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.
Jerry R. Green
David A. Wells Professor of Political Economy, John Leverett Professor in the University
David A. Wells Professor of Political Economy, John Leverett Professor in the University
Jerry R. Green
David A. Wells Professor of Political Economy
John Leverett Professor in the University
Harvard 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.
Jerry R. Green
David A. Wells Professor of Political Economy
John Leverett Professor in the University
Harvard 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 is focused on principles of equity in collective decision making, the use of irrational choice data to evaluate economic well-being, and the revision of beliefs in the presence of logically inconsistent information.
In the 1970s Professor Green developed the theory of rational expectations equilibrium, focusing on the externalities due to observations of events that propagate through the system when agents extract information from prices. He showed that the theory is extremely fragile because equilibria are likely not to exist or, when they do exist, they may be unreasonably sensitive to errors in the data.
Later in the 1970s and continuing through the 1990s, working with Jean-Jacques Laffont, he explored the properties of dominant strategy mechanisms that implement efficient collective outcomes. They characterized the limitations of these mechanisms and examined how they might be improved under Bayesian incentive compatibility or by taking a sample of the population whose responses determine a decision affecting the entire population. He applied the theory of incentives to employment contracts and to general bilateral contracts with uncertainty on both sides of the market.
Professor Green pioneered the study of how changes in the quality of information affect economic outcomes in general equilibrium theory with incomplete futures markets and in two-person games, providing one of the first examples of what are now called “cheap-talk games."
Outside of pure economic theory, Professor Green wrote on many topics in applied microeconomics, primarily in public finance. His work on taxation explored capital gains, dividend policies of firms, income taxation in inflationary environments, banking and the mortgage market, inventory accumulation, and the risk analysis of pension plans. He also contributed to corporate finance, writing one of the first papers to use game theoretic methods to model early stage entrepreneurial investment. With Suzanne Scotchmer, he worked on patent policy in dynamic environments.
Over the past 20 year he has worked primarily on theoretical models of behavioral and normative economics. He has written on voting theory, fair division problems in collective decision making, and choice under uncertainty without the independence axiom.
Throughout his career he has been devoted to the teaching of microeconomic theory at the graduate level. His book, coauthored with Andreu Mas-Colell and Michael Whinston, Microeconomic Theory, is the leading textbook used in first-year Ph.D. courses around the world. He was awarded the J.K. Galbraith Prize for graduate teaching.
Professor Green joined the Harvard Economics Department after receiving his Ph.D. from the University of Rochester in 1970. He chaired the Economics Department from 1984 to 1987 and served as Provost of the University from 1992 to 1994.
He is a Fellow of the Econometric Society and has served on its Council and on the Editorial Board of Econometrica. He is a Fellow of the Society for the Advancement of Economic Theory, a Fellow of the American Academy of Arts and Sciences, an Erskine Fellow of the University of Canterbury (New Zealand), an Overseas Fellow of Churchill College (Cambridge University). He was a Guggenheim Fellow and a National Science Foundation Post-doctoral Fellow.
He chaired the National Science Foundation’s Information Sciences Advisory Panel, preparing the Foundation’s Ten-Year Outlook for the Social Sciences. He served as on the National Academy of Sciences Panel on Income Tax Compliance.
At Harvard, Professor Green is a Senior Fellow of the Harvard Society of Fellows, a Syndic of the Harvard University Press, an Honorary Associate of Lowell House, and chair of the Faculty Committee on Athletic Sports.
