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Scoponomist

Spring 2012

The


Content Word from the President

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Why We Need a Theoretical Approach to Economics

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Paris - The City of Love & Economics

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For Aspiring Economists

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The American Experince

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SCOPE | Economics Alumni Day

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EconRound: Working Hours Initiative

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Blue, Boats & Beaches

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Why the Government Should Not Pay for Your Higher Education

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Dear Reader, It has now already been a year since the “IES Network” has been renamed to “SCOPE | Economics”. This change resulted from the restructuring process of the former FAME associations, which now are tied closer together as the five SCOPE associations. The magazine, which you are holding in your hands right now is another result of this restructuring process and replaces the former magazine “The Networker”. For us as SCOPE | Economics some things have changed fundamentally. For example, our member base has increased to approximately 750 members. The main reason for this growth is that we now also count first-year students of the Economics track to our members. Addressing this new target group has been one of the challenges that we faced at the beginning of this academic year. Throughout the year we organised a wide range of activities and we were able to mainly focus on academic events, as in previous years. We organised more than eight guest lectures on interesting topics, such as “Econophysics”. Additionally, we were able to invite Prof. Dr. Schmidt, one of the direct advisors to the German government as a guest lecturer. Furthermore, we created a new type of event: “Econround”, a place for people with interest in economics to discuss current issues. In period 5 we organised a conference on the occasion of the 20th anniversary of the Maastricht Treaty. We also organised many social events this past year. First to mention is our yearly Foreign Trip in the Skills Period 6. This summer the group of 20 students is heading out to London and Dublin where they visit such interesting companies and institutions as Frontier Economics and the Bank of England. Among the destinations for the smaller trips this year was Frankfurt, where we visited an economic consultancy and the European Central Bank. Another trip went to Paris, where we visited among other things, the OECD. Concerning the future, our next goal is to organise more events where students have the opportunity to get in touch with companies, that are interested in students with an economic background. At the same time we will maintain our level of academic activities and interesting guest lectures. Last but not least I would like to thank the Magazine committee for the huge effort they put into this first edition of the Scoponomist. I now invite you to read the interesting articles they have written or acquired for you. Kind regards, Wolfram Kerl

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Why We Need a Theoretical Approach to Economics An Essay on Academic Economics

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uring a meeting with IES alumni in England, I got the opportunity to engage in a discussion with Tobias Broich about his critical article on how economics is currently taught at universities. His article was published in the The Networker in June 2011 , the predecessor of the Scoponomist. Our dialogue took place in London at Russell Square in mid-April lasting almost two hours. The purpose of this article is to express a somewhat different perspective I took on the appropriateness of current academic economics and can therefore be seen as a critical response to Broich. He argues that economics is overloaded with theoretical, mathematical methods and acknowledges that mathematical tools are

necessary for the science of economics. However, Broich thinks that those methods should only be used to a certain extent: If they match reality well and have significant relevance for policy-making or our understanding of society. He would like to see economics to be integrated in other social sciences (politics, history, philosophy) and not to be perceived as applied mathematics. I argue contrarily that economics should not become a superficial method employed by other social scientists. The scientific world of economics should be able to develop itself independently and not become the small brother of political sciences. Mathematical economics is needed to fulfill this goal.

Theoretical advances are vital to the development and validity of the science itself. Advances in applied economics are often derived from quite mathematical models developed in the past. Just compare economics to the world of physics: Theoretical physics might sometimes seem to be a useless field of research far from reality. Fortunately, our society acknowledges the incredible breakthroughs in that field. Some findings have caused a significant shift of the overall scientific frontier. I believe that we should accept this approach in economics as well. In our field, some highly simplified, mathematical and general models have had an extreme impact on applied economics. Consider the example of the mathematician


John Nash. The founding father of game-theory took a very mathematical perspective on a general problem. Now his concept is used in a lot of subfields of economics. What makes economics a special social science is that it takes a very positive perspective. The more normative approaches of other sciences sometimes lead to very conflicting results which might actually be in conflict with reality. Political science can easily be influenced by ideologies while the mathematical tools of economics emphasize the positive analysis of human behavior. They are more valuefree or valueneutral than other ways of analysis. Economics is certainly influenced by ideology, but it often enters at a later, more applied stage of research. The textbook argument for the use of models in economics is that they should be perceived as road maps: Unimportant information is left out of a map. The crucial assumption is that anything not visible is irrelevant for general decisionmaking. Imagine what adding all bus lines to a Metro map would mean for the users. The majority of people will not get much faster to their destination while everyone will need more time to find a route.

Applying this reasoning to economic thinking leads to the conclusion that for understanding economic behavior abstract models are crucial. I would like to conclude my argument with two proposals on how this thinking could be incorporated in the curriculum of our study. During the first semesters more theoretical methods and mathematical

ways of thinking should be taught. On the one hand, the Quantitative Methods courses are not easy for a lot of students for sure. On the other hand, the high number of close-to-perfect grades is a signal of much more capacity. As I argue that mathematical skills are vital for the understanding of economics the curriculum should rather focus on the second group of students. Instead of taking relatively irrelevant business courses (Marketing, Management Accounting) the first-year coursework should be more similar to the Econometrics programme. There should however be one

difference. Students should get motivated and see practical applications first by taking courses like Economic Policy or Principles of Economics to understand the relevance of quantitative skills. I think that mathematics needs a teaching approach which is slower but more extensive than how it is right now. In a later state of the study, students should get the possibility to choose between a more quantitative and a more qualitative specialisation. Tobias Broich certainly has a point when criticizing our narrowmindedness. A broad and a deep specialisation would cater to the different ideas students have about our study.

