over eighty scientific articles.
He is currently the chair of the Ph.D. Program in Business Economics at the Harvard Business School.
Professor Green joined the Harvard faculty in 1970, chaired the Economics Department from 1984 to 1987, and served as Provost of the University from 1992 to 1994. He is a Senior Fellow of Harvard's Society of Fellows and a Syndic of the Harvard University Press.
Professor Green is a Fellow of the Econometric Society and served on its Council from 1988 to 1994. He is a Fellow of the American Academy of Arts and Sciences and has been an Erskine Fellow at the University of Canterbury, and a Guggenheim Fellow. He is an Oversees Fellow of Churchill College, Cambridge University. In 1980, he received the J.K.Galbraith Prize for excellence in teaching.
Professor Green chaired the National Science Foundation's Information Sciences Advisory Panel in 1980, prepared the Foundation's Ten-Year Outlook for the Social Sciences and served on the National Academy of Sciences Panel on Taxpayer Compliance. He has been an advisor to many universities and foundations.
Choice, Rationality and Welfare Measurement
For the past century, economists have used the hypothesis that individual choice is based on rationality in their calculations of individual and collective welfare. The central ideas are that actual market choice reveal underlying preferences, and with a good set of observations on choice these preference can be discovered and then used for business or policy analysis. However, much recent work in both economics and psychology has revealed systematic and persistent irrationality in choice behavior -- destroying the cornerstone of economic analysis. In this project, Jerry R. Green and Daniel Hojman are developing methods to use data on seemingly irrational choice to place bounds on meaningful welfare measures and provide operational content to choice behavior as actually observed.
Social Choice and Voting Rules
This research program is based on the idea that good voting systems should take into account the frequency with which different choice problems arise. Traditional social choice theory requires properties over a fixed domain of choice problems but does not offer the possibility of trading off the properties of a decision at one problem against those at another. Professor Green, together with Katherine A. Baldiga, is studying a set of social choice rules that they call "assent maximizing rules". These rules produce a rational social ordering in all cases, and therefore can be used to make social welfare judgments. Each rule corresponds to a probability distribution over the set of all possible problems.
The incentive properties and the qualitative axioms needed to characterize these rules are also being investigated in this project.
Applications include the study of polarization of preferences and the rationalization of irrational choice rules.
Multilateral Bankruptcy Rules
A classic problem in economics is the selection of a bankruptcy rule with good normative properties. The problem as usually specified is given by the “estate” E which is to be divided among the “claims” c= (c1, ….cn). It is assumed that the estate is insufficient to satisfy the claims – that is E<S ci. Many rules have been developed with different, mutually conflicting, properties.
Multilateral bankruptcy problems have not been studied from this perspective at all. I define a multilateral problem by a matrix of debts, X and a vector of exogenous wealths W. Each player i owes a debt xij to the other players j. They can fulfill these debts by accessing their exogenous wealth Wi and the income that they collect from the debts that others owe to them. However, the others may experience bankruptcies and thus the collected amount may fall short of the debt. The bankruptcy rule reduces the payments of a player who has more debts to pay than his total income. A solution to the multilateral bankruptcy problem is a rule which determines actual debt repayments for all bankrupt players, and endogenously determines the set of bankrupt players and the set of solvent players.
Rules are to be compared according to whether they avoid or mitigate “bankruptcy cascades”, and according to how they allocate the available exogenous wealth as a function of the matrix of debts X. Good bankruptcy rules should be neutral with respect to the “declaration” of bankruptcy. In a dynamic setting a player may have negative net worth but may still be able to fulfill his debts for a while by running down his assets. Invariant rules yield the same results no matter which time the bankruptcy is “declared” and the rule imposed.
Compensatory Transfers in Collective Decision Making
Jerry R. Green is studying mechanisms that can be employed to promote efficient collective decisions while providing justifiable compensation to participants who favor different, less efficient alternatives. This type of decision problem is pervasive in business, government, and economics. For example, it arises whenever different divisions of a firm must cooperate to share overhead expenses; whenever the effectiveness of an advertising campaign depends on emphasizing only some of a firm's products; and, in government, whenever individual jurisdictions are combined-from state interaction at the federal level to schools merged into districts. The theoretical questions addressed by Green's research have a direct bearing on management accounting. Any good method of determining compensatory transfers should be preferred to the many nonproductive strategies that might be invoked. A good method should deliver a consistent result whether a complex, multifaceted decision is tackled all at once or broken down into a set of smaller decisions, each of considerably less import.
Strength of Incentives
When economists analyze the incentive properties of decision making systems they assume that all economic agents are capable of optimizing their decisions and that they respond without error to the incentives that the system creates. In this project, Jerry R. Green will incorporate the more realistic response modelling under which everyone's choice is more likely to switch to a less than optimal alternative. The closer an alternative's payoff is to the optimum payoff, the more like it is to be chosen instead of the optimum. Designing robust incentive systems requires that individual responses be modelled through this more psychological, non-optimizing approach.