- Books
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- Green, J. R., A. Mas-Colell, and M. Whinston. Microeconomic Theory. New York: Oxford University Press, 1995. View Details
- Journal Articles
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- Baldiga, Katherine A., and Jerry R. Green. "Assent-maximizing Social Choice." Social Choice and Welfare 40, no. 2 (February 2013): 439–460. View Details
- Archetti, Marco, Francisco Ubeda, Drew Fudenberg, Jerry R. Green, Naomi E. Pierce, and Douglas W. Yu. "Let the Right One In: A Microeconomic Approach to Partner Choice in Mutualisms." American Naturalist 177, no. 1 (January 2011). View Details
- Green, Jerry R., and Nancy L. Stokey. "A Two-Person Game of Information Transmission." Journal of Economic Theory 135, no. 1 (July 2007): 90–104. View Details
- Green, Jerry R. "Compensatory Transfers in Two-Player Decision Problems." International Journal of Game Theory 33, no. 2 (June 2005): 159–180. View Details
- Green, Jerry R., and S. Scotchmer. "On the Division of Profit in Sequential Innovation." RAND Journal of Economics 26, no. 2 (spring 1995): 20–33. View Details
- Green, Jerry R., and J. J. Laffont. "Non-verifiability, Costly Renegotiation, and Efficiency." Annales d'économie et de statistique, no. 36 (October–December 1994): 81–95. View Details
- Green, Jerry R., and J. J. Laffont. "Renegotiation and the Form of Efficient Contracts." Annales d'économie et de statistique, nos. 25-26 (January–June 1992): 123–150. View Details
- Green, Jerry R. "Commitments with Third Parties." Annales d'économie et de statistique, nos. 25-26 (January–June 1992): 81–95. View Details
- Green, Jerry R., and J. J. Laffont. "Competition on Many Fronts: A Stackelberg Signaling Equilibrium." Games and Economic Behavior 2, no. 3 (September 1990): 247–272. View Details
- Green, Jerry R., and S. Scotchmer. "Novelty and Disclosure in Patent Law." RAND Journal of Economics 21, no. 1 (spring 1990): 131–146. View Details
- Green, Jerry R., Jean Jacque Laffont, and Elon Kohlberg. "Partial Equilibrium Approach to the Free-Rider Problem." Journal of Public Economics 6, no. 4 (November 1976): 375 – 394. View Details
- Book Chapters
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- Green, Jerry R., and Lawrence Kotlikoff. "On the General Relativity of Fiscal Language." In Institutional Foundations of Public Finance, edited by Alan J. Auerbach and Daniel Shaviro. Harvard University Press, 2009. View Details
- Green, J. R. "Strategic Use of Contracts with Third Parties." In Strategy and Choice, edited by R. J. Zeckhauser. Cambridge: MIT Press, 1991. View Details
- Green, J. R. "Future Graduate Study and Academic Careers." In The Economics of Higher Education, edited by C. Clotfelter and M. Rothschild. Chicago: University of Chicago Press, 1991. View Details
- Working Papers
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- Green, Jerry R., and Daniel A. Hojman. "Choice, Rationality and Welfare Measurement." Faculty Research Working Paper Series, No. 2144, November 2007. View Details
- Green, Jerry R., and Laurence J. Kotlikoff. "On The General Relativity of Fiscal Language." Harvard Business School Working Paper, No. 07-085, May 2007. View Details
- Green, Jerry R., and Laurence J. Kotlikoff. "On the General Relativity of Fiscal Language." NBER Working Paper Series, No. 12344, June 2006. View Details
- Other Publications and Materials
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- Baldiga, Katherine, and Jerry R. Green. "Choice-based Measures of Conflict in Preferences." September 2009. (Discussion Paper.) View Details
- Green, Jerry R. "Compensatory Transfers in Two-Player Decision Problems." February 2003. View Details
- Research Summary
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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.
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.
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.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. - Teaching
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I teach the main PhD course that is taken by all Economics and Business Economics Ph.D. students. Together with two colleagues I wrote the book on which this course is based. It is the main book that our field has used for the past 25 years. The book is supplemented by over 900 slides of my own design which I have made available to everyone in our field. That is the way I keep the course up to date as the field evolves.This course covers the field of microeconomics as seen through the lens of the "great theorems" that have determined its evolution since WWII. During that time period the entire field of economics has changed. It is now described in terms of advanced mathematics, much of which was not known 75 years ago. Entirely new areas of study are now squarely within the realm of economic theory. These developments have also helped economics connect with other social sciences and with topics such as computer science that have co-evolved with it.
- Additional Information
- Areas of Interest
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- decision-making
- economics
- environment
- game theory
- incentives
- agency theory
- auctions
- behavioral finance
- complexity
- conflicts of interest
- contracts
- corporate governance
- corporate social responsibility
- corporate values/value systems
- decision support
- disclosure strategy
- economic institutions
- economics of design
- education
- emotions
- experimental economics
- experimentation
- financial innovation
- insurance and reinsurance
- intellectual property
- joint ventures
- law
- managerial incentives
- market efficiency
- market institutions
- mergers and acquisitions
- networks
- organizational design
- patents
- philanthropy
- real options
- risk management
- taxation
- aerospace
- education industry
- insurance industry
- professional services
- Europe
- Finland
- France
- Israel
- New Zealand
- North America
- United Kingdom
- United States
- Western Europe
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