Author:

Felix Holub Third-Year Economics Student

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Paris - The City of Love & Economics

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A Report of the SCOPE | Economics City Trip in February

omantic, classy and charming – those are the words found in any tourist guide that exists on the French capital. But what does this city offer from the viewpoint of an economist? The simple answer is: quite a lot! Reason enough for us to use the last days of this year’s carnival break for a City Trip to Paris. Wednesday, early in the morning, the train ride began, bringing our group of 1 8 students from Maastricht to Paris. After safely arriving at the hostel, we used our spare time to get a first taste of the city by discovering the quartier Montmartre.

BNP Paribas

Further sightseeing brought us via the Arc de Triomphe and the Champs-Elysées to our first visit, the global banking group BNP Paribas. A general introductory presentation explained the position of BNP Paribas in its domestic markets and its role worldwide. We then shifted the focus to the economic research department, which is part of BNP Paribas Corporate and Investment banking. While we initially analysed the effects of wage reductions and tax increases, we later switched to the hot topic of the euro crisis. With three quite unique presenters, a very interesting discussion quickly emerged. Lastly, the

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visit included an informal drink that enabled us to learn more about the academic background and the personal career path of our hosts. The

and the Swiss Delegation to the OECD further elaborated on their diplomacy and the role their countries play at the OECD. The programme was

free evening used to try cuisine and walk trough

completed by a talk on the OECD Anti-Bribery Convention, which is part of the OECD’s fight against corruption. The speaker, a current anti-corruption analyst, explained how the mechanism of self and mutual evaluation works and which challenges the OECD is still facing. The subsequent lunch break was spent at the Delegation of the Netherlands to the OECD. Moving the focus now more to our home country (well, at least the home country of our university), we met with the ambassador of the Netherlands and learned about his work and responsibilities. Further, a report the OECD prepared about the Netherlands was

hours were then out the French to have a nice Paris by night.

OECD Headquarters The next day was devoted to the most important international economic organization headquartered in Paris, the OECD. During the morning programme, our group was merged with students from several universities across the world, making the visit a truly international experience. Next to an overview on the history of the OECD, the different structures and bodies within the organisation were explained. Representatives of the United States Delegation


presented, enabling us to understand how the Netherlands is viewed from outside. The last point of discussion then treated one of the organisations that exist within the OECD, namely the International Energy Agency (IEA). While it was established after the oil crisis of 1 973 in order to help countries to respond to supply shocks, it by now enlarged its responsibilities to promoting energy security, economic development and environmental awareness. Again, we focused on the Netherlands but were still able to draw comparisons with a variety of other

member states. Leaving the OECD, we went straight to an after-work, including sushi and an open bar, so that the evening still lasted quite a bit longer.

International Chamber of Commerce After getting a nice rest, we on Friday morning once again strived to learn more about an

international organisation and visited the International Chamber of Commerce (ICC). While the ICC is officially a business organisation, both its goals of promoting trade, investment and open markets and its close link to the UN and the World Trade Organization make it a truly interesting place for economists. Meeting the director of the ICC, FrancoisGabriel Ceyrac, then gave us further insights about the

exact work of these economists. Our next host introduces us to the role of the ICC International Court of Arbitration. This Court of Arbitrage is an institution within the ICC and is responsible for the resolution of international commercial disputes. There exist clear rules and procedures that make the Court’s decision binding and we familiarised

ourselves with these processes. Afterwards, however, we also learned

about a complementary practice, called ADR (amicable dispute resolution), which actually keeps the dispute private and solely provides a neutral negotiator to mediate between the parties. During a case study, we then experienced the benefits that such private settlements provide for the involved parties. As the train ride home was only scheduled for the evening, each of us tried to use the remaining afternoon in the best way possible, whether this was by enjoying a freshly made crêpe, by taking pictures under the Eiffel Tower or by just walking around and enjoying the city. In the end, it was time to say “au revoir Paris”Q back to Maastricht, back to studying our textbooks.

Author:

Ina Esser Master Student

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For Aspiring Economists

Randomistas, Poor Entrepreneurs, and Lucky Research Assistants

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fter graduating from SBE in 201 0 (IES) and after receiving a Masters at the Barcelona Graduate School of Economics I landed a job as a Research Fellow - a fancy title for a senior Research Assistant (RA) - at Harvard’s Evidence for Policy Design (EPoD) program, where I work for Professors Rohini Pande and Erica Field. Judging from my own and the experience of friends – I talked to while preparing this article – Bachelor and Master students at European universities generally lack guidance on the issue of what it’s like to work as an economist, and perhaps just as importantly, how to go about becoming one. A typical – yet, in Maastricht, not much advertised route – is to gather experience as a Research Assistant. Working as an RA will provide you valuable

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Source: J-PAL

insights into how academic research is produced, and what it means to be an economist; it is also a common springboard for getting into PhD programs. There are many types of RA jobs: Paid and unpaid, partand full-time, some of which are based in exotic field locations (India!), while others are hidden away in your university’s basement. Please keep this caveat in mind as I will focus only on my personal experiences and the research my professors and others like them do.

Randomistas vs. Regressionistas

My professors at EPoD and their collaborators at MIT’s Abdul Latif Jameel Poverty Action Lab (J-PAL) and Yale’s Innovations for Poverty Action (IPA) engage in a wide array of microeconomic studies on

About The Author Max Bode, IES class of 201 0 Research Fellow at Harvard University Cambridge, USA The views expressed here are entirely my own and do not reflect the views of EPoD, the Center for International Development (CID), or Harvard University.

topics such as education, labor markets, microfinance, political economy and governance, as well as environmental economics, health, and agricultural economics (Banerjee & Duflo, 2011 ; Karlan & Appel, 2011 ). The unifying theme of the research is not the topic but the method: researchers engage with governments and local organizations (e.g. NGOs) to intelligently design, implement and evaluate policy interventions. The crux of the matter is that interventions are evaluated by conducting large field experiments similar to a clinical randomized control trial (like those used in medicine). At the root of this experimentation is a great concern with selection bias based on unobserved and unobservable variables: for example, a cross-country regression regressing literacy rates on GDP growth will not be able to answer the question whether countries do not develop because they have low literacy rates, whether countries have low literacy rates because they are not


developed, or whether a third factor, say democracy, drives both development and education. In the last few decades, economists have grown increasingly concerned with this problem: as a result they have developed clever identification techniques and studies that opportunistically exploit the portion of variation in the explanatory variable of interest which can be explained by an exogenously occurring natural event - the instrument - are very hip. Because such observational studies must rely on complicated econometric methods and strong identifying assumptions to establish causality, let us dub this methodological camp of researchers the regressionistas. The instrument has to be exogenous to outcomes (in other words, it is only allowed to impact outcomes via the explanatory variable of interest). Finding an instrument that can convincingly explain only the exogenous portion of an explanatory variable is a very tricky task. The failure of this so-called “exclusion restriction” biases results and is difficult to rule out; moreover, we cannot afford to only address questions for which we can find good instruments. The method of field experimentation therefore has gained traction in the last few years and a camp of randomistas emerged who devised (or rather, revived) this technique. The problem of selection bias can be solved

Source: Aude Guerrucci

by randomly assigning individuals – or schools, or villages - to a treatment and a control group. If the randomisation is done correctly and the groups do not mix, then simple comparison of the average outcomes across clients assigned to the treatment and control group has a causal interpretation. Randomisation thus does away with all the ugly problems of selection bias that almost every observational study faces and tries to mitigate by employing elaborate identification strategies. Another advantage of randomised designs is that research’s prior is less likely to influence results as data mining – running multiple regressions using different identification strategies until the expected results appear. This is not possible because a simple econometric specification is dictated by the experiment. Although many view randomization as the gold standard for empirical research, very resilient and also prominent regressionistas

do not view them with that much enthusiasm. The articles and commentaries compiled by Banerjee (2007) and Cohen and Easterly (2009) provide a great introduction to this livly debate.

Poor Entrepreneurs

Development policy places strong emphasis on providing financial services to the poor and microcredit is generally regarded as the best way of doing so. The story goes that because of adverse selection and moral hazard, it is infeasible for the traditional banks to lend to the poor. Adverse selection arises because banks cannot easily determine which customers are likely to be more risky than others. In order to remain profitable banks would like to charge riskier customers more; however, because the bank cannot tell the risky and less risky client types apart, it has to raise average interest rates for everyone and thus drives safer customers out of the credit market. Moral hazard, arises because banks

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are unable to ensure that clients make full effort to meet their obligations. The typical group loan microcredit product eliminates these problems by outsourcing (1 ) information gathering and (2) contract enforcement cost to clients. The conventional wisdom is that the mechanism through which microcredit achieves this is the following: Clients borrow in groups and are jointly liable for the credit, and therefore they (1 ) try to select only low-risk individuals into their loan groups and (2) enforce repayment within their groups. The promotion of microcredit as a development policy is

largely motivated by the belief that financial inclusion enables the poor to create incomegenerating activities by engaging in microentrepreneurship. A large open question in the development literature is to what degree microcredit has fulfilled these promises. Does it really improve household incomes? Emerging empirical evidence from experiments suggests a limited impact of microfinance institution (MFI) activity on the average income growth of clients and microentrepreneurs (Banerjee et al., 201 0; Karlan and Zinman, 2009), despite concurrent evidence of relatively high

Sugar Daddies

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The “Sugar Daddy” evaluation is an excellent example of a typical Randomista experiment: In Kenya, 25-year-old men are far more likely to have HIV than 1 6year-old boys. This means that sexual relationships with older partners – commonly called “Sugar Daddies” in Kenya - are particularly dangerous for teenage girls. In 2003, a new AIDS education curriculum had yet to be fully implemented throughout Kenya. It was the perfect opportunity to conduct a randomised evaluation. J-PAL affiliated researcher, Pascaline Dupas of Stanford University, conducted an experiment to assess the impact of a “Relative Risk Information Campaign” the impact of an abstinence campaign (the more traditional route for addressing sexual health issues). The Relative Risk campaign emphasised the risk of having sex with older versus younger men. The basic idea was: teenagers will have sex either way, so let’s teach them how to have smart sex. Interestingly, the teenage girls who were educated in this curriculum (which included videos, presentations and a short discussion), were responsive to risk information: the incidence of childbearing (a proxy for unprotected sex) was reduced by 28 percent (from 5.4 percent of girls getting pregnant within a year, to 3.9 percent). Self-reported sexual behaviour data suggests substitution away from older (riskier) partners and towards protected sex with same-age partners. This implies that the teenage girls engaged in more sex with their male classmates. In contrast, the official abstinence-only HIV education curriculum which was also tested - had no impact on teen pregnancy.

returns to capital in smallscale enterprises in developing countries (de Mel et al., 2008). It is therefore necessary to better identify the channels through which access to finance leads to income generation via successful microentrepreneurship. As our understanding of the channels of influence improves, the classical microcredit contract design can be modified to improve effectiveness. Between 2006 and 2008, the professors for whom I work conducted an experiment that randomly assign¬ed first-time borrower groups to meet either once per week (the standard frequency for a Grameen-style microcredit loan), or once per month (Feigenberg et al., 2011 ). The results were striking: First, clients assigned to weekly groups increased social contact with other group members outside of meetings and maintained these for more than a year after the experiment ended. In the long run, clients who had met on a weekly basis saw each other 26 percent more often outside of group meetings. Second, while clients in both groups were equally likely to continue borrowing, those who met weekly during their first loan cycle were three-and-a-half times less likely to default on their second loan (7.8 percentage points). Furthermore, default reductions were concentrated among weekly clients who were grouped with individuals with whom they had the ability


above at a very late stage and therefore my engagement was limited. Nevertheless, I got to travel to the field site in Kolkata and conducted a small survey and prepared the resulting data for analysis. Besides managing field staff, cleaning data, and writing research grant, conducting analysis, and even the drafting of research papers is part of a Research Assistant’s job description. Despite being in Source: J-PAL the Randomista camp the to sustain social interaction they provide an alternative current project I work on is but only weak social ties explanation for the success of actually an observational before joining the MFI. the classic group-lending study. After all not all Together, these patterns model in achieving low rates questions can be tackled by experiments indicate that increases in of default without the use of randomised (Image the face of a social contact led to long-run collateral. Although joint development countries improvements in risk-sharing. liability is almost universally These results show that emphasised as the key to Minister of Transportation if microcredit group lending is mitigating default risk in group- you tell him you would like to highway successful in achieving low lending, the results show that randomise constructions) and the rates of default without improvements in informal riskconventional identification collateral not only because it sharing arrangements that although harnesses existing social develop among clients in strategies problematic are still an capital, as has been individual-liability lending instrumental part of a emphasized in the literature groups significantly improve development economist (under group liability: group repayment rates. Much like member selection, social when you participate in toolkit. pressure to repay etc.), but Maastricht’s Week of Both their supporters and also because it builds new Entrepreneurship, having the critics of the so-called social capital. Not only do opportunity to network is the Randomistas offer a lively and these results imply that key to entrepreneurial success active strand of development I strongly development programmes can of the poor. economics. encourage students interested readily generate economically I started working on the valuable social capital, but microcredit project described in the exploring the option of becoming an economist to find For Inquisitive Minds similarly active groups within their preferred research fields. Books: Banerjee, A. (2007). Making Aid Work. MIT Press. Banerjee, A., & Duflo, E. (2011 ). Poor Economics: A Radical Rethinking of If you find a place at the very cutting edge, you will find a the Way to Fight Global Poverty. New York: PublicAffairs. Karlan, D., & Appel, J. (2011 ). More Than Good Intentions: How a New Economics Is Helping to Solve Global Poverty . New York: Penguin Group. rewarding job – regardless of whether you want to become Cohen, J., & Easterly, W. (2009). What Works in Development?: Thinking Big and Thinking Small. Brookings Institution Press. an academic, a policymaker, or a consultant. Links: EPoD: hks.harvard.edu/centers/cid/programs/evidence-for-policy-design JPAL: povertyactionlab.org (/jobs) IPA: poverty-action.org

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The American Experience Master Exchange Semester in California

ever would I have thought I would get to visit the US so early in my life, especially because it was so far down on my “places to see” list (probably because it is so far away location wise) and because I never planned on studying or working here. Then one day before last October’s exam session I got an e-mail encouraging students enrolled in an Economics Master’s programme in Maastricht to apply for an exchange called Applied International Monetary Economics sponsored by the European Commission. As I was close to completing my programme, I had told myself I would not waste any opportunity encountered so I decided to apply and then forgot about it and concentrated on my upcoming exams. On the Wednesday of exam week I got an e-mail from Mr Bertrand Candelon saying I got selected to participate in AIME and that I had to sign a contract in the upcoming week. It was a total surprise to me, to my parents and to my boyfriend because they had no idea of me having any intention or opportunity to do a semester in the U.S. Naturally I started asking questions about the programme, about the grant and the university I would be going to. AIME is part of the EU-U.Ss

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Atlantis Programme. The partners are Maastricht University (Netherlands), Université Catholique de Louvain (Belgium), Université d’Orléans (France), University of Santa Cruz (CA, USA) and Clemson University (SC, USA). The programme is designed to offer cultural and

is that they have to be an equivalent of the mandatory courses you were supposed to take at your home university as part of your degree. The next two months before my departure were very busy with issues related to obtaining a visa, deciding

linguistic preparation as well as to include trips to European and U.S. institutions that focus on monetary policy making. The students selected receive a grant of 5000 € to cover expenses incurred during the semester, except for tuition fees which they continue to pay at their home university alone. Unfortunately, not all the details of this programme have been well established since it first was implemented in 201 0. There is no official list or number of courses you should be enrolled for so the only restriction in this respect

about accommodation, meals and courses at Clemson and studying for my last two subjects in Maastricht. Then I spend less than two weeks in Romania for Christmas and New Year's Eve and was on my way to live the American experience. The trip was long and tiring. I was lucky enough to get in touch with two Romanian professors at Clemson who were kind enough to welcome me at the train station and give me a ride to Clemson campus where I had decided to live. My roommates are Karen (U.S.), Marion (France) and


Sophie (U.K.), but there are people from all over the world living in the International Community. Apartments are composed of two bedrooms, a living room, a restroom and a kitchen and you can choose to either share a room with one other person (2055 $ per semester) or live alone (31 05 $ per semester). When it comes to food, Clemson University allows you to choose among six different meal plan options. They normally include a number of meals to be taken at one of the three dining halls conveniently located around campus (the closest one to where I live is ten minutes away by foot) and a number of Paw Points that can be converted into meals, drinks and more at the different restaurants, cafes and convenience stores. I have to admit this arrangement gave me a lot of spare time that would have otherwise been spent shopping, cooking and cleaning. Also Clemson is a pretty small town and you can barely find any fresh vegetables or fruits to buy

within walking distance. I must admit I was impressed with how convenient and pleasant it is to live on a proper university campus. Maastricht is a beautiful city and I enjoyed strolling around the two main markets whenever time permitted, but I did not get to live the true international experience until moving to the U.S. It is incredibly easy to meet people, get to know their culture and organise little events when all live together in the same community. Also administrators take care to

assign at least one American student to every apartment in order to have internationals always in contact with the local community and people that have been in Clemson for at least one year. I found this works perfectly. These students are selected from those who apply to live in the Cultural Exchange Community as they call it and are usually the ones who have had international exposure through an exchange of some sort before so that they have proven abilities to interact with foreigners. This creates a winwin situation for the American and international students. Also on campus there are stadiums where games of American football, baseball and basketball are organised regularly and a modern sports centre, all accessible to students at no cost. Altough, university classroom buildings are within walking distance, the university provides students and staff with a bus transportation system free of charge all around campus and

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to the nearby towns. The teaching system in the U.S. is very different from the one in Maastricht. One class lasts either for 50 or 75 minutes depending on the subject. There is almost no participation by the students within regular class hours and therefore no participation grade. The professor is either required to compress the literature into a comprehensive lecture or to elaborate on the more important or more difficult points. On one side this system is a lot more relaxed than PBL from a student point of view because his progress is not checked regularly and the information is delivered through the filter of a well experienced professor. On the other side, students are not sufficiently encouraged to read and summarise information by themselves and interact with each other and the professor. In my opinion, Clemson students are less prepared than Maastricht students for future, non-school situations. The subjects I have been studying in Clemson are Advanced Macroeconomics, Advanced Econometrics, Directed Reading and Spanish. Macroeconomics is a mixed Master-PhD course with PhD students having to attend extra hours and do

extra work at home and in exams. I decided to take this particular Econometrics course because I felt it was like a bridge between the very little econometrics I learned during my undergraduate programme and the applied

econometrics I had to employ in Maastricht. It is mostly a theoretical course explaining what I struggled to understand myself with twelve books in front of me at the library in the Netherlands. The Directed Reading is a very useful oneon-one course composed of assigned readings according to your particular interests and meetings in which unclear sections are explained by the appropriate professor. During spring break I decided to see the south of the U.S. since I hope my future career will take me to New York, Washington and other cities often enough so that I do not need to travel so far to see them now. Me and about fifteen other international students and a few Americans rented cars and headed first to New Orleans, then to

Orange Beach and ended in Panama City in Florida for a nine days vacation. The experience was amazing. We started by celebrating St. Patrick’s Day on the streets of New Orleans and finished our evenings in jazz bars with live music. Panama City, our final destination, greeted us with a huge sign at the entrance stating “Welcome Spring Breakers !�. It seemed to me that at that point 99% of the population in the city were 1 9-24 year olds ready to have a good time. We spent our days on the beach and I got to swim in the ocean in March while it was still heavily snowing back home. Overall, I am looking forward to going back in less than one month from now, but I will never regret taking this opportunity. Whether I will go home and find a job or decide to pursue a PhD degree, this has been an excellent transition period in which I enriched my personality by understanding so many different cultures and points of view, made so many friends and filled in any gaps I felt I had in my knowledge. I am now ready for a new life!

Author:

Andreea Scarlat Economics Master Student


SCOPE | Economics Alumni Day

The SCOPE | Economics Alumni Day took place on Saturday, the 11 th of April. We were able to interview Carina Lange, Heiko Lampe and Felix Reiners about their experiences.

"Inbetween IT & business people"

Heiko Lampe, IT Specialist at Philips

Could you describe your job in a few words?

I am the intermediate between the finance department of Philips and the IT people that develop and maintain the tools used by the first. How did you find out what you wanted to do?

I always knew what role I wanted to have, I wanted to be an intermediate between Business and IT people, but I never knew that such a job actually existed. What do you like the most about your work?

I like the freedom I have to take decisions, in my style of working and the fact that I can help people. What are you not so happy about?

The bureaucracy and the tendency to constantly keep changing the Philips Baseline. What is your next goal?

I have found my dream job already. A next step would to be simply happy in my job in a stable and good environment. To what extent do grades and internships matter? How much sense does it make to do a Master or a PhD?

A good answer here is always: It depends. If solely talking about the IT, grades do not matter that much. Experience wise, it makes sense to do a Master to grow up and to find out what I want to do. I would say no to a PhD unless you want to work in academia or plan to do it later on in your career. Internships help you to understand where you want to go, to gain work experience and to find an employment later on. If I had to choose between a Master and internships, I would take the Master if I already know where I want to go. A last piece of advice?

Try to find something you like, you are passionate about and do not do it for the money.

"Creating Innovation"

Felix Reiners, Innovation Manager at Deutsche Bank

Could you describe your job in a few words?

People come to me with problems; I look for solutions and concepts and implement them. It is my job to make use of the full creative potential of employees. The hard part is to spot good ideas, select them and motivate people to hand in their ideas. How did you find out what you wanted to do?

After my Master, I did not know what I wanted to do, but I knew that I did not want to work at a bank. I came to Deutsche Bank more or less by accident... What do you like the most about your work? What are you not so happy about?

I have a lot of autonomy. It is a niche position which allows me to work creatively.

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I also like that we can afford the best developers and designers as a big company. Being a big company also implies bureaucracy and hierarchy which I do not like. My work in general has a high leverage. I can really change a lot, but it is a lot of administration work to get there. What is your next goal?

My dream is coming true right now. There is not much more left. The only thing left would be to become an entrepreneur. To what extent do grades and internships matter?

Internships are very, very important. Students need to get to know themselves. I would recommend taking a year off to gain some experience before doing your Master. That really pays out. Grades should not be too bad, but above a certain threshold, other things matter more. How much sense does it make to do a Master or a PhD?

A Master is good. The perfect way I think is: Bachelor, one year of internships and a Master. A last piece of advice?

Try avoid hating your job. Do internships to find out what you want and do not do it for the money. It is possible to do what you want and get a good salary for it. Know your value! Good people always find jobs. Be open and try out different things.

"Helping Clients succeed"

Carina Lange, Advisor Strategy & Economics at PwC

Could you describe your job in a few words?

In Strategy & Economics, I am dealing with a whole variety of projects, such as market and customer analysis, to generally help companies succeed in their local markets What do you like the most about your work?

The diversity of projects, the constant learning process, the different markets and people. What are you not so happy about?

In Consulting generally, you are often restricted by budgets in helping people, which can be very frustrating. What is your next goal?

I am still relatively new at PwC, so I want to find my own way within the organisation, where I can create most added value. To what extent do grades and internships matter?

For grades, it depends on what you want to do. From an economic consultancy background, grades in quantitative courses matter, but soft skills are also important. You should do internships to find out what you want to do and to develop as a person. How much sense does it make to do a Master or a PhD?

You should do a Master, but not necessarily a PhD after your studies. There are also opportunities later on. A last piece of advice?

The most important thing is that you do what you want to do, so that you are able to defend your choices.

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EconRound: Working Hours Initiative Reducing Working Hours for the Benefit of Society?

he German weekly newspaper "Die Zeit" recently published an article about a movement in favour of reducing general working hours – a discussion that has recently gained momentum in the public discourse. According to their proposal, a 30 hours working week (instead of the current 40 hours) shall guarantee full employment, which in turn would reduce government spending on unemployment benefits. Additionally, employees have the advantage of being less prone to “burn out” or other workrelated health issues and could, in effect, cope with a higher retirement age. A huge gain for society would emerge simply from the fact that people would have more time to spend with their families, to pursue voluntary work and hobbies and to be politically active. The claim to reduce working hours is not an invention of nowadays; in fact working hours have been reduced gradually over the last century until they roughly halved. Yet taking a look at data yields the impression that the speed of reduction has slowed down recently. Herein lies the basis for claiming that unemployment to the high extent we experience nowadays is simply a result of not adapting working hours accordingly. There have always been

public discussions about working hours. We want to consider the topic from a contemporary point of view using a sober economic approach. It is however inevitable to raise many questions that are of normative nature and closely related to the by now already well-known degrowth discussion. A more in depth analysis took place during the SCOPE | Economics EconRound last block whose results can be read in a paper published on the website.

Learning from the past

has hence risen during the last decades and is seen as a lasting problem that remains in spite of growth.

The past century has shown the mix between the two possible ways of dealing with increases in productivity: The reduction of working hours while keeping wage constant (i.e. hourly wage increases) or laying off workers while the remaining workers benefit from higher wages at the expense of the ones laid off (i.e. increase in unemployment). As a consequence, workers today work on average much less than their predecessors, say 40 years ago, while at the same time enjoying a much higher wage.

The simple reason for the reduction in working hours has been technological progress that enabled workers to be more productive. Output per worker has constantly increased ensuring growth and leading to tremendous advances in people’s living standards that we deem just normal nowadays. A side effect of enhanced productivity is that jobs do simply disappear since gains in productivity go mostly on account of machines that are Taking a closer look at the substituted for labour in labour market production. In addition, global competition creates its Henry Ford is renown in many winners and losers in the ways for his entrepreneurial His modern battle for jobs and growth success. wherein workers mostly had to management approaches and pay Europe’s tribute to his revolutionary production globalization. Unemployment methods (such as the

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assembly line) as a leading example for generations of entrepreneurs have shaped modern world large scale, low cost production. In addition, the broad availability of cars to people from lower income classes became a symbol of prosperity. One of his revolutionary steps was the successive reduction of working hours while at the same time doubling pay to his workers. In combination, this led to a more than two-fold rise in hourly wage. Employee turnover and days of absence due to illness came down to a level of almost non-existent from a cost-exploding high and Ford’s employees with a satisfactory income became prospective customers. In the discussion at hand, those who are in favour of a reduction in working hours point out that what we have learned from Henry Ford is that one can reconcile paying higher hourly wages with making higher profits. His move is today seen to be in line with what economists call efficiency wage theory. Ford paid a higher wage than the prevailing wage in the market to encourage his workers to put more effort into work. The productivity gains did even exceed the pay increment which, in effect, leads to lower per unit labour costs. That is how efficiency wage theory can explain unemployment, i.e. the resulting dis-equilibrium in the

labour market. Companies will be completely reversed seek to pay a higher wage when the labour market will be than the market clearing short of workers. This could wage, the so called efficient already occur as early as wage where company profits 2020. are maximized with maximized labour input How to improve individual well-being? efficiency. When analysing available data for our Approaching the whole topic comparison with Henry Ford’s by taking the perspective with brilliant move, one can regard to society and conclude that the situation individual well-being does not nowadays is entirely different. reveal an ideal solution. Yet, The labour market being considerations are worthwhile closely above the efficient if we understand economics wage, an increase in hourly as a study of how to generate well-being. wage through less working general hours at constant monthly In general, people face a wage does not seem to be an trade-off between money and appropriate measure these free time and how they weigh these two components days. According to our analysis, depends on their preferences wages would have to and their life circumstances. decrease for the sake of However, people should be expanding employment. willing to accept a working However, the simple fact of hour reduction conditioned on having more spare time shall a constant wage regardless of compensate for a lower wage their preferences or life and increase workers circumstance if it was to work motivation at work despite out for society. On the other enjoying a lower hand, self-fulfilment is of high wage. People importance for the majority of being prepared to people of western society and, accept this, with nowadays, individuals define state intervention themselves and strive for selfon the labour fulfilment mainly by pursuing their career and through market, equilibrium in the professional achievements. In labour market general, we can agree that a could be re-established. Put reduction in working hours differently, unemployment should not hinder people from could be eliminated. Beyond building a successful career; there are that, taking a look into the nevertheless future, one has to realise that professions where people demographic change will simply cannot work less due to probably soon mitigate the a scarcity of qualified workers effect of disappearing jobs on such as engineers or doctors. society since fewer and fewer What are the implications for workers will be in need of a innovation if people work less job. Eventually, the situation and have more time to think


and pursue their hobbies? History tells us that great technological advances were often a product of curiosity or a hobby and time to puzzle over an idea. Modern companies such as Google provide already an idea of the job of the future as they have their employees take one day per week for doing anything else but working on their regular job. In contrast, we can observe that today’s innovations are created under pressure to grow and short product life cycles ensure a constant stream of consumption of, let’s say “useless”, products – in the sense that they constitute a waste of resources. Quickly implemented, these do oftentimes entail hardly assessable consequences for society and our planet at its downside. Long-run orientation is more important as we have learned at least since the financial crisis. Taking a more normative perspective, one may question how work-life balance should be and whether further striving for higher standards of living and higher consumption will finally make us happy and increase our well-being. Certainly, there are occupational groups that earn such a low wage that they are only able to meet their basic needs, but there are other

higher income professions where people might work more than necessary in order to finance their “over consumption”. Will people actually use spare time in a meaningful way or will they just party more? How could people use their spare time to form a desirable

society? First, one can presume that even people who like “partying” a lot are subject to their budget constraints and as we know from Microeconomics 1 01 , there are diminishing marginal returns. It is therefore fairly likely that people will devote more time to socializing in communities and might even devote time to voluntary work. Moreover, people would have more time for their hobbies and to spend time on thinking about or reflecting on ideas which might consequently lead to new innovations that benefit society. Second, especially with respect to the demographic outlook that displays an ageing society due to lower birth rates and an increased longevity, people might have more time to care

for the elderly in our society. Consequently, the financing problem -caused by the fact that there will be more retirees that need to be supported and less people that finance the pension payments- might be partly solved through the working hours initiative. At least, the discussion shows that there are many issues that have to be taken into account when discussing a reduction of working hours and that the effects are difficult to foresee. There might be high costs associated with implementing such a policy or at least the effect is ambiguous. So, do these insights render the entire discussion superfluous? For the discipline of economic thinking, this should not mean declaring an end to such a discussion at this point. There might be benefits that outweigh the costs and one should take a closer look at different perspectives and pose normative questions about fairness and responsibility that have a high weight in a social market economy; clearly, a part of economic thought and hence worth discussing.

Authors:

Christian Kaufmann Second-Year Economics Student Fabian Wedding Master Student

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Blue, Boats & Beaches Exchange Semester in Hong Kong

actually never had considered spending my semester abroad in Asia. I felt uncomfortable with the Asian lifestyle and cultures and I could have never imagined how one could enjoy such crowded, dirty, strict, loud, hot places. Only notes of a professor and the stories of a friend working in Hong Kong were the reason for me to take a closer look at the possibilities there and to forget about Western World exchange classics. I developed a personal interest in Asian universities as they would not only offer academic excellence as lot of our partner schools do, but also a unique cultural component. I found chicken feet sounding more exotic than tbone steaks. As I had never been to Asia before and with all the prejudices still in my mind, I opted for Singapore or

Hong Kong. Those cities are the most Western cities of Asia, Singapore even more than Hong Kong. I finally applied to the Hong Kong University of Science and Technology, Asia’s best university (according to the QS Ranking). The best is just good enough. End of August I left for my new home, HKUST. I remember my overwhelming day of arrival

very well. Getting picked up at the airport by a local student who should become a friend later on; driving the bus through a city against which

NYC feels like a small town. My pants wet of sweat when the obligatory Minibus dropped us of at a campus I could only dream about. All academic buildings and student halls are built on a steep coast front. From most of the rooms you have sea view and my eyes saw nothing but blue, boats, beaches. Around the campus there is just quiet green. No vessels, skyscrapers or smog. This can be Hong Kong, too. One of my exchange friends described HKUST as the perfect holiday hotel. Food from 7 am until 2 am in several canteens. Indoor and outdoor swimming pool. Soccer, tennis and basketball fields. Pier for yachts. Supermarket. Doctor. And living together with all your friends.


UST – University of Stress and Tension is how the fulltime students call their home. Fortunately, I only found very limited evidence for that. I certainly learned a lot of new things but I mainly visited the library to socialize on the roof terrace. Stress in Hong Kong is rather self-produced than imposed by school. The local students are very ambitious. Whatever their study is, almost everyone wants to get a job in finance. This leads to a high level of competition among students in the finance classes. Students are committed to their study associations like crazy! Locals do not party much, so they

spend a lot of time for their association. Just imagine board members in suits of all study associations promoting their group every single day at the university. Hong Kong is a party place for sure. I did not like Mondays but you can go out every other night. Nightlife is shaped by the environment: Mainly western people go out. The people who pick a job in Hong Kong are usually no representatives of Neo-PostDubstepdisco underground sounds (no offence!). I accepted that, found out a bit about the local scene, and

enjoyed what I found very while enjoying seafood on the much. The people around me deck. I suggest everyone to made even the sometimes first get to know your stupid music to be associated exchange destination like your with great memories. Going home town. Only if you get out was not at all expensive. bored, head on. This will take 7-Eleven, the small a long time in Hong Kong. I supermarkets open also did some trips but my around the clock, are the best memories are all from student’s best friends. Hong Kong. Hong Kong in general is The exchange has ended now not expensive. As I lived almost a semester ago. You on campus I did not will not find it hard to see that I have to pay any am very glad about having abnormal rents and food chosen HKUST. If I could, I is very cheap. would go back just tomorrow, This city is so much about to a perfect place for the study food. Eating out in Hong Kong abroad. If you would like to was always fun, cheap and gain more insights on studying exciting. And mostly delicious! in Hong Kong, just send me I had planned to use the city an email! as a hub for a travels. Did I? Yes, but not much. And I am glad about it. I found Hong Kong so diverse, I saw no urgent need to travel through South East Asia. You could just charter a yacht to pick you up at Author: campus and let it Felix Holub take you to small Third-Year Economics Student island beaches

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Why the Government Should Not Pay for Your Higher Education

H

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A Comment on a Heated Debate

aving state financed higher education is great. You graduate from secondary school, get into a university. You fool around a bit because you are still young and do not feel like taking responsibility. Sometimes the studies seem too hard or you feel like you chose the wrong path and you might drop and start with something different. You are bound to find something that you are good at eventually, and by then you will be mature enough to settle down and graduate from a university. The government spends thousands of euros a year to educate one student at the university level. What does the student do with the money? He throws it down the drain. He misses classes that expensive high-qualified teachers are giving him and does not bother to study for the test that this teacher spends time on correcting. From an economic point of view, this is as far away from efficiency as can be. Education is a two-way game. The actions of the student and the university are perfect complements – there is a result only if both put the necessary input in producing the final good. The problem is that many students lack the incentive to

study. If your parents or the government are paying for the education, it is not a big deal if it does not work out, because it is hard to feel responsible for the results. Studying is just something you have to do to get a better job later on. However, if you have to take a loan to cover your tuition fees, the situation changes. You are spending your future money with every minute you spend sitting in the class. In this situation it does not make any

sense to not pay attention to what is going on your in studies, because you are paying a lot for it. Another benefit that arises from the student covering his own education is that you will take your time to think about your decision. Many people experience in the first few months that their studies do not really interest them. Consequently, they do not feel motivated and many eventually quit. If one was to pay for his own education, he would put a lot more effort in

figuring out what is it really that he wants to do and what he is good at. This person would maybe go and do some social service or work for a while thus giving something to society rather than taking from it. Education should never be a privilege just for rich people. Therefore, asking the students to pay very high tuition fees upfront is not a solution. A loan system that enables anyone to qualify for a study loan can be the answer. With low interest rates and monthly payments adjusted to the graduate’s salary, it can be just a reasonable price for the education rather than a burden. In the end, you are the one earning the big bucks, and it is only fair to pay the price for it. One might argue that cutting all the state funding for education would lead to a catastrophe with people leaving to study elsewhere and many people deciding not to study at all, and that is a valid point. However, a careful mix between mainly governmentfinanced education like in Europe and mainly student own-funded education like in the United States can bring about the right incentives for the students and prevent the


adverse consequences for the country. A country that has already started such a change is Great Britain. It increased the tuition fees threefold and introduced a very reasonable payback mechanism. This change was perceived very controversially and created massive student protests. Despite this, many people believe this is the way to a more sustainable higher education system and other European countries will have to follow it eventually. Higher tuition fees will undoubtedly decrease the number of students in a country. But is that necessarily a bad thing? If someone is afraid to take the study loan

because he is not sure whether he will be able to pay it back, is maybe not worth investing in in the first place because he will not be able to give back to society what was spent on him. Trying to make society more educated we have always tried to increase the percentage of people with a university degree. This can easily lead to an overproduction of graduates with low overall quality of education. It might as well be better to think about the quality more and focus on increasing it in each stage, from kindergarten to university, rather than just increase the number of students. In the end, of course it is nice

for you if you do not have to worry about education. When it is just there and all you have to do is take it. This is not, however, necessarily nice for the society as a whole. When thinking about such concepts, one must remember not to be selfish. And if the tuition fees in the Netherlands are increased tremendously or the study grant is taken away, one should take a moment to think about the society in general before going to protest in The Hague.

Author:

Kristine Dislere Second-Year Economics Student

Imprint Editorial Staff/Magazine Committee:

Contact:

Randi Wagener & Mira Nagy

SCOPE | Economics Room 1 .01 5 Tongersestraat 43 6211 LM Maastricht P.O. 61 6 6200 MD Maastricht www.scope-economics.nl info@scope-economics.nl

Copies: 400 Printer: Druckerei und Verlagsgruppe Mainz

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Special Thanks to: Kristine Dislere for providing images

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The Scoponomist  

In May 2012 the first issue of the Scoponomist has been published.